Question

Expanding the number of stores in a foreign market, such as the expansion plan launched by Starbucks in China (announced in 2018), is a major capital budgeting project. A project of this scale requires coordinated planning across all functions of a business that you are studying in your Integrated Core classes. Choose and discuss three items on the income statement and balance sheet (a total of six items) that you think this new undertaking will effect. Explain why you chose those particular items, and how the marketing, management and operations decisions of the company will affect them.

Answer 1

Answer:

To enter in the foreign market , any enterprises needs research and solid foundation to built a customer base for future. As given in the case Expanding the number of stores in a foreign market, such as the expansion plan launched by Starbucks in China (announced in 2018), is a major capital budgeting project. A project of this scale requires coordinated planning across all functions of a business .

Following are the items on the income statement and balance sheet that, this new undertaking will effect:

Particulars	Reason to choose area	Marketing Decisions affect from such area	Management Decisions affect from such area	Operational Decisions affect from such area
Income Statement
a. Sales :	In the foreign market such as in china in case of Starbucks , the sales should be crucial part. As it is a base for capturing customers in the Long term market. As Starbucks has primary product i.e a coffee , it is a day to day product used by millions of people. Also sales is a crucial point as it has to achieve break even point in initially to survive for Starbucks. Sales should be covers the all operational costs. Company has to focus on the sales in the store as well as online mode.	Marketing strategy should be based on the Customer preferences as per areas. Marketing strategies should be based on the : 1. Culture in the area 2. Lifestyle of the people in the area/ region etc	Pricing decisions are a very crucial decisions to achieve the sales target of the company. Management decision directly affect on the sales area as it has to decide the minimum profit margin.	Sales is the core part of the operations as due to this company can achieve its financial goals
b. Human Resource Cost	It is a very important area , as there are employees needed in the : 1. Operations : in the stores 2. Delivery of the product to customers with online orders	As the store focuses on the sales at the store as well as online mode. Marketing strategy will affect directly by employing people to deliver the order as well as to market the brand.	Human resource is a core cost that company has to bear. Management has to focus on such area and decide the policies, work culture, benefits given to employee to achieve target of the company.	Human resource is the second biggest cost which Company has to bear. Company has to set the policies as per the management decisions to run the operations.
c. Material Cost : Coffee Blends	It is a basic cost which decides the future of the company. As the product brand of Starbucks is Coffee, The coffee blend material cost is very important. It includes the cost of manufacturing of coffee, blending cost , research and development cost etc	Marketing decisions are affected directly as it has to market the brand of the company , which depends on the coffee blend.	Management decisions affects directly as it is a core cost of brand. Management decisions are very as per the preferences of the customers choice.	It directly affects the operations of the company as the coffee blend costs is a essential cost to run the business.
2. Balance Sheet :
a. Capital investment in Structure of the Store	It is core investment required to establish a business in foreign country. As Starbucks is a coffee shop , it requires structure or space for the shop to do the business. It requires huge capital funds to buy or lease the space.	Marketing decisions are very as per the store located in the foreign country. It affects the customer base and marketing strategy accordingly.	It is important decision of Management to buy or lease the space for the store in the foreign country. If the store space is purchased by company it requires huge funds.	Operations are depends on the location of the store. The revenue generated is from online or offline mode , depends on the location of the store.
b. Loans	To Store space and the operations of the company it requires huge funds. These funds can be arranged by taking loans from financial institutions or from the by way of debentures or equity.	Marketing strategy of company plays huge role in this, as brand establishes then the more investors are willing to invest in the company.	Management decisions are important and these are capital Budgeting decisions to buy or lease the store space.	Operational decisions are affected from such areas as it is a fixed cost which has to cover from the revenue to run the operations of the Company.
c. Cash & Cash equivalents	Cash Flow of the company directly affect the position of cash and cash equivalents of the company. As Starbucks wanted to open stores in foreign country china, it needs huge cash funds to set up the operations.	Marketing strategy is important in this area as it directly affects to generate the cash funds from the revenue.	Management has to forecast the cash and cash equivalents from the stores. As it depends directly in capital budgeting decision for viability of the store and business in foreign country.	Cash and cash equivalents supports to run the operations of the company in short as well as long run.