Exercise 1 For Market Analysis

GOLD GALORE SDN BHD: TO EXPAND OR NOT TO EXPAND

Gold Galore Sdn Bhd is a hundred percent (100%) Bumiputera holding company. It was incorporated in Malaysia on 26 November 1994 with the company number 324 766-K, as determined pursuant to Section 16 (A) of the Companies Act 1965.

Gold Galore Sdn Bhd was incorporated to do business and trade on gemstone, gold, silver and other precious and valuable items.

Gold Galore Sdn Bhd was founded by a couple Hajjah Maimunah Mustafa and Haji Mohd Asnawi bin Mohd Ariffin.On January 2005, they rent their first space and opened a shop in city point Alor Setar, the most famous shopping mall in Alor Setar during that time. Since then, they renovated the shop and started selling gold related products. While venturing this new place as their first shop, they also provide services for wedding ceremony packages around Alor Setar.

With entrepreneurial spirit and values of this couple, they have managed to improve the company's performance and thus making it a company with a competitive advantage and have a strong business holding. Thus, although the area still fledgling compared to other Bumiputera gold shop around Alor Setar town which are already established such as Kedai Emas Hajjah Rodziah, Kedai Emas Normawarni and Kedai Emas Salmah, Gold Galore Sdn Bhd been able to compete in this challenging business succesfully.

From 1991 till 2013, they managed to open another 3 gold shops in North Kedah which are located at Jitra, Langkawi and Pendang. Each of these branches has its own management team led by the couples' children.Hajjah Maimunah Mustafa and Haji Mohd Asnawi bin Mohd Ariffin used their own money as capital for branches in Jitra and Langkawi. The other branches in Pendang is funded by PUNB under Prosper scheme.

Thanks to the care and insight into this pair, Gold Galore Sdn Bhd now led by the children of the couple, Mrs. Yasneen Deanna, Mr. Yusri Danial and Mrs. Yasmeen Damia. Although led by their children, the couple's founders continue to provide advice and guidance in the course of business. For the honorary, the current management of Gold Galore Sdn Bhd shall perpetuate Hajjah Maimunah as the company advisor.

The combination between the experience of the first generation entrepreneurs with ideas and spirit of the second generation has further strengthened this business in order to survive to this day in spite of the country and the whole world is experiencing a steep economic downturn around 1997 to 1999.

Similarly, the economic situation is volatile in 2001 due to the events of 11 September 2001 did not give an adverse effect on the business Gold Galore Sdn Bhd as management efficiency and financial stability.

Up to now Gold Galore Sdn Bhd has managed to have as much as 4 branches throughout northern Kedah and the latest in which it is expected to open in late 2016 at the Village Mall, Sungai Petani Kedah and another in Changloon, Kedah in the middle of the year 2017.

Opening several new branches will add to the Gold Galore Sdn Bhd mastery in the jewelry business in this northern area.

Similarly, the uncertain economic situation in 2001 as a result of the events of 11 September 2001 and the downturn in 2008/2009 also provides no adverse effect on the business Gold Galore Sdn Bhd as management efficiency and financial stability.

The company is currently in the process of developing and making Gold Galore as a franchisor company where it received strong support from all government bodies involved.

THE NEEDS FOR THE COMPANY EXPANSION

In order to achieve our dream to be among the leading companies in the jewelry business, the management needed funds to be distributed to a particular design as mention below.

Financing division

Enhance the Operations and design newimage of the outlet

Improving the operation and design new image of all branches of the company will make modifications to four existing branches to be set design so that it has a concept of its own image.

Launching three new branches

The management will add three new branches, one each in Kuala Nerang, Kulim and Parit Buntar. The purpose of creating these three new branches is to maximize the sales and profitability, as well as an initial step to develop them to further South Peninsular Malaysia. From their experience and observations, launching a new branch in small town is better due to the convenience of monitoring both the sales and staffs.

Complement existing carpentry workshop equipment

Currently, the company only has a mini-workshop which only has the basic tools to make reservations gemstone compact, repair, cut and wash gold items on a small scale. Initially the company intends to buy woodworking equipment and make gold in a modest scale to meet the needs of the branch and also buying a machine to make gold bars. When the company's position goes as planned, the company will establish a plant as described previously.

Construction of computing systems

The company will also build a more systematic and organized management accounting system for the purpose of stock management, accounting and monitoring purposes for the smooth running of the company. Each branch will be installed with this computerized system and can be monitored from headquarters via the internet.

Increase in stocks of finished goods

At this time all jewelry purchased will be resold to buyers at current market prices. If the goods or certain patents have expired, the company has to book and wait for some period of time and is very detrimental.

The company's current financial position does not allow the company to keep more stocks and open new branch at the time. Given enough cash it can add to and diversify the company's stock because the demand is constantly increasing. Stocks are fully equipped and will be sufficient to attract more customers to come and have more choices to buy jewelry. In addition, the relatively strong financial position and stable, companies can 'demand' with suppliers of goods and gold.

Purchase of gold bullion stock

Buying gold bars as stock is of the option for Gold Galore to increase their capability to compete with other gold shops. Numbers of gold bar kept represent the strength of the company in term of their liquidity options. The more reserve of gold bar kept, the financial position of the company is stronger. These gold bars also can be swap with variety of high end jewelry finished products which are easier to sell.

ISSUE

On one fine day mid November 2015, while shopping in Jakel Sungai Petani, Hajjah Maimunah noticed that Sungai Petani has a significant potential market to expand the family business. There're huge crowd of Malay female customers visiting Jakel and other textile shops around there. She thought there would be a huge market for Gold Galore too if they open a branch there. A couple weeks later, she found an empty shop lot nearby and wanted to rent the premise for the business. She was very eager to expand their business and believe that Sungai Petani is the right place and hope they can share the market in for jewelry and gold related products. Even though she realizes that the company financial condition is not stable at this moment for new branch, she believes they can make more profit and increase the company sales through this new branch. Then, she met the shop owner, Haji Kassim Daging and pay for the deposit, a couple days after that.

New opportunity in new market

Hajjah Maimunah believes this new branch will open them new opportunity to be in gold trade industry. The increase of income per month, assorted occupations and modern life style of the population is one of the best sign of good market in Sungai Petani. There are variety of professions, good income people, luxury housing estates, lots of factory, schools and offices, hospitals and shopping malls in Sungai Petani enable the people to spend more on luxury products.

Level of thinking

Nowadays there is a group people like to invest in gold. The transferable liquidity is fast and people can get fast money when pawn their gold or resell it. Hence, Hajjah Maimunah thought this is to be the right time to expand their business as the sales are going bigger. The awareness of customer on the significant of saving the gold will help to boost the sales. As Sungai Petani is always developed, she thinks it would be a big loss if they do not enter the market. The unstable ringgit also will be a condition why customer has to choose gold as another option of investment.

New market

Sungai Petani will be a new market for Gold Galore. Sungai Petani is the second-largest city in Kedah after Alor Setar. Sungai Petani became an industrialised city in 1990 with Japanese factories and foreign companies during its first establishment. Sungai Petani with multiracial and multicultural community makes the town so unique in term of food, culture, religious building and mixed community. On 2012, total population in Sungai Petani is 874.900 people and the numbers are increasing. Malays represent 40% of the population and considered huge market for gold trade. Newly developed housing estates such as Bandar Puteri Jaya, Bandar Amanjaya, Bandar Merbok, and Bukit Banyan as the latest residence park contribute more market and buying power. There are also feeder towns surrounding Sungai Petani such as SungaiLalang, Merbok , Semeling, Gurun, Tikam Batu, Sungai Layar, Tanjong Dawai, Kuala Ketil and Durian Tunggal that will make the market even bigger.

Building name

Hajjah Maimunah believes name and branding are the most vital in business. Customer happiness and satisfaction will turn them back to the shop for next shopping. Gold Galore has to maintain their good reputation on selling gold and make sure that they are always on top. Strong name on market is the best strength in building rapport with the customers. By opening new branch in Sungai Petani, Hajjah Maimunah hopes she can introduce Gold Galore brand on new market and create new opportunity for new customers to shop at Gold Galore.

The clash

As the current CEO of the company, Yasneen Deanna is not happy with her mother proposal to open a new branch is Sungai Petani because of their company current financial condition, economic downturn and the current rate of gold price. She thinks they should add more gold stocks at their main shop at City Point and other branches as well instead of launching a new branch which require huge capital for the operational cost. Absenteeism and fraud among staffs were the main contributing factors, too. Yasneen Deanna worries that they do not have capabilities to monitor this new branch as it is located a bit far from their main shop.

In additional, the price of gold per gram is more expensive nowadays turning off the buying power. The size of gold product is getting smaller due to decrease of money value. The unsupported local economic situation makes the buying trend worse. Consumers are likely spending more on the most needed products in their life other than spend on luxury goods. Cost of living is rising up and consumers need to be wise in selecting what is more important for the family. The price of rubber and other commodities also are declining and uncertain.

Yasneen Deanna coherent the management of Gold Galore should only preserve on their existing business. Opening a new branch won't help them to boost the sales due to current market and economic condition. The uncertain market condition and huge competition will not give them an advantage to share the market in Sungai Petani.Moreover, the depreciation of ringgit also perhaps would not help in term of quantity of gold. Since there is no trusted party to manage the business, Yasneen Deanna has the right to fight for her stand as CEO of the company. Managing 4 branches of gold shop is not an easy job. She has to monitor the staffs movement and schedules, motivate the sales, deal with the suppliers, arrange payment to the banks, checking the accounts and managing her own family.

Yasneen Deanna is unhappy with her mother's decision for the new branch proposal. She knows that when Gold Galore has new branch, she has to bear more burdens in term of operational and management and the return of profit is not equivalent. She aware that the new branch will require more capital on investment for gold stock and sterling, shop rental, renovation, accessories, new staff recruitments, transportation, lodging and miscellaneous things.

Yasneen Deanna prefers to maintain the three existing branches only because the load is already huge for her. She doesn't agree with her mother decision and voiced it the meeting on January 2016. She listed the conditions to support her stand to object her mother proposal.

Competition

In gold shop business, competition is one of the big challenges for Yasneen Deanna. At this moment, there are about 11 more Malay gold shops in Sungai Petani and expected many more also on operation as small scale pawn shop around. There are also 4 big Chinese gold shops and many more small Chinese gold shops scattered in the centre of the town and outskirts area. Each shop has their own strategy and has their own special product for their regular customer yet new customer.Building a name and create good rapport with customer is a key to be together in the market. Yasneen Deanna aware, to be a new kid in town, they have to compete with all these well known players. She doubts about the customer reaction to Gold Galore and does not confident to compete in the short run.

Loan and liabilities

Opening a new branch will require lot of money and efforts. This big sum of capital will come from a funder which meant that they have to apply for a new scheme of loan. At current situation, their two shop in Pendang and Langkawi are funded by prosper PUNB. Applying for new loan will increase company debt and liability. Yasneen Deanna does not prefer this type of action and has mission to reduce the company debt, which she believes can increase their monthly profit.

Insurance coverage

Operating a gold shop is a hazardous activity, hence there is only two insurance company willing to take the risk with tremendously higher premium rate. They assign 11% rate of good covered and Yasneen Deanna feels this will increase the operational costs.

Location

Sungai Petani is bigger than Alor Setar in term of population and logistic. Sungai Petani has more population compared to Alor Setar but the percentage of Malay population is not as big as in Alor Setar. In Sungai Petani, Malays is not the majority in the town area. There are more Chinese and Chinese traditionally will buy gold from the Chinese trader and rarely seen in Malay shop. Since there already numbers of Malay gold shop in Sungai Petani such as Hajjah Sopiah Jewelary,Kedai Emas Ridzuan, Kedai Emas Pantai Timur, Normawarni and Kedai Emas Latipah, the market is getting smaller and narrow. There are already four kedai emas Pantai Timur at few locations in Sungai Petani make them famous and rigid. Yasneen Deanna afraids that Sungai Petani is not their best new place to open new branch because the location is not conducive for Malay people that come from rural area because the bus station and local transports are hardly available to the place.

Operating Expenses

Open a new shop will require lot of money to fund the rental, renovation, showcase, safety box, security system, bullet proof mirror and alarm system. Miscellaneous items like closet, tray, display items, grill, measurement equipments and other accessories also are not cheap. They also have liability to settle every month for rental, electricity, water and insurance. If the sales are not good as expected, all these expenses can reduce their existing company profit and bear more liabilities.

Promotion

Running a business in new place will need excessive promotion activities. A huge promotion plan will need such big amount of money too. Spending too much on unknown return activities is a waste for Yasneen Deanna. She prefers to buy more gold stock instead of invest for the new branch. Promotion activities such as buying slots on Radio Kedah FM, giving discount on certain products, provide gifts for big amount sales and printing banners and bunting require a lot of money.

Recruitments

New branch will need new headcount for the new lining up team. Branch manager, salesgirls, runner and security are compulsory.This new team also need a lot money for the wages and allowances. The management also have to complete their need for staff lodging. Allocation for security party also is expensive. Training and recruiting new line up staffs is not easy and need patience. Sincerity and honesty are very needed in this type of business. Absenteeism, fraud and commitment area always be the issue among management and the staff.

Market trending

Before opening this new branch, the management has to determine variances of market trending in Sungai Petani. Customers' taste are not same, some customers like rantai pari and some like batu sauh licin with bell, some like rantai tangan cina and some like rantai tangan sauh kapal. For the market, the management and branch manager have to determine the right products to offer. Selection of product is very costly and need longer timeframe to penetrate the right customer section with the right product.

Security

In running a gold shop, security is the most important factor to consider. Location of the shop, attraction nearby, numbers of people, accessibility from the main road, distant to police station, road condition and visibility are always on the list of the operator. Robbery and snatch theft are high risk activities related to gold shop operation.

Hence, Yasneen Deanna is likely to preserve the existing branch and add more stock for sale to each branch. At this situation on making decision, she has to be wise and strong to determine the future of the company accomplishment but at the same time not to put aside the respects to her mother

QUESTION 1: Write the introduction from the case study above. (100 marks).