Caribbean Internet Cafe - Managerial Accounting

[pic 1]

MANAGERIAL ACCOUNTING

CARIBBEAN INTERNET CAFE

Group Members:

Neelabh Shandilya

Anh

Achal

Chimezie

PROBLEM

In accordance to the pertaining market scenario of Jamaica, the internet-café industry, and David’s plans for CIC, should David pursue this business and should he partner (50-50 partners) with JTL to pursue this venture?

DECISION

Upon the in-depth analysis of the market forecasts and feasibility of the business model it is in the best interests of David Grant that he partners with JTL and pursue the Caribbean Internet Cafe. The evaluation of the current market scenario of Jamaica, as well as the forecasts predict the profitability of the business model.

ENVIRONMENT ANALYSIS

Political Factor:

Jamaica had attained the independence in the year 1962 and the pollical foreground had relatively been calm during the mid-1990s.

Economic Factors:

The inflation rates were as high as 25% during these times. The stores in Kingston had huge mark up costs on most of the products. This overall made all the products expensive and difficult to buy. Hence, the access to the computers and let alone the internet was very expensive. David therefore planned to ship his of his products from States.

Social Factors:

Large number of cafés and restaurants, but no internet cafés are present. Also, the existing cafés didn’t serve coffee. There was an awareness about internet and willingness to use it, although due to it being expensive the usage was very limited and low. So there was a huge potential market of internet users whose demand needed to be met.

Technological Factors:

There was a lack of sufficient number of telephone lines across the Kingston, which led to a small portion of internet users present and that too at a fairly expensive price. The demands were not met for the internet users as the internet cafés weren’t present.

SWOT ANALYIS

Strength:

1. Employing staffs with skill in the domain of the computer technology.
2. The café will be located close to the business area in an urban setting.
3. Partnership with one of the established brands JTL.
4. Internet services at an hourly rate will be offered for students and workers.

Weakness:

1. Risk of starting any new business, as will it be accepted and will attract customers.
2. Massive costs for investment to start and additional operating costs.
3. Three areas in the café and first of its kind in Jamaica, so the business model hasn’t been tested.

Opportunities:

1. Partnership with Jamaica Telecommunications Limited (JTL).
2. Investment of $500000 Jamaica Telecommunications Limited (JTL).
3. Credit line available if need be from JTL of $1,250,000.

Threats:

1. Any loan for a growing company is a deficit that hinders re-investment needed for growth.
2. Bakery products are outsourced and will not be able to comply with just-in-time process. This will lead to inefficiencies and wastage.

RECOMMENDATION

We recommend that David Grant should partner with the JTL and go ahead with his venture.

1. The first CIC space is just a start. If David will desire to expand its franchise it would be wise enough to partner with JTL. Firstly, JTL will be 50% equity share-holders and that would be a big motivation for them to work with David and make the CIC successful. Secondly, JTL is an established brand with the network all along Jamaica which will help David in market penetration into other parts.
2. JTL when working as an equal partner with David will not charge him the market rate for the JTL services, that will save substantial saving for another investment.
3. The line of credit worth $125000 can be used to open more stores and expand in Kingston with the surging demands.
4. Additionally, seeing the successful business model some other entrepreneur or established brands like JTL may start the same business and create the competition for CIC. Also, bigger brands create a barrier to entry to reduce the competition. With David tying up with JTL he would have a solid backing to grow and the JTL with 50% equity will give full support for the expansion.