Feasibility Research Plan for Associated British Foods

Top management of AB Mauri, a business unit of Associated British Foods, is planning to establish bakers’ yeast and bakery ingredients manufacturing plant in Bangladesh. Before investing in Bangladesh, the company needs a feasibility report. This outline report will introduce the aim and objectives of the main feasibility research. The paper will also define the research strategy including requirement of data, data collection methods and methods of analysing data for achieving the research objectives. The report also includes, how to analyse collected data to achieve the objectives and how to take decisions based on the findings of the research.

1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

After the rebirth of industrial globalisation back in 1980s, Asian, African and Latin American least developed countries became hotspots for relocating labour intensive industries by developed economies. The natural reason was enormous availability of cheap labours in those countries (Bradford 1925). Foreign direct investment in agriculture and the food industry, according to FAO (2004) as cited by Pingali (2010) grew significantly in Latin America and in Asia between the mid-1980s and mid-1990s. In Asia, FDI in the food industry nearly tripled, from $750 million to $2.1 billion during the last three decades and during the same period food industry investment grew exponentially in Latin America, from around $200 million to $3.3 billion (Pingali, 2010). The major Asian investment destinations were China, Thailand, Malaysia, Indonesia, Sri Lanka, Pakistan and India. However, countries like Bangladesh, Vietnam, Nepal and Maldives were ignored by the international investors. Especially Bangladesh despite having one of the biggest population bases and cheapest labour forces could not attract FDI in food or other sectors due to political instability, severe power shortage and bureaucratic complexities. Nevertheless, recent development in the Bangladeshi economy has lifted the international confidence and the economy has become wide open for foreign direct investments. The objective of this paper is to outline a research plan to identify the feasibility of establishing a factory of AB Mauri business unit which will produce baker’s yeast and bakery ingredients.

2. Aim and Objectives of the Feasibility Research. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The aim of the research is to identify whether establishing an AB Mauri plant in Bangladesh for producing baker’s yeast and bakery ingredients is a feasible option for Associated British Foods Plc. To reach its aim the research team would require achieving the following objectives

Explore current political and economic situation of Bangladesh and identify sustainability of political and economic stability;

Investigate the supplies market to determine availability and cost of raw materials, labour and power and compare cost of production with current average cost of AB Mauri plants;

Explore the local financial system and determine the impact of interest rate, inflation and exchange rate on future cash flow;

Estimate and analyse the financial feasibility of the project considering five, ten and fifteen years of investment duration.

3. Research Questions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The findings of the research, in sequence of its objectives, should answer the following questions:

How stable is political situation in Bangladesh for international businesses?

What would be the cost of land, labour, materials and energy in Bangladesh?

What government benefits are available for FDIs?

What impact the economic variables can put on the business profitability?

Is the project financially viable in various investment horizons?

By answering all these questions, the research will be able to answer the main research question: “Is it feasible to establish AB Mauri’s manufacturing plant in Bangladesh?â€?

4. Critical Literature Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The research team would require four areas of knowledge to conduct this research. First of all, the team must have very good idea of agricultural economics. Johnson (n.d.) defined agricultural economics the study of allocation and utilization of resources and commodities by farming. Johnson in his contributory article Encyclopaedia Britannica raised concern about falling agricultural outputs in developing economies and pointed factors like price and income instability, government intervention and some other issues as main constraints of agricultural industry. Pingali and Evenson (2010) in their ‘Handbook of Agricultural Economics’ discussed a wide range of issues including production and supply, agricultural risk management, innovation and research in agri-business, marketing and distribution, storage and price stabilisation of agricultural products and many other issues worthy to be reviewed by the researchers before starting the research work.

Secondly, the researchers must have very good understanding of Associated British Food’s business philosophy, return expectation, human resource policy and strategic issues. ABF’s corporate website and annual reports can be very good source of these information. The company was first established in 1935 and took the name Associated British Food in 1960 and became a public limited corporation 1982. ABF’s business is diversified into five segments: sugar, agriculture, retail, grocery and ingredients. The group has at least fifteen companies under its umbrella. AB Mauri, the business unit which this research is concerned about, produces yeast and bakery ingredients and has more than 40 plants in 28 countries. AB Mauri’s vision is to be the premier bakery solutions business around the world. According to the company’s financial statements its average ROE is around 10%. The researchers must know more about company’s return expectations, attitude toward risk and other preferences to evaluate the potentiality of doing business in Bangladesh. ABF’s corporate website is an excellent information house and almost all information required to conduct this research is available there.

Thirdly, the research would require gathering extensive information on Bangladeshi politics, society, economy and agricultural industry. Gathering political information for decision making is very tough. Bangladesh has a long history of political unrest. The country’s politics is led by two major parties Bangladesh Nationalist Party and Awami League. “Bangladesh Business Forecast Reportâ€? publishd by Business Monitor International can be used to have a deeper insight of political and economic trends. The report would also provide PESTEL and SWOT analysis of Bangladesh which would very useful information for this research. Publications of country’s central bank named Bangladesh Bank would be very useful to understand the economic paradigm of nation. On the economic data section of the bank’s website information of exchange, inflation and interest rate, money supply and national income are available. Average exchange rate of Taka against Pound Sterling is around BDT 120 and against dollar is BDT 70. Average interest rate is 5% and average annual inflation rate is around 8% to 10%. More valuable information about the economy is available in the bank’s website. To gather information on agricultural industry of Bangladesh website of Ministry of Agriculture can be very useful. According to the ministry’s website total cultivable land in Bangladeshis is 8.44 million hectare and net cropped area is 7.8 million hectare. Contribution of agricultural sector to GDP is 13.44% and total manpower in agriculture is above 60%. ‘Handbook of Agricultural Statistics’ published by agricultural ministry can be a handful source of information to the researchers.

Finally, the researchers must have very good idea of research, designing research and research methodology. Marczyk et al. (2005) termed research as cornerstone of scientific process which has the purpose to answer questions and acquire knowledge. According the authors of “Essential of Research Design and Methodology�, researches are used for describing, explaining, and predicting. Research can be of various types descriptive or analytical, applied or fundamental, quantitative or qualitative and conceptual or empirical. Descriptive researches gather and present data to portray something that exists. On the other hand, analytical research collect and analyse data critically evaluate situation. Applied research tries to find out a solution for a specific problem and fundamental research builds up generalized theories. Quantitative analysis works with numeric data and qualitative research is concerned with qualitative phenomenon. The feasibility research so far is a mixture of descriptive, analytical and quantitative research. The researchers should also have capacity of evaluating financial information to determine financial viability of projects.

5. Research Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Like all other researches, the feasibility research would collect data from various sources and apply methods to convert data to information that answers the research questions. The overall research strategy can be summarised as following:

Research Objectives

Relevant Data Requirement

Data Type and Probable Sources

Research Method and Specific Techniques

1. Explore current political and economic situation in Bangladesh and identify sustainability of political & economic stability

Major political parties & their philosophy;

Political future;

Interest rate, inflation rate, exchange rate etc.

Secondary; Bangladesh Business Forecast Report published by Business Monitor International; Publications of Bangladesh Bank

Descriptive- Qualitative analysis on political data; Trend/Time Series Analysis on economic variables

2. Investigate the supplies market to determine availability and cost of raw materials, labour and power compare cost of production with current average cost of AB Mauri plants

Land area, productivity, labour availability and cost, materials availability and cost, power availability and cost; Average Cost of AB Mauri Plants Worldwide

Secondary; Handbook of Agricultural Statistics and Bangladesh Bureau of Statistics Publications; AB Mauri’s costing reports

Descriptive and Quantitative Analysis (Need to identify cost trend and future availability of land, labour and power; Comparison of new data and average cost

3. Explore the local financial system and determine the impact of interest rate, inflation and exchange rate on future cash flow

Banking system, financial management practices and

findings of data analysis for 1st objective;

Secondary; Publications of Bangladesh Bank and Analysis of this research

Descriptive

Quantitative

4. Estimate and analyse the financial feasibility of the project considering five, ten and fifteen years of investment duration

Financial projects based on information gathered and analysed in previous sections

Secondary, findings of this research

Quantitative- Financial Feasibility Analysis

Table 1: Research Strategy

6. Research Data, Methodologies, Techniques and Tools. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Table-1 shows that the research will pursue varieties of methods to achieve different objectives. In following sections a brief explanation of research methodologies are given.

(a) Describing Political-Economic Scenario and Estimating Sustainability

First part of the analysis would be descriptive in nature. Data on political and economical information would be collected from secondary source and presented in meaningful way so that the overall scenarios can be analysed qualitatively. Also data collected on economic information would be placed in a statistical model to estimate future economic trend and sustainability of economic well being of the country.

(b) Estimating Supply Cost and Availability

The research would require knowing the cost of producing bakery yeast and ingredients in Bangladesh. To get information on cost of supplies data can either be collected form primary or secondary source. Labour market information can also be found from secondary sources stated above. The research methodology to achieve this objective would be partly descriptive and partly quantitative. Descriptive section would identify average cost of supplies and current market availability. The quantitative section will predict the trend in cost and compare it with average cost of other AB Mauri factories.

(c) Measuring Impact of Economic Variables on AB Mauri’s Predicted Cash Flow

The economic variables that might influence the estimated manufacturing cost in Bangladeshi plant are exchange rate, inflation rate and probably the interest rate. This part of the research, would require information collected and analysed on economic variables and cost of supplies. First section would be descriptive on the banking and financial system of Bangladesh. Second section of this part would be completely quantitative: associating the findings of future economic trend and predicted cost estimates.

(d) Estimate the Financial Feasibility of the New Project

The final section of the study would determine the estimated production volume, cost and expected price. The estimated financial information then would be used to calculate project’s Net Present Value, Internal Rate of Return and Project Payback Period. The research methodology would be quantitative and would require complex financial analysis.

(e) Formulating Decision: Accepting or Rejecting FDI in Bangladesh

After conducting all required analysis, the would finally formulate a decision about the feasibility of establishing an AB Mauri plant in Bangladesh using the following decision tool

Researched Area

Research Finding

Points

Political Stability

Stable/Not Stable

2/0

Economic Stability

Stable/Not Stable

3/0

Agricultural Industry Condition

Favorable/Unfavorable

5/0

Supply Cost

Below Average/Average/Above Average

5/0/-5

Impact of Economic Variable on Supply Cost

Favourable/Unfavourable

5/0

Financial Feasibility (IRR)

Negative/Less than 10%/More Than 10%

-10/0/10

Total Score Range

-15 to 30

A negative score would automatically reject the investment meaning that establishing an AB Mauri plant in Bangladeshis is not a feasible option. A score between 0 and 10 would mean the investment is considerable. Finally, score above 10 would mean establishing manufacturing plant in Bangladesh is highly feasible.

7. Research Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The research project would benefit ABF on few specific areas. The first benefit is to the ABF’s strategic management as the company would be aware about the feasibility of investing in agriculture of Bangladesh. The research report can also benefit ABF if it is planning for investing in other sector in Bangladesh. Finally, the research project model can be used for feasibility analysis for other projects even in other countries.

8. Ethical Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The research is not of experimental nature. Because of being an initial feasibility research it will collect questionnaire based data. All data will be acquired from secondary sources. Therefore it seems that there are no ethical issues involved with this research project.

9. Research Limitations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The research is however limited in few areas. These limitations are summarised as below

The research is using only secondary data; data would be collected from various sources that might be limited in quality;

The research puts more weight on cost and financial feasibility information rather than political and social issues;

For decision making, the research will weight the findings of financial viability analysis which is subject to risk;

No techniques of risk management would be applied in predicting, forecasting and evaluating information gathered for this project.