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Entrepreneurial project Individual Project

“Himgrad” Industrial Park Development Project Business Plan

34

MBA and EMBA

Cover Sheet and Own Work Declaration

Own Work Declaration

I hereby certify that the following piece of work complies with the Own Work Declaration form already issued and with the University's Rules and Regulations relating to plagiarism and collusion, as listed in the Essential Information for Students and the MBA Course Handbook.

Candidate Number(s): Karimov A.A.

Title of Course: EMBA 4: Entrepreneurial project

Submission Date: 1 February 2008

Title of Work: Individual Project

I confirm that all this work is my own except where indicated, and that I have:

· Clearly referenced/listed all sources as appropriate

· Referenced and put in inverted commas all quoted text (from books, web, etc)

· Given the sources of all pictures, data etc that are not my/our own Not made any use of the essay(s) of any other student(s) either past or present

· Not sought or used the help of any external professional agencies for the work

· Acknowledged in appropriate places any help that I have received from others

(eg fellow students, statisticians, external sources)

· Complied with any other plagiarism criteria specified in the course handbook

For group work, we certify that all members of the group have made a significant contribution.

I understand that any false claim for this work will be reported to the Proctors and will be penalised in accordance with the University regulations.

* delete as applicable

SIGNED (insert candidate numbers) 54301

Development Project 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 Competitive Advantages 7

3.3.Target Market Segment Strategy 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.Net Present 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 and Personnel Plan 24

9.0. Risks 25

1.0. Executive Summary

The investment project essence lies in creating in Kazan city (the capital of one of the Russian Federation regions - the Republic of Tatarstan) a state-of-the-art industrial park designed especially for small and medium-sized companies occupied in chemistry and petrochemistry. The choice of the industrial park profile is based on the regional economy structure and specialization. Fuel and petrochemical industries determine the republican economy profile. It is the production of crude oil, synthetic rubber, tyres (one third of total Russian market capacity), polyethylene (40% of total Russian market capacity) and wide range of petrochemicals processing; there are large mechanical engineering enterprises that produce helicopters, aircrafts and aircrafts engines, heavy trucks and small cars, compressors and oil-gas pumping equipment; hi-tech electric and radio devices. Globally, Tatarstan is one of the most economically developed republics of the Russian Federation, located in the centre of the country largest industrial region, at the intersection of most important highways, connecting East and West, North and South of the country.

The project developer is the “Idea Capital Asset Management” company founded in 2004, which competes in real estate rental market, being a development and management company. Until recently it was occupied mainly in office real estate. With the HIMGRAD Industrial Park development project the company goes into industrial real estate market segment.

The project is supposed to develop on the territory of an industrial site with 75 years history within the limits of Kazan city. The industrial park site covers 131 hectares in total. It is situated in the north-west industrial part of the city, a logistics juncture, close to one of the biggest republican chemical and petrochemical staff producer - the “Kazanorgsintez” plant. The building area exceeds 500 000 sq.m. Alongside with utilities and necessary production facilities the site residents will be provided with a comprehensive range of services along the whole value chain.

The Market

The industrial park has two different categories of target customers competing for their entrance to the site with local industrial premises proprietors and other Russian industrial parks:

1. local small 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. foreign medium-sized and big companies, processing certain types of polymers, produced on the Republic of Tatarstan territory.

Russian economic performance remains robust for recent years. It provides good prospects for business development, especially in dynamically developing industries - such as real estate and petrochemistry. The “Himgrad” Industrial Park, combining the two main streams of business activity - real estate development and petrochemistry, 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 development concept, first, the residents sign a long-term lease agreement and enter into commitment to invest a certain sum of money in production facilities development within industrial park territory. The utilities are necessarily provided to the residents on preferential terms, priced below market rates. After a resident's project enters full production capacity, he may buy the leased premises out.

Besides lease and utilities, the site residents may take advantage of additional services. The customer-oriented service portfolio constitutes one of the core advantages of the site, especially valuable by small and medium-sized companies, generally possessing insufficient financial resources for organizing self-dependent raw-materials supplies at low prices, conducting large-scale marketing researches, necessary for their business further development and for defining additional areas of business expansion, etc. Our company goal is “to form a unique business environment, assisting the residents in their efficient development on a long-term basis.

Moreover, providing favourable conditions for marginal processing of chemical and petrochemical production on the Republic of Tatarstan territory and a corresponding value added producing is supposed to lead to creation on the Republic of Tatarstan territory part of a regional petrochemical cluster via organizing and supporting close interaction and cooperation between huge industrial enterprises, occupied in this sphere, SME and educational establishments.

The major part of the project revenue constitutes revenue from real estate operations. That is rents and real estate buy out income. Beside real estate operations revenue the developer get profit from utilities and additional services providing.

Management Team

The company is led by 54301 and Airat Gizzatullin. Both persons being professional economists, their chief career objective may be identified as becoming the leading professionals in the field of property management and company restructurization. These two are inclined to put much effort in integrating Russian way of property management into international standards system, in order to make our inside real estate projects attractive for foreign investors.

The company top-managers succeeded in forming a highly professional team of experts working on the project development. All the team members are persistent, enthusiastic about exploring new horizons, success-oriented and stress-resistent.

1.1. Project Objectives

1. The Kazan city planned industrial real estate market share by the 5th year of project realization constitutes 25%.

2. Rents pick of $37,8 mln. in the 5th year of project realization.

3. Project NPV is $167 mln.

4. Net profit/sales to be positive by the 7th year of project realization.

1.2. Keys to Success

1. Compliance with world latest achievements in industrial property development.

2. Governmental support via reasonable utilities prices retention and tax remissions providing for regional petrochemical industry development.

3. A comprehensive range of services along the whole value chain.

2.0. Project Opportunity

Though a number of real estate market players is by the moment a considerable one and there constantly appear new entrants, the local (and even Russian on a whole) real estate market is an emerging one where the major working principles are just being established (which is explained by such a market absence in the former USSR, and its formation start after the USSR disintegration). The most developed part of this market is at present moment office 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. till the USSR disintegration there existed mostly huge industrial governmental enterprises in the country;

2. right after the disintegration until recently the establishing local companies were mainly occupied in services industry and trade industry, since the profit margins were high in those sectors of the country economy;

3. nowadays the economic situation has shifted, due to change in people's consciousness, to a larger number of small industrial enterprises establishment and their successful work at local and even international markets. But small and medium-sized enterprises lack appropriate production facilities ready for lease, and very often the production is organized in premises not intended for those purposes.

All the enumerated factors prove the mature necessity for local industrial parks establishment. Such institutions are common to European countries, e.g. in Germany there exist 53 industrial parks in the chemical industry only, but in Russia these are only emerging and pure innovative.

The challenge of the project consists of several aspects:

1. The industrial site neglected “sorry state”.

2. Absence of regional experience in managing industrial property, since till recently there was no necessity to professionally develop and manage the industrial property and, moreover, there were no property complexes, assigned for more than one client, to manage.

Industrial parks are new phenomena to Russian market and we are going to make the best of the opportunity. A company capable of establishing a working pattern of an industrial park in Russia has all the probability to become leader to the market, gaining a substantial measure of control in the market place; attaining pioneer status; blocking competitors and achieving above average sales/profit growth.

The investment needed for site redevelopment (utilities reconstruction and new construction of 600 thousand sq.m industrial and 150 thousand sq.m office premises amounts to $390 mln., including $15 mln. of front-end investment. The project payback period constitutes 7 years.

We expect, that by the 10th year of project realization over 250 companies with 10 000 total number of workers will work within industrial park territory.

3.0. The Market Analysis

According to Jones Lang LaSalle Survey “Moscow City Profile”, dated September 2006, “the commercial real estate market in Russia has become more transparent for global investors. The market has entered a new tier in the Jones Lang LaSalle Global Transparency Index, placing it in the same league as Israel, South Korea and Thailand. Market entry of large scale Western European banks and lending institutions suggests that this positive trend will continue over the medium term”http://www.research.joneslanglasalle.com/loadpage.asp?document_lang=29&countryid=130&location=/showdocument.asp.

Generally, investment in real estate assets market in Russia's regions dominates the regional investment market. The growing demand for rental spaces is a major force driving rental spaces growth. The Moscow and St.Petersburg markets are close to saturation, and rental premises boom has started in the regions. Kazan belongs to 13 Russia's cities with a population over a million people. So the trends of Moscow's and St.Petersburg's office markets find quick response at the Kazan market as well.

Nowadays high rental level, constantly increasing number of companies rivalling for rental spaces make Kazan real estate market an attractive industry to act in.

A brief analysis of the Russian real estate market under the Porter's diamond 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 estate market and market analysis. Nowadays, however, the companies turn to development according to the all-over-the-world established rules. Nevertheless, local companies are hardly capable of competing with international market players.

Demand conditions. The customers on the local real estate market are becoming more and more scrupulous and demanding. But globally, demand in Russian real estate market continues to exceed supply, leaving opportunity to compete.

Factor conditions. The Russian real estate market is characterized by lack of professional specialists (“skilled labour”); lack of infrastructure, caused by mainly adaptation of existing old buildings, instead of building new ones according to the international standards; and a growing amount of capital invested in real estate development.

Related and supporting industries. This factor is also uncultivated within Russian real estate market framework. E.g. there exist only 3-4 facility management companies in Kazan city, which is obviously scanty for a city with a population over 1 000 000 people. Real estate consultants and real estate agencies are till present moment also rare in the market. In two words, the Russian real estate market lack of development seems to prevent the country market players from entering international market for at least 10 years more.

3.1. Market Segmentation

The limitation of “Himgrad” Industrial Park target customers to small and medium-sized companies occupied in chemical and petrochemical industries is made in order to single the project out of other industrial real estate complexes. The petrochemical utilities infrastructure present on the site territory allows increasing the efficiency of the mentioned companies business. The chart defining the target companies more precisely is presented at Graph 1.

Graph 1

The hatched segments of Graph 1 represent the “Himgrad” Industrial Park target customers. The reason for excluding big local companies is in their possessing own production facilities on the Republic of Tatarstan territory and, accordingly, enough space for further expansion. As for small foreign companies, they are not interested in global expansion or, to be more exact, have not sufficient financial resources to perform such an expansion. Big foreign companies' inclusion in our target customers 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-sized production facilities of such companies, which is usually the starting point of global expansion of an industrial company. Nevertheless, to make the location of such production facilities possible, we should address the mentioned companies' headquarters.

To sum up, the project has two categories of target customers:

1. local small and medium-sized companies, processing certain types of polymers, produced on the Republic of Tatarstan territory, including the newly-established companies;

2. foreign medium-sized and big companies, processing certain types of polymers, produced on the Republic of Tatarstan territory.

3.2. Competitors and Competitive Advantages

The target customers have two-sided choice, deciding on their possible location.

First, they may locate within industrial premises of Kazan city. According to the market research http://www.arenda-kazan.ru/reseach, by the end of 2007 Kazan real estate market comprises office, trade and industrial stocks in the proportions, presented at Graph 2:

Graph 2

Kazan industrial stock comprises over 57% of all real estate premises available for lease, but only third part out of these 1 200 thousand sq.m is professionally developed (due to the above described reasons). But the site state prevents the immediate lease of all premises available. Hence, there exist opportunity for growth.

But the target customers may also choose some other industrial park out of those developing in Russia (see Fig 1).

Fig 1

Main competitors group in Moscow and St.Petersburg regions. Tatarstan is beneficially located in Russia, on the boundary of European and Asian parts of the country, being the logistics juncture of those. So, the location of our industrial park in Kazan forms one of its competitive advantages, especially taking into account the chosen industrial park profile connected with the republican economy peculiarities.

The location of “Himgrad” Industrial Park in Tatarstan - one of the leading Russian regions in chemicals producing and processing, automatically makes 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)

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