Marvin and Smith Coffee Shop

Netherlands is the best option for enlargement of Marvin ad Smith Coffee shop. By so many features and consideration, it is the best option of country the two could ever make. Some of these factors that would favor their business are closeness, high ethics, stability of the Dutch economy and low to moderate rates in transaction cost according to Haila. Starting of a new branch certainly has its own set of difficulties as well as advantages that the owner is likely to enjoy. While enlargement is a very desirable operation thanks to the advantages being greater than difficulties that come along, it is important to note that it is highly dictated by the financial ability of the business in question, demand for the products and services it offers in the market and proper research and planning to avoid inappropriate expansion that may end up leading to its failure. Among others financial consideration, liquidity and profitability of a business are key in expansion decisions (Smith 1973 p.50-55.

Business yields in Netherlands range from moderate to high. This assures the two of making good profit from their coffee shop if it is situated there just like other international businesses situated here already. The country is estimated to host over 8000 international businesses ranging from large, established global giants to small, fast growing businesses. Thanks to the high yields a business enjoys in this country, most of the international business give a thriving report. (Booth and Howarth 2012. p.50-55).

Netherlands has a strong economy. This is an indication that tax policies are not likely to change drastically even when the country has urgent public financial needs or on merit goods. It also implies an environment of better and adequate resources at the disposal of business. This gives any business confidence to operate from there. (Booth, 2012. p.50-55).

Netherlands provides a business environment with low to moderate transaction cost. This is partly what the success of a small business requires. According to a report of a research entitled ‘The role of Transaction cost to the business success of small and middle sized enterprise in Russia’, small and moderate business need an optimum transaction cost to operate in so as to register success. (Booth, 2012. p.50-55).

Logistical Considerations

Netherlands is fairly close to South London than many other potential options for Marvin and Smith. This is so since the two places are only separated by the North See (Clark and Wilson 1969, p.197-212). This translates into less transportation costs for any staff or inputs from the coffee shop in South Landon to the new one in the Netherlands. This implies a better flow of goods between the two shops. Netherlands has previously been ranked second worldwide in Logistic performance. The country not only has best logistic infrastructure but also has the top logistic providers across the continent. (Pethe, 2017). This will give the shop management an easy, efficient and effective control and storage of their inputs.

Ethical considerations

The Netherlands leads in Corporate Social Responsibility. The country has put in place internal measures to detect and deal with bribery. According to research done in the World Economic Forum entitled “Global Competitiveness” of the 2013-2014, most of the executives who were respondents did not view corruption as a problem in doing business in the country. In fact, the country has been ranked 8th position of the 176 countries in non-tolerance to corruption as per the results obtained by Transparency International in 2016 and 5th position in 2015. Clearly, unethical issues have remained low in the country a long period providing a conducive environment in doing business.

Structural Considerations

Locating the business in the Netherlands would simplify administrative activities such as communications between staff and the management, supervision and implementation of business policies. This is so because of the comparative less distance involved. (Pethe, 2017).This will also enable achieving uniformity in the two shops since structures and materials ca be easily be ferried across the two. The structure of management may also remain the same since the managerial staff can easily operate between the two shops due to the low communication charges involved as well as less fares.

Marketing

Issuing of coupons

Marvin and Smith could choose to offer coupons to their current regular and frequent customers at South London Coffee shop. The coupon, which is only applicable to the new coffee shop upon commencement of operations, should enable the holder to take a few free meals at the coffee shop. This will push them to look for the coffee shop upon visit to the area as well as inform their friends about it. The coupons could also be issued at the new premises to the customers who purchase coffee for the third time at the coffee shop. (Constantinides, 2002, p.57-76).

Choice of product and Service

Marvin and Smith’s business is expanding due to increase in demand for their special and pure Ugandan Coffee. This implies that their customers like the products, the African theme or the professional services they get if not combination of the three. Although it is wise to keep it that way, it is wiser to make the service even better and improve the cooking methods. The coffee shop may even add a new Ugandan dish in case it is missing out on some customers. (Constantinides, 2002, p.57-76).

Attractive pricing

The new coffee shop can market itself by offering affordable and reasonable prices that do no leave its customers broke but rather leaves them satisfied. However, the prices of drinks and meals should provide the business enough profit margins to support the operations of the coffee shop and enhance its sustainability. (Constantinides, 2002, p.57-76).

Suitable location

The business should be situated at a place frequented with people that would embrace the Eastern Africa culture, product and services as the business offers. This could be probably close to tourist attraction feature since the business has been found to attract mostly people who like tourism and adventure. The business must therefore try to tap this potential customers by locating near their favorite spots. These will not only make it convenient for the potential customers to drink or dine in the coffee shop but will also make it easy on Marvin and Smith to decide on suitable prices for the product since people on leisure activities such as tourism are more willing to spend . These people also tend to have a higher purchasing power. The Location should also enable easy reach by customers. This could be probably outside a game park or a social hall with good accessing path. It should also be convenient to transport the products from the Coffee shop at South London for consumption without delays. (Constantinides, 2002, p.57-76).

Sales promotions

Mark and Smith must make efforts to make the new coffee shop known to its potential customers. This may include posting advertisement on newspapers or a popular magazine. It may also be a brief clip on the television that reaches a good number of the potential customers or the product market. They may also opt to participate in trade fairs and exhibition where they get a chance to demonstrate to potential customers about the greatness of their coffee, African theme and services. The business may also decide to offer discounts to the first few customers. Additionally, Public relations may help too. A representative of the coffee shop should attend small community activities in order to create a good image of the business to the community. (Constantinides, 2002, p.57-76).

Implications of expansion

Expansion is the dream of almost any business established. Although it is a good indication of progress of business and comes with a potential to make greater profits and ability to enjoy economies of scale, it also comes with a lot of challenges.

Personnel and managing staff issues

The new shop will mean more managerial tasks for Smith and Mark. They have to recruit a bigger number of staff, train them ad assimilate them into the business. This I turn implies they will have to supervise a bigger number of staff. Supervising the personnel will now be more tedious due to the distant involved.

Issues affecting the personnel at the new shop that require the attention of the two will now be more difficult to handle. As opposed to where the management is at the same premises with workers all the management activities will be undertaken from a distance unless one has to travel. The staff at the new shop will now rely on such means of communication as telephone calls, emails and text messages from their boss to take instruction. While the above methods are so advanced, communications lack the personal touch ad may not be as effective as communication based on one on one. The cases that must be handled on the face to face basis if the new shop will now have to be delayed for some process.

The staff will definitely be less committed to working since some employees seem to remain focused when the boss is around. Some may start absenteeism as they are not directly monitored. This will grossly affect the performance of the new coffee shop. This may necessitate the employment of a new management team if the coffee shop has to beat challenges that come along with starting up. (Spekman and Davis 2004, P.414-433).

Supply chain

Since the success of any business is inextricably connected to the supply chain, the supply chain must be convenient, effective and affordable if the business has to succeed. Opening a branch in the Netherlands will definitely lengthen the supply chain and generally increase its costs. This is due to the extra transportation costs of the materials from the old coffee shop at south London to the Holland based new shop.

Additionally deliveries will now be more vulnerable to delays due to the challenges that come with transportation by road, Sea or the Ocean. The road suffers from heavy traffic while the sea and air may experience bad weather leading to suspension of a given flight. This implies that delays in delivery are likely to mar the supply chain. To survive these challenges, Marvin and Smith have to make good planning so that orders are made in consideration of possible delays.

As the supply chain is critical to any business, a lot of attention should be directed to it and avoid failures. According to a research report by Australian Securities and Investment Commissions entitled “Cooperate insolvencies”, 44% of businesses in Australia fail due to lack of good strategic management of such critical aspects as the supply chain. It is up to the two to make sure their supply chain is aptly managed. Regardless of what happens behind the scenes, customers want the services to be readily available when they ask for them. Marvin and Smith will be forced to order for more supplies from Uganda in the right amount so that a portion of it can be in turn be forwarded to the new branch. Due to the large distance involved, the two have to be careful at the early stages of the new business to avoid supplying excessive products since excess inventory holds up capital while the inadequate will lead to inconvenience to the customers in terms of delays and absence of services upon demand. (Spekman and Davis 2004, p.414-433).

Impacts of Profitability and Liquidity on available Decisions

The financial situations of any sound business influences the decisions the business can make especially in regard to expansion. If decisions of the business disregard the current financial position, it may experience shortages due to excessive spending on certain aspects of the business and then lack funds to perform others. More importantly, decision in the startup branch must be based on financial analysis of the original business (Duhaime and Grant 1984, p.301-318).

Liquidity is the ability of a business to pay off short term liabilities and still have enough to do business. Current ratio, which is one of the indicators of liquidity is obtained by the following formula:

Current ratio = Current assets/ Short term liabilities

For the coffee shop: Current ratio = 35400/6200 =177/31= 5.709

The current ratio is quite impressive. The high current ratio indicates that the business is able to clear its short term liabilities and remain with enough money to run the business. This shows that the business has the ability to open another branch hence justifying the decision by Marvin and Smith to open one. Looking at their net profit for the period that ended 31st December 2016 that amounted to £26,800, the business cannot be strained by starting another business in Netherlands with approximate costs as follows

Marvin and Smith shop has a good profitability that will be able to support the new business if it is located in the Holland in the event that it makes loss for its first few months of operation. Since the products and services offered by the business are desirable as indicated by the huge margins of profits the new coffee shop to be established has prospects of making good profits too. Even if it may take some time for it to peak, the goal will finally be realized. The business has options to hire workers from the Netherlands or transport their own from South London. Either way, the partnership belonging to Smith and Marvin will comfortably finance its workforce which is a major requirement for the new shop. It will be able to pay accommodation charges as well as transportation charges probably on a monthly basis. The business will be able to pay for adverting costs and other financial requirements such as salaries although this may require them to fetch deep into their pockets and even take a good portion of their savings.

Due to the good profitability and impressive liquidity indicators as per its statements of accounts, the partnership has got an option to take a loan from financial institution in case the business uses up funds more than it would be expected. As per the requirements by many banks, the business has progressive statement of accounts as well as a good purpose for borrowing- expansion. This can easily earn them a loan of even more than £2000

Conclusion

In summary, expansion of Smith and Marvin’s coffee shop into the Netherlands is fairly viable. As per the analysis above, the business can finance its expansion activities into the Netherlands at its present financial strength. Netherlands has been found to be conveniently located for this expansion purpose. Additionally, it will provide a conducive environment for the business to thrive owing to its strong economy, adequate resources as well as convenient business administration procedures like registration which are also reasonably affordable. The expansion of Marvin and Smith coffee shop into Netherlands will have several negative implications on the personnel and staff management due to the need to have more personnel to work at the two shops and increase management efforts to monitor and supervise them. Dealing with staff issues at the other shop will be more difficult and will take time and may also necessitate travelling of one of the partners to attend to them. The supply chain will also be affected as the distance for imports from Uganda increase to the Netherlands. This will come along with increase in costs, possible delays or even spoilage of the raw products. However, the business has good prospects of thriving and making good profits at the new branch. This makes the opportunity worth the risk for investment.

References

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Spekman, R.E. and Davis, E.W., 2004. Risky business: expanding the discussion on risk and the extended enterprise. International Journal of Physical Distribution & Logistics Management, 34(5), p.414-433.

Duhaime, I.M. and Grant, J.H., 1984. Factors influencing divestment decision‐making: Evidence from a field study. Strategic Management Journal, 5(4), p.301-318.