Реферат: Entrepreneurial project Individual Project
MBAand EMBA
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CandidateNumber(s):KarimovA.A.
Titleof Course:EMBA 4: Entrepreneurial project
SubmissionDate: 1February 2008
Titleof Work: Individual Project
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SIGNED (insertcandidate numbers) 54301
DevelopmentProject Business Plan
Table of contents
1.0. Executive Summary. 3
1.1Project Objectives. 4
1.2.Keys to Success. 4
2.0. Project Opportunity. 5
3.0. The Market Analysis. 6
3.1.Market Segmentation. 6
3.2.Competitors and CompetitiveAdvantages. 7
3.3.Target Market SegmentStrategy. 9
3.4.Market Trends and Growth. 11
4.0. The Proposition. 13
5.0. The Business Model. 15
6.0. Sales & Marketing. 16
6.1.Promotional strategy. 16
6.2.Sales Strategy. 18
7.0. Financial Forecasts. 20
7.1.Important Assumptions. 20
7.2.Project Earnings Structure. 20
7.3.NetPresent Value Analysis. 21
7.4.Projected Cash Flow… 22
7.5.Key Financial Indicators. 22
8.0. Company Profile. 23
8.1.Management Team… 23
8.2.Management Team Gaps andPersonnel Plan. 24
9.0. Risks. 25
1.0. ExecutiveSummary
The investment project essence lies in creating in Kazan city (thecapital of one of the Russian Federation regions – the Republic of Tatarstan) astate-of-the-art industrial park designed especially for small and medium-sizedcompanies occupied in chemistry and petrochemistry. The choice of theindustrial park profile is based on the regional economy structure andspecialization. Fuel and petrochemical industries determine the republicaneconomy profile. It is the production of crude oil, synthetic rubber, tyres(one third of total Russian market capacity), polyethylene (40% of totalRussian market capacity) and wide range of petrochemicals processing; there arelarge mechanical engineering enterprises that produce helicopters, aircraftsand aircrafts engines, heavy trucks and small cars, compressors and oil-gaspumping equipment; hi-tech electric and radio devices. Globally, Tatarstan isone of the most economically developed republics of the Russian Federation, located in the centre of the country largest industrial region, at theintersection of most important highways, connecting East and West, North andSouth of the country.
The project developer is the “Idea Capital Asset Management” company foundedin 2004, which competes in real estate rental market, being a development andmanagement company. Until recently it was occupied mainly in office realestate. With the HIMGRAD Industrial Park development project the company goesinto industrial real estate market segment.
The project is supposed to develop on the territory of an industrial sitewith 75 years history within the limits of Kazan city. The industrial park sitecovers 131 hectares in total. It is situated in the north-west industrial partof the city, a logistics juncture, close to one of the biggest republicanchemical and petrochemical staff producer – the “Kazanorgsintez” plant. The buildingarea exceeds 500 000 sq.m. Alongside with utilities and necessaryproduction facilities the site residents will be provided with a comprehensiverange of services along the whole value chain.
The Market
The industrial park has two different categories of target customerscompeting for their entrance to the site with local industrial premisesproprietors and other Russian industrial parks:
1. localsmall and medium-sized companies, processing certain types of polymers,produced on the Republic of Tatarstan (one of the Russian Federation regions)territory, including the newly-established companies;
2. foreignmedium-sized and big companies, processing certain types of polymers, producedon the Republic of Tatarstan territory.
Russian economic performance remains robust for recent years. It providesgood prospects for business development, especially in dynamically developingindustries – such as real estate and petrochemistry. The “Himgrad” Industrial Park, combiningthe two main streams of business activity – real estate development andpetrochemistry, ought to embrace the growth potential of these two industries.
The Strategy
The project aims at providing the following types of services: lease,utilities and additional services. According to the industrial site developmentconcept, first, the residents sign a long-term lease agreement and enter intocommitment to invest a certain sum of money in production facilitiesdevelopment within industrial park territory. The utilities are necessarilyprovided to the residents on preferential terms, priced below market rates. Aftera resident’s project enters full production capacity, he may buy the leasedpremises out.
Besides lease and utilities, the site residents may take advantage ofadditional services. The customer-oriented service portfolio constitutes one ofthe core advantages of the site, especially valuable by small and medium-sizedcompanies, generally possessing insufficient financial resources for organizingself-dependent raw-materials supplies at low prices, conducting large-scalemarketing researches, necessary for their business further development and fordefining additional areas of business expansion, etc. Our company goal is “toform a unique business environment, assisting the residents in their efficientdevelopment on a long-term basis”.
Moreover, providing favourable conditions for marginal processing ofchemical and petrochemical production on the Republic of Tatarstan territoryand a corresponding value added producing is supposed to lead to creation onthe Republic of Tatarstan territory part of a regional petrochemical clustervia organizing and supporting close interaction and cooperation between hugeindustrial enterprises, occupied in this sphere, SME and educationalestablishments.
The major part of the project revenue constitutes revenue from realestate operations. That is rents and real estate buy out income. Beside real estate operations revenue thedeveloper get profit from utilities and additional services providing.
ManagementTeam
The company is led by 54301 and Airat Gizzatullin. Both persons beingprofessional economists, their chief career objective may be identified asbecoming the leading professionals in the field of property management andcompany restructurization. These two are inclined to put much effort inintegrating Russian way of property management into international standardssystem, in order to make our inside real estate projects attractive for foreigninvestors.
The company top-managers succeeded in forming a highly professional teamof experts working on the project development. All the team members arepersistent, enthusiastic about exploring new horizons, success-oriented andstress-resistent.
1.1. ProjectObjectives
1. The Kazan city planned industrial real estate marketshare by the 5th year of project realization constitutes 25%.
2. Rentspick of $37,8 mln. in the 5th year of project realization.
3. ProjectNPV is $167 mln.
4. Netprofit/sales to be positive by the 7th year of project realization.
1.2. Keysto Success
1. Compliance with world latest achievements in industrialproperty development.
2. Governmental support via reasonable utilities pricesretention and tax remissions providing for regional petrochemical industrydevelopment.
3. A comprehensive range of services along the whole valuechain.
2.0. ProjectOpportunity
Though a number of real estate market players is by the moment aconsiderable one and there constantly appear new entrants, the local (and evenRussian on a whole) real estate market is an emerging one where the majorworking principles are just being established (which is explained by such amarket absence in the former USSR, and its formation start after the USSRdisintegration). The most developed part of this market is at present momentoffice and trading space lease market.
As far as industrial real estate lease is concerned,it may be identified as a completely new product (service) to the local market.The grounds of this phenomenon may be described as follows:
1. tillthe USSR disintegration there existed mostly huge industrial governmental enterprisesin the country;
2. rightafter the disintegration until recently the establishing local companies weremainly occupied in services industry and trade industry, since the profit marginswere high in those sectors of the country economy;
3. nowadaysthe economic situation has shifted, due to change in people’s consciousness, toa larger number of small industrial enterprises establishment and theirsuccessful work at local and even international markets. But small andmedium-sized enterprises lack appropriate production facilities ready forlease, and very often the production is organized in premises not intended forthose purposes.
All the enumerated factors prove the mature necessity for localindustrial parks establishment. Such institutions are common to Europeancountries, e.g. in Germany there exist 53 industrial parks in the chemicalindustry only, but in Russia these are only emerging and pure innovative.
The challenge of the project consists of several aspects:
1. Theindustrial site neglected “sorry state”.
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2. Absenceof regional experience in managing industrial property, since till recentlythere was no necessity to professionally develop and manage the industrialproperty and, moreover, there were no property complexes, assigned for morethan one client, to manage.
Industrial parks are new phenomena to Russian market and we are going tomake the best of the opportunity. A company capable of establishing a workingpattern of an industrial park in Russia has all the probability to becomeleader to the market, gaining a substantial measure of control in the marketplace; attaining pioneer status; blocking competitors and achieving aboveaverage sales/profit growth.
The investment needed for site redevelopment (utilities reconstructionand new construction of 600 thousand sq.m industrial and 150 thousand sq.moffice premises amounts to $390 mln., including $15 mln. of front-endinvestment. The project payback period constitutes 7 years.
We expect, that by the 10th year of project realization over250 companies with 10 000 total number of workers will work withinindustrial park territory.
3.0. The MarketAnalysisAccording to Jones Lang LaSalle Survey “Moscow CityProfile”, dated September 2006, “the commercial real estate market in Russiahas become more transparent for global investors. The market has entered a newtier in the Jones Lang LaSalle Global Transparency Index, placing it in thesame league as Israel, South Korea and Thailand. Market entry of large scaleWestern European banks and lending institutions suggests that this positivetrend will continue over the medium term”[1].
Generally, investment in real estate assets market in Russia’s regionsdominates the regional investment market. The growing demand for rental spacesis a major force driving rental spaces growth. The Moscow and St.Petersburgmarkets are close to saturation, and rental premises boom has started in theregions. Kazan belongs to 13 Russia’s cities with a population over a millionpeople. So the trends of Moscow’s and St.Petersburg’s office markets find quickresponse at the Kazan market as well.
Nowadays high rental level, constantly increasing number of companiesrivalling for rental spaces make Kazan real estate market an attractiveindustry to act in.
A brief analysis of the Russian real estate market under the Porter’sdiamond model:
Firm strategy, Structure and Rivalry. Being a developing market,the Russian real estate market possesses one not a positive characteristic,consisting in absence of strategy of the first entrants to the real estatemarket and market analysis. Nowadays, however, the companies turn todevelopment according to the all-over-the-world established rules.Nevertheless, local companies are hardly capable of competing with internationalmarket players.
Demand conditions. The customers on the local realestate market are becoming more and more scrupulous and demanding. Butglobally, demand in Russian real estate market continues to exceed supply, leaving opportunity tocompete.
Factor conditions. The Russian real estate market ischaracterized by lack of professional specialists (“skilled labour”); lack ofinfrastructure, caused by mainly adaptation of existing old buildings, insteadof building new ones according to the international standards; and a growingamount of capital invested in real estate development.
Related and supporting industries. This factor is alsouncultivated within Russian real estate market framework. E.g. there exist only3-4 facility management companies in Kazan city, which is obviously scanty fora city with a population over 1 000 000 people. Real estateconsultants and real estate agencies are till present moment also rare in themarket. In two words, the Russian real estate market lack of development seemsto prevent the country market players from entering international market for atleast 10 years more.
3.1. MarketSegmentation
The limitation of “Himgrad” Industrial Park target customers to small andmedium-sized companies occupied in chemical and petrochemical industries ismade in order to single the project out of other industrial real estatecomplexes. The petrochemical utilities infrastructure present on the siteterritory allows increasing the efficiency of the mentioned companies business.The chart defining the target companies more precisely is presented at Graph1.
Graph 1
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The hatched segments of Graph 1 represent the “Himgrad” IndustrialPark target customers. The reason for excluding big local companies is in theirpossessing own production facilitieson the Republic of Tatarstan territory and, accordingly, enough space forfurther expansion. As for small foreign companies, they are not interested inglobal expansion or, to be more exact, have not sufficient financial resourcesto perform such an expansion. Big foreign companies’ inclusion in our targetcustomers may seem to be in contradiction with our strategic goals. Moreover,the site space of 131 hectares is not suitable for huge companies’ location.But here we primarily have in mind the location of small and medium-sizedproduction facilities of such companies, which is usually the starting point ofglobal expansion of an industrial company. Nevertheless, to make the locationof such production facilities possible, we should address the mentionedcompanies’ headquarters.
To sum up, the project has twocategories of target customers:
1. localsmall and medium-sized companies, processing certain types of polymers,produced on the Republic of Tatarstan territory, including thenewly-established companies;
2. foreignmedium-sized and big companies, processing certain types of polymers, producedon the Republic of Tatarstan territory.
3.2. Competitorsand Competitive Advantages
The target customers have two-sided choice, deciding on their possiblelocation.
First, they may locate withinindustrial premises of Kazan city. According to the market research[2], bythe end of 2007 Kazan real estate market comprises office, trade and industrialstocks in the proportions, presented at Graph 2:
Graph 2
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Kazan industrial stock comprises over 57% of all real estate premisesavailable for lease, but only third part out of these 1 200 thousand sq.m isprofessionally developed (due to the above described reasons). But the sitestate prevents the immediate lease of all premises available. Hence, thereexist opportunity for growth.
But the target customers may also choose some otherindustrial park out of those developing in Russia (see Fig 1).
Fig 1
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Maincompetitors group in Moscow and St.Petersburg regions. Tatarstan isbeneficially located in Russia, on the boundary of European and Asian parts ofthe country, being the logistics juncture of those. So, the location of ourindustrial park in Kazan forms one of its competitive advantages, especiallytaking into account the chosen industrial park profile connected with therepublican economy peculiarities.
The location of “Himgrad” Industrial Park in Tatarstan – one of theleading Russian regions in chemicals producing and processing, automaticallymakes it close to Russian largest producers of polymers: Kazanorgsintez plant;Nizhnekamskneftekhim plant; Kazan Synthetic Rubber plant; Karpov Chemical plant;Nizhnekamsk Oil Processing plant; Nizhnekamskshina, etc. (see Fig 2)
Fig 2
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Such a location forms an additional advantage for companies occupied inthe target industries, since they tend to locate their production facilitiesclose to processed raw materials producers, and the main raw materialsprocessed by chemical and petrochemical companies comprise certain types ofpolymers (polyethylene, polypropylene, polystyrene, polycarbonate and someothers).
Furthermore, the site logistics is perfect (see Fig 3). Theindustrial park is situated in the north-west part of the city, within closeproximity to Kazan major traffic routes (highways and railway station (incl.railway lines within site territory). The site has convenient accessapproaches. The Kazan international airport is just 30 minutes away by car.
Fig 3
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The last circumstance is of benefit in comparison with both localindustrial property complexes and with other industrial parks in Russia (sincenot every industrial park or building has such a convenient location inside theindustrial part of the city).
3.3. TargetMarket Segment Strategy
According to the real estate consultants data, residents usually chosethe premises of any type to lease (office, industrial or warehouses) accordingto the “classical” model of consumer choice process. The real estate choicepresupposes high customer involvement and rational evaluation of all thefactors (“thinking” rather than “feeling”). Little emotionality is possiblewhile choosing the premises for the company’s headquarters or back offices,since these belong to the keystones of its future success and profit. Thefactor, intensifying the rationalist approach of the customer under analyzedcircumstances to property choice, is the mentioned novelty of the product(service). A new buying situation (see Graph 3) here presupposes thecustomer’s substantial search for the information on the project by means ofany available sources.
Graph 3
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In order to be a success, a developer ought to create an extremelyattractive value proposition for the target customer, which should be based onthe objective evidence (the site obvious advantages in comparison to otherpossible locations). Some of the “Himgrad” Industrial Park surface benefitsinclude lower than the city average rents level, tax remissions, low utilitiesprices, etc.
Another peculiar feature of chemical and petrochemical industries is thatduring the company’s location decision making process a huge number oftechnical details should be taken into consideration.
The situation is easier if we deal with small companies, since theDecision Making Unit there may be limited to one person or few ones. In case ofmedium-sized and large companies, the Decision Making Unit consists ofdifferent people, or even companies’ departments, performing different roles indecision making process.
Thus, the location or relocation decision is generally initiated by thecompany’s top management (which is mostly influenced by public relations mediaand is driven by brand and prestige); the deciders are commonly engineers andother technical specialists (which are driven by reason); the decision may beinfluenced by the company marketing or supplying department, which may assessthe proximity to the company’s partners for the most, etc.
Besides, there exist two time gaps in decision making process:
1. a gapbetween the point when the company realizes the requirement for location,relocation or further expansion and the point when the location decision ismade by the company;
2. a gapbetween the point when the location decision is made by the company and thepoint when the location itself takes place.
The second gap is conditioned by the technical complexity of theindustries’ production facilities. As for the first one, the developer’s taskis to prevent the customer’s withdrawal from the site, having taken decision infavour of some other location. And this becomes a challenging task, since thetime gap may cover several months or even years sometimes. So, to make abargain, the project developer ought to be able to answer the all departments’specialists’ questions and satisfy all their needs and requirements.
Moreover, the decision making process here takes much more time, andbecomes a step-by-step procedure, when the developer has to conduct asuccessive series of negotiations with different specialist.
When speaking about the second group of our target customers – foreignand international companies, we should bear in mind the necessity of keepingthe services level to the international standards. Compared to local companies,having no choice of industrial parks in Russia, this group of customers is freeto choose from other global locations – that is European, Chinese and Americanindustrial parks and technoparks, having industrial premises. The competitionon the global market is of a comparatively higher order than at the local one.
Besides, there is another intangible benefit – the brand name, thecompany reputation and some other points of prestige. E.g. the global companypresence at the site to a great extent increases its attractiveness for otherpotential residents. The authority, prestige and influence of the first siteresident set the project general tone. At present moment the negotiations withsome leading world polymers processors are held and actually their entrance tothe site is one of our main aims at the moment, able to increase the furtherpromotional efforts.
The neglected state of the territory presupposes our obvious inability toattract the residents at the moment of the project’s initiation. Hence, at theinitial stages of the project development the site could not be developedaccording to “build-to-suit” concept, when the developer holds preliminarynegotiations with potential residents, signs binding lease agreements with themand develops the land plots or buildings according to these very residents’requirements; it could rather be “spec building”, when no binding leaseagreements are signed, and the developer improves the site state at his ownexpense.
3.4. MarketTrends and Growth
To formulate a prospective business plan, we should assess the targetmarket development trends. Russian economy today experiences rapid growth, thenumber of investment projects grows from years to year, and the correspondinginvestment amount increases as well. Thus, investment growth in 2007 exceeds17.4% comparing to the previous year.
The “Himgrad” Industrial Park prospects depends on both real estate andpetrochemical markets development trends.
Russia's commercial real estate sector is currently the fastest growingin the world and will retain the direction to further extensive and intensivegrowth. The first one is connected with the increase in premises total square, theforecast of which is presented at Graph 4. The intensive growthcomprises the premises quality improvement and their compliance with internationallyexcepted standards.
Graph 4
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As for the chemical industry, in which work our target customers, it alsoexperiences considerable growth at present time. So, the investment in chemicalproducts is 2.6% of total investment in Russia in 2007.
The annual production volume in Russian chemical industry in 2007 amountsto $34.7 bln. (growth rate is 10% compared to year 2006). The correspondingnumber for the Republic of Tatarstan chemical industry is $3,8 bln. with growthrate at 16% level. According to the analysts’ estimates[3], the specified trendwill extend for the following five-seven years. So, the growth in chemical industrywill provide the growth of our target customers, occupied in chemical business.
4.0. The PropositionThe project developer aims at creating new for the region establishment –an institution, providing a juncture of production and service facilities,which intensify the site residents development.
The purpose is to be achieved by means of reconceptualization,reconstruction and redeveloping to meet the state-of-the-art economicconditions requirements.
A suggested positioning statement may be formulated as follows: “Himgrad”Industrial Park is one of the best possible locations for both small andmedium-sized companies, providing a comprehensive services range along theentire customer value chain at comparatively low prices”.
So, the residents of the industrial park will get a complex product consistingof:
1. premisesfor lease; and
2. arange of services provided to residents as an essential and integral part ofit.
Generally, the range of services provided to industrial parks residentsis much wider than a usual scope of services for other types of leasedproperty. If we speak about the comprehensive range of services, the concept ofthe “Himgrad” Industrial Park is focused on providing core (directly connectedwith the residents’ manufacturing process, such as property management andcomplex energy supply) and additional services along the whole customer supplychain (see Fig 4).
Our mission is to provide companies in the industrial park with theinfrastructure and customer-centric industrial services they need to focusfully on their core business. This circumstance enables to boost thecompetitiveness of both the industrial park and the tenant companies. We aim atcreating favourable conditions (including e.g. tax remissions) for regionalpetrochemical industry development, by means of combining within one territoryresearch and development, production, marketing & sales and logisticsfacilities providing a comprehensive range of services along the whole valuechain for site residents
Fig 4
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The complete technological infrastructure of the industrial park will servethe needs of the resident companies. The technological infrastructure (see Fig5) comprises refrigerating stations, freight terminal, railway network,capacity park, electric power substation, machining process centre,gas-distributing post, pilot plants park, high-end technology park, corporateuniversity, water treatment station, sewage disposal plants, compressorstations, fire station, aid post, heat and steam distribution point etc.
Fig 5
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Our company aims at creating a unique businessenvironment, assisting the residents in their efficient development. Theeffect is achieved via providing a number of intangible benefits to the residents.That is the compliance of our strategy to residents’ development strategies,aiming at creating possible synergy from residents’ interaction (the chance offinding future business partners and contractors increases, when, like in ourindustrial park, there exist both developing and mature companies), andemploying authoritative resource, which becomes possible due to our active andclose interaction with the Republic of Tatarstan government.
5.0. The BusinessModelOur business-model is based on a global trend of separatinginfrastructure from chemical companies core business. Infrastructure is no morechemical industry core business, neither a supplementary part of it. Thedifference between the very nature of these two spheres of activity is soimmense, that they hardly can go together (see Table 1).
Table 1
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The infrastructure providing business is less risky, than that inchemistry and petrochemistry producing. The profits are less than those inchemical industry (see Graph 5).
Graph 5
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Moreover, since the business is a specific one, it needs some specialproduction facilities, assigned for chemistry. These are usually expensive, andnot every small company can afford these. That’s why industrial parks are agood decision for small and medium-sized companies, since in industrial parksthey may concentrate around one infrastructure providing company and keep inmind only their core business, as presented at Fig 6.
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Fig 6
6.0. Sales &Marketing6.1. Promotionalstrategy
The objective of our communication is in attracting potentialresidents for location within the site territory, which provide us with atleast two constant sources of profit: rent payments and payments for servicesprovided.
If we consider the local companies (whatever their size is), bothadvertising and public relations work efficiently for promotion. Anothercharacteristic feature here is that we intend to spend less money onadvertising, paying more attention to public relations, which comprise non-paidcommunication effort, such as press releases, speeches at industry seminars,appearances by firm executives on radio and TV, etc. These media are extremelyinfluential with customers, and in case of proper organization may save a lotof money, resulting in the same effect for the site development.
As for foreign companies, the publicity vehicle is hardly applicable,since it needs a lot of time and effort on the part of a developer, theimmediate presence (providing personal contacts at different levels of businessand political communities) at the global market let alone. So, the mainemphasis in this case should be made on all types of advertising (internet,specialized magazines and other infomercials) and on promotion by means ofparticipation in exhibitions and conferences on the subject of industrialproperty, since these are often attended by potential site residents.
The main principles underlying the “Himgrad” Industrial Park promotionalstrategy may be formulated as follows:
1. itshould be aggressive, speedy and efficient in order to leave the competitorsbehind, to gain the vacant market niche, and to persuade the target customersin all the benefits they may gain from accommodating at the industrial parkterritory, the location unfamiliar to them before;
2. not asingle promotional strategy should be created, but at least a two-sided one,each part of which aiming at covering one of the groups of the targetcustomers;
3. thebasis of the promotional strategy is in underlining the rational benefits ofthe site as target resident possible location;
4. thepromotional strategy should be comprehensive and all-penetrating;
5. stablenessand sustainability should become integral features of the promotionalstrategies. The developer should bear in mind the necessity for the promotionalstrategy to inform the target customers and to keep the information up-to-date,constantly reminding the target audience of the site, its benefits and whateverelse needed;
6. theintangible benefits should be put on one of the frontlines of the projectpositioning;
7. internationalexperience of industrial parks operation and management should be scrutinizedand taken into account, making stipulation to the local market peculiarities.
The recommendations on the promotional strategy may be tabulated, thestipulation made that we consider the two promotional sub-strategies, aimed ataddressing two groups of target customers (see Table 2).
Table 2
1st Substrategy
Local Companies
2nd Substrategy
Foreign/International Companies
Market
Small and medium-sized local companies, occupied in chemical and petrochemical industries, processing certain types of polymers, produced on the Republic of Tatarstan territory Medium-sized and big international and foreign companies, occupied in chemical and petrochemical industries, processing certain types of polymers, produced on the Republic of Tatarstan territoryMission
To attract residents to unoccupied land plots and premises To attract residents to unoccupied land plots and premisesMessage
“Himgrad” Industrial Park is one of the most convenient of all other locations for small and medium-sized companies occupied in chemical and petrochemical industries, because we provide the comprehensive services range along the entire customer value chain at comparatively low prices “Himgrad” Industrial Park is one of the best possible locations for your company global expansion, providing the comprehensive services range along the entire customer value chain at comparatively low prices”.Media
Media Advertising
— TV
— Radio
— Newspaper
— Specialized Industrial Magazines
Direct Response and Interactive Advertising
— Telephone
— Broadcast media
— Print media
— Computer-related
Place Advertising
— Billboards
— Posters
Promotions
— Contests and dealer incentives
— Trade shows
— Exhibitions, seminars, conferences
Publicity and Public Relations
Media Advertising
— Specialized Industrial Magazines
Direct Response and Interactive Advertising
— Print media
— Computer-related
Promotions
— Contests and dealer incentives
— Trade shows
— Exhibitions, seminars, conferences
Money
approx. $150-250 thousand at initial stages
then $40-60 thousand annually
approx. $200 thousand at initial stages
then $60-90 thousand annually
Measurement
Attracted residents rents and service payments/amount of money spent on advertising for a period ratio;
Number of applications for lease;
Number of web-site applications
Attracted residents rents and service payments/amount of money spent on advertising for a period ratio;
Number of applications for lease;
Number of web-site applications
The table may serve as a core element of the “Himgrad” Industrial Parkpromotional strategy and an assessment medium for the steps taken by thecompany specialists in that direction.
A very important point is that the division of the project promotionalstrategy into two substrategies does not mean their absolute separation fromone another. All the marketing communications program should be unified interms of style and general principles of execution.
The main thing in the two substrategies separation is to concentrate onthe criterion, which is of high-priority to the target group. For potentialresidents it is the level of their convenience, first, and the economizingeffect as well (saving on taxes, on utilities prices and on rent level).
Another point, obligatory to mention, is connected with the promotionalefforts efficiency evaluation. The problem here is that we cannot assessthe short-term efficiency of our efforts. The reason for this is,predominantly, the above described time gap between the point when the companyrealizes the requirement of location, relocation or further expansion and thepoint when the location decision is made by the company. Under suchcircumstances one cannot assess exactly which of the promotional efforts haveled the potential resident to the site – it may be equally e.g. anadvertisement in a last year’s special industrial magazine, a name card of thecompany representative with a note “important” or “interesting” foundsomewhere, a web-site, an article in a local newspaper, a meeting at aspecialized conference, etc.
Thus, the provided in table measurement media have a relative character. Nevertheless,they may serve as indirect promotional strategy assessment ratios.
Generally speaking, the main thing about the market under analysis is avery high price for any mistakes in the project promotion. So, every step takenshould be thoughtfully considered and assessed.
Furthermore, since the customer tends to search for informationeverywhere, the promotional strategy should be carried out by means ofdifferent media channels, including even such as rumours sometimes.
Considering the promotional strategy budget, the important pointhere is that due to the peculiar feature of the industrial property leaseprocess, the general concept lies in attracting the customers, not in theirfurther retaining.
So, the sums of money spent on promotion at the initial stages of theproject development (2008-2009 financial years) are considerably larger thanthe following periods’ budgets.
Thus, we expect that on the first stages of the project development thepromotional budget will amount up to $350-450 thousand per year. The supportingmarketing strategy will cost $100-150 thousand per year.
6.2. SalesStrategy
With the forecasted market growth (see Graph 4, paragraph 3.4of the current document) we plan to occupy the fourth part of Kazan industrialreal estate market by the 4th year of project realization (600thousand square meters of the forecasted 2 500 thousand sq.m total marketcapacity).
The real estate operations concept of the “Himgrad” Industrial Parkcomprises the three main steps:
1. newconstruction of industrial premises;
2. long-termlease agreements signing with site residents, and
3. optionalbuying the leased premises out, after expiration of the lease agreement at willof the residents.
The dynamics of these three types of real estate activity is presented atGraph 6. The positions of total square under operation and total squaresold are cumulative.Graph 6
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The rent rates policy of the “Himgrad” Industrial Park is based on ourattempt to create favourable conditions for site residents. Thus, we haveanalyzed the Kazan real estate market rents (see Graph 7) and set thesite rents at a level lower than the city average market rents.
Graph 7
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In addition to premises lease and buy out, the “Himgrad” Industrial Parkprovides utilities (gas, electricity, water supply, heat supply etc.) andadditional services (such as marketing services, consulting, law support etc.).The dynamics of providing both types of services directly depends on the amountof premises lease and buy out and will be examined in paragraph 7.2 ofthe current document.
7.0. FinancialForecasts7.1. ImportantAssumptions
While assessing the project financial data, some underlying assumptionswere made:
1. inflationrate is taken 11%;
2. rentrates, utilities prices and additional services prices growth estimation isbased on the specified inflation rate;
3. discountrate is taken 14%;
4. agrowth trend in the Kazan real estate market is expected.
7.2. ProjectEarnings Structure
At Graph 8 the financial result of the main activity of the“Himgrad” Industrial Park is presented – that is real estate operations,including lease and real estate units buy out.
Graph 8
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As we see from the graph, the positive financial result in this type ofactivity appears in the 5th year of project realization, after allthe real estate units are put into operation.
Graph 9 represents the financial result of the utilities providingactivity. The financial result here is the minimal positive. This isconditioned by the preferential utilities prices on the industrial parkterritory. One more circumstance restricting the utilities pricing policy isthat this economy sector is controlled by the government and antimonopolyinstitutions. This type of activity is necessary for the residents, butnon-profitable for the company. Nevertheless, low utility prices will providethe site with a greater customers’ inflow.Graph 9
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Another profitable type of activity, except the real estate operations,is providing additional services (consulting, law support, marketing, technicalpermissions etc.). The financial result of this type of activity is presentedat Graph 10.
Graph 10
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If we consider the total project earnings structure, it will look asfollows (see Graph 11).
Graph 11
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The real estate operations form the bulk of the project earnings,comprising up to 80% of all earnings structure.
7.3. NetPresent Value Analysis
The Project Net Present Value is presented at Graph 12. Accordingto the Graph, the accumulated project NPV is $167 mln. by the 10thyear of project realization. Net profit/sales are expected to be positive bythe 7th year of project realization.
Graph 12
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7.4. ProjectedCash Flow
The Project Cash Flow Dynamics is presented at Graph 13. Thepositive discounted cash flow in the 5th year of the projectrealization is conditioned by the total amount of real estate object puttinginto operation and being leased from that point of time.
Graph 13
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7.5. KeyFinancial Indicators
· Redevelopmentsite size 131 hectares
· Newconstruction 750thousand sq.m
o industrialpremises 600 thousand sq.m
o officepremises 150 thousand sq.m
· Totalinvestment amount $390 mln.
o Front-endinvestments $15 mln.
o Investmentin utilities reconstruction $30 mln.
o Investmentin new construction $345 mln.
· Planninghorizon 10 years
· NPV $167mln.
· IRR 21%
· Paybackperiod 7 years
· Numberof resident companies 250
· Numberof workers (residents included) 10 thousand
· Residents’expected annual production volume $ 100 mln. (when at fullcapacity)
8.0. Company Profile
Name of thecompany:Joint-Stock Company “Idea Capital” Asset Management”
Establishment date: July 2004
Core competence: asset management, property management in particular
/>Objects under operation:
1. “Idea”Technopark, Kazan city
· mainareas: innovative production
· />20 000 sq.m (approx. 8% of Kazan office market)
· 88companies
· over700 workers
· 2006annual production volume is approx. $15 mln.
· anchortenants: DHL Express, McDonald’s, Siemens, Citybank etc.
2. />/>“Idea-South-East”Technopark, Leninogorsk city
· mainareas: agriculture, petrochemistry
· 40 150sq.m
· 100projects under realization
3. KamaIndustrial Park “Master”, Naberezhnye Chelny city
· mainareas: automotive components
· 138000 sq.m
· nearly100 companies
· approx.1 500 workers
· 2006annual production volume is approx. $30 mln.
·
8.1. ManagementTeam
The company top-manager are general manager 54301 and chief operatingofficer Airat Gizzatullin. After graduating from Kazan Institute of Economicsand Finance in 1997 and completing the Certificate in Presidential Management TrainingInitiative Program with practical work at California State University Haywardin 1999, 54301 got the degree of Ph.D. in Economics in 2001. 54301 has a wideexperience of working successfully in both commercial enterprises and ingovernmental authorities (TDT-Invest Company general manager, Deputy GeneralManager of the Agency for Enterprise Development of the Republic of Tatarstan,First Deputy Prime-Minister of the Republic of Tatarstan Counsellor ineconomics, Innovative Technopark “Idea” chief financial executive etc.). AiratGizzatullin has also graduated from Kazan Institute of Economics and Finance, ayear later than 54301. For a ten years period Airat has proved to be a bornleader, possessing a broad outlook, equipped with a practical experience inbusiness-centers operating, real estate and antirecessionary management.
The team of experts working on the project development consists of highlyprofessional people. The main advantage of the team formed is that most teammembers have successfully worked together on other projects, e.g. InnovativeTecnhopark IDEA creation, development and promotion.
They work together for two years approximately and have proved to be areal team, creative and efficient. So, the team is capable of solving difficulttasks and working under pressure. The team members are presented at Fig 6.
Fig 6
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8.2. ManagementTeam Gaps and Personnel Plan
At present moment the team lacks specialists working with site residents.This is the problem to be solved no earlier than in the next two years, whilethe first real estate units are being constructed.
Nowadays the stress is made on working out the main principles of theindustrial park functioning and on project promotion.
Besides the people directly working with residents, providing them withlease services, after the real estate objects are put into operation thecompany will need a special facility management department which will observethe technical condition and engineering status of the property units.
At present moment our personnel amounts to 120 people, 30 of them beingmanagerial staff.
By the 5th year of project realization, when all the planned600 thousand square meters of constructed property will be put into operation,our staff will amount to 1 500 people, most of them being occupied infacility management and technical support.
Risks1. Overallpolitical situation in the country is still a bureaucratic one, which may be ofnegative influence on the project development in terms of its orientation onmarket economy principles.
Even now, in 2007 in Russia we deal with coordinated market economy,rather than a liberal one. The role of government bureaucracies and powerfulinterest groups is predominant. Cross-shareholding and long-term relationships,based and monitored on private preferences (not on market relationship) arealso common to the market. The specific features of such a type of economyintensify with going deeper from Moscow to the regions. And the Republic ofTatarstan is not an exception to the rule. Besides, the fact that the main part of population isTatar – people with different culture and customs, adds some specific characterto the region. That is why many visitors from Moscow and St.Petersburg comparecoming to Kazan with going abroad.
2. Themistake in promotional strategy may tell negatively on the project long-termsuccess, since the short-term efficiency of our promotional efforts is hardly assessable.
Such a circumstance does not permit to form balanced forecasts, as inphysical commodities market and even in most service markets. The problem isconnected with the specific characteristics of the target customers, i.e. theiroccupation in production sphere, where there exist a considerable time periodfor taking decisions for location and/or relocation, lasting for years in somecases.
3. Onemore risk is connected with the macroeconomic situation on free oil market.
The possible fall in oil prices will, first, decrease the money inflow inRussia, restricting all the economy branches development (real estateincluding) and, second, the petrochemical and chemical industries will suffermost, being directly dependent on oil prices. Thus, the development of smalland medium-sized petrochemical companies will shift into low gear, deprivingthe “HImgrad” Industrial Park of its target customers.