BusinessInternalAssessment KennyKung VictoriaShanghaiAcademy BusinessandManagementinternalAssessment ResearchQuestion:ShouldJadeiteCollectionLimited introducejadeiteweddingringstoincreasesalesrevenue? Name:KennyKung WordCount:1496 1 P age
BusinessInternalAssessment KennyKung Content Introduction. page 3 Non-financial factors SWOT.. page 3-5 - Strength - Weakness - Opportunities - Threats Financial Factors Past Financial Performance.. page 6 Current Product Analysis. page 7 - Boston Matrix - Ansoff Matrix Evaluating Risk and Assumption page 8 Conclusion page 9 Supporting Document.. page 7-15 -Supporting document 1 Financial Statement of Jadeite limited company -Supporting document 2 Marital status in Hong Kong -Supporting document 3 Article: Jadeite price likely to drop -Supporting document 4 Article: Demand for jewelry remains strong -Supporting document 5 Interview with Mr Kung Appendix.... page 10-27 -Appendix 1- Ratio analysis calculations -Appendix 2 Ansoff Matrix of Jadeite Wedding Ring -Appendix 3 Position Map of current Jadeite Jewelry -Appendix 4 Boston Matrix -Appendix 5 SWOT analysis -Appendix 6 GDP values in Hong Kong Bibliography. Page 28 2 P age
BusinessInternalAssessment KennyKung Introduction Jadeite Collection Limited is a private limited company that is established by Samuel Kung, Jadeite Collection Limited is a profitable jade wholesaler in Hong Kong which is famous of having the best quality of jadeite rough from Burma and producing modern jade designs with excellent quality. Jadeite Collection Limited encounters a lot of domestic competition with other large firms which might cause the company to face deficit in the future. Should Jadeite Collection Limited introduce the wedding jadeite rings to increase sales revenue? The SWOT Analysis for Jadeite Collection Limited Strengths Jadeite Collection Limited attracts wealthy customers by offering them high qualities and exclusive modern Jadeite designs. During the short interview 1, Samuel Kung (the owner of the Jadeite Collection Limited) explains how each Jadeite has their own unique designs to fulfill different individual s demands. Samuel Kung stated that Each Jadeites designs are craft from the most famous jadeite designers and we use exclusive enhancing techniques to produce high quality Jadeite. Samuel Kung is one of the Hong Kong foremost jadeite artists and sole trader that have a high reputation worldwide in Jadeite industry. He is very experienced in Jadeite industry as he runs Jadeite Collection Limited for over 40 years now. His expertise in Jadeite created the best quality of Jadeite that other rival firms cannot provide. 1 RefertoSupportingdocument5 3 P age
BusinessInternalAssessment KennyKung Weaknesses High cost is a huge problem this firm is facing, cost cutting is bad solution as it may affect the qualities of the Jadeite which will lose the customer loyalty or the ability to compete with the other rival firms. This firm couldn t maximized its revenue is because the target group is narrow, ignoring the needs of many younger wealthy generations. The selling price of Jadeite Collection Limited is more expensive than other Jadeite in major rival firms because It is a small firm that has less economic of scale 2. Figure1CPositionmapofjadeitelimitedCompanysjadeiteweddingring(fromappendix3) Opportunities There is a significant increase in the economic growth in Hong Kong between 2010 and 2011 3, in 2011 there is a 3% increase in the economic growth, which indicates people have more disposable income to spend and raise the demand of the luxury goods including Jadeite. Considered both factors above, when Jadeite Collection Limited takes the first-mover advantages, there will be high increase in revenue since 2 Refertoappendix3 3 Refertoappendix6 4 P age
BusinessInternalAssessment KennyKung their product could fulfill many demands for wedding jewelries in the domestic market. Threats Competition and government s intervention from China are two main factors that cause the Jadeite limited company to change. Due to the Chinese government s policy 4, the selling price of Jadeite will get lower in China which leads to a loss in demand for Jadeite in Hong Kong. This can be support by the Jadeite Prices likely to drop in China 5 it indicates the price of jewelry prices is going down sharply due to the China s government s intervention to soar the prices of Jadeite. Without lowing the expenses and the selling price, introducing new wedding Jadeite ring may not be able to compete with the price competition in China or with the domestic rival firms. 4 Refertosupportingdocument4 5 Refertosupportingdocument3 5 P age
BusinessInternalAssessment KennyKung Financial Factors Past financial performance Figure2(fromappendix1) ProfitabilityandLiquidityratiosofJadeitelimitedcompanyin2010C2011 Year Gross Profit Margin (%) Net Profit Margin (%) Current Ratio ROCE (%) Gearing Ratio (%) 2009 2010 21.75 5.98 0.7862 61.97 308.77 2010-2011 19.38-4.05 0.8487-77.73 145.41 The income statement of Jadeite collection 6 shows the amount of profit or loss that a business has made from 2010-2011. The trading account indicates Jadeite Collection Limited has high revenue, however the pricy cost of producing luxurious jadeite drains most of the revenue that the gross profit margin 7 only has 21% in 2010 (figure 1 or A.1). Due to further increase on the cost of production, the gross profit margin reduced to 19% in 2011. (Figure 1or A.1). In terms of the profit or loss of the year, this firm only gains a net profit margin 8 ratio of 5% in 2010 (figure 1 or A.2) and loss a net profit margin ratio of 4% in 2011 (figure 1 or A.2). The profitability ratio shows when the profitability of Jadeite limited company fall due to the increase in cost of production. The income statement shows low current ratios which are 0.7862 in year 2010 (figure 1 or A.3) and 0.8487 in year 2011 (figure 1 or A.3). This indicates the short-term debts of Jadeite limited company are greater than its liquid assets. The return on capital employed in 2010 is 61.97%, it is a desirable ROCE that shows Jadeite limited company is making use of its capital employed to generate profit. However the ROCE in 2011 is -77.73% which means the firm cannot earn any profit using its capital employed. The gearing ratio shows the firm is highly in debt, the gearing ratio in 2010 is 308.77% and 145.41% in 2011. The liquidity ratio shows the firm needs more revenue to cover the high cost of production. Introducing new product to increase the sales and revenue can solve this problem. 6 Refertosupportingdocument1 7 Showsthevalueofgrossprofitasapercentageofsalesrevenue 8 Showsthepercentageofsalesturnoverthatisturnedintonetprofit 6 P age
BusinessInternalAssessment KennyKung Non Financial factors Boston Matrix Market Growth MarketShare High Low High Star Question mark Low Cash Cow Dogs Figure3(fromappendix4) BostonofJadeitelimitedcompany sweddingring The current Jadeite limited product is a cash cow in Boston matrix 9 for producing modern jadeite for mid age customers. Soon enough the product will become dog and Jadeite Collection Limited should devote more time and funding to work on new designs in order to compete with the new introduced product lines of wedding Jadeite. After accounting the total loss at the end of year 2011, the large funding left in 2010 can be used to invest on this new production line. Ansoff matrix Figure3(fromappendix4) BostonofJadeitelimitedcompany sweddingring Markets Existing New Existing Market Penetration Product Development New Market Development Diversification The key to success is highly depend of the designs of the wedding Jadeite, according to the ansoff s matrix 10, the original modern design that Jadeite Collection Limited sell is under the category of market penetration since the modern design Jadeite is already many similar product exist in the same market. However the product extension of the Jadeite wedding ring is under the Product development category in Ansoff matrix 11 that by selling new products to the existing market. Product development also indicates extension of their current Jadeite 9 Refertoappendix4 10 Refertoappendix2 11 Refertoappendix2 7 P age
BusinessInternalAssessment KennyKung Jewelries that can let Jadeite Collection Limited compete with other rival firms and launching a new product at a lower risk. Evaluating Risk and Assumption Introducing the wedding Jadeite ring has both advantages and disadvantages. This is very risky for Jadeite Collection Limited as it involves high development and production cost. Despite Jadeite Collection Limited has barely enough left-over revenue in 2010 to cover up the cost of $1,034,514,8 HKD 12, the firm has to come up with an appealing design to attract young consumers attention. If the firm failed to gain higher revenue next year, Jadeite Collection Limited might loss more money and worsens the current financial situation. The competition in Jadeite industry is more intense recently since there are any large China jadeite wholesaler offers cheaper price and good quality jades to many major jadeite retailers in Hong Kong. This can be prove by using the both articles of China jewelry market prospect is optimistic 13 New Jadeite wedding ring is very suitable for young married couples to wear it in the weddings since it symbolize eternity and bond. Furthermore this year is a very suitable time for Jadeite Collection Limited to introduce wedding Jadeite ring due to the high demand for luxury goods in the market. According to the marital status of Hong Kong population statistics 14, there is a minor increased in the now married couples in 2010 2011. More married couples means more people will fit the target group of selling wedding Jadeite ring. Also by providing the wedding Jadeite to fulfill the high demand of luxury goods can greatly increases the sales revenue this year and increase a lot of consumer s loyalty since there will be more new consumers. Overall successful change will improve the branding of the firm and improve its financial situation. 12 RefertoSupportingdocument1 13 RefertoSupportingdocument4 14 RefertoSupportingdocument2 8 P age
BusinessInternalAssessment KennyKung Conclusion To conclude, Jadeite Collection Limited should introduce wedding Jadeite ring can increase its sales revenue. Government s pricing policy and the growth of the competitors in China is a threat to Jadeite Collection Limited Company, and change is needed. By doing this, it might involve high cost to develop and execute a new product line, however it has a great potential to earn more revenue back to recover the profit loss from last year. Jadeite Collection Limited can take the first-mover advantage by releasing wedding Jadeite that other firms didn t provide in the market. An increase on the economic growth and population rate in Hong Kong is the two main factors that encourage Jadeite Collection Limited to make changes. 9 P age
BusinessInternalAssessment KennyKung Supporting Document Supporting Document 1 Financial Statement Financial information of Jadeite Collection Limited Company From 2010 2011 Obtained from Samuel Kung, owner of Jadeite Collection Limited Company on 13 th July 2011 2010 2011 10 P age
BusinessInternalAssessment KennyKung Supporting document 2 Marital Status of Hong Kong 11 P age
BusinessInternalAssessment KennyKung 12 P age
BusinessInternalAssessment KennyKung 13 P age
BusinessInternalAssessment KennyKung Supporting Document 3 Jadeite prices likely to drop Jadeite prices likely to drop (Global Times) Updated: 2011-06-01 14:32 Counter:1103 The prices of jadeite have increased fivefold over the past year in China, but experts have warned that the jade bonanza might not last long. Figures from the Gems and Jewelry Trade Association of China show that average prices of jadeite increased by 18 percent per year between 2000 and 2009, but that they began to rise much more quickly last year. "The prices of jadeite began to soar since May last year," Yang Muren, CEO of jaadee.com, a Yunnan-based jadeite retail website, told the Global Times on Monday. "I recently sold a piece of jadeite for 5 million yuan ($771,235), and it was just around 2 million yuan last year." "Prices of high-quality jadeite, pieces valued above 20,000 yuan, have risen by four to five times in the past 12 months," he said. "Even low-quality jadeite prices have doubled or tripled." The surging jadeite prices have boosted investors enthusiasm. Yang says his online sales revenue amounted to 15 million yuan last year, and most buyers were individual collectors. "The jadeite with prices ranging from 3,000 yuan to 100,000 yuan sells well," he added. Experts attribute the soaring prices to the increase in raw material prices, as well as domestic inflation and speculation. "Jadeite is a limited resource that only exists in Myanmar, and the prices of rough stones have greatly increased," said Wan Jun, president of WanRuiXiang Jadeite Club in Beijing. "A 30-kilogram piece of rough jadeite with a starting bidding price of 20,000 euros ($28,570) was finally auctioned for 239,999 euros in April." 14 P age
BusinessInternalAssessment KennyKung Shi Hongyue, deputy secretary general of the Gems and Jewelry Trade Association of China, admits there is some speculation in the rough jade stone market. "We encourage personal investment in the jade sector but hope that not too much money will swarm into buying raw materials," he said. "It will cause damage to the industry and hurt most jade processing companies." Yang estimates that the soaring jadeite prices might not last long as China is set to tighten its monetary policy. "High-end jadeite is likely to maintain its current prices, but prices for low-end jadeite might drop in the future," he said. Wan pointed out that cashing in on jadeite is not so easy. "People used to bring jadeite to pawnshops, but they cant get high prices there," she said. "The jadeite auction business is still small in China due to the lack of professionals, but it has development potential." 15 P age
BusinessInternalAssessment KennyKung Supporting Document 4 China jewelry market prospect is optimistic China jewelry market prospect is optimistic The rise of China s middle class is giving gemstone and jewellery manufacturers enough reason to be upbeat about their long-term prospects in China jewelry market. Demand for gold, diamond and coloured gemstone jewellery products is expected to pick up as the number of China s affluent consumers increases, industry members said. Jadeite jewellery Jadeite jewellery sales in China were relatively slow in 2009. Domestic jadeite jewellery consumption, however, picked up steam in the first four months of 2010, especially during the Lunar New Year holidays. The Ping Nhou jadeite market in Nanhai City, Guangdong Province, one of the four jadeite processing and wholesale markets in China, saw healthy gains in wholesale and retail sales during the first four months of 2010. This growth was largely fuelled by rising demand from affluent consumers who bought jadeite for investment purposes. Nonetheless, wholesale and retail sales in the Ping Zhou jadeite market tumbled from May to July 2010. Jadeite jewellery pieces in the mid-range to high-end segments were among the most sought after merchandise. The strong demand for mid- to high-end jadeite jewellery boosted the price of such products by nearly 30 percent in 2010, and prices are expected to continue to rise albeit at a slower pace. The low-end jadeite jewellery market is showing some signs of recovery, but this growth might taper off due to oversupply, said Liang Huanglin, chairman of the Ping Zhou Jewelry & Jade Association. Looking ahead, Mr Liang is cautiously optimistic about the overall outlook for China s jadeite market in the next few years. The long-term prospects for the local jadeite industry appear promising, but we might be in for some rough sailing in the short-term, 16 P age
BusinessInternalAssessment KennyKung Supporting Document 5 Interview Transcript of the interview with Mr Kung, owner of Jadeite Collection Limited Company Location: The office of Jadeite Collection Limited Company Date: 27 th June 2012 Time: 4:00PM 5:00PM Question 1: Can I have general idea about your business? Jadeite Collection Limited is well sort after by the elite in town and international high jewelry; some of them include world s famous designer s luxury bands. We are one of the famous jewelry wholesalers in Hong Kong for providing best qualities of Jadeite. We are one of the main suppliers for many major jewelry retail shops in many different countries. Question 2: How long have you been in this business? I worked in the Jadeite industries for more than 40 years now. I established this company since 1970s. All these 40 years, I succeed to establish a Fairly Good Corporate image and reputation in the Jadeite industry worldwide. My expertise in making Jadeite allows me to design best qualities of Jadeite that other firms couldn t provide. Question 3: Have you ever consider about releasing new product? There are a few new products we are going to release soon enough, but now I don t think the timing is right as there s still some development issues going on. Other than high costs, developing new products takes time as well, especially for jadeite where quality matters. Question 4: Do you think developing Jadeite wedding ring can solve the deficit of your firm? We are trying to cut down our expenses and cost of production as much as possible, however we found that really difficult as reducing too much of them will affect the qualities of our Jadeite. We are being very careful about this since bad qualities of Jadeite will ruin the good reputation of my firm that I established for many years We think about developing new product in the new market before, however we found that it is too risky and I don t dare to take that kind of risk. 17 P age
BusinessInternalAssessment KennyKung Appendix Appendix 1 Ratio Analysis Calculations Year Gross Profit Margin (%) Net Profit Margin (%) Current Ratio ROCE (%) Gearing Ratio (%) 2009 2010 21.75 5.98 0.7862 61.97 308.77 2010-2011 19.38-4.05 0.8487-77.73 145.41 Profitability Ratio Equation: FigureA2.aCThegrossprofitmarginratioofJadeiteCollectionLimitedin2010and2011 GrossProfit 100% SalesRevenue 2009C2010 2010C2011 GrossProfit GrossProfit Grossprofitmargin = 100% Grossprofitmargin = 100% SalesRevenue SalesRevenue Grossprofitmargin = Grossprofitmargin = 4,659,605 100% 21,428,347 Grossprofitmargin = 4,955,496.95 100% 25,566,685 Grossprofitmargin =21.75% Grossprofitmargin =19.38% Equation FigureA1.bCTheNetprofitmarginratioofJadeiteCollectionLimitedin2010and2011 NetProfit 100% SalesRevenue 2009C2010 2010C2011 GrossProfit GrossProfit Grossprofitmargin = 100% Grossprofitmargin = 100% SalesRevenue SalesRevenue Netprofitmargin = Netprofitmargin = 1,067,613.34 100% 21,428,347 Netprofitmargin = 1,034,514.8 100% 25,566,685 Netprofitmargin =4.98% Netprofitmargin =C4.05% 18 P a g e
BusinessInternalAssessment KennyKung Liquidity Ratio Equation: FigureA3.cCThecurrentratioofJadeiteCollectionLimitedin2010and2011 Currentassets 100% currentliabilities 2009C2010 2010C2011 GrossProfit GrossProfit Grossprofitmargin = 100% Grossprofitmargin = 100% SalesRevenue SalesRevenue CurrentRatio = CurrentRatio = 25,214,980.29 32,073,453.38 CurrentRatio = CurrentRatio =0.8487 CurrentRatio = 0.7862 FigureA1.dCTheReturnoncapitalemployedofJadeiteCollectionLimitedin2010and2011 Equation Returnoncapitalemployed = Netprofitbeforeinterestandtax 100% CapitalEmployed 2009C2010 GrossProfit Grossprofitmargin = 100% SalesRevenue ROCE = 1,278,573.34 100% 2,063,255.71 2010C2011 GrossProfit Grossprofitmargin = 100% SalesRevenue ROCE = 799,650.80 100% 1,028,740.91 ROCE = 61.97% ROCE =C77.73% Equation FigureA1.dCTheGearingratio ofjadeitecollectionlimitedin2010and2011 Gearingratio = Loancapital 100% CapitalEmployed 2009C2010 GrossProfit Grossprofitmargin = 100% SalesRevenue gearingratio = 31,107,611.37 36,651517.96 6,370,778.37 100% 2,063,255.71 2010C2011 GrossProfit Grossprofitmargin = 100% SalesRevenue gearingratio = 1,495,984.96 100% 1,028,740.91 gearingratio = 308.77% gearingratio =145.41% 19 P a g e
BusinessInternalAssessment KennyKung Appendix 2 Ansoff Matrix of Jadeite Wedding Ring Ansoff matrix is an analytical tool that assists the firms to devise their product and market growth strategies. It demonstrates different strategies that businesses can take depending on one of the four growth strategies such as: Market penetration, Product development, Market Development or Diversification Existing Existing Market New Product Markets Penetration Development New Market Development Diversification Above all four growth strategies in the ansoff matrix, product development is the medium growth strategy that Jadeite Limited Company should use by selling new products in existing markets. This essay suggested Jadeite Limited Company should revolutionize the Jadeite industry in Hong Kong by providing jadeite wedding ring. The Jadeite wedding ring relies heavily on the product extension strategies and new product development. From the slowing growth rate of sales revenue in the supporting document 1, it is assumed that the product has reached to the saturation part of the cycle, soon enough in the future, the product will falls to decline rate. Therefore product development is a good strategy to extend the life cycle of the Jadeite Jewelries. 20 P age
BusinessInternalAssessment KennyKung Appendix 3 Position Map of Jadeite Limited Company s jadeite wedding ring HighQuality LowPrice HighPrice LowQuality 1. Chow tai fook 2. Gansu Jade Market 3. Chow sang sang 4. Sanaco 5. Harry and lee company 6. Jadeite Limited Company 21 P age
BusinessInternalAssessment KennyKung Appendix 4 Boston matrix Market Growth MarketShare High Low High Star Question mark Low Cash Cow Dogs Boston Consultancy Group Matrix is a marketing planning tool that aid managers to plan for a balanced product portfolio It can be divided to two parts which are market share and market growth in order to assess the new and existing products in terms of their market potential Cash cow is the product that has high market share in low growth market. The current Jadeite Collection Limited s product belongs to a cash cow since their products are well established and gain quite a lot of cash flow out of it. However soon enough these products will become dogs which means the profit will go lower so it is recommended that 22 P age
BusinessInternalAssessment KennyKung Appendix 5 SWOT analysis Strength - Fairly Good Corporate image and reputation - Experience, knowledge and expertise - Better qualities of Jadeite compare with other rival firms - Exclusive enhancing techniques on Jadeite. Opportunities - The market is lack of wedding jadeite product - There s trend that more mid 40s people are getting married - Expanding economic growth in Hong Kong - A lot of travelers from China that has a lot of disposable income - Demand for Jadeite is rising Weakness - Higher prices than competitors - Less economic of scale compare with other rival firms - Extremely High expenses - Expensive cost of production Threats - Many Rival Firms intervene the market - Government s intervention in the market - Last year s deficit may continue then it is too late to release new product - Time is limited, other rival firms may also release this type of new product in the market - 23 P age
BusinessInternalAssessment KennyKung Appendix 6 Survey Please rank the following firms from 1 10 in terms of their selling price A. Chow tai fook B. Gansu Jade Market C. Chow sang sang D. Sanaco E. Harry and lee company F. Jadeite Limited Company 1 (Very Expensive selling price) 2 3 4 5 6 Very Cheap selling price Please rank the following firms from 1 10 in terms of their quality A. Chow tai fook B. Gansu Jade Market C. Chow sang sang D. Sanaco E. Harry and lee company F. Jadeite Limited Company 1 (Perfect Quality) 2 3 4 5 6 (Bad Quality) 24 P age
BusinessInternalAssessment KennyKung Survey Result: Result of selling price ranking of each firm Firms Chow tai fook Gansu Jade Market Chow sang sang Sanaco Harry and lee company Jadeite Limited Company 1 (Very Expensive) 1 11 1111 11 2 1 1111 11 11 3 1111 111 11 4 11 1 1 1111 11 5 11 1 111 1111 6 (Very Cheap) 1111 1111 1 Result of quality ranking of each firm Firms Chow tai fook Gansu Jade Market Chow sang sang Sanaco Harry and lee company Jadeite Limited Company 1 (Good Quality) 1 11 1111 11 2 1 1111 11 11 3 1111 111 11 4 11 1 1 1111 11 5 11 1 111 1111 6 (Bad Quality) 1111 1111 1 *note that the result obtained from this survey was used to generate the position map in appendix 3 25 P age
BusinessInternalAssessment KennyKung Bibliography Supporting documents Business Documents or report China Jewelry Market Prospect is Optimistic Staryee Jewelry. N.p., n.d. Web 05 Nov. 2012 <http://www.jewelry-wholesale-china.com/news/china-jewelry-market-prospect-is-optimistic -802.html> Kung, Samuel, Jadeite Collection Limited Financial Statements in 2010 2011. Hong Kong: Fairyield CPA Limited Accountants, 2011 Print Government statistics China, Hong Kong SAR. Trend in Marital Status of Hong Kong Population. Hong Kong Census and Statistics Council, 12 Jan. 2012. Web. 24 May 2012. <http://www.censtatd.gov.hk/hkstat/sub/sp160.jsp?productcode=fa10014> Newspaper Article Jadeite Prices Likely to Drop GlobalTimes. Jadeite Prices Likely to Drop GlobalTimes. N.p., n.d Web 05 Nov. 2012 <http://www.globaltimes.cn/business/industries/2011-05/660359/html> Interview Kung,Samuel. Interview with Samuel Kung, the owner of Jadeite collection limited. Interviewed in Jadeite collection limited, 27 June 2012 26 P age