AGATHA BUSINESS PROJECT PROPOSAL I.

STRATEGY AND GROUP LEADERSHIP Increase our market by expanding our sales to India through Master Franchising

a. Why is AGATHA entering to an international development? AGATHA profits of brand equity in all the markets it has conquered, this equity has been gained thanks to its differentiation effect in custom service and most of all for offering fashionable and good quality jewels at an accessible price. This characteristic has become its competitive advantage towards other competitors, such as Swarovski, locating her in a niche position. AGATHA is present in more than 20 countries all around the world, and it still has a lot of franchising potential, its last big success was in South Korea where co working with a Master Franchisee became of South Korea the 3rd market of AGATHAS total markets. b. AGATHA IN INDIA To approach Indias market, AGATHA will use a strategic alliance through the master franchising option. This option has been chosen over Licensing mostly because of its Identity, in other words AGATHAS Identity cannot be used just as a logo or brand, the intangible property of the enterprise is based not only in its name but on distinctive characteristics like client service, classic fashionable products, decoration, lines of seasons, etc. AGATHA does not suit to a country; it is part of the globalization process and keeps its identity in every country even by selling the exact same products in each one. The conditions of the agreement will be exposed at the Finance, Legal, and Fiscal section. ADVANTAGES: - Maintain the same identity of the store - To be able to influence at the turnover by giving training support to the franchisee - Conquer a big size of the Indian market through a member of the Indian community by being able to understand their culture - Very low costs compared to those of having an own store - Implementation of several stores in different cities. RESTRICTIONS: - The control of the store will be in hands of the franchisee, AGATHA only has the right to give certain conditions which must be strictly followed by the franchisee, and all the rest will be just recommendations which the franchisee has no obligation to follow. II. MARKETING PLAN

a. Demand Forecast and Target Market Selection - Based on studies and other research, India is the optimum place for AGATHA to set-up their roots and continue to grow through international diversification as opposed to Brazil and U.S.A. An attempt to set-up AGATHA in the U.S. has already failed given the exhorbitant business costs. In Brazil the population and possible demand is not enough to sustain an AGATHA store. - According to research Indias economical landscape is on an increase, with a good growth rate and big working population. Form 2007 to 2011 there has been a

steady increase in consumer expenditure, specifically that of leisure and miscellaneous items. Also, the population of citizens that belong to the upper and middle class income categories has been and will be steadily increasing. Given that AGATHA Paris main target market are women aged 15 to 55 years old, 62% of Indias total population belongs to the 15 to 64 year-old age bracket. As AGATHAs main consumer profile and target market are women who are modern, fashion-forward and are always open to change, Indias traditional culture is shifting toward that of a more westernized and modern state of mind. This can be seen in Indias population of urban teenagers especially in their changing buying behavior that is more focused on pursuit of pleasure. A secondary target will also be pursued. This segment consists of people who are looking to buy a gift for another person, may it be their friends, sisters, mothers, girlfriends etc. AGATHA has a possible market of 215,876,870 for the whole of India. 48% are females (103,620,898 individuals) and 52% are males (112,255,972 individuals).

With all this data in mind, Indias economic outlook, population rapid growth seems to suit AGATHAs targeted consumers. b. Competition Analysis Swarovski: - Main competitor of AGATHA. - Jewelry products are made from crystals. - Swarovski is present in almost all locations where AGATHA is. In this light, one reason for AGATHAs expansion to India is because Swarovski is not yet present in the said country. Being first in India before Swarovski can be an advantage for AGATHA. Local competition - There is little brand awareness and product recognition among them. With AGATHA being an international and well-recognized brand, it can now change the game by gaining brand equity through awareness and product differentiability. These local competitors however have an advantage over AGATHA with their cultural connection and familiarity with traditional Indian customs and fashions. c. Marketing Mix Management The main objective for the marketing mix would be to gain brand equity in India and develop a differentiable brand and products. Product: Standard Products : Standard products and product lines such as the Classics, charms and watches will serve as the main products of AGATHA. These items will be available regardless of the season and will be the differentiable and recognizable products for the brand.

Adapted Products: As there are certain traditions and fashions that are unique to India, AGATHA will create an adapted product line to suit local tastes and traditions. There may be certain images, shapes and colors that have particular religious and cultural significance to the Indian population. There may be certain images, shapes and colors that have particular religious and cultural significance to the Indian population. Partnerships with influential local designers will be made to give AGATHA products a more local and relatable image. Price Policy

Dual Pricing : AGATHA India products will be sold at a 50% mark-up, 4% higher than that of the 46% mark-up of AGATHA Paris products. Skimming Price There will be some products and designs that will be initially placed at a higher price range and will steadily decrease in price as more and newer products are released. Promotions

Promotions for AGATHA India will be based on the principle of Acculturation. Promotional materials will be geared toward adapting to the Indian culture. Unique Selling Point : Luxury you can Afford

The main feel of the stores that will be set up are that of elegance and luxury maintaining that Parisian image to it. Store windows will be designed with a traditional French aesthetic but with a splash of Indian tradition. Store windows will be a main channel to showcase AGATHAs products. AGATHA India will have special promos during traditional Indian holidays. A higher demand can be expected especially when gift-giving holidays are approaching. Holi Festival a saree festival where there is a possibility of purchasing necessary fashion accessories to compliment their sarees. Festival of Deepawal (New Years Eve) a traditional gift-giving holiday Other staple gift-giving holidays: Mothers Day, Valentines Day, birthdays etc.

Partnerships with prominent local Indian designers like, Ritu Beri who was the first Indian designer to present her collection in Paris, will be created.. With this in mind she can provide that connection with the French and Indian aesthetic. This will create a more relatable image not only to local citizens but to international consumers as well. Apart from partnerships with Indian designers local celebrities will also be tapped as opinion leaders to promote AGATHA products.

AGATHA India will also make use of print-ads, and TV commercials and a website. Distribution : Exlusive Distribution : Initially there will be 1 main store for the beginning of the operations located in Mumbai, AGATHA products will be mainly distributed through this store. Proposals to add more stores will be considered after the flagship store has given positive feedback on their overall performance. Other stores will be set-up in shopping malls and shopping arcades to reach more of their target market. Products are not perishable and can be stored in the in-store storage rooms.

III.

LOGISTICS AND OPERATIONAL

The importance of logistics for the success of this project. Since Agatha is entering the Indian market, but production is in Europe and China, logistics is important because the franchisee would want to make sure that the merchandise does arrive at his store. If Agatha is unable to deliver the merchandises on time, it will lead to inventory stock-outs. Neither can Agatha deliver big loads of merchandise at one time because the franchisee might not want to have extra storage and handling cost or invest in a warehouse. *High volume of expensive goods is transported back and forth in this franchising agreement. *If responsibility regarding damaged goods is unclear, Agatha can lose money. *If shipments are delayed, this will lead to a shortage of inventory in the master franchisee. International logistics is more complex than domestic. International businesses cover longer distance when shipping. It also ships more inventories, thus there are more opportunities for things to go wrong. We are also not familiar with the transportation costs in India. The cultural distance of India and France would also affect the communication and coordination of shipping and transportation. Moreover, the order cycle time can fluctuate greatly, which can possibly lead to a longer order cycle. The franchisee would then require safety stock to make up for delays. However, the franchisee might not be willing to spend on the extra storage costs if this happens. Inventory levels and Safety Stock Regarding inventory levels and safety stock issues, it is important to note that it dpends on Customer behavior and attitude in India. Questions such as Are Agatha customers willing to wait for the jewelry ? or Do they prioritize availability of jewelry? have to be asked. Since the inventory turnover in 2009 of the Agatha stores in France is 75 days, and assuming that one year is 360 days, the inventory is replaced 4.8 times a year. Agathas more expensive product lines will maintain a low inventory level, following the 4.8 turnover rate. This is due to the fact that maintaning high inventory levels of thse products will result in higher handling costs versus ordering cost. The line of charms (placed on a main bracelet) that represent 10% of turnover and the line of womens watches that represent 15% of turnover will have a high inventory level, and a lower turnover ratio. If we were to follow a low-inventory level, there is more chance of 4

running out of jewelry and watches, and this wont make the customers happy. Shipping more merchandise in fewer occasions can be advantageous as well as Agatha can save on the shipping costs. Assuming that Agatha customers value walking into a store and coming out with a new purchase everytime, the store will maintain a 98% service level. Computing for the re-order point (ROP) for the line of charms and line of watches. - Average lead time: 30 days - Daily demand: constant (6434)- This is the target market in Mumbai divided by 360 days. - Standard deviation of lead time: 3 days - 98% service level - (6434*30) + (2.055*6434*3) - ROP 232,685.61 units Peak in Sales Activity There is a peak in sales during Christmas, Mothers Day and Valentines Day, and other Indian holidays. In order to compensate for this, the right demand forecast should be made in order for the franchise to know how much to order from Agatha. Shops : Design and Layout In order to maintain the uniformity of the design of the shops all throughout the world, Agatha will send a French architect to help the master franchisee. For Indian festivals when the master franchisee wants to put up extra decoration, he has to consult with Agatha first. The store will be located in Mumbai and it will be around 100 sq. meters big. A big store will fit the luxury image of the Agatha brand. Evaluating the risk and cost of different modes of transportation on the target market 1. Air Transporting the jewelry and raw materials by air would be faster and safer, but it would also cost a lot more. 2. Sea Using ships would save money if Agatha needs to deliver big volumes. However, there are very few ports and the route is not flexible. Agatha will use sea freight in exporting its goods to India. Agatha will deliver the goods to Jawaharlal Nehru Port Trust in Mumbai, which gets 60% of the countrys container traffic. When the goods reach the shipping dock, there will be trucks that will take the goods to the Agatha store in India. We recommend that the franchisee should outsource this transportation of goods to a trucking company. For example, after the arrival of the goods in the port, an outsourced trucking company hired by the franchisee should come to pick up the goods and transport it to the Agatha shop in Mumbai. Setting the appropriate INCOTERM Agatha as the franchisor will be following the INCOTERM Delivery Duty Unpaid. Agatha is responsible for making sure that the raw materials and goods reach India safely. It also bears the cost of damaged goods in shipping the goods to the delivery location. Agatha

must also provide the franchisee with the bill of lading that will serve as the official receipt. A bill of lading will be given to the franchisee upon arrival of the shipments. This would serve as the official receipt and as the certificate of ownership as well. Without this, the transfer of ownership from Agatha to the franchisee is not complete. Agatha will also be responsible for obtaining export license, paying duties, taxes, and dealing with custom formalities in India.The franchisee bears the responsibility of obtaining import license. After Agatha has delivered the goods to the agreed point of destination, it is the franchisees responsibility to care for the goods. He will have to pay for any damage resulting from failure to take delivery of the goods.

IV.

HUMAN RESOURCES

A. AGATHAS CREW (Franchisor): Export Manager (Woman or Man ): PROFILE: Competence, this person must speak French, Indian, and English fluently. Adaptability is essential in order to obtain a good relationship with the franchisee, as he/she will be in constant contact with the Indian crew sharing their daily culture and activities. PRINCIPAL TASKS: Heading the training program to the franchisee employees. Establishing constant communication with the Frachisee: this person would be traveling to India 1 time per month before the opening of the store and once AGATHA opens its doors to the public, he/she will give technical support for the ideal running of the store according to its identity. Contact between franchisee and AGATHAS specialists crew: every time the franchisee has serious doubts about some technical process the export manager will connect the Franchisee to the different departments managers of AGATHA in France.

Compensation package Fixed salary 3000 euros monthly Bonus 2000 euros if reaches a turnover of 55000 euros on the first and second month Others A car, 1000 euros for food an other expenses, stay in a centric apartment at Mumbai, 3 round tickets during the 6 months stay. B. FRANCHISEE CREW AGATHA will not have any responsibility or intervention in the recruitment of the staff, even though in order to preserve its image and identity, the company will demand certain conditions: Conditions All the employees in contact with the public must speak basic English, and the manager of the store as well as the Country manager, must speak advanced English. This because India is also a current destination for tourists, who are already our customers in other countries so we must preserve a good quality attention by been able to attend their most simple requests.

Every worker in AGATHA who has contact with the client must have completely knowledge about the season lines and models of jewels and watches in order to give appropriate service to the client.

Recommendations: Country manager PROFILE: - HIGHLY prepared LOCAL manager, speaking advanced Indian, English and Intermediate French: as a member of the Indian culture he or she will know how to handle Indian employees without been disrespectful with their religious beliefs and everyday activities. Experience in International Business, that allows the manager to cover every details on the process Adaptability and Acculturation, given the present womens position in India, we strongly recommend the franchisee to ask himself some questions before designating this job position: o If the manager designated is a man, will he be able to have a good performance under womens indications? A lot of the AGATHA staff in France is composed by women who will probably resolve any technical doubts the franchisee has, so the communication between the franchisee and franchisor must be fluent and adequate in order to get successful results. o Is sexual harassment at work common in India? We strongly recommend being very careful with this subject as we DO NOT want to be associated with this kind of image, AGATHA is a store for women who promotes the image of a confident and modern woman. The identification of the staff with the AGATHAS company is substantial in order to keep our excellent customer service. *The functions will be designated by the Franchisee OPEN DAYS AND HOURS OF THE STORE AGATHA requires 1 day off in the weekend, we encourage to keep the Sunday as a work day for being a reasonable opportunity to receive a lot of costumers. This schedule can be changed according to the Indian legislation. The staff should be at the store one hour before the opening and 1 hour after the closing, according to their functions. Days Tuesday to Saturday Sunday V. Cost Evaluation Hours 10:00 am to 6pm 10:00am to 1pm

In country of origin (France) :

Fixed and Variable costs FIX Production fix costs (energy, water,...) Salaries for employees (full-time) Taxes, loans,... 80% Gross Margin Percentage Sales: Cost of goods sold: Gross Margin Amount: Gross Margin Percentage: / = Economies of scale Through entering the indian market, production of jewelry will of course rise. This leads into positive economies of scale. Year 1: Year 2: Year 3: + 30 000 units + 45 000 units + 60 000 units 36 943 435 19 985 604 16 957 830 16 957 830 36 943 435 0.459 = 45.9 % VARIABLE salaries for employees (part-time)

20 %

In country of destination (India) : Marketing costs Initial market prospection costs: Market survey costs (secondary data): Market research costs: 8 000 1 000 1 000 10 000

Logistics costs: 2. Location costs: 3. Shop: 4. Storage: 5. Office: 6. Distribution network: 7. Insurance costs: 8 92 000 50 000 14 000 25 000 3 000 19 000

8. Transport costs: Human resources costs: 3. Salaries: 4. Social charges: Net turnover on 3 years: Year1 Year 2 1 000 000 1 500 000 500 000 750 000 500 000 750 000 50% 50% Year 3 2 000 000 950 000 1 050 000 52% 50 000 12 000 57 000

200 000 311 000

Sales Cost of sales

Prices: Slightly higher, than in France Expected sales: 1 000 000 Expected costs: 4. 5. 6. 7. 8. 9. Marketing cost: Logistics costs: Human recources costs: Customs duties: Freight forwarder fees: Other import tax-license cost: 10 000 311 000 57 000 4 000 9 000 10 000 406 000

Gross Margin In country of destination (India): Gross Margin Amount: 8,980,000 Gross Margin Percentage: 0.50449 = 50 % Franchisee Fix/Variable costs: Fixed Human resources costs Salaries Social charges Expatriaton Location costs shop office Marketing costs Initial market prospection costs Market survey costs (secondary data) Market test costs 9

Variable Custom duties Freight forwarder fees Other import tax-license costs Logistic costs Insurance costs Storage costs

Market research costs Promotion costs Logistic costs Transport Costs

Percentage Fix/Variable costs: Statement of income: Year 1 Sales - Costs of goods sold GROSS MARGIN -Fixed expenses -variable expenses -depreciation EBITDA VI. 1 000 000 500 000 500 000 325 000 81 000 94 000

Fix: Variable:

80 % 20 %

Year 2 1 500 000 750 000 750 000 460 000 115 000 175 000

Year 3 2 000 000 950 000 1 050 000 640 000 160 000 250 000

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Legal, Fiscal and Financial 1. Tax management.

If the Franchisee imports from Europe he will have to pay 26% of duties and 12% of VAT, that is way AGATHA wants to profit from one of the free trade agreement India has with China as AGATHA produces part of its merchandise in this last country. The Indian company will pay the respective society taxes. 2. Currency management. Indian currency is in average equal to 1 euro = 62 rupees, the fluctuation should be an important concern to the master Franchisor as he will have to pay the flees in Euros. The Franchisee should be prepared to support any kind of crises similar to what India Market had some years ago. India is a country of free funds movement with no government control in the exchange rate. 3. Regulations and laws applicable to the activity. Again AGATHA wont have to deal with Indias barriers against foreign investors (which are very restrictive) as it will work through an Indian franchisee. 4. Legal structure for operating in target market. In the contracts, we would use English as the official language.

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We are giving them a master franchising, but in the contract they will be allowed to open one store in the first six months, and after that period they report back to us. Depending on their success and performance, they will be able to open a second store. The supply of the Indian store will be made by Exportation from China. AGATHA will not take any responsibility for any violation against the rights of the employees hired by the franchisee according to the existent law in India. 5. Other capital budget components.

The inventory will be produced in China, so we will send the merchandise by ship to India. In India we are contracting a truck company, so it can deliver the product to the store. The accounts receivable will be paid thirty days after, we deliver the merchandise in the store, once we deliver the merchandise in the store, we must give them an acknowledgment of receipt. 6. Cash management. The costumer must be able to pay by cash, credit card, and debit card. Checks wont be accepted from any costumer. 7. Financing international project. In this case, we are not helping them with the money to afford the project, but a good suggestion for them if to look for a credit with an European bank or with they own resources. 8. Economic exposure. India continues to rank high on corruption because most political battles are based around religion rather than development. However, it is a rather stable democracy that makes of India a safe place for investment. India ranked in the 44 percentile on control of corruption in 2008 compared with 46.6 in 2003. India ranks in the 72nd position out of 179 countries in Transparency Internationals Corruption Perceptions Index for 2007. The Gross Domestic Product (GDP) in India expanded 8.90 percent in the third quarter of 2010. The inflation rate in India was last reported at 9.47 percent in December of 2010. The country has a large working population, but performs poorly on social development. Given that in 2010 the median age was 25.9 years. Repartition between male and female shows a discrepancy 972 female vs. 1000 male. There are specific barrier to the jewelry sector. But in the retail sector foreign companies cant posses more than 51% of the retail company. The other part needs to be owned by a local investor. ASSETS YEAR 1 YEAR 2 YEAR 3

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Cash Account receivable Inventory Vehicles and equipment Building Land Other assets Total assets LIABILITIES Bank overdraft Suppliers Other account payable Medium term debt Long term debt Stockholders equity Total liabilities

500,000 840,250 604,300 100,000 200,000 100,000 0 2,344,550 0 700,000 150,000 100,000 1,200,000 194,550 2,344,550

700,000 1,176,350 846,020 100,000 200,000 100,000 0 3,122,370 0 1,000,000 300,000 200,000 1,500,000 122,370 3,122,370

900,000 1,512,450 1,087,740 100,000 200,000 100,000 0 3,900,190 0 1,300,000 450,000 300,000 1,700,000 150,190 3,900,190

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