China New Future

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In this report, I analyze the every part of my company named China New Future; the task is to operate a business with the aim of growing the business at greater than 34% per annum over the operating period of the simulation. Unfortunately, I do not finish the aim.

So, in this report, I will analyze the reason why I do not reach this aim. How can I reach this aim next time, the analysis is divided into seven parts:

* Strategy, in this part, I analyze the problem arisen from the strategy setting and different strategy for different customers.

* Marketing mix model, I use the 4Ps to analyze the threats faced by the company, why I do not take account of these threats.

* Sales, through the sales analysis, I know how to face the sales problem.

* Research and development, R&D is very important for the people to handle the product.

* Marketing, Marketing is much more important, no good marketing, no good profit.

* Production, this is main reason why I fail the game, so I make a detailed analysis for this part.

* Finance, I do not use this tool effectively, I list the use of tool.

Through above evaluation, I know the successful entrepreneur is very difficult, in Appendix, I use the tool to self-evaluate myself as a potential entrepreneur. And the financial report is also included in Appendix.

1. Introduction

In Capsim Game, I am in charge of an electronic sensor manufacturing company named China New Future. Unfortunately, I did not bring the company to the good situation. In this report, I will analyze the reason why the game is failed through the theory and practice.

2. Company Analysis

In the game, the problem faced by me is to have to improve and expand your product offering while increasing productivity. In order to pull it off, my management team must make the marketing strategy.

2.1 Strategy

A successful marketing strategy is to know what needs by the customers. It is important to satisfy your customers’ needs. However, the customer needs and the business environment are always changed year by year. A successful marketing strategy will also help the company to evaluate how successful the company meets the customers’ needs and competitors’ threats (Sandhusen 2000).

When I operate the Capsim, the first thing I think is the marketing strategy for my company. It needs to consider what changes will take place and what opportunities and threats I will face.

An entrepreneurial personality assessment and the opportunity evaluation are necessary. The assessment is included in the appendix. The creativity, entrepreneurial, imagination, thinking and conceptualizing, creative philosophy and flexible attitude, each part is on average. So, I need to follow the key successful elements to develop the strategy.

2.1.1 Key Elements of a Successful Marketing Strategy

The most important element is that you need to understand who the customers are and what they are looking for. ‘Customer groups or segments can be identified and each targeted with marketing activity that specifically addresses their particular needs’ (business link). It is important to identify and respond to any changes in customer changes in customer needs. When to develop the marketing strategy, it is very important to assess your business environment.

In the Capsim, Customers are divided into different market segments. Because the company is the electronic sensor company, these segments can be classified five parts:

* Traditional customers want tried and true technology of moderate size and performance.

* Low End customers want low prices and are willing to sacrifice miniaturization and performance.

* High End customers want products that are fast performing and small in size. They are willing to pay high prices.

* Performance customers want performance and are willing to sacrifice miniaturization.

* Size customers want small products and are willing to sacrifice performance.

(Capsim introduction text)

Focusing on the different customer segment, I should make different strategy for each segment. For traditional customer, I should develop much more moderate size and performance products, appropriate price and size is very important to traditional customers. In Capsim game, I give the customer a cheaper price than last time to attract plenty of new customers. The result is making the profit from round 1 to round 8. The high end customer is looking for quality first and they can pay high price. The company should pay more attention to improve the quality. The low end customer is looking for price, they aim at the price, cheap price is very important for the low end customer.

Why is the game failed, I followed the game tips to do, but I did not take account of the strengths and weakness faced by the company. In round 1, I make less profit, so I feel the strategy is right, in other rounds, I also follow these strategies to play the game. In round 2 and round 6, I make too much loss, but I still do not change the strategy for these customers.

2.1.2 Strengths and Weaknesses

In Capsim game, the mistake I make is that I did not take account of how my company’s strengths and weaknesses affect my marketing in each round. I did not do a rigorous SWOT analysis for my company’s strengths, weaknesses, opportunities and threats. Now, I will analyze the SWOT faced by the company (Timmons & Spinelli 2007).

Strengths could include:

* Five segment customers

* Stable customer’s resources

* The quality of products and workforce

Weaknesses could include:

* ineffective financial control

* Lack of a company image

* Accounting system is inefficient

Opportunities could include:

* New technologies that allow you to improve product quality

* Increase the five segments’ stable customers

Threats could include:

* the Threats of competitors

* more cheap product from the competitors (Farr-Wharton 2007)

If I have done the analysis, I can measure the potential effects each element may affect my marketing strategy. If a new technology comes out, it will increase the competing cost in this industry, I need to look for other opportunities for the company, maybe I need to make a new product to develop the a new market (Bygrave & Hofer 1991).

The correct way is when I know the business’ SWOT; I need to develop a new strategy that plays to match the company’s situation when the last round advanced. After each round, Make the SWOT analysis, I can identify the weaknesses and try to minimize them. I should make a detailed marketing plan for the company at the beginning to control the whole process.

2.2 Marketing Mix model

The marketing mix (also known as the 4P’s) is broadly accepted as to describe the marketing strategic position of a product in the marketplace (Wikipedia). McCarthy (1960) proposed the popular four-P classification to the marketing mix including four elements: Product, Place, Price and Promotion. This tool is used by marketers as a tool to assist in implementing the marketing strategy. First, I will use the marketing mix model to analyze the Capsim game through its four elements.

2.2.1 Product

A product includes physical product and services product (Sandhusen 2000). Broadly, when a customer buys a product, the customer will make a post-sales relationship with the company which includes customer service and warranty.

In Capsim game, Product is primarily controlled by Research & Development, which updates existing products and invents new ones. the company faced by other competitors, through the playing, I adopt the low price of product, every round I make price lower than last time, because I think if the competitors’ product supplies the same benefits, same quality, how to attract the customer? So, I decide to improve the quality of product and reduce the price. Meantime, I also have to differentiate the product’s design, features and warranties and so on. Through the result, I find this is wrong, because this method did not give me nice return.

2.2.2 Place

Place indicate the location where the customer can purchased. This location can be physical store as well as virtual store for example Internet (Smyth 2000). In Capsim, although I just play the game through data, it cannot reflect place, but good place is a marketing tool to sell electronic sensors.

2.2.3 Price

Price means the amount paid for the product. Price strategy is important for CEO in decision making (Evans & Berman 1982). The company’s product is sold at the lowest price regarding all the companies’ competitors. Due to the wrong price strategy, it leads to loss in the process. At the last two rounds, the prices I made are lower than the costs. So, I need to sell the inventory to cover the loss of cash. To avoid making same mistake in the future, I have to take account of the break even ratio to avoid the same situation. In third round, the high end segment customer I make higher price, the more the company sells. It indicates good price also attracts much more customers. I need to charge appropriately for the high-end, high-quality product the company offer. Therefore, we ensure we deliver and charge for the product.

2.2.4 Promotion

‘Promotion represents all of the communications that a marketer may insert into the marketplace’ (Freeworlddacademy). In Capsim game, this can include print advertising, as well as direct mail, billboards, and online advertising. In traditional segment, I make too much print advertising to this part, so as to attract too many traditional customers. Totally, the budget in promotion is less than other aspects, so the company does not have good promotion affect in marketplace. In new marketing plan, one of promotion method is the human sales force, for example, sales assistant, and promoters.

2.3 Sales

The company needs to sell the product, so the sales budget and forecast are very important (Carter & Jones-Evans 2000). The aim of growing your business is greater than 34% per annum over the operating period of the simulation of a notional 8 rounds.

‘Sales budget is the operating plan for a period expressed in terms of sales volume and selling prices for each class of product or service’ (answers).

In Capsim, sales budget I do through the 8 rounds is too much. This is a mistake to me. However, a sales forecast is a prediction based on past sales performance and an analysis of expected market conditions.

‘The true value in making a forecast is that it forces us to look at the future objectively. The company that takes note of the past stays aware of the present and precisely analyzes that information to see into the future’ (va-interactive).

In Capsim, I always make higher sales forecast, because I made lower price of the products, so I evaluate the capacity of product is high. This is a big mistake for me, It is not good to control the sales forecast.

2.4 Research & Development

‘Research & Development must ensure products meet changing customer demands by revising the line to keep up with segment drift’. R&D decisions control four product attributes: Size, Performance, Reliability and Age. To keep up with the segment drift, products must be made smaller and their performance higher (Capsim introduction text). Customers in each segment expect different levels of reliability. Reliability is expressed as Mean Time between Failure, and MTBF. MTBF predicts the number of hours a product will work before it fails.

Maybe I need to introduce a new High End product every two years. Through 8 rounds, I do not introduce a new high end product to the market, just run that five product. At 7th round, I decided not to produce the high end product to decrease loss. Obviously, I make a mistake about how to handle the company’s research and development.

2.5 Marketing

While I decided the strategy and the R&D, the Marketing department should control:Price, Promotion and Place. In general, the higher the technology, the higher the price.

Different segment customer has its own needs. For example, The Low End expects a lower price range than High. Marketing is also responsible for Sales Forecasts. The company focuses on local markets; I think the company needs to pay high attention on the high-end customers.

2.5.1 Market Segmentation

Different segment customer has its own needs. In my simulation, I focus on traditional segment. The company needs the high-quality information technology management.

In Capsim, Defining the high-end segment customer is even more difficult. I generally know the characteristics of the high-end customers, but I can’t exactly find the appropriate way to fit the needs of customer.

2.5.2 Market Needs

Since the company’s market is the traditional market, the needs of this market needs are support and good quality. One of the key points of the company strategy is the focus on each segment and knows the needs from the customers and satisfies the needs. All segments’ customers need support and service. The self reliant ones, however, supply those needs themselves (Chong 2007).

2.5.3 Market Growth

As prices fall, unit sales increase. The growth of this industry is not obvious. I plan to use direct mail form web, these are still powerful, this way to make a lot of profit in round3, and so, I feel good way of promotion can bring nice profit to advance the market growth (Doyle, Hardie and Colley 2002).

2.5.4 Main Competitors

China New Future face two many competitors, they all make a nice result after 8 rounds, While the strategy works, I will have differentiated the customer sufficiently so as to let us compete in the market (Johnson and Scholes 2002).

The strengths and weaknesses of my company:

Strengths: high volume, aggressive pricing, economies of scale, Stable customer.

Weaknesses: lack of product, service and support knowledge, lack of account control

Other competitors:

They are both competing against using the lower prices, but they all do not make nice profit. When we want to know, the CEO complained that margins profit is squeezed by the chains and customers buy on price only.

We tried offering good quality product but customers didn’t care, instead preferring lower prices. I think the problem in the game is also that I didn’t really differentiate the customer to give a different product.

2.6 Production

‘The production department’s manufacturing schedules are extremely important. If schedules are too low, not enough products are produced and the company will miss sales opportunities. If schedules are too high, inventory will build as excess products go unsold’ (Capsim Introduction text).

As a CEO of my company, I must control the production department in accordance with the marketing department; make sure matching schedules to forecast. Schedules should adjust for inventory.

In the process, I do not pay more attention to this problem; I always add inventory to increase the inventory cost. Meantime, I gave the production department the much more products to be available for sale. The workforce is working overtime, so I need to pay much more salary. I need people to manufacture the products, it cause more labor cost of each unit.

Another problem is that I omit the shift, when I use to employers to work. I don’t increasing 1st shift capacity for the company’s production lines. If I do like this, I can reduce 2nd shift labor costs, so as to reduce expensive investment.

Meantime, I do not improve the automation on a line; it is a good alternative to 1st Shift capacity increases. The additional point of automation can reduce the labor cost by 10%, but in process I increase the point of automation, it makes a high cost.

Further, when I increase the automation for a product, R&D projects need longer time to complete. This is because highly automated lines have many more processes to re-engineer so as to much product I can not produce in time.

Increases in capacity and changes in automation require one year implementing: Buy it this year, use it next year. The production department can also sell some or all of a product line’s plant capacity. Capacity is sold at 65% of the purchase price. The money is immediately available. This very generous scrap-rate means teams are not penalized for closing down a line to reconfigure the company (Chong 2007).

In round 6, I discontinued the selling a kind of product, I hope it can recover the loss through the Selling out the inventory. When products are discontinued, any remaining inventory is sold to scrappers at 50% of the cost of production. This is against to the high end strategy; furthermore, I do not let the production department make new products through the purchasing capacity and automation to attract high end customers (Lynch 2003).

2.7 Finance

The most important tool to analyze the Capsim is financial tools. At first, It is the critical for improving cash flow in the early plan, I must be careful the inventory turnover then I will develop better inventory management to bring the turnover back up to 3 turns by the two years.

In Capsim game, I plan to bring the gross margin to 20%. This is related to improving the mix between resources and sales revenue, in many rounds, I borrowed the long term debt, I hope I can use the debt money to generate much more profit.

In actual process, when I make decision, I do not follow the finance department, I do not take account of the Production, Marketing and R&D expenditures. Once R&D, Marketing and Production decisions are completed, I need to take care of the financial statement of the company.

The Cash Position with last year’s date is the same as the beginning Cash Position for the current round. The Cash Position as of Dec. 31 of the current round shows the projected position at the end of this year. In the game, I always issue the stock and borrow to cover cash shortfall and pay much more interest to reduce the retained profit. In this part, I will analyze the financial factor to affect the game.

2.7.1 Debt

I allow the Finance department to borrow Current Debt to cover the poor cash position, Current Debt interest rates change from year to year. Interest rates increase as debt loads get bigger to reduce the profit (Capsim introduction text).

I also issue stock. I let the finance department retire stock and issue a dividend. I hope the shareholders are interested on the company to improve the investment. This is the easy way to get money to cover the cash shortfalls. When our cash position allows, I began to establish a dividend policy and begin to retire stock.

I also issue long-term debt with 10-year bonds. Bond interest rates are 1.5% higher however; this way can not save the company. In process, I always to sell the capacity to make cash to cover the loss, It reduce the capacity year by year. At last, I know it is a stupid way.

2.7.2 Accounts Payable and Receivable

Accounts Receivable affects product demand; I allowing customers more credit term to pay debt to attract too much customer, but this improve product appeal but cause the cash position is always bad.

Accounts Payable has different ramifications. The Accounts Payable policy affects the Production Department. I take longer to pay the suppliers fees to create material shortfalls and slow delivery (ACCA 2007).

2.7.3 Profit and Loss Account

The most important one in the Profit and Loss statement is the gross margin, which is supposed to increase. In 8 rounds I do not make a nice gross margin. The increase in gross margin is based on changing the company’s sales mix, and it is critical to tale account of profit and loss account month by month. The profit and loss statements from round1 to 8 are included in Appendix.

2.7.4 Cash Flow statement

The cash flow depends on inventory turnover, payment days, and accounts receivable management (Gilman 1969). I use the 30 days or 40 days collection days is not ideal in the market. I t is hard for me to effectively change. The cash flow statements from round1 to 8 are included in Appendix.

2.7.5 Balance Sheet

Balance sheet is very important, through the balance sheet; I can get the information about the company. The balance sheets from round1 to 8 are included in Appendix.

2.7.6 Business Ratios

In the process of game, I do not take care of ratios. Now, I know the ration is very important for decision making. The gross margin, collection days, and inventory turnover reflect the whole company’s financial position. I expect to keep debt/equity between 2.0 and 3.0, and nice ROE, and ROS figure, but I do not complete it at a nice result (Elliot and Elliot 2007).

3. Conclusions

In this report, I analyze the reasons why I did not make profit for an electronic senor company. The analysis divided seven parts: strategy, marketing, sales, marketing strategy mix model, research & development, production and finance. I hope I can make a detailed report to reflect the reason of fail. At last round, I make a $6,905,000 loss not to complete the target. Through the research and compare with the competitors, I find so many shortfalls in process of game, so as to let me study more about how to operate a business.

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