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WORD COUNT: 12 525

Roman Cielik

BUSINESS PLAN FOR CHEMICO LTD

OPTIMISING GROWTH AND DEVELOPMENT OF YOUNG COMPANY


STARTING ITS ACTIVITY ON THE POLISH MARKET

The main objective of this thesis is to examine the current situation of the young
company entering the polish market and to work out relatively the best way to its
development in the next three years.
The whole text is divided into three areas. The first one consists of tools, techniques and
other content-related aspects presented on the basis of books, magazines and lectures
materials.
Problems discussed in this chapter relates to theoretical background of tools and
techniques used in practice to examine current CHEMICO`s performance and market
position. All those techniques are applied in chapter two.
Such theoretical introduction is indispensable in introducing readers to the background
and efficiency of the tools and techniques.
In the second area a business plan for CHEMICO is presented. That chapter is divided
into three main parts. First an internal and external audit is performed whose main
objective is to take a kind of picture of the company and its environment. Then all
important facts collected during audits are put together and processed in the
TOWS/SWOT analysis.
Detailed TOWS/SWOT analysis is considered as a tool of key importance on which
main conclusions are based.
Chapter three covers conclusions followed by suggestions regarding companys future
activity that should lead the company to success on the market.
The companys and products names were changed.
Keywords:
Competition
Competitive advantage
TEX VCI protection against rust
Corrosion
PLEX rust remover
TOWS/SWOT
VCI volatile corrosion inhibitor

BUSINESS PLAN FOR CHEMICO LTD

OPTIMISING GROWTH AND DEVELOPMENT OF YOUNG COMPANY


STARTING ITS ACTIVITY ON THE POLISH MARKET

by

Roman Cielik

Management Project submitted to the Bradford University School of Management


in partial fulfilment of the requirements
for the degree of
Master of Business Administration

2006

TABLE OF CONTENTS
PREFACE ......................................................................................................................... 6
LIST OF FIGURES .......................................................................................................... 7
LIST OF TABLES ............................................................................................................ 8
LIST OF CHARTS ........................................................................................................... 9
1. BUSINESS PLAN theoretical aspects ..................................................................... 10
1.1 Definition ............................................................................................................. 10
1.2. Methodology ....................................................................................................... 10
1.3. Business Plan versus Marketing Plan ................................................................. 11
1.3.1 Porters five forces analysis (Microenvironment)........................................ 13
1.3.1.1 Entry barriers ........................................................................................ 13
1.3.1.2 Supplier power ..................................................................................... 15
1.3.1.3 Bayer power ......................................................................................... 16
1.3.1.4 Substitutes ............................................................................................ 16
1.3.1.5 Rivalry within the trade........................................................................ 16
1.3.2 SWOT .......................................................................................................... 17
1.3.3. PEST (Macro environment) ........................................................................ 20
1.3.4 Stakeholders analysis ................................................................................... 21
1.3.5 Strategic group analysis ............................................................................... 22
1.3.6 Break Even Point (BEP)............................................................................... 23
1.3.7 Ratios ........................................................................................................... 24
1.3.7.1 Operating performance/profitability .................................................... 24
1.3.7.2 Efficiency/activity ................................................................................ 24
1.3.7.3 Liquidity ............................................................................................... 24
1.3.8 Cash Flow .................................................................................................... 25
1.4 Important theoretical aspects................................................................................ 25
1.4.1 Vision and Mission Statements .................................................................... 25
1.4.2. Segmentation ............................................................................................... 26
1.4.3. Differentiation, Competitive advantage, Positioning .................................. 28
1.4.4 Venture Capital ............................................................................................ 29
2. BUSINESS PLAN FOR CHEMICO .......................................................................... 32
2.1. Introduction ......................................................................................................... 32
2.2 Company Description .......................................................................................... 32
2.2.1 Background .................................................................................................. 32
2.2.2 Business activity .......................................................................................... 32
2.3. Mission and vision statements ............................................................................ 33
2.4. Internal marketing audit ...................................................................................... 34
2.4.1 Operating results .......................................................................................... 34
2.4.2 Marketing Mix Effectiveness ....................................................................... 34
2.5.Market Analysis ................................................................................................... 38
2.5.1 Market description ....................................................................................... 38
2.5.2 PEST ............................................................................................................ 39
2.5.3 Stakeholder analysis ..................................................................................... 40
2.5.4 Competition .................................................................................................. 41
2.5.5 Porters Five Forces ..................................................................................... 45
2.6. SWOT Analysis .................................................................................................. 47
3. CONCLUSIONS AND RECOMMENDATION........................................................ 50
3.1 Conclusions .......................................................................................................... 50
3.2. Recommendations ............................................................................................... 51

3.2.1 Segmentation ................................................................................................ 51


3.2.2 Marketing Mix ............................................................................................. 52
3.2.2.1 Product ................................................................................................. 52
3.2.2 2 Promotion ............................................................................................. 53
3.2.2.3. Price .................................................................................................... 53
3.2.2.4 Place ..................................................................................................... 54
2.2.2.5 People ................................................................................................... 54
3.2.3 Competitiveness advantage, positioning ...................................................... 55
3.2.4 Lean Method ................................................................................................ 56
3.2.5 Financial Plan ............................................................................................... 57
3.2.5.1 Financial year 2006/2007 ..................................................................... 58
3.2.5.2 Financial year 2007/2008: .................................................................... 58
3.2.5.3 Financial year 2008/2009 ..................................................................... 58
3.2.5.4 Financial year 2009/2010 ..................................................................... 59
3.2.6 Projected Cash Flow .................................................................................... 59
3.2.7 Break Even Point (BEP), financial year 2007/2008..................................... 59
3.2.8 Ratios ........................................................................................................... 60
APPENDIX A PROJECT PROPOSAL ........................................................................ 61
APPENDIX B PRESENTATION OF TEX VCI EFFECTIVENESS. ......................... 64
APPENDIX C PRESENTATION OF PLEX EFFECTIVENESS ............................... 65
APPENDIX D INCOME STATEMENT FINANCIAL YEAR 2005/2006 ................. 66
APPENDIX E BALANCE SHEET FINANCIAL YEAR 2005/2006.......................... 67
APPENDIX F PRODUCTS OFFERED BY CHEMICO`s COMPETITORS ............. 68
APPENDIX G TOWS/SWOT matrix results Do weaknesses will amplify threats?
......................................................................................................................................... 69
APPENDIX H TOWS/SWOT matrix results Do strengths will overcome threats?
......................................................................................................................................... 70
APPENDIX I TOWS/SWOT matrix results Do weaknesses make impossible to use
opportunities? ................................................................................................................ 71
APPENDIX J TOWS/SWOT matrix results Do strengths make use of
opportunities? ................................................................................................................ 72
APPENDIX K TOWS/SWOT matrix results Do opportunities will overcome
weaknesses .................................................................................................................... 73
APPENDIX L TOWS/SWOT matrix results Do threats will amplify weaknesses?
......................................................................................................................................... 74
APPENDIX M TOWS/SWOT matrix results Do threats will weaken strengths? . 75
APPENDIX N TOWS/SWOT matrix results Do opportunities will amplify
strengths? ....................................................................................................................... 76
APPENDIX O BALANCE SHEET FINANCIAL YEARS 2006-2010 ....................... 77
APPENDIX P INCOME STATEMENT FINANCIAL YEARS 2006-2010 ............... 78
APPENDIX Q CASH FLOW FINANCIAL YEARS 2006-2010 ................................ 79
APPENDIX R RATION ANALYSIS FINANCIAL YEARS 2006-2010 .................. 80
BIBLIOGRAPHY ........................................................................................................... 81

PREFACE
Business plan was based on data and information given by the CEO of the company as
well as stakeholders. Potential customers preferences were examined on the basis of
the business survey based on the questionnaire distributed among prospects.
Evaluation of the environment and market analysis, in general, was based on available
information included in magazines, reports and web sites. A considerable problem with
gathering data was faced regarding statistical data of VCI market in Poland and other
countries.
Special thanks to Supervisors from University of Branford and Leon Kozminski
Academy of Entrepreneurship and Management for significant support and many
valuable pieces of advice.

LIST OF FIGURES

Figure 1.1. Marketing plan outline..................................................................................12

Figure 2.1. Porters five forces analysis - summary results.............................................46


Figure 3.1 Organisational structure.................................................................................55

LIST OF TABLES

Table 1.1 Entry/Exit barriers matrix................................................................................15


Table 1.2. SWOT MATRIX model..............................................................................18
Table 1.3. SWOT MATRIX - usage matrix....................................................................17
Table 1.4. TOWS/SWOT usage matrix...........................................................................18
Table 2.1. Sold production of industry - manufacture of metal products.......................39
Table 2.2. Sold production of industry manufacture of chemicals and chemical
products...........................................................................................................................39
Table 2.3. Stakeholder matrix..........................................................................................40

LIST OF CHARTS

Chart 1.1. Strategic group model............................................................................22


Chart 2.1. Prospects response to survey...................................................................37
Chart 2.2 Strategic group: income versus range of products.....................................43
Chart 2.3. Strategic group: income versus activity diversification............................44
Chart 2.4. Strategic group: income versus price.......................................................44
Chart 3.1. Expected income in years 2006-2010.......................................................57

1. BUSINESS PLAN theoretical aspects

1.1 Definition
There are many studies available in the literature that defines and describes the
definition and methodology of the business plan. According to a standard definition a
business plan is a summary of how a business owner, manager, or entrepreneur intends
to organize an entrepreneurial endeavour and implement activities necessary and
sufficient for the venture to succeed. It is a written explanation of the company's
business model for the venture in question. (...). Business plans are used internally for
management and planning and are also used to convince outsiders such as banks or
venture capitalists to invest money into a venture. 1
The SBA says that a business plan precisely defines your business, identifies your
goals, and serves as your firm's resume. The basic components include a current and pro
forma balance sheet, an income statement, and a cash flow analysis. It helps you
allocate resources properly, handle unforeseen complications, and make good business
decisions 2
Thus a business plan is a complex description of a company and presents all important
aspects of the business activity such as mission, vision, company environment,
products, technologies and human resources as well as thorough analysis of financial
aspects. Business plan characterises the current companys activity and present future
activity with predictions regarding events inside and outside the company.
There are seven major causes being the basis of preparing business plan. Usually it is
an attempt to expand the current activity but there also some special occasions where
writing a business plan is a must 3:
New business
New investment
Attracting new investor
Implementing strategic management
Company valuation in order to sell the company
Restructuring
Liquidation
1.2 Methodology
The framework of the CHEMICO`s business plan will be based on thorough audit of the
current activity including internal and external audit as well as accurate marketing
chance evaluation.
1

Business Plan (August 2006) URL: http://en.wikipedia.org/wiki/Business_plan


Business plan basics (July 2006) URL:
http://www.sba.gov/starting_business/planning/basic.html
3
Czepurko A ukaszewicz J.(2005): Biznesplan w praktyce zarzdzania firm, czyli po
co i jak opracowywa skuteczny biznesplan?. Wysza Szkoa Handlu i Prawa
2

10

On the basis of the wide company and market examination, the scenario of the best
predicted business actions will be developed.
The process of auditing current activity as well as the future action-planning will be
based on methods and tools available in the literature, especially discussed during the
EMBA sessions.
1.3. Business Plan versus Marketing Plan
A marketing plan is a subset of the overall business plan and focuses specifically on
how you will look for new customers 4. "You're in business to serve a customer need,"
says Derek Hansen, founder of American Capital Access. "If you're not sensitive to
customers, don't know who your customers are how to reach them and, most of all, what
will convince them to buy your product or service, get help." 5
Conclusion may be only one: customer is the number one priority. Due to the fact that
aspects regarding gaining new customers are of key importance for CHEMICO now, the
framework of the business plan used in present the thesis will be based on the marketing
plan presented during the MBA course 6:

Quinn C. (July 2006) Business Plans vs. Marketing Plans: Do You Need Both? URL:
http://womeninconsulting.org/consultants/articles/business_vs_marketing_plan.htm
5
Marketing Plan (July 2006) URL:
http://www.sba.gov/starting_business/marketing/plan.html
6
Rawel J. (2005) Strategic Marketing. Unpublished European MBA III Edition lecture
manual. Leon Kozminski Academy of Entrepreneur and Management, University of
Bradford
11

Figure1.1. Marketing plan outline


What do we
want?

VISION / MISION
INT/EXT.
ENVIRONMENT

CUSTOMERS
PEST / 5 FORCES

COMPETITORS

Where we are
now?

COMPANY
SWOT

MKT.
PENETRATION
NEW PROD. DEVT

MKT
DEVELOPEMENT

Where do we
want go?

DIVERSIFICATION
SEGMENTATION

PRODUCT
SUB STRATEGIES
PROMOTION
PLACE

TACTICS:
MARKETING MIX

PEOPLE

POSITIONING

PHYSICAL EVIDENCE

How do we get
there?

PRICE

PROCESS

MEASURMENT

Where did we
get to?

Source: Rawel J. (2005) Strategic Marketing. Unpublished European MBA III Edition
lecture handbook. Leon Kozminski Academy of Entrepreneurship and Management,
University of Bradford
On the basis of the above information the framework of business plan on which the
following thesis will be based on is as follows:
BUSINESS PLAN FOR CHEMICO
Introduction
Company Description
Background
Business activity
Mission and vision statements
Internal marketing audit
Operating results
Marketing Mix Effectiveness
Market Analysis
PEST
Stakeholder analysis
Competition
Porters Five Forces
SWOT Analysis

12

CONCLUSIONS AND RECOMMENDATION


Conclusions
Recommendations
Segmentation
Marketing Mix
Product
Promotion
Price
Place
People
Competitiveness advantage, positioning
Lean Method
Financial Plan
Financial year 2006/2007
Financial year 2007/2008
Financial year 2008/2009
Financial year 2009/2010
Projected Cash Flow
Break Even Point (BEP), financial year 2007/2008
Ratios
1.3. Tools
1.3.1 Porters five forces analysis (Microenvironment)
The main objective being the basis for detailed microenvironment analysis is an attempt
to understand forces, trends and phenomena that influence the company activity 7.
One of the most popular methods is Porters five forces analysis.
1.3.1.1 Entry barriers
Costs that must be borne when a company tries to enter new market may efficiently
discourage potential competitor against the entry on the market on which the company
operates.
Such cost may concern:
Economy of scale
Products brands power
Equity requirements
Distribution channels
New technologies
Regulations
Exit barriers

Economy of scale
7

Obj K. (1998) Strategia Organizacji. Polskie Wydawnictwo Ekonomiczne


13

The profit on a given production line occurs after specific numbers of units were
produced so it increases the risk for the new entrants of generating losses over many
years and just makes the whole investment risky.
Economy of scale is also highly related to the experience curve effect that states: the
more times a task has been performed, the less time will be required on each subsequent
interaction 8. The phenomena is connected with efficiency and an lies in the fact that
people do their job faster and better as they have greater experience. For example
assembly line workers will do their job faster and better whereby more cars will be
produced in a given unit of time, fewer complaints occur so the efficiency will be
higher.
Production Brand` power
If there exist on the market well known brands with groups of loyal clients, entering the
market by new entrant is very difficult. What is making the successful entry to new
market more probable is superiority in products features. If new products outstrips other
existing on the market there are feasible chances of success if a new product does not
bring anything new and fresh the success of entry is almost unfeasible.
Equity requirements
The more sophisticated production the higher equity required. High technology gives
the guarantee of cost reduction but is expensive and not easy to implement. Sometimes
the scale of investments needed to finance entry exceeds the new entrants potential.
Distribution channels
New product on the market needs a special way to be delivered to clients. If a company
that aims at launching its products on new market, has already developed distribution
channels (own outlets, agreements with wholesalers etc.) this barrier of entry will be not
of key importance. Otherwise, delivering goods may be a problem and may squander
the efforts that have been already put into promoting new product and even ruin the
whole campaign
New Technologies
Besides the fact that new technologies are often very expensive, sometimes they are
protected by patents. Such way of protecting the market against new entrants is popular
with companies providing computer software and hardware.
Regulations
Sometimes entering new market requires fulfilling by the company existing law
regulation. Good example is pharmaceutical market in the USA and the role of Food
and Drug Administration (FDA). The role lies in the fact that FDA licences the
companies` products within the confines of ensuring the safety of the public. The first
8

Experience curve effects (August 2006) URL:


http://en.wikipedia.org/wiki/Learning_curve
14

step is to be given the certification by preparing a mountain of papers. Then company


must produce the products according to the standard and such company is under
constant fear of unannounced FDA audit. If a company display the departure from the
procedures and regulations it may lead to the company shut down or product
withdrawal. 9
Resignation and leaving the market
There are two basic aspects regarding such case.
First problem connected with the potential resignation is connected with cost because of
the fact that closing down a plant is expensive from the economical point of view.
Production lines and other equipment are usually sold very cheaply, sometimes have to
be scraped. There is a general rule that the more specialist assets are engaged in the
business the higher exit barriers 10
Other problem connected with the costs of resignation concerns emotional aspects of
the necessity to shut down the company, fire employees and finally the most difficult: to
own up the defeat. If a new business was under special care of the management and
great faith was placed in by the board, leaving the market is especially difficult.
Porter has presented a matrix that expresses the relations between entry barriers and
those that lead to leaving the market (exit barriers)
Table 1.1 Entry/Exit barriers matrix
EXIT BARRIERS
ENTRY
Low
BARRIERS Low Low, regular income
High High regular income

High
Low, risky income
High risky income

Source: Porter M.E. (1994) Strategia Konkurencji. Metody analizy sektorw i


konkurentw. Polskie Wydawnictwo Ekonomiczne
1.3.1.2 Supplier power
There is one general rule the higher number of suppliers on the market the lower
supplier force in the market.
Other phenomenon is the real risk for the company to be taken over by the supplier in
the situation when it generate relatively high margin in the whole distribution process
(forward integration threat) 11. Such example took place in oil industry when refineries
and petrol stations networks where bought by their earlier suppliers.

Rawel J. (2005) Strategic Marketing (Marketing and Growth Strategies: A Software


Case). Unpublished European MBA III Edition lecture manual. Leon Kozminski
Academy of Entrepreneur and Management, University of Bradford
10
Obj K. (1988) Strategia Organizacji. Polskie Wydawnictwo Ekonomiczne
11
Porter Five Forces A Model for Industry Analysis (August 2006) URL:
http://www.quickmba.com/strategy/porter.shtml
15

1.3.1.3 Bayer power


The main force is the backward integration threat which means that buyer is able to take
over its business partner from which it buys products. Buyers are also strong when one
buyer purchases a relatively high proportion of output. In such case there is high risk
that prices will be influenced by the buyer.
1.3.1.4 Substitutes
Substitute is a product that is produced in other industry but meets similar need. Good
example is competition between post and DHL.
The problem of substitutes appears when a products demand is affected by the price
change of a substitute product 12. Consequently when a substitute product exists on the
market it creates constraints on possible price increase.
The more substitutes the higher effect of constraints.
1.3.1.5 Rivalry within the trade
According to K. Obj there are four variables describing this kind of force:
Pace of the industry growth
Products differentiation
Contribution of variable costs in total costs
Number of competitors
Pace of the industry growth
If there is very dynamic growth within the industry there is also a room for making
profit by large number of entrants. The higher demand the lower entry barriers.
Products differentiation
If products have been highly differentiated and market segmented it is highly probable
that company will build a portfolio of loyal clients and the price will be the element that
attracts prospects.
But when company has not succeeded in segmentation only the price will able to gain
new customers and retain existing portfolio.
Contribution of fixed costs in total costs
There is very strong rivalry in industries where contribution of fixed costs in total cost is
high. In order to cover high fixed cost many units have to be produced so it
automatically increases competition within the industry.

12

Porter Five Forces A Model for Industry Analysis (August 2006) URL:
http://www.quickmba.com/strategy/porter.shtml

16

Number and differentiation of competitors


When there is limited number of competitors representing comparable competing
strategy, rivalry among them is predictable. This means that fight to death on the market
is not highly probable.
However, when number of competitors is high, they are significantly differentiated in
their competitive strategies; there is a real competitive fight in the industry.
1.3.2 SWOT
The main objective of using the SWOT method is to put together all important
information collected and described during internal and external audit and in presenting
it on a very legible matrix. Next step is developing the more suitable and appropriate
strategies and actions to take by the company in order to achieve its business goals.
The SWOT matrix defines strengths and weaknesses inside the company as well as
threats and opportunities in the environment of the company.

Table 1.2. SWOT MATRIX - model


Good points
Internal
Strengths

External

Danger points
Weaknesses

What are we good at relative What are we bad at relative to


to competitors?
competitors?
Opportunities
Threats
What changes are creating What emerging dangers must
new options for us?
we avoid or counter?

Source: Rawel J. (2005) Strategic Marketing. Unpublished European MBA III Edition
lecture manual. Leon Kozminski Academy of Entrepreneurship and Management,
University of Bradford
After the matrix was worked out the company has to perform an analysis of converting
bad points into good points what results in the collection of actions to take in every
particular area of the matrix.
Table 1.3. SWOT MATRIX - usage matrix
Opportunities
Threats
Strengths
Exploit existing strengths in Use existing strengths to
areas of opportunity
counter threats
Weaknesses
Build new strengths first to Build new strengths
take
advantage
of counter threats
opportunities

to

17

Source: Rawel J. (2005) Strategic Marketing. Unpublished European MBA III Edition
lecture materials. Leon Kozminski Academy of Entrepreneurship and Management,
University of Bradford.
Such model has been developed by K. Obj and is known as TOWS/SWOT analysis
and its main objective is to diagnose which strategy included in the matrix below fits
best the current companys situation and should be chosen to implementation. 13

Table 1.4. TOWS/SWOT usage matrix


Opportunities
Strengths
Aggressive strategy
Weaknesses
Competitive strategy

Threats
Conservative strategy
Defensive strategy

Source: Obj K. (1988) Strategia Organizacji. Polskie Wydawnictwo Ekonomiczne


Aggressive strategy
Such strategy maximizes synergy effect between Strengths and Opportunities.
Typical actions:
Taking advantage of opportunities that occur on the market
Taking over other companies operating on the same industry
Focusing resources on the most competitive products
Conservative strategy
Aims at minimizing the negative influence from the environment and tries to use the
potential existing inside the company:
Typical actions:
Market segmentation
Costs reduction
Improvement competitive products
Launching new products
Entering new markets
Competitive strategy
Eliminating Weaknesses and creating competitive advantage
Typical actions:
Gaining extra equity
Productivity improvement
Costs reduction
Restructuring the operational aspects of organization
13

Obj K. (1988) Strategia Organizacji. Polskie Wydawnictwo Ekonomiczne


18

Creating competitive advantage

Defensive strategy
Trying to survive on the market and minimizing Weaknesses and Threats
Typical actions:
Costs reductions
Decreasing the current output
Investments reduction
In order to go through the model and find out which strategy fits the company best
procedure as follows should be implemented:
1. Define the list of strengths, weaknesses, opportunities and threats
2. Rank the strengths, weaknesses, opportunities and threats from the point of view how
important an individual variable is important.
3. Establish relations between strengths, weaknesses, opportunities and threads asking
such questions:
SWOT (inside outside analysis)
Do strengths will make use of opportunities?
Do weaknesses will make impossible to use opportunities?
Do strengths will overcome threats?
Do weaknesses amplify threats?
TOWS (inside outside analysis)
Do threats will weaken strengths?
Do opportunities will amplify strengths?
Do threats amplify weaknesses?
Do opportunities will overcome weaknesses?
For every question mentioned above a chart will be work out where relation between
elements of SWOT and TOWS will be examined.
SWOT relations between:
Strengths and opportunities
Weaknesses and opportunities
Strengths and threats
Weaknesses and threats
TOWS relations between:
Threats and strengths
Opportunities and strengths
Threats and weaknesses
Opportunities and weaknesses
When a relation in pairs as mentioned above would be confirmed, one should put digit
1 into the chart, if no relation one should put 0.
After that some calculations have to be done:
Sum outcomes in column and rows

19

Result are then multiplied by the rank


Finally, the outcomes give the answer which strategy is the best for the company in the
current situation.
1.3.3. PEST (Macro environment)
In order to precisely examine the environment the PEST analysis is usually used. This
method distinguishes four major segments of the environment 14:
Political
Economic
Social
Technological
Each segment includes particular values that help properly specify the nature of the
segment.
Values are as follows:

- Political
The formal system (legislation regulating business)
The informal system (ethics and social responsibility)
- Economic
Structural changes
Cyclical change (trends)
- Social:
Population size
Age structure
Geographic distribution
Ethnic mix
Income levels
Household formation
Work
Education
Consumption
Leisure
- Technological
Research
Development
Operations
Examining the environment gives the opportunity to answer some questions regarding
the future and finally helps the company predict coming changes and develop
appropriate strategies.
Questions that help the company scan the environment are as follows:
14

Fahey L. and Randal R. M (1994) Portable MBA in Strategy. John Wiley and Sons
Inc.
20

- Political Environment
Which political party will gain or loose strength in the next elections?
What shifts will occur in governmental policies?
What decisions may affect different industries?
- Economic Environment
What is the expected inflation rate?
Will the GPD increase in the future?
Which industries will grow or decline?
Social Environment
How will the demographic structure change?
What life-style changes my occur?
Technological
What might be new applications for existing technologies?
How might current research lead to new commercial products?
1.3.4 Stakeholders analysis
In order to predict any potential influences from the company environment, the
stakeholder analysis has to be worked out. This analysis gives the opportunity to
analyse the participants who exists in the companys environment and are able to
influence the company in positive or negative way.
Stakeholders are defined as any group or individual who can affect or is affected by the
achievement of an organisations purpose 15.or as those who have an interest in the
outcome of the actions (of the business) 16.
The term stakeholder comes from the word stake that can be defined as the idea of a
stake that can range from simply an interest in an undertaking at one extreme to a legal
claim for ownership at the other extreme and stakeholder is an individual or group that
asserts to have one or more kinds of stakes in business 17.
There are four basic types of shareholders:
primary
secondary
generic
specific

15

Bohdanowicz J. (2004) Marketing Unpublished European MBA III Edition lecture


handbook. Leon Kozminski Academy of Entrepreneur and Management, University
of Bradford
16
Bohdanowicz J. (2004) Marketing Unpublished European MBA III Edition lecture
handbook. Leon Kozminski Academy of Entrepreneur and Management, University
of Bradford
17
Bohdanowicz J. (2004) Marketing Unpublished European MBA III Edition lecture
handbook. Leon Kozminski Academy of Entrepreneur and Management, University
of Bradford
21

One of the assumptions is that the identified stakeholder or group of them may belong
to more then one type.
1.3.5 Strategic group analysis
Market analysis based for example on Porters five forces analysis treats all market
participants as more or less similar competitors. It is in fact a kind of simplification due
to the fact that competitors differs from each other as regards marketing strategies,
pricing policy, quality of products or diversification of the activity involvement in one
or more industries.
From new company point of view it may appear that more important is competition
with strategic group than competition within the whole country.
In order to create a strategic group first a collection of variables that differentiates
companies in the industry. Then a number of significant competitor has to be listed.
Finally, competitors have to be grouped around the defined earlier.

Chart 1.1. Strategic group - model


VARIABLE 2

GROUP 1
Company 1
Company 2
Company 3

GROUP 2
Company 4
Company 5

GROUP 3
Company 6
Company 7

VARIABLE 1

Source: based on Obj K. (1988) Strategia Organizacji. Polskie Wydawnictwo


Ekonomiczne

22

1.3.6 Break Even Point (BEP)


Break even analysis is used in order to determine the level of sales necessary to cover
all operating cost 18.
When a company achieves BEP it means that at this moment company does not
generate neither loss nor profit.
Calculation of the BEP

FC
Q = -----------------P - VC
Q quantity of sales
FC Fixed operating costs
P- price per unit
VC variable operating cost per unit
If a company knows the sales required to cover cost, can easily answer the question
based on other assumption whether such level of sale will be possible to achieve.
Equation presented above may be used when a company produces only one product.
When there are two or more products more calculations are necessary.
In order to calculate BEP for two or more products such calculation must be done 19:
C -Contribution of each products in the whole production
WMB - weight average margin
FC
In such case BEP = ---------------WMB
Pn - VCn
P1 - VC1
WMB = ------------- + ... + ------------- ; 1...n represent products
P1 x C1
Pn x Cn
18

Foltyn W. (2005) Finance and Banking. Unpublished European MBA III Edition
lecture handbook. Leon Kozminski Academy of Entrepreneur and Management,
University of Bradford
19
Kopczyska T. (2004): Klasyfikacja kosztw dla potrzeb rachunkw decyzyjnych.
Post-diploma studies at Leon Kozminski Academy of Entrepreneur and Management,
lecture handbook
23

In order to find out what is the BEP for each product such equation must be used:
BEP1 (for the first product) = BEP x C1
BEP2 (for the second product) = BEP x C2 ... BEP x Cn
1.3.7 Ratios 20
It is necessary to calculate standard ratios in order to examine the companys current
and future financial standing. Ratios are based on the information included in financial
statements.
1.3.7.1 Operating performance/profitability
Return on investment (ROI)
Net profit before interest, tax and dividend (PBIT) / Total assets (or total assets less
current liabilities)
gross margin
Gross profit / Sales x 100
return on sales
Net profit before interest / Sales x 100
1.3.7.2 Efficiency/activity
Total asset utilisation
Sales / Capital employed
Fixed asset utilisation
Sales / Fixed assets
Credit given
Trade debtors / Total sales x 365
Credit taken
Trade creditors plus accruals / Credit purchases of goods and services x 365
1.3.7.3 Liquidity
Current ratio
Current assets / Current liabilities
Quick ratio or acid test

20

Chadwick L., Campbell (1998) W. Accounting and Finance. University of Bradford


24

Cash and near cash / Current liabilities


Total working capital
Current assets minus Current liabilities

1.3.8 Cash Flow


The profit showed in profit and loss account does not represent cash in hand due to the
fact that some revenues and expenses were not paid in cash. 21. So a cash flow statement
must be worked out.
Cash flow statement is divided into three areas 22:

operational

investing essentially purchases less sales of fixed assets

financing

essentially trading items

essentially share issues and raising of long-term loans less any


redemption of shares and repayment of loans.

1.4 Important theoretical aspects


1.4.1 Vision and Mission Statements
According to P. Doyle vision has to define three basic areas 23:
- Target markets
- Competitive advantage
- Capabilities,
Author gives an example of the vision created by an IT company: globalise,
informationalise and individualise
As K. Obj writes in his book 24, the process of formulating vision lasts sometimes
many years. As the examples he gives the background of Wal-Mart and Sony whose
founders (Sam Wolton, Masaru Ibuka) revealed that initially they did know where, how
and on which market to operate. The concentration on particular products and markets
came later as the company and their leaders matured.
Vision is usually specified through mission statement which expresses future goals in
the clear and understandable way for company employees and for the environment.
Following K. Obj`s definition of mission three conditions must be fulfilled in order to
consider the mission statement as an element of the company strategy:
- concerns the future
- expresses challenges that can be realized with the participation of the whole crew
21

Foltyn W. (2005) Finance and Banking. Unpublished European MBA III Edition
lecture handbook. Leon Kozminski Academy of Entrepreneur and Management,
University of Bradford
22
Chadwick L., Campbell W. (1998) Accounting and Finance. University of Bradford
23
Doyle P.(1998): Marketing Management and Strategy. Prentice Hall Europe
24
K. Obj (2001) Strategia Organizacji. Polskie Wydawnictwo Ekonomiczne.
25

- the process of mission realisation is credible


1.4.2. Segmentation
Despite the fact that customers have very diverse needs, it is very difficult for the
company to serve and meet all of them. This is why it is justified to divide the whole
number of customers into segments that represent similar needs and expectation. So
market segmentation can be defined as dividing a market into distinct groups of buyers
with different needs, characteristics or behaviour, who might require separate products
or marketing mixes 25
Other terms combined with segmentation are targeting and positioning
Market targeting is defined as the process of evaluating each market segments
attractiveness and selecting one or more to enter whilst positioning it is arranging for
a product to occupy a clear, distinctive and desirable place relative to competing
products in the minds of target consumers (...) 26
To consider one particular part of the market as a segment some condition must be
fulfilled. When the part of the market is 27:
stable
measurable
appropriate
unique
accessible
substantial,
then it can be treated as a segment.
The process of segmentation is different regarding consumer and industrial market.
Consumer markets bases for a segment creation are variables as follows: demographic,
socio-economic, personality, lifestyle and consumer life cycle characteristics.
Whilst consumer market can be defined on the basis of variables listed below: 28
industry type
company size
consumer location
company technology
purchasing organisation
purchasing policies

25

Kotler P, Armstrong G, Saundrers J, Wong W. (2001) Principles of Marketing.


Pearson Education Limited
26
Kotler P, Armstrong G, Saundrers J, Wong W. (2001) Principles of Marketing.
Pearson Education Limited
27
Rawel J. (2005) Strategic Marketing. European MBA III Edition, lecture handout
28
Hooley G., Saunders J, Piercy N (1998) Marketing Strategy and Competitive
Positioning. Prentice Hall Europe
26

Industry type:
The basic way to segment potential customers is the Polish Classification of Activities
PKD). The PKD Register defines different types of industries like for example 1524
represents MANUFACTURE OF BASIC METALS.
Company size
It is undisputable that big companies` needs differ from smaller ones expectations.
Important value can be the scale of the potential order. If there is highly justified
expectation of high scale of cooperation the potential supplier should take into account
the future quantity of the orders if supplier is not able to deliver as much as the
supplier expects to it can means that the cooperation in future will be break off .
Customer location
Location can be connected with specific needs or expectations displayed by potential
customers. Important variable is impact on costs of transportation and distribution.
Operating in one specific area may lead to cost reduction in comparison with the high
cost of delivering product to many different directions all over the country. Peculiarity
of one specific area, sometimes lead to the concentration of great number of potential
customers. From the chemical company point of view, in Poland such area covers for
example Silesia region.
Company technology
Customers using highly sophisticated devices, software or hardware usually expects
their contracting parties to represent the same level of technology. Good example is
TESCO that requires suppliers to operate electronic stock control and cross-docking to
avoid retail stockholding. 29
Purchasing organisation
The way how the process of purchasing is organised by the company allows create
separated groups of customers.
Good example is the group of customers that operate a Just In Time System. Such group
of customers expect of a very quick delivery which impacts on the supplier with
reference to number of goods or products in stock. This influences financial politics in
the supplier because higher stock requires extra funds and usually impacts on the
balance sheet in a negative way.
Purchasing policies
State-owned companies are obliged by the law to purchase via bidding. The procedure
of preparing documents by the bidder requires very high care due to the fact that even
small departure from the rules results in excluding the bidder from the participation in
the tender. So it is usually justified to group the state-owned companies in a one or more
homogenous segments and guarantee the highest level of services.
29

K. Obj (2001) Strategia Organizacji. Polskie Wydawnictwo Ekonomiczne.


27

1.4.3. Differentiation, Competitive advantage, Positioning


The first step of the positioning process is to find competitive advantage which is an
advantage over competitors gained by offering consumers greater value either through
lower prices or by providing more benefits that justify higher prices 30.
Such advantage becomes from product differentiation which means to offer wide
variety of extra features not provided by competitors.
After the product had been differentiated and the competitive advantage found, the
process of positioning may proceed.
According to F. Kotler product positioning it is the way the product is defined by
customers on important attributes the place, the product, occupies in consumer minds
relative to competing products 31. In other words product positioning it is the process of
building an image of the product in the customers mind that makes the client buying
the products.
So positioning supports customers in buying process by focusing on one particular
advantage of the products and freeing them from the necessity of making boring
analysis during the shopping whereby the process is faster and easier.
There are four keys to successful positioning 32:

Clarity
Consistency
Credibility
Competitiveness

Clarity
The statement on which the positioning is based must be relatively short and clear. Too
long statements will not be remembered by the potential customers owing to whom the
expected market position will not be achieved.
Consistency
Customers are rained with a huge number of pieces of information every day.
Advertisements, promotions new products etc makes it very difficult for something new
to breakthrough. So positioning decision must be well discussed by the management
before sending the massage to the market. Changing the main feature being the basis of
the competitiveness advantage and then positioning will undoubtedly results in failure
in sufficient positioning

30

Kotler P, Armstrong G, Saundrers J, Wong W. (2001) Principles of Marketing.


Pearson Education Limited
31
Kotler P, Armstrong G, Saundrers J, Wong W. (2001) Principles of Marketing.
Pearson Education Limited
32
Jober D. (2001) Principles and Practice of Marketing. McGraw Hill Publishing
Company
28

Credibility
Competitiveness advantage on which the positioning is based must be credible which
means that the company should not try to convince potential customer to new view of
something when it is generally known that it is not true.
Competitiveness
Customers should be provided with a product that has features expected by the
customers but are unattainable in rival products.
1.4.4 Venture Capital
Lack of equity on beginning of the company activity is a common problem. That
problem may be solved in many ways. A company may turn to a bank and apply for a
loan. But often appears that the company creditworthiness is not sufficient to get a
credit.
Even if the credit is granted a company is force to pay regular repayments every month
or quarter what requires high liquidity and influence the companys cash flow in a very
negative way.
Other way is to get an extra stakeholder who will invest his money and will support the
company liquidity or will finance indispensable investments. However such way of
getting extra funds is risky doe to the fact new stakeholder may try to take over the
company or fight for interesting positions in the firm like CEO etc.
Another way to use is the venture capital. It is distributed by specialised institutes that
invest money in companies that are no listed on the stock exchange. Venture Capital
companies` number one priority is to increase the company value year by year whereby
the shares or stakes value goes up and finally can be sold at a profit.
The advantage of the venture capital in relation to getting extra stake or shareholder is
that venture capital intentions are usually clearly explained on the beginning of the
cooperation. A company where venture capital is engaged may count on professional
support in business from the venture capital through specialists often becoming
members of the supervisory board.
The advantages of the venture capital versus bank credit are as follows 33:
Investor participate in the risk of the business he invest his money without any
guarantee that the fund will be repaid
The main objectives are the same fighting for developing companys performance as
quickly as possible.
Investor is a professional institution with a great experience in crating and developing
company value
Venture capital is able to accept businesses and companies that have no chances for
credits
33

Entrepreneur in the European Union URL:


http://www.mgip.gov.pl/NR/rdonlyres/A04B8135-7166-4DA6-B2514AF6A1F5456B/16477/Venturecapital1.pdf
29

Liquidity of the company does not suffer due to the lack of cash because venture
capital receiver do not have to pay any interest for the capital employed
Venture capital means not only extra funds but also support in management
In order to possess venture capital some conditions must be fulfilled:
Company applying for a venture capital must operate on growing markets
Competitive advantage of products offered by the applicant has to be significant (in
relation to rival products).
Management has to be as professional team
Development of the company must be quicker then in the whole industry
Market share is significant
1.4.5 Lean Method 34
This method was developed in 1990 by Prof. James P. Womack. The principles of such
method where included in the book The Machine that Changed the World (MIT
Press) 35.
The methods origin comes from Toyota experience in fighting with western companies
after the II World War. The main objective of the Lean Method is to lower production
cost by eliminating wastes of time, materials etc. from all available areas within the
company.
Basically, the Lean Method covers a lot tools to use in order to make the production
process more efficient. It focuses on the strict production processes like order taking,
level scheduling (orders versus demand), relations among work cells, matching parts
delivery with production demand, local quality assurance, proper placement of staff in
production etc. It also focuses on Just-in-Time systems whose shortly speaking main
advantage lies on the fact that there is no need to store parts in stockroom due to the fact
that supplier deliver appropriate amount of part on time.
Lean Method focuses also on the workplace organisation for productivity, quality and
safety. Suggestions how to organize a company according to such roles - the 5 S`s were
developed. The term 5 S`s comes from Japanese words which began with the sound of
s:
Seiri = sorting (organization) = get rid of everything useless (documents, tools etc)
and implement order in every area
Seiton = stabilisation, simplification (neatness) = make everything (tools, drawings,
files etc. clear and easy to find by every member of the particular process within the
company without extra explanations and personal assistance from other employee
Seiso = sweep, shine (cleanliness) = keep the factory clean, make legible roles for
cleaning (who, what and when)
34

Oppenheim B. (2005) Lean Methods. Unpublished European MBA III Edition lecture
handbook. Leon Kozminski Academy of Entrepreneur and Management, University of
Bradford
35
Description of the Lean Method URL:
http://www.lmu.edu/PageFactory.aspx?PageID=7437
30

Seiketsu = standardisation = implement control roles and procedures to make all


abnormalities visible
Shitsuke = self-discipline to sustain the first four S`s
From the CHEMICO point of view the 5 S`s seem to fit current companys needs and
this is why the implementation of the method will be developed is further part of the
thesis

31

2. BUSINESS PLAN FOR CHEMICO


2.1. Introduction
Business plan main objective is to support The Management of CHEMICO Ltd in their
decision making process. This study will focus on wide range of tools describing the
current activity and is going to be a kind of a roadmap for the future activity.
Trying to come up to the Management expectations the current thesis will be the guide
of how to expand successfully the business.
The general outline of the businesses plan is as follows.
First a detailed internal audit will be done, than external audit will be carried out. Next
step will be the SWOT analysis where observations from internal and external analysis
will be set together to draw the conclusions and establish the best future actions.
2.2 Company Description
2.2.1 Background
CHEMICO Ltd was founded in 2004 by two chemists with German nationality. The
foundation of the company was based on the observation of western chemical markets
and one of the most important triggers that lead to such decision was becoming Poland
the member of European Union with its standards in business.
Another circumstance that justified the market entry was the fact that there is a lack of
producers of sophisticated anti-corrosion products on the polish market.
2.2.2 Business activity
CHEMICO Ltd is a chemical company that operates on the anti-corrosion market and it
specializes in producing anti-corrosion products.
Headquarters of the company is located in Warsaw.
From the beginning the company has been managed very carefully with no spectacular
actions taken in order to gain new clients.
Through last two years CHEMICO Ltd was rather a kind of research institute focused
on market and environment observation than an aggressive company fighting at all cost
for the market share and for customers.
During this period the feedback from the market about products was of key importance.
Tens of questionnaires were sent to the prospects all over the Poland and quite high
percentage of them was filled in and sent back.
The last two years it was also the time of looking for the appropriate staff. For the time
being the position of CEO has been finally filled as well as computer scientist and two
chemists.
Simultaneously stakeholders managed to reconstruct the supervisory board by
employing specialist of business and finance.
Through last two years accurate offices has been hired in the business area in south-west
side of the Warsaw.

32

The office covers the places for the whole staff and also for the laboratory where
samples for clients and prospects are prepared as well as some new products are created
and tested.
CHEMICO has already launched two products:
TEX VCI
PLEX

TEX VCI is a special agent which production is based on unique VCI (Volatile
Corrosion Inhibitor) technology. TEX VCI used on the surface emits a kind of vapour
around the surface whereby corrosion can not develop (Appendix B)
PLEX is an agent whose main objective is to remove rust from the steel, metal or iron
surface. (Appendix C)

2.3. Mission and vision statements


Due to the physics aspects of steel, corrosion problems concern every company that deal
with steel or derivative products all over the world. For example, at present costs that
are caused by corrosion reach 4 % GDP in Great Britain 36. This is why in the future
CHEMICO ltd. is going to operate not only on the Polish market but also on other
countries such as European Union, Russia, Asia and other possible countries where
selling products will be possible.
CHEMICO`s vision statement is as follows:
We want to be a leading worldwide company and number one in Poland in anticorrosion sector

Basically corrosion problems may concern two cases:


- protection against corrosion
- removing corrosion
In fact there is a great number of very sophisticated aspects in each of such subjects.
For example 37:
Carbon-steel corrosion
Effect of cavitations on the corrosion behaviour
Epoxy ester resins as corrosion inhibitors for aluminium and zinc pigments
36
37

Edukacja Korozyjna (2006). Corrosion and Protection Centre Przemys Chemiczny


Corrosion Science (August 2006) URL:
http://www.sciencedirect.com/science?_ob=PublicationURL&_cdi=5570&_pubType
=J&_auth=y&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=4
fb11fda5da73fc33c24dc117ac60654
33

Biocorrosion of carbon steel


New thio-compounds as corrosion inhibitor for steel in 1 M HCl
Atmospheric corrosion of copper
Effect of nitrogen on crevice corrosion in austenitic stainless steel
Cavitations erosion behaviour of 20SiMn low alloy steel in Na2SO4 and NaHCO3
solutions
Erosioncorrosion of mild steel in hot caustic
Hydrogen entry into pipeline steel under freely corroding conditions in two corroding
media
etc
CHEMICO`s intention is to be a company that will be able to meet customers needs.
Its obvious that on the beginning CHEMICO will focus mainly on basic products and
niches (e.g. VCI).
Such attitude leads to mission statement as follows:
We want to provide our clients with wide range of products to meet all possible
corrosion problems that they can face
2.4. Internal marketing audit
2.4.1 Operating results
CHEMICO has not managed to expand its sales activity so losses were generated in
2004 (EUR 4.365) and in 2005 (EUR 27.153).
Fixed assets in the balance sheet amount to EUR 13.481 in the end of March whilst total
equity equals EUR 45.000
For Profit and loss account and balance sheet see appendix D and E.
2.4.2 Marketing Mix Effectiveness
PRODUCT
products meet the basic requirements TEX VCI successfully protect the surface
from the rust whilst PLEX removes rust from the surface
companys range of products does not include paper and foils with VCI such
products are offered by the majority of competitors operating on Polish market
generally speaking range of product is too narrow to compete with competitors
operating on Polish market.
there is no product for individuals
PRICE
PLEX and TEX VCI in the lights of other comparable products are the most expensive
on the market
Prices analysis was performed in two areas:
Prices among rival rust remover versus PLEX
TEX VCI price with reference to the main rival product produced by key competitor
OTIK Ltd.

34

During the marketing audit six companies, involved in offering rust removers were
found on the Polish market.
Prices (per litre) of their products are as follows:
Kleen-flo europe sp z o.o.
Zakady Chemiczne ORGANIKA SA
"CHEMA" Spdzielnia Pracy w Olesinie
WYTWRNIA CHEMICZNA DRAGON
Pol - Expo Eurocolor
Libella Sp. z o.o.
WD-40
CHEMICO

3,83
13,56
10,54
1,00
1,07
1,49
0,00
19,50

At present there is only one company on the polish market that offers similar product to
TEX VCI. Other companies sell combined products for example foils and papers
together with an anti-corrosion inhibitor.
Also in area of inhibitors CHEMICO`s product is much more expensive than rival one.
OTIK`s products price amounts to 21,09 per litre whilst PLEX`s price equals 39,94
per litre.
PROMOTION
Due to the fact that CHEMICO has not organised marketing campaign yet
CHEMICO`s brands (TEX VCI and PLEX) are not known on the market
For the time being two marketing action have been taken:
Mailing to prospects
Participation in fairs The art of conservation that concerned corrosion
problems of steel antiques
Mailing to prospects
During the action company leaflets and short information about the products were sent
via internet and post.
After the action some prospects responded by sending back the questionnaire included
in the mail
There where in total 45 answers (25 regarding TEX VCI and 21 regarding PLEX).

Bearing in mind the total number of prospects to which the offer was sent: 708 firm, 6,3
% of them where interested in the CHEMICO`s products.
The questionnaire being the basis of the survey prospects had some fields to fill in order
to specify their interests:

35

cooperation with CHEMICO


product demo
arranging for a salesman visit
product sample
technical specification
an offer
Results were as follows:
Prospects` interest:
PLEX
cooperation with CHEMICO
product demo

6%
8%

arrangement for a salesman visit


product sample
technical specification
an offer

3%
32%
29%
22%

TEX VCI
cooperation with CHEMICO
demo

11%
10%

Arrangement for a salesman visit


product sample
technical specification
An offer

9%
22%
24%
23%

36

Chart 2.1. Prospects response to survey

PROSPECTS` RESPONSE TO SURVEY

PERCENTAGE

60%
50%
40%

TEX VCI
PLEX

30%
20%
10%
0%
cooperation product demo arangement
with ACORR
for a
salesman visit

product
sample

technical
specification

an offer

FIELD OF INTEREST

Analysis of the chart gives the opportunity to draw some conclusions:


prospects are more interested in TEX VCI (protects against rust) rather than in PLEX
(removes the rust)
corrosion must be a problem due to high interest in product sample delivery
Unfortunately, the CHEMICO was not able to take advantage of the feedback from the
market due to personal changes.
Participation in fairs The art of conservation - corrosion problems of steel antiques.
After the exhibition additional 25 clients revealed an interest in CHEMICO`s products
DISTRIBUTION CHANNELS
As it was mentioned before a lot of efforts were put into organize the back office of the
company. Regarding trade aspects, marketing research and observation was of key
importance (even before the real sales). So visits to client were rather occasionally and
did not bring an extra sale.
So, no special distribution channels have been developed so far - products that have
already been sold where delivered directly by CHEMICO.
PEOPLE
The process of assembling the staff appeared to be more difficult that it was initially
expected by the stakeholders.
The most difficult was filling the position of CEO. In the course of last two years three
times different candidates were appointed to the position. The main cause of such
situation is the fact that at present time CHEMICO is not able to pay high salaries to its
employees. The pay that CHEMICO is able to offer is under the market average for
such position.

37

By now there was quite considerable fluctuation of personnel staff six persons
employed before resigned or were fired in the course of last too years. The positions that
the persons occupied were as follows:
Chief Executive Officer (2 times)
Product Manager
Secretary (2 times)
Sales Manager
At present time CHEMICO`s staff consists of:
- Chief Executive Officer
- Logistic Specialist
- Logistic Specialist Assistant
- Network Administrator
High fluctuation of the personnel staff must be considered as a big problem. It takes a
lot of time to initiate new employee what influences the company performance in a very
negative way. As it was mentioned before one of the main causes of such behaviour are
low salaries paid them for their work. Another important reason is the lack of visible
progress in company development. No current improvement, no sales, discourage the
employees and make that they become doubtful of the company success on the market.
Besides there is no justification for such positions as Logistic Specialist or Logistic
Specialist Assistant especially as those persons that occupy those positions in fact deal
with strict chemical problems but no with logistics. This is way there is a great need
to analyse skills and competencies of employed people in order to match people to
appropriate positions.
2.5..Market Analysis
2.5.1 Market description
CHEMICO is going to operate on industrial and consumer markets. However, in the
beginning, more actions will be taken on industrial market.
The core segments on which CHEMICO focuses in industrial market are:

steelworks

steel mills

foundries

shipyards

mines

other companies dealing with steel products or components


The company performance is highly related to the global condition of the market. Due
to the fact that corrosion concerns those industries that are involved in the processing of
metal in its basic state (pig-iron) and wide range of derivative products, justified is a
statement that potential demand for CHEMICO`s product is connected with trends in
the metallurgical industry.

38

World crude steel production in 62 countries, reporting to the International Iron and
Steel Institute, amounted to 103 million tons in July this year. It is 14,8 % more then in
the same month last year.
Production in Poland in July 2006 was 820 thousands tons and was higher than in the
some month 2005 by about 39 % 38
According to MEPS (leading independent supplier of steel market information) 39 total
production in 2006 is to amount 1.215 million tons and it will be 7,5 % more than in
2005 and it is going to be the fifth year of continues increase (year in, year out).
Table 2.1. Sold production of industry - manufacture of metal products (in mln)
1995

2000

2002

2003

2 351,53

5 862,58

6 866,90

8 210,37

Source: Ministry of National Education and Sport (2004) Statistical Yearbook. Ministry
of National Education and Sport for school libraries
Chemical business is also doing well. In the first quarter 2006 the production sold of
chemicals was higher by 11 % then in the same month 2005 40.
Table 2.2. Sold production of industry manufacture of chemicals and chemical
products (in mln).
1995
4 190,28

2000
7 014,23

2002
7 760,76

2003
9 096,98

Source: Ministry of National Education and Sport (2004) Statistical Yearbook. Ministry
of National Education and Sport for school libraries
Also Business tendency survey in chemical industry appeared to be the highest in the
course of 2005 and 2006
Good condition of the market justifies optimistic development of future demand on
CHEMICO`s products from orders placing by targeted companies and from companies
dealing with those big (mentioned above) companies like wholesalers selling sheet
metals, producers of tools as well as other firms closely cooperating with this sector.
2.5.2 PEST
The PEST analysis applied to CHEMICO gave the following scores:
38

Polish Union for Steel Distribution (August 2006):


http://www.puds.com.pl/wiadomosci.php?mode=show&id=2229&sid=394a121e04a0
eb08f9c2a9b5cf9fcfc9
39
GLOBAL CRUDE STEEL PRODUCTION WILL TOP 1.2 BILLION TONNES THIS
YEAR URL: http://www.meps.co.uk/
40
Outlays and results in industry in I quarter of 2006 (August 2006) URL:
http://www.stat.gov.pl/english/dane_spolgosp/prod_bud_inw/naklady/2006/1q06/index.htm
39

POLITICAL
unstable political situation resulted from the risk of parliamentary elections
high risk of destroying business relation in the aftermath of new elections - a lot of
companies belonging to the group of potential customers and operating on industrial
markets, are state-owned companies whereby there is high risk of potential great
number of dismissals on the managerial positions in those companies what can result
in destroying business relation.
privatisation process in the metal sector goes on. This justifies the expectation that
efficiency of privatised companies will go up finally increase demand in the market
ECONOMIC
boom in the metal sector
low interest rates
stable monetary situation
low inflation rate
SOCIAL
high unemployment rate more opportunities to employ experts and specialist that
meet the companys requirements
TECHNOLOGICAL
production process requirements forces makes all companies dealing with steel
products and using steel as components to use anti-corrosion products. For now better
method then based on VCI has not been inverted yet.

2.5.3 Stakeholder analysis


From the CHEMICO point of view such types of groups can be defined:
customers
government
employees
owners
National Institute of Hygiene
Table 2.3. Stakeholder matrix
STAKEHOLDER
TYPE
PRIMARY
Customers
X
Government
Employees
X
Owners
X
National
Institute
of
Hygiene

SECONDARY GENERIC SPECIFIC


X
X
X
X
X
X
X

The most important stakeholders are customers. Their expectations influence the
CHEMICO`s business activity directly.

40

2.5.4 Competition
Marketing research that has been done so far by CHEMICO revealed quite significant
competitive advantage. It comes from the fact that there are no producers of VCI
products located on the Polish market. All companies operating in Poland are only
representatives of foreign companies with headquarters located in other countries
usually in the USA (e.g. Maverick, Excor).
Localisation of production plant such long way from the client makes the whole process
of distribution very time-consuming. Moreover products offered by competitors are
produced as rather long batches so tailoring is a problem.
CHEMICO is able to customize its product and due to the know-how and great
expertise of the founders in chemical aspects, can create suitable product base on VCI
technology.
However, there are no producers of anti-corrosion products on the polish market but
there are many competitors offering wide range of standardized rival products.
List of competitors:
1. OtiK Spka z o.o.
Hutnicza 4 Street
81-061 Gdynia
http://www.inhibitory.use.pl/index.php
2. Kleen-flo europe sp z o.o.
Kunicy Kotajowskiej 13 Street
31-234 Krakw
http://www.inhibitory.use.pl/index.php
3. Zakady Chemiczne ORGANIKA SA
http://sklep.organika.com.pl
4. MAVERICK
Pozna
Wieruszowska 12/14 Street
www.maverick.pl
5. Excor sp. z o.o.
94-204 d
Jarzynowa 50 Street
http://www.excor.pl/
6. ABEST SP. Z O.O
Poselska 12/32 Street
42 200 Czstochowa
http://www.cortec.pl
7. Instytut Mechaniki Precyzyjnej
http://www.imp.edu.pl/
8. "CHEMA" Spdzielnia Pracy w Olesinie
Olesin

41

Paacowa 41,42,53 Street


05-311 Dbe Wielkie
http://www.chema.com.pl
9. KENMIX
Witold Matusewicz
Bogatyska 3 /17 Street
01-461 Warszawa
http://www.kenora.com.pl/index.php?view=branopac
10. Ashland Poland Sp. z o.o. Dzia Valvoline Polska
Jutrzenki 75 Street
02-230 Warszawa
http://www.valvoline.pl/index.html
11. WYTWRNIA CHEMICZNA DRAGON
Szczyglice 299
32-083 Balice
k/Krakowa
http://www.dragon.biz.pl
12. Pol-Expo Eurocolor
91-336 d
Gliniana 61 Street
www.polexpo.com.pl
13. Libella Sp. Z o.o.
02-255 Warszawa
Krakowiakw 80/98 Street
http://www.libella.com.pl
14. PHU AVE
Pokoju 3/5 Street
40-859 Katowice
http://antykorozja.com
15. WD - 40 Company Ltd WD-40 Customer Relations
P.O. Box 80607
San Diego, CA 92138-0607
USA
http://www.wd40.com/AboutUs/index.html

The majority of competitors offer one or two specific products, two competitors have
wide range of products (OTIK ltd and ABEST Ltd) for detailed information about the
product range see Appendix F.

42

Strategic groups analysis


Variables:
Income
Involvement in anticorrosion sector (what number of products company offers?)
Scale of company activity diversification (does the company operates only on one
anticorrosion sector or on many sectors)
Price
Digits in the circle represents a company from the above list.

Chart 2.2 Strategic group: income versus range of products


Number of products
offered by the company

7
6
5

4
7

3
2

12

13

11

10.000.000
< 10.000.000 50.000.000

50.000.000 <
INCOME

43

Chart 2.3. Strategic group: income versus activity diversification


Degree of activity diversification

High

1
Medium

Low

INCOME

10.000.000 - 50.000.000 <


50.000.000

< 10.000.000

Chart 2.4. Strategic group: income versus price


Price

High

Medium

13
11

Low
12

< 10.000.000

10.000.000
50.000.000

INCOME

50.000.000 <

44

Those three charts presented above help to show relation between mentioned earlier
variable. We can observe how different strategies influence competitors` performance.
One particular chart not always gives appropriate answer. For example according to
Chart 2.2 we find out that some companies that offer only few anti-corrosion products
generate relatively high or low income (strategic group colour red and blue). Such
single piece of information does not allow to draw a strategic conclusion. But if we
compare that chart with other, regarding for example relations between income and
current business activity diversification, we will discover interesting link. Companies
that diversify their activity and simultaneously focus on one or two products, generate
the highest incomes.
However Chart 2.4. does not present so clear groups but also gives the opportunity to
draw a conclusion: two opposite pricing strategies (either low or high) lead to the same
company performance ( Organika versus Libella).
Thus strategic group analysis showed that highly diversified activity generates high
incomes. Moreover developing wide range of products does not increase companies`
performance. Just the opposite, focusing on one particular product and maximising the
sales, leads to strong market position and high performance.
In current situation on the market two companies clearly excel in achieving market
goals:
Zakady Chemiczne ORGANIKA plc
Libella Sp. ltd
Both this companies operates on many industries and in anti-corrosion sector and offer
one or two products.
2.5.5 Porters Five Forces 41
Barriers to entry.
From the point of view of establishing in the market new production company, market
barriers to entry are high. The most important variable is the know-how that the
potential entrant must possess.
Anti-corrosion products production process requires an expertise and permanent
support of chemists.
Also, professional equipment is needed as well as special lab must be equipped with
professional devices including special filters used in piping out chemical sewage.
Barriers to entry are lower when a foreign company enters the market via agents or
franchising. But still launching new product in the market is not an easy matter as a
result of the certificates required by the state institutions e.g. National Institute of
Hygiene.
From such company point of view, potential establishing of a subsidiary in Poland boils
down to hiring appropriate stockroom and fitting it with products imported from the
central warehouse.
Conclusion:

41

Obj K. (1988) Strategia Organizacji. Polskie Wydawnictwo Ekonomiczne


45

Know-how, special equipment, expertise and certificates make the process of entry
sophisticated whereby number of potential competitors is limited.
On the basis of the barriers/profitability matrix can be created. As it was mentioned
earlier this method takes into account two variables: entry and exit barriers and gives the
opportunity to predict expected profitability in the sector.
Assuming that there are high exit barriers in the chemical sector the matrix estimates
that expected CHEMICO`s incomes will be high and risky.
Substitutes
There is no substitutes that perform the same functions as the core product offered by
CHEMICO - TEX VCI
However market analysis showed that in the group of rust remover there is a great
number of substitutes.
The strongest group of substitutes are for example products based on phosphorous acid.
Such products are caustic unlike the PLEX VCI.
Conclusion: very low influence of substitutes in core product area, low/medium threat
in rust remover area.
Supplier power
Components used in production process are highly sophisticated so stocks of them are
limited even throughout the Europe. Owing to this, orders must be placed in advance
and in different countries located all over the world.
Conclusion:
High supplier power
Buyer power
CHEMICO is going to focus on industrial and consumer market. In both these segments
CHEMICO will offer its products to big companies:
- industrial market
steelworks
steel mills
foundries
shipyards
mines
Conclusion:
High buyer power
Rivalry
Competition within the anti-corrosion products is stable number of competitors has
not changed for years. The market is filled with well-known brands like WD-40 or
FOSOL and other specialist products existing on the market for years.

46

According to marketing researches done by CHEMICO, prospects are highly tied to


standard products that they have been baying for last e.g. 10 years.
The Porters five forces analysis summary:
Figure 2.1. Porters five forces analysis - summary results

BARRIERS TO ENTRY

HIGH

SUPPLIER
POWER
HIGH

RIVALRY
STABLE

BAYER POWER
HIGH

SUBSTITUTES
LOW/MEDIUM POWER - RUST REMOVERS
NO SUBSTITUTES -VCI

Source: Obj K. (1988) Strategia Organizacji. Polskie Wydawnictwo Ekonomiczne


Results from the Porters analysis will be included in SWOT analysis and will be the
base for strategy development.
2.6. SWOT Analysis
Strengths and weaknesses included in TOWS/SWOT analysis are based on
benchmarking. The point of reference is main competitor in the industry ORGANIKA
SA.
STRENGTHS
Ownership of the know-how the company has worked out the unique
recipe for anti-corrosion products.
Tailoring and customising : ability to work out a lot of modifications of
the products following customers expectations
Short time of delivering customised products production is located in
Poland
Ability to produce short batches low fixed cost
Flexibility small company allows to adjust to market requirements

0,2
0,4
0,25
0,05
0,1

WEAKNESSES

47

Limited production capacity


lack of equity in case of quick company development necessity
Narrow range of products (specially no foils and papers with VCI)
At present support of know-how regarding distribution channel, trainings

0,3
0,2
0,4
0,1

OPPORTUNITIES
Trying to change technologists minds to induce them to buy new, better
products to be used in the production process and to encourage them to
think more and act in anti-corrosion fields (in order to create extra needs
for products)
lower quality of rival companies` products
boom on the market in steel sector
positive respond from the market after mailing
problems of corrosion hits every company dealing with steel
corrosion generates measurable costs within company
no company in the Polish market is involved in the production of anticorrosion products
no substitutes exists in VCI area

0,15

0,05
0,25
0,05
0,15
0,15
0,15
0,05
1,00

THREATS
rival companys attack to destroy company (black PR, dumping etc.)
bureaucracy when applying for permits and certificates
unstable situation on political scene new election may destroy business
relation with potential state-owned customers.
increase in prices of raw materials
backward integration threat
forward integration threat

0,4
0,05
0,05
0,2
0,15
0,15

Results 42
Strengths/Opportunities
TOWS
Number of interaction: 70/2
Weighted number of interaction: 11,75
TOWS/SWOT number of interactions: 136/2
TOWS/SWOT weighted number of interaction; 23,1
SWOT
Number of interactions: 66/2
Weighted number of interactions: 11,35
42

based on K. (1988) Strategia Organizacji. Polskie Wydawnictwo Ekonomiczne


48

Strenths/Threats
TOWS
Number of interaction: 24/2
Weighted number of interaction: 4,65
TOWS/SWOT number of interactions: 42/2
TOWS/SWOT weighted number of interaction; 8,8
SWOT
Number of interactions: 18/2
Weighted number of interactions: 4,15
Weaknesses/Opportunities
TOWS
Number of interaction: 8/2
Weighted number of interaction: 1,7
TOWS/SWOT number of interactions: 24
TOWS/SWOT weighted number of interaction: 4,5
SWOT
Number of interactions: 16/2
Weighted number of interactions: 2,8
Weaknesses/Threats
TOWS
Number of interaction: 16/2
Weighted number of interaction: 4,3
TOWS/SWOT number of interactions: 407/2
TOWS/SWOT weighted number of interaction: 10,1
SWOT
Number of interactions: 24/2
Weighted number of interactions: 5,8
CHEMICO should implemented aggressive strategy that maximizes synergy effect
between Strengths and Opportunities (detailed analysis is included in Appendix F)
Actions to take according to the strategy:
Taking advantage of opportunities that occur on the market
Strengthening market position
Focusing resources on the most competitive products
Taking over other companies operating on the same industry

49

3. CONCLUSIONS AND RECOMMENDATION


3.1 Conclusions
CHEMICO was founded in 2004. Since that time it has managed to organize the back
office: office, furniture, computer network etc, letterheads, business card etc. Moreover
first marketing research has been done as well as mailing and finally first product has
been sold.
However due to the fact that the sales through the last two years were minimal and
bearing in mind findings from the audit that has been done in this thesis its high time to
perform significant changes in current strategy, management and organisation of current
activity.
Number one priority is to build sales forces. It is unacceptable to tolerate the total lack
of salesman or agent whose main duty is to maximise the sale day by day. Now there is
no one with such responsibility. Theoretically CEO should arrange for the sales visits
with prospects but in fact his main duty now is dealing with documents within the
company as well as fighting with accounting problems regarding previous years.
Second step of the reorganisation is to match people with duties and responsibilities
needed by the company. First of all there is a question why company employs two
chemists whilst it is obvious that all expectations in such area (preparing samples,
mixing components etc) may be performed by one person at the most. There is a place
in CHEMICO for a chemist but two persons in such positions is just a waste.
Chemists should be employed as sales persons and should visit prospects promoting
CHEMICO`s products.
Other area of the company that does not meet the expectation is secretary that has been
fired lately. Looking at a mess in companys documents (invoices, minutes, reports etc.)
a certain conclusion can be drawn the person was too poorly involved in company
problems. The best solutions it to employ a true Office Manager whose main duty will
be to take care of all company documents and prepare them to be submitted to the
bookkeeper that cooperates with CHEMICO. CEO number one priority should be
running business i.e. planning, organising, motivating and controlling current activity
with placing emphasis on sales. CEO cannot waste his time on collecting documents
together putting them into file binders and on submitting documents to bookkeeper as
an office boy this is the duty of the Office Manager or Secretary.
Apart from organisational problems, aspects regarding core strategy assumptions are of
key importance and require new attitude.
The initial assumption to create success through widening the range of products via
customising and tailoring has not been proved as an efficient strategy in market
environment analysis. In the contrary to such assumptions better strategy appeared to be
the approach based on good product differentiation (following customers expectations)
and maximising the sales of the product. Conclusion no wide range of products and
focus on short batches but more narrow range and more effort in selling this particular
product.

50

Other solution is to accompany such strategy by current activity diversification. This


means that focusing only on anti-corrosion problems may specify some constrains of
further development. It may appear that having such company potential, products, staff
etc. CHEMICO will not be able to exceed a given level of sales due to entry barriers,
lack of equity etc. Thus CHEMICO should diversify its activity by focusing
simultaneously on other industry like for example chemicals that can be applied to
wood. It is also justified that new industry not necessarily has to refer to chemicals it
can be quite different sector in which CHEMICO may succeed. Especially as some
initial effort was put on searching IT sector and some chances were identified in area of
rival products to operating system Windows.
Another problem within the company is the general feeling that there is kind of mess in
the area of documents, stockroom and roles of the work. This is why there is a very
strong need to implement some aspects of the Lean Method.
3.2. Recommendations
3.2.1 Segmentation
As CHEMICO is still at the stage of doing marketing research, segmentation should be
done in two ways.
First a principle factor industry type - should be the basis for marketing segmentation.
The best way to perform segmentation according to such feature is PKD register,
described earlier in the thesis.
As potential clients 43 three sections should defined:
Subsection 27: MANUFACTURE OF BASIC METALS 617 prospects
Subsection 28: MANUFACTURE OF FABRICATED METAL PRODUCTS,
EXCEPT MACHINERY AND EQUIPMENT 5.954 prospects
Subsection 29: MANUFACTURE OF MACHINERY AND EQUIPMENTS 3.452
prospects
Simultaneously company should prepare special offer for listed below companies 44.
steel mills 17 prospects
foundries 166 - prospects
shipyards 38 prospects
mines 1865 prospects (include mines and cooperating companies)
First way main objective is to search the market in order to find attractive niches to
serve. It results from the general strategic assumption that limited resources available at
43

The detailed list of prospects is available for free in sites of HBI Poland URL:
http://hbi.pl/?prd=1&sekcja=bazafirm&lang=ang
44
The detailed list of prospects is available for free in the sites of HBI Poland URL:
http://hbi.pl/?prd=1&sekcja=bazafirm&lang=ang as well as on sites Panorama Firm
URL:
http://www.pf.pl/portal/YPSimpleSearch?referee=&pageaction=&finaction=YpSearc
hS&keyword=kopalnie&city=

51

present in CHEMICO do not allow to pursue the whole market or large segments of the
market.
Second way means focusing on niches that have been already are recognised on the
market.
Finally CHEMICO will be able to deal with great number of small segments that
include sectors that potentially have to face corrosion problems every day.
3.2.2 Marketing Mix
3.2.2.1 Product
Strategic group analysis revealed that the most effective strategy that results in high
scale of income, is strategy based on one or two products but not on widening the range
of products at all cost.
Two companies Zakady Chemiczne ORGANIKA SA and Libella Ltd generate the
highest income but offer just one or two anti-corrosion products. Other companies, and
especially OTIC with a wider range of product generate incomes significantly lower
then those two leaders.
Such strategy must be accompanied by other strategy: diversification of current activity
and operating on different markets.
According to strategic group analysis those companies which diversified its activity
increased their performance.
Those who focused only on anticorrosion have not achieved impressive results.
From CHEMICO`s point of view problem with strategy is a little bit complicated due to
the fact that CHEMICO`s competitiveness advantage is the ability to tailor and
customize products in order to meet customers needs. Such offer will definitely lead to
wide range of products and short batches what contradicts the results of strategic group
analysis.
So the core strategy for products must be a combination of competitive advantage and
suggestions from the market.
The best strategy should cover steps as follows:
create a need for anti-corrosion products (explain to the prospects that tolerating rust
is more expensive that protection against it)
develop well customised new product (or modification of current products) based on
customer acceptation (use company experience in chemistry and the fact the new
product may be produced in the company)
create list of companies that represent similar needs
maximise the sale of this product
As it was said, CHEMICO aim at special niches where the ability to produce highly
customised product is used. This is for example special mixtures used in the process of
machining where this liquid is used to cool the piece of metal being under the
processing. The combination of CHEMICO`s products makes the liquid that not only
cools the piece of metal efficiently but also protects the surface against rust whereby at
least one stage of production process can be eliminated.

52

In such process of creating highly customised products CHEMICO is expected to be


unbeatable due to the fact that is able to invert products with needed features in a
relatively short time and deliver it to the customer.
Competitors trading in the Poland market via agents and franchising base their offer on
highly standardized products produced in big batches outside the home market.
Conclusion:
CHEMICO should focus on the ability to develop almost every product to solve
corrosion problems of company clients but then should concentrate on maximising the
sale of the products to other client rather that trying to develop another product for next
customer.
Simultaneously CHEMICO should diversify its activity by focusing on different
industry, instead of operating only in the steel market. The company should try meet
needs for chemical in the wood market.
3.2.2 2 Promotion
Due to the fact that CHEMICO operates on industrial market preferred promotion
techniques are as follows:
personal selling it is worth spending time on trying to make a deal with one of the
prospects from the target market (e.g. steel mill, foundry etc.) because such
cooperation may satisfy one year production target
participation in fairs (corrosion and steel) in Poland and Europe
conventions and trade shows
creating and developing corrosion anti-associations is one of the main tools to create
needs for anti-corrosion products. Such association should gather scientist,
entrepreneurs from chemical and steel industries. Number one priority of such
organisation is education about corrosion costs and impact on business activity of
companies.
3.2.2.3. Price
Prices has to be lowered because at present CHEMICO`s products are the most
expensive on the market. High prices can not be justified by the current market position
of CHEMICO that is not strong. The company is not able to implement skimming
strategy because product that has been launched so far by CHEMICO do not exceed
other rival products significantly from the efficiency point of view.
Besides current margin amounts to 50 % of the product price and in order to make the
products` prices competitive it should be reduced to 20 %.

53

Using cost-plus pricing method prices should amount to:


PLEX
Unit cost
Mark-up price 45 = ------------------------------(1 desired return on sales)

9,54
= -------------------- = 11,92
(1 0,2)

TEX VCI
Unit cost
19,58
Mark-up price = ------------------------------- = -------------------- = 24,48
(1 desired return on sales)
(1 0,2)
3.2.2.4 Place
CHEMICO is not going to involve intermediaries in the process of delivering goods. As
personal marketing will be the main way of contacting companys every single sales
representatives will be in constant contact with each client from his portfolio. This is
why no intermediaries are necessary because at the beginning all orders will placed via
sales representatives. Letter when the number of clients will go up a Purchase Manager
will be employed and his main duty will be dealing with orders.
2.2.2.5 People
Company success will never come unless the appropriate staff is employed. Current
structure does not ensure the expected progress.
At present CHEMICO`s staff lacks some important positions such as:
Sales Manager
Sales Representatives
Product Manager
Office Manager
Besides, positions of two chemists that are currently hired as Logistic Specialist and
Logistic Specialist Assistant should be renamed into Chemist, Junior and Senior
because at present they have nothing to do with the logistics.

45

Kotler P, Armstrong G, Saundrers J, Wong W. (2001) Principles of Marketing.


Pearson Education Limited

54

The best structure for current activity would be then as follows:


Figure 2.2 Organisational structure
Chief Executive Officer
Office
Manager

Sales
Manager

Product
Manager

Chemist

Comp. Network

Administrator

Sales
representative

Sales
representative

The problem now is that there no sales of products. From time to time some small
quantities of product are sold but in fact there is a great stagnation in this area.
The main cause is lack of professional staff dealing with sales. So recruiting such
people is now an urgent matter.
3.2.3 Competitiveness advantage, positioning
As it was mentioned earlier competitiveness advantage (i.e. the ability to widen the
range of products) has not been justified through marketing analysis. The fact
CHEMICO is able to produce wide range of products may appear not to be the
sufficient advantage especially that all measurements point out that it is better to focus
on one particular product. From that point of view the fact that CHEMICO is a producer
company is a kind of competitive advantage due to the fact that it gives opportunity to
imitate existing product on the market produce it and sell, trying to squeeze out rival
product.
Relatively low fixed cots are another competitive advantage due to the fact that is easy
to adjust to market requirements. It does not mean simultaneous short batches or wide
range of products. It is quite possible that when the company flexibility will allow to
create or find high demand for CHEMICO`s products whereby a mass production of
one or two core products will start.
It is important that there is no competitor who produces VCI products in Poland. All
companies operating in polish market are a kind of intermediary of companies located
outside the Poland.

55

Delivery time and standardisation lead to weakening the competitors power. Moreover
the fact that competitors operate on foreign market and are offering specific and
difficult to change range of products give CHEMICO competitive advantage of
flexibility and short time reaction to the market needs.
Thus through the competitiveness advantage CHEMICO will be focused on positioning
its products in clients and prospects minds by stressing (used in every kind of
promotion) listed below features:
high quality
short delivery time
flexibility in producing products that fit the customer`s needs best if necessary
expected product will be invented and than produced
3.2.4 Lean Method
During the internal audit the general mess has been detected within the company. All
important documents and files have not been in proper order. There was a great problem
to find such minutes from the Supervisory Board Sessions, invoices, agreements, lists of
prospects etc. In the production area which is close to the stockroom many useless parts
and things where found. Boxes, containers, cables, computer hardware etc, where mixed
in the same area with end-products, components and samples. There was even a
problem to give the exact amount of the current stock.
Such situation creates high need to implement the 5 S`s suggestions included in the
Lean Method.
Actions to be taken:
Sorting:
Remove everything what is not needed to the proper functioning of the office and the
production (useless pieces of furniture, chemicals, computer equipment etc.) available
at the moment in the company
Sort necessary equipment with w proper order:

Files (confidential, available to everybody)

Financial documents

Chemicals

Tools

Samples

End-products

Packaging
Perform the stocktaking
Fit the rest areas with flowers
Keep encouraging employees to follow such rules
Back up your data
Stabilize
Create visible tags to make it easy for everybody to get necessary documents and
other equipment

56

Write down visible instructions on the files and drawings on how to store it after work
(specially chemicals and special tools to deal with chemicals)
Sweep and shine
Impose duty hours (i.e. responsibility) for every employee to keep the office area
clean
Let the CEO set a good example and arrange sometimes e.g. files before employees
very eyes
Reword employees for every suggestion that leads to better cleaning
Standardisation
Use labels that emphasise employees responsibility
Generally use colours and symbols when developing the responsibility area and to
facilitate looking for needed equipment or documents
Take care of safety:
use necessary sings high voltage, fire extinguisher, escape routs etc.
mark danger zones especially regarding caustic chemicals
Force people to use safety clothing when dealing with dangerous chemicals or fire etc.

Self-discipline
Train new employee in the 5 S`s application
Control constantly if the rules are really used by employees
3.2.5 Financial Plan
(Projected statements are included in Appendices G balance sheet and H income
statement - CHEMICO `s financial year does not cover calendar year and lasts from
march to march each year).
Financial plan includes recommendations mentioned above.
In next financial years CHEMICO plans a visible progress in company performance.
Chart 2.5. Expected income in years 2006-2010
Sales Revenue

sales revenue

800 000,00

753 106,56

600 000,00
400 000,00

376 553,28
251 035,52

200 000,00
0,00

369,17
2006/2007

2007/2008

2008/2009

2009/2010

financial year

Sales Revenue

57

Assumptions for the development: there are 10.023 potential companies on the market.
After action (sending offers via internet) 5 % i.e. about 500 will respond. 10 % of the
500 prospects place an order for about $6000 (per year).
3.2.5.1 Financial year 2006/2007
No change in company performance is planned because a lot of necessary organisational
changes have to be performed first. It was assumed that financial outcomes will remain
on the same level as in previous year.
3.2.5.2 Financial year 2007/2008:
Strategic plan for CHEMICO will be put into practice in October - to the end of
financial year remains six months. By the end of September no special reorganisation is
planned - current financial year will be intended to perform indispensable changes and
reorganisation. Key task for that period is to rebuild the team, especially sales force has
to be employed. Simultaneously first step of segmentation will be done and a mailing
sent to prospects segmented according to PKD.
Such actions will exert an impact only on income statement while balance sheet will not
change significantly.
Main items to change in profit and loss account are as follows:
Salaries will go up (after new sales team will be employed)
Overhead will go up extra expenditures on current activity (stationery, letterhead,
toners, extra phone calls etc)
Sales force will get regular salary and a bonus 10 % of the gross sale
All organisational aspects will be completed by the end of current financial year, so the
main focus will be put on that area as well as on developing the sales. This is why the
sale in year 2006/2007 is planed to amount to about $17.000

3.2.5.3 Financial year 2008/2009


In this financial year many changes may occur in income statement and balance sheet:
Equity will go up management is going to win extra funds from Venture Capital or
Angel financing
Fund form Venture Capital will be spent on:
Vehicles for sales force and management
Office and lab equipment
Sales will go up (and costs of good sold)
Depreciation will take affect after cars are bought
Venture capital mentioned above is of key importance for the business development.
Management of the CHEMICO should focus on that issue immediately because usually
negotiations with venture capital company may last a couple of months.

58

Here are three contacts to some companies that specialise in granting venture capital 46:
Polish Private Equity Association (PPEA),
53 E. Plater Street (31nd floor),
00-113 Warszawa
phone: +48 22 458 84 30
e-mail: psik@ppea.org.pl
www.psik.org.pl
Polish Business Angles Network
393 Forodyska Street
85-766 Bydgoszcz
phone: + 48 52 34 71 481
e-mail: sekretariat@polban.pl
www.polban.pl
Lewiatan Business Angels (LBA)
6 Klonowa Street
00-586 Warszawa
phone: + 48 22 845 95 96
www.lba.pl
3.2.5.4 Financial year 2009/2010
Further increase is predicted due to stronger market position.
3.2.6 Projected Cash Flow (Appendix I)
Cumulative net cash from operating, investment and financing activities is positive in
projected periods which means that the company will have liquidity and will not suffer
from the lack of cash for current activity.
3.2.7 Break Even Point (BEP), financial year 2007/2008
FC =
WMB =
BEP

37 847,08
0,20
189 175,24

PLEX
P=
VC =
C=
BEP=

46

11,92
9,54
0,20
37 835,05

Bartczak I.D. (2006) Honour, Property and Prospects: Forbes No. 09/2006
59

TEX VCI
P=
VC =
C=
BEP

24,48
19,58
0,80
151 340,19

According to the BEP analysis in order to cover cost CHEMICO has to produce and
sale at least 189 175,24. Total sale for financial year amounts to 251 035,52. So, the
planned sale can be lower by 33 % and still cost will be covered.
3.2.8 Ratios (Appendix J)
Ratios analysis shows that current CHEMICO`a current financial situation in financial
year 2006/2007 is rather poor. Operating performance ratios are negative, liquidity
ration are below model value 1 and asset turnover (total asset utilisation) shows
relatively low sales is generated by each euros worth of assets.
The CHEMICO`s performance is improved in next periods and ROI for example equals
11 % what is at least 100 % then the highest risk free rate available on the market,
liquidity ratios exceed a couple of times minimum (1) and sales generate no less then
1,74 on every 1 euro invested in the company.

60

APPENDIX A PROJECT PROPOSAL

Name:

Roman Cielik

Project Title:

Optimising growth and development of young company starting


its activity on the Polish market Business Plan for CHEMICO
Ltd

Supervisor:

Andrzej Kumierz, Alex Mohr

Company:

CHEMICO Ltd

Submission: September 2006

1 Scope/Rationale of Project
CHEMICO Ltd has just completed the process of establishing company on the polish
market. Now, it has to speed up its growth in order to reach economic objectives like
profit and market share in near future.
The project will review all aspect of the business activity and develop solutions leading
to the achievement of the goals.
In particular such areas will be analysed: products and services, market analysis,
strategy and implementation, team management, marketing 4 p, financial plan and
competition.
2 Methodology
The project main objective is to provide CHEMICO`s management with a specific and
useful tools to the implementation in real live. It is expected to be a guidebook how to
expand the business activity in order to achieve company goals.
For every company area, an internal audit will be done then specific tools, based on the
literature, will be worked out.
3 Data Sources
Primary information
Interviews with CHEMICO staff
Customers comments on products (questionnaires)
Sales Representatives reports
Secondary information
Industry/market reports
Central Office of Statistics reports

61

4. Aspects of MBA Syllabus Used


The project will involve aspects of the core courses in:
Finance and Banking
Accounting
Strategic Marketing
Principles of Management
Quality Management

Proposed Chapter Headings and Sub-Headings


1. INTRODUCTION
1.1. main objectives of the business plan
1.2. metodology
2. COMPANY DESTCRIPTION
2.1. background
2.2. business activity
2.3. vision
2.4. mision
3. EXECUTIVE SUMMARY
4. INTERNAL MARKETING AUDIT
4.1. Operating results
4.2. Strategic Issues Analysis
4.3. Marketing Mix Effectiveness
5. MARKET ANALYSIS
5.1. Macroenvironment
5.2. Competition
5.3. Target Market
5.4. Competitor Targets
5.5. Competitive Advantage
6. SWOT ANALYSIS
7. STRATEGY AND IMPLEMENTATION - MARKETING MIX DECISION
7.1. Product
7.2. Promotion
7.3. Price
7.4. Place
7.5. Physical Evidence
7.6. People
8. FINANCIAL PLAN
9.1 Projected Balance Sheet
9.2 Projected Profit and Loss Account
9.3 Projected Cash Flow
9.4 BEP analysis
9.5 Ratios
9.6 Loans
9. CONCLUSIONS AND RECOMMENDATIONS
Appendices and Bibliography

62

1. Graham Hooley, John Saunders: Marketing strategy and competitive positioning


- Harlow: Pearson Education , 1998
2. Julian Rawel (2006), Strategic Marketing lecture handout EMBA, III edition at
LAKEM Warsaw
3. Dr Bill Neale. (2005), Strategic Financial Management, lecture handout EMBA,
III edition at LAKEM Warsaw
4. Ross SA, Westfiled R.W., Jaffe J. Corporate Finance, 7 th edition, McGraw
Hill, New York 2005
5. Waldemar Fotyn (2005), Finance and Banking, lecture handout EMBA III
edition at LAKEM Warsaw
6. Jonathan T. Scott (2004), Principles of Management, lecture handout EMBA, III
edition at LAKEM Warsaw
7. Leslie Chadwick, Iain Ward-Campbell, Accounting and Finance, Bradford
University of Bradford
8. David Jobber: Principles and Practice of marketing 3th edition 2001, McGraw
Hill
9. Doyle, Peter, Marketing Management and Strategy, 2th edition, Prentice Hall
10. Kotler, Philip, Marketing Management, McGraw Hill
11. Paliwoda and Thomas, International Marketing, 3th edition, Butterworth
Heineman.
6. Work Programme
Project proposal

20/04/2006

Feedback on Project Proposal from Supervisor

30/04/2006

Gathering data

19/05/2006

Analysis and interpretation of data

16/06/2006

First draft

30/06/2006

Revision and improvement of project

14/07/2006

Draft after improvement

31/07/2006

Further improvements, submission of final project

31/08/2006

Contacts with Supervisor

19/05/2006
16/06/2006
30/06/2006
14/07/2006
31/07/2006
18/08/2006

63

APPENDIX B PRESENTATION OF TEX VCI EFFECTIVENESS.


Period of the test: 2006/06/29 2006/08/15

A piece of metal in water with TEX VCI

A piece of metal in water no extra additives

Source: CHEMICO`s samples

64

APPENDIX C PRESENTATION OF PLEX EFFECTIVENESS

Date of test: 2006/08/15

Three rusty pieces of steel treated by PLEX

Source: CHEMICO`s samples

65

APPENDIX D INCOME STATEMENT FINANCIAL YEAR 2005/2006

INCOME STATEMENT
Sales Revenue
Less: Cost of Goods Sold
Gross Profits
Less: Operating Expenses:
Selling Expense
General / Admin. Exp.
(Overheads)
Lease Expense
Depreciation Expense
Total Operating Expenses
Operating Profits
Less: Interest Expense
Net Profits Before Taxes
Less: Taxes
Net Profit After Taxes
Earnings
Available
for
Common Stockholders

2005/2006
369,17
184,58
184,58
251,04
25 231,39
0,00
1 958,32
27 440,74
- 27 256,16
0,00
- 27 256,16
0,00
- 27 256,16
- 27 256,16

66

APPENDIX E BALANCE SHEET FINANCIAL YEAR 2005/2006

BALANCE SHEET
Current Assets:
Cash
Marketable Securities
Accounts Receivable
Inventories
Total Current Assets
Gross Fixed Assets (at cost):
Land & Buildings
Machinery and Equipment
Furniture & Fixtures
Vehicles
Other (Inc. Fin. Leases)
Total Gross Fixed Assets
Less:
Accumulated
Depreciation
Net Fixed Assets
Other Assets
Total Assets

2005/2006

Current Liabilities:
Accounts Payable
Notes Payable
Accruals
Taxes Payable
Other Current Liabilities
Total Current Liabilities
L / T Debt (Inc. Financial
Leases)
Total Liabilities (without
liabilities)
Paid-In Capital
Venture Capital
Retained Earnings
Total Stakeholders' Equity

2006/2007
24 153,82
0,00

6 719,42
0,00
10 155,86
3 013,42
19 888,69

376,55
376,55

376,55
17 425,79
37 691,03

24 153,82
0,00
24 153,82
45 186,39
- 31 649,19
13 537,21

Total Liabs. & Stakehldrs'


Equity
37 691,03

67

APPENDIX F PRODUCTS OFFERED BY CHEMICO`s COMPETITORS

VCI TECHNOLOGY

OTHERS
TECHNOLOGIES
RUST
RUST
REMO
PROTE
VERS
CTION

PAP
ERS

FO
ILS

POW
DERS

COOL
ANTS

RUST
REMO
VERS

ANTICORR
OSION
BATHS

OI
LS

CLEA
NERS

+
+

+
+

+
-

+
-

11 WYTWRNIA CHEMICZNA
DRAGON
12 Pol Expo Eurocolor

13 Libella Sp. z o.o.


14 WD
40 Company Ltd

OTiK Spka z
o.o.
2 kleen-flo
europe sp z o.o.
3 Zakady
Chemiczne
ORGANIKA
SA
4 MAVERICK
5 Excor sp. z o.o.
94-204 d,
ul. Jarzynowa
50
6 ABEST SP. Z
O.O
7 Instytut
Mechaniki
Precyzyjnej
8 "CHEMA" Sp
dzielnia Pracy
w Olesinie
9 KENMIX
10 Ashland Poland
Sp. z o.o. Dzia
Valvoline
Polska
1

68

APPENDIX G TOWS/SWOT matrix results Do weaknesses will amplify threats?

69

APPENDIX H TOWS/SWOT matrix results Do strengths will overcome threats?

70

APPENDIX I TOWS/SWOT matrix results Do weaknesses make impossible to use


opportunities?

71

APPENDIX J TOWS/SWOT matrix results Do strengths make use of


opportunities?

72

APPENDIX K TOWS/SWOT matrix results Do opportunities will overcome


weaknesses

73

APPENDIX L TOWS/SWOT matrix results Do threats will amplify weaknesses?

74

APPENDIX M TOWS/SWOT matrix results Do threats will weaken strengths?

75

APPENDIX N TOWS/SWOT matrix results Do opportunities will amplify


strengths?

76

APPENDIX O BALANCE SHEET FINANCIAL YEARS 2006-2010

BALANCE SHEET
Current Assets:
Cash
Marketable Securities
Accounts Receivable
Inventories
Total Current Assets
Gross Fixed Assets (at cost):
Land & Buildings
Machinery and Equipment
Furniture & Fixtures
Vehicles
Other (Inc. Fin. Leases)
Total Gross Fixed Assets
Less:
Accumulated
Depreciation
Net Fixed Assets
Other Assets

2006/2007

2007/2008

2008/2009

2009/2010

6 719,42
0,00
10 155,86
3 013,42
19 888,69

12 551,78
40 291,20
62 758,88
12 481,49
128 083,34

12 551,78
50 207,10
58 540,64
18 827,66
140 127,18

12 551,78
142 502,37
112 965,98
37 655,33
305 675,46

75 310,66

28 115,98
0,00
103 426,63

22 492,78

376,55
376,55

35 144,97
0,00
35 144,97

376,55
17 425,79

0,00
35 144,97
17 425,79

0,00
103 426,63
17 425,79

0,00
22 492,78
17 425,79

Total Assets

37 691,03

163 228,32 243 553,82

328 168,24

Current Liabilities:
Accounts Payable
Notes Payable
Accruals
Taxes Payable
Other Current Liabilities
Total Current Liabilities
L / T Debt (Inc. Financial
Leases)
Total
Liabilities
(without
liabilities)
Paid-In Capital
Venture Capital
Retained Earnings
Total Stakeholders' Equity

2006/2007
24 153,82
0,00

2007/2008
27 260,77
0,00

2008/2009
27 599,35
0,00

2008/2009
35 149,67
0,00

24 153,82

27 260,77

27 599,35

35 149,67

0,00

0,00

0,00

0,00

27 599,35
203 338,77
50 207,10
12 615,70
215 954,47

35 149,67
253 545,88

163 228,32 243 553,82

328 168,24

Total Liabs.
Equity

&

24 153,82
45 186,39

27 260,77
153 131,67
107 945,27
- 31 649,19 - 17 164,12
13 537,21 135 967,55

22 492,78

39 472,69
293 018,56

Stakehldrs'
37 691,03

77

APPENDIX P INCOME STATEMENT FINANCIAL YEARS 2006-2010

INCOME STATEMENT
Sales Revenue
Less: Cost of Goods Sold
Gross Profits
Less: Operating Expenses:
Selling Expense
General / Admin. Exp.
(Overheads)
Lease Expense
Depreciation Expense
Total Operating Expenses
Operating Profits
Less: Interest Expense
Net Profits Before Taxes
Less: Taxes
Net Profit After Taxes
Earnings
Available for
Common Stockholders

2006/2007
369,17
184,58
184,58

2007/2008
251 035,52
175 724,87
75 310,66

2008/2009
376 553,28
263 587,30
112 965,98

2009/2010
753 106,56
602 485,25
150 621,31

251,04

12 551,78

18 827,66

37 655,33

25 231,39
0,00
1 958,32
27 440,74
- 27 256,16
0,00
- 27 256,16
0,00
- 27 256,16

37 847,08
0,00
7 028,99
57 427,85
17 882,80
0,00
17 882,80
3 397,73
14 485,07

51 749,92
0,00
5 623,20
76 200,78
36 765,21
0,00
36 765,21
6 985,39
29 779,82

75 310,66
0,00
4 498,56
117 464,54
33 156,77
0,00
33 156,77
6 299,79
26 856,99

- 27 256,16

14 485,07

29 779,82

26 856,99

78

APPENDIX Q CASH FLOW FINANCIAL YEARS 2006-2010

STATEMENT OF CASH
FLOWS
CASH
FLOW
FROM
OPERATING ACTIVITIES
Net Profit After Taxes
Depreciation
Decrease in Accts. Receiv.
Decrease in Inventories
Decrease in Other Assets
Increase in Accounts Pay.
Increase in Accruals
Increase in Taxes Payable
Increase in Other Cur. Lia.
Cash Flow from Oper. Act.

2007/2008

2008/2009

2009/2010

14 485,07
7 028,99
- 52 603,02
- 9 468,07
0,00
3 106,95
0,00
0,00
0,00
- 37 450,08

29 779,82
5 623,20
4 218,24
- 6 346,18
0,00
338,58
0,00
0,00
0,00
33 613,66

26 856,99
4 498,56
- 112 965,98
- 37 655,33
51 989,83
22 630,94
0,00
0,00
0,00
- 44 644,99

- 68 281,66
- 68 281,66

- 22 492,78
- 22 492,78

0,00
0,00

0,00
0,00

0,00
0,00

107 945,27
0,00

50 207,10
0,00

50 207,11
0,00

107 945,27

50 207,10

50 207,11

15 539,10

- 16 930,67

51 265,87

34 335,20

CASH
FLOW
FROM
INVESTMENT
ACTIVITIES
Increase in Gross Fixed
Assets
- 34 768,42
Cash Flow from Investments - 34 768,42
CASH
FLOW
FROM
FINANCING ACTIVITIES
Increase in Notes Payable
Increase in Long-Term Debt
Changes in Stockholders'
Equity
Preferred Dividends Paid
Common Dividends Paid (-)
Cash Flow from Financing
Activities

Net Incr. in Cash / Mark.


Securities
35 726,77
Cumulastive Net Incr. in Cash /
Mark. Securities
35 726,77

79

APPENDIX R

RATION ANALYSIS FINANCIAL YEARS 2006-2010

RATIO ANALYSIS

2006/2007 2007/2008 2008/2009

2009/2010

- 0,72
0,50
- 73,83

0,11
0,30
0,07

0,15
0,30
0,10

0,10
0,20
0,04

- 0,72
- 2,01

0,09
0,11

0,12
0,14

0,08
0,09

1,74
3,64

2,57
33,48

56,74

54,75

26,75

17,04

OPERATING
PERFORMANCE
ROI
Gross Profit Margin
Return on sales
Return on Total Assets
(ROA)
Return on Equity (ROE)
EFFICIENCY
Total asset utilisation
Fixed assets utilisation
Credit given
Credit taken

0,03
1,85
0,98
7,14

10
041,20
91,25

23
881,13
39,64

LIQUIDITY
Current Ratio
Quick Ratio
Total working capital

0,82
0,70
-
265,13

4,70
5,08
4,24
4,40
4
100
822,58
112 527,84

8,70
7,63

270
525,78

80

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82