Case Issues / Session Goals

Aptech Ltd. Group A / J Analysis, Q & A, and Discussion Aptech Ltd. Additional Analysis

Session Take Aways

1-1

6-2

Objectives

Strategy Development Model

Internationalization Make / Buy Marketing Strategy for SBUs
6-3

1-4

Selecting a Market & Estimating Demand

Capital Investment Decisions Make / Buy

SBU / Brand Strategies Tools BCG Matrix & Break Even Analysis
1-5

6-6

Corporate Strategy B & D Case GE Acquisition Business Levels Strategies Functional Level Strategies Aptech Case Business Strategies originate in Market Potential & Estimating Demand

6-7

6-8

Step 1. Compute the Number of IT Employees in Russia & Vietnam Use Realization per Employee from Brazil; Data Insufficient for Mongolia
Step 2. Increase in Number of Employees from Last Year to First Year

Step 3. Two Factors are Applied to determine the demand for IT Education Industry

6-9

6-10

Cost Plus
Cost Plus + Fixed Return Market can Bear

Competitive Pricing
Perceived Value Pricing
6-11

6-12

Two Methods to Estimate Demand:

1. 2.

Competitive Pricing Cost Plus Pricing

6-13

Method 1. Competitive Pricing

For Brazil (in 2001)

IT revenue 3205 106 Realization per IT employee = = IT industry employment 385637
= $8311

6-14

For Russia (in 2001):

IT revenue 400 106 IT industry employment = = Realization per IT employee 8311

= 48129 employees

6-15

For Vietnam (in 2001):

IT revenue 340 106 IT industry employment = = Realization per IT employee 8311

= 40910 employees

6-16

Method 2. - Cost Plus Pricing

CPI of Russia Ratio of CPI = = 1.1 CPI of Brazil

6-17

Method 2. - Cost Plus Pricing

For Russia (in 2001):

IT industry employment = IT revenue Realization per IT employee Ratio of CPI

400 106 = 8311 1.1

= 43754
6-18

Increase in IT employment:

For Brazil,

6-19

IT Education demand:
fraction of students who take up jobs in the IT space = 50% leakage or dropouts from the IT space = 20%
For Brazil,

6-20

Realization per IT employee

Increase in the number of employees in the IT industry Stage in the brand lifecycle Brazil & Vietnam Real disposable income of the population
6-21

Country-wise Data Needed:

Relative Market Share Market Growth Rate

6-22

Relative Market Share (for Brazil):

relative market share = 15/21 = 0.7

Market Growth Rate (for Brazil):

6-23

Country

Relative Market Size of Market Growth Industry* Share Rate* 0.7 11.39% 593591 82229

Aptech-Brazil Aptech-Russia

0.3 14.33%

Aptech-Vietnam

0.8 14.75%

70923

* Using IT industry employment as a proxy

6-24

6-25

Brazil
high demand for IT Education is a large market requires a greater amount of

resources market growth rate is not as high as that in Vietnam or Russia qualitative assessment is very good

6-26

Russia
high demand for IT Education market share in 2005 was projected to be just a third

of the largest player qualitative assessment not favorable

Vietnam
moderate demand for IT Education market was small cash flows would be low qualitative assessment was good
6-27

Mongolia
unknown demand for IT Education GDP growth similar to Brazils demand for IT

Education would perhaps increase every year qualitative assessment is very good

6-28

Three considerations:

Strategic Financial Valuation

6-29

NPOWER

AVALON

Lower price point Appeals to SECs B and C Connotes learning Fast changing hardware industry

Higher price point Appeals to SEC A Connotes glamour Slow changes in airline industry MAKE
6-30

BUY

Net Present Value Method:

Avalon for the year 2006,

for Avalon in 2007,

6-31

NPOWER
Year Cash in-flow (income) Cash out-flow (variable cost) Cash out-flow (capex) Net Cash flow Present Values 2007 87.28 -17.12 -6.92 63.24 63.24 2008 282.59 -482.45 -142.23 -342.09 -306.81

AVALON
Year Cash in-flow (income) Cash out-flow (variable cost) Cash out-flow (capex) Net Cash flow Present Values Net Present Value 2006 27.14 2007 635.40 2008 1719.12

-227.08 -752.53 -1378.99 -167.81 -120.01 -367.75 -237.14 -367.75 -212.68 -448.00 -192.47 147.66 132.43

Net Present Value

-243.57

BUY

MAKE
6-32

Revenue level is an indicator of enterprise valuation

Ratio of revenue to enterprise valuation = 1:3

For Avalon in 2006, Enterprise valuation

Year
Avalon NPower

2006 81.42

2007 1906.20 261.84

2008 5157.36 847.77

6-33

Relative market share:

relative market share of ACE = 15/25 = 0.6 cut-off is at 1.0

Market growth:
for ACE, market growth = 10%

cut-off is at 20%

6-34

 Obtain the relative market share by dividing the SBUs

market share by the market share of the largest competitor

Obtain the corresponding market growth from the

market CAGR column

The size of the circle is the size of the market (in lakhs)
Plot the market growth against the relative market

share to obtain the position in the BCG matrix

6-35

Size of the market (in lakhs):

6-36

6-37

ACE

flagship brand of Aptech also its oldest brand mature and saturated market best option is to divest ACE

ARENA
it is 15-16 years old look towards optimization i.e. incremental increases

in market share
6-38

Avalon and NPower

garnering fresh market shares use growth strategies should invest more into both to convert them into

stars

International
fluid market as a business unit it is fairly robust ideal cash-cow for Aptech
6-39

China SBU
very high growth good lead over its competitors

this is Aptechs biggest star

6-40

6-41

Objectives

Strategy Development Model

Internationalization Make / Buy Marketing Strategy for SBUs
6-42