Essay, Pages 9 (2233 words)
The question: Should Koperasi Ehsan Selangor Berhad open coin laundry self-service to increase their profit?
Was derived from the treasury of Koperasi Ehsan. Currently this cooperative is having problem in increasing their profit. They only depend on providing small services to Suruhanjaya Koperasi Malaysia (SKM) which is not enough to give big return to this cooperative.(Appendix 1) Hence, the treasury decided to suggest opening new business which could improve their profitability every year. The idea to open coin-laundry service is proposed by them as it is currently on the growing state which can help this cooperative to expand their business.
The methodology of the research involved interviewing the treasury of this cooperative to gain information. A survey was conducted to know the trend or preferences of the customers in using this service. PEST analysis was used to see the external factors towards this project. Ansoff Matrix and SWOT analysis was used to know the strength, weakness, opportunities and threats of this project.
The payback period of this project was estimated 3 years 4.89 months and the average rate of return was estimated 27.9%. From findings, it was concluded that Koperasi Ehsan should continue with their plan to open coin-laundry self-service.
Koperasi Ehsan Selangor Berhad is a cooperative that provides services such as supplying stationary, foods and drinks. They also bought a building and lease it to Suruhanjaya Koperasi Malaysia (SKM). However, the cooperative experience loss from leasing the building. This is due to the fact that they charge their rent to SKM lower than their monthly payment.
The cooperative can’t increase the charge as SKM is financed by the government. The government allocated only RM 34,000 while they rent to SKM RM 37,000. Hence, they decided to either sell the building or to operate new business. The treasury said that they may consider to open self-service laundry which might help them to cover the lost that have been made from leasing the building. SWOT analysis is used to see the strengths, weaknesses, opportunities and threats in providing cleaning services in a new market. External factors will be used to see the opportunities and threats to their new project. The idea of providing cleaning services can be linked with Ansoff’s Matrix as they attempted to provide new product in a new market. Lewin’s force-field analysis also will be used to see the driving force and restraining force of this cooperative in opening new self-service cleaning. The cash flow of house cleaning services will be used to see the possible outcome of a new service.
Should Koperasi Ehsan Selangor Berhad open self-service laundry to increase profit.
Various method will be used in order to gain information so the data formed are well-informed and valid. One of the method is interviewing with one of the cooperative members. From this interview, all information about this cooperative will be collected. Cooperative’s annual report that are given by them will be used to interpret the financial strengths and problems. Questionnaire will be used to see the market demand self-service laundry. This survey will be used to ask their willingness to pay for house cleaning services. The result can be useful in analysing the business tool. Secondary research will be carry out to see the potential of house cleaning service in the market. Article and journal will mostly use in this research to collect the information about the demand of self-service laundry in Malaysia.
The interview and survey will enable this report in providing recommendation. The SWOT and PEST analysis will be useful in providing a good direction for this cooperative in penetrating a new market. Lewin’s force-field analysis will show the one that is more prominent in making a changes. The cash flow will help the firms making a prediction weather this services can increase profits or not.
However, there is a limitation in using these methodology. Firstly, there will be limited information about house cleaning service and its demand in the market. Analysis used may not suitable for this survey.
External factor Political / Legal Malaysia advanced nine places to 15th spot among 190 economies worldwide in the World Bank’s Doing Business 2019 Report, which based its rankings on business regulations and ease of doing business.
Economy The self-service or do-it-yourself (DIY) laundry business is one that offers an interesting proposition in tough economic times.
It is not just about setting up a coin-operated laundry service. It is market driven. And we are seeing a change of lifestyle that helps grow this business. Laundry is becoming a family activity where people come in, load their laundry and go out for breakfast while the washers do their work, he said.
Most of the customers come from low- and middle-income families, including single mothers, students and government servants.
Basically, this business has flourished in Malaysia due to the no time and no space factors.
Technology It goes without saying that choosing a high-efficiency washing machine over a conventional model will save money on your utility bills.
Ensure that your cameras are cleaned in order to receive the best performance from your system. Other than this, CCTV systems will keep your premises secure for years.
Since self-service laundry will receive steady and stable income, hence every year it will receive almost the same net cash flow. Thus, the manager of this cooperative decided to predict our net cash flow to be the same every year. After doing some research, we decided to predict the highest possible initial capital which is RM 380,000 and net cash flow RM 106,000.
Initial capital = RM 380,000
Year Annual net cash flows (RM) Cumulative cash flows (RM)
- 0 (380000) (380000)
- 1 106000 (274000)
- 2 106000 (168000)
- 3 106000 (62000)
- 4 106000 44000
=additional cash inflow neededannual cash flow in year 4 12 months=44000106000 12 months=4.98 monthsPayback period = 3 year and 4.98 months
Average rate of return (ARR)
ARR(%)=annual profit (net cash flow) initial capital cost 100ARR%= 106000380000 100ARR=27.9%Analysis and Discussion
Figures 4 shows the Ansoff’s Matrix which is a model used to show the degree of risk associated with the four growth strategies of market penetration, market development, product development and diversification. This cooperative wants to try a new product in a new market. Hence, this strategy can be categorised as diversification. Diversification is the process of selling different, unrelated goods or services in new markets.10 This project is the most risky strategy as they will enter a completely different industry and it requires the member of this cooperative to give extra efforts to make sure this project is doing well. Hence, they should plan ahead in forming suitable product and market development strategies to enter this industry. Since this industry has become more sophisticated, they should focus more on creating their own unique selling point so they can penetrate this market very well and remain competitive.
Figure 5 shows PEST analysis for this cooperative when entering the self-service laundry industry. PEST analysis is used to analyse the external environmental factors affecting business objectives and strategies. 10 The first external factor is the politics or legal factors. Since Malaysia is one of the best place to set up a business, this can be an advantage for the cooperative to start it without facing many regulations and policies. They also do not have to go through many processes to set this business. From the economics perspective, this business will gain many advantages. This industry is targeting middle and lower income. As economic become tougher, people tend to choose cheaper way to reduce their daily expenses. Hence, more people will demand for this service as they know this service can reduce their monthly expenses and ease their chores. This is why many of the customers are among students.
Furthermore, the awareness of this service is spreading very fast for the past few years and it helps this business to gain more potential customer. From social perspective, the lifestyle of Malaysian is changing and most of the households are busy with their jobs. This driven them to use coin-laundry service as it will save more time. Figure 1 shows that 28% of the customers are full-time employed. This indicates that employed people is one of the regular customer to come here. Students have become more prone on using this service as most of their house do not provide washer machine and dryer.
Based on the survey, most of the students cannot afford to have one washer machine and they prefer to here as it is cheap and faster. This show that this cooperative should set up their place near university campus. From technology perspective, this business can gain advantage because many washer machines nowadays save more electric and water usage. Thus, this can reduces the utility bills which lead to higher profits. However, advanced technology is usually sells at higher price. Hence, higher investment needed to buy this type of washer machine. The advancement of security products such as CCTV also could reduce the possibility of this premise getting robbed and it prevent this business from experiencing a big loss. From this analysis, external factors does give many opportunities to this business and less threats. However, this tool is not reliable as it only show qualitative advantages and disadvantages.
The internal strengths and weaknesses of this new initiative were discussed with the manager as well as opportunities and threats. This SWOT analysis helps in deciding whether this project is worth implementing. Strength of this new product is it has WIFI and offer affordable price. According to figure 2, it shows that 72% of the respondents prefer to go to the premise which offers free WIFI while 70% of them want cheaper price. Hence, this cooperative should stick with this strategies so they can remain competitive in this market. The biggest strength of this coin-laundry service is it is located at a very high density of population.(Appendix 1) Based on figure 2, 78% respondents prefer coin-laundry which is nearer to their house. Thus, it will be an advantage for this business to attract more customers and gain more loyal customers. However, this location has its weakness as it has many competitors in this area. The weakness of this cooperative to run this new project is they lack of capital to run this new project. Hence, they need to ask for a huge amount of loan which is not recommended for a small cooperative to take it.
This project also did not receive enough support from its member as they are not confident towards this project to do well and they are afraid this new project could lead to a bigger loss. This cooperatives has many opportunities. This service is highly demanded by the market especially in Klang Valley. Hence, it is not possible for this business to expand more as many of the customers prefer less crowded premise. Based on figure 3, 42% of them prefer less crowded premise. This business also can rent extra space by renting it for vending machine or chair massage. Unfortunately, none of the respondents chose vending machine as their main attraction which indicates that this opportunity of renting vending machine does not play significant role in attracting customers. However, the manager should continue with their plan to install vending machine as it will help this business to gain more profit. Since this type of business is easy to imitate, the amount of new comer will increase tremendously. Thus, this cooperative will face many competitors. Increasing in utility bill also could reduce the profit.
Then, I used quantitative method to help us in further decision making. Investment appraisal is evaluating the profitability or desirability of an investment project. Firstly, I used payback period method to measure how long does it take for this project to get back its investment. From figure 7, it shows that payback period for this project is 3 years and 4.98 months. From this result, it indicates that the payback period for this project is quite long and this will increase interest payment. As for average rate of return, this project will generate 27.9% of annual return of its investment. This figure shows that it is good return for this medium risk investment.
Conclusion and recommendation
In conclusion, Koperasi Ehsan should continue with their planning to open coin laundry self-service as it will generate extra revenues and provides many opportunities. The payback period might be too long but this figures can be shorten as the demand for this service will keep increasing. However, further research is needed for this research as data collected might not be sufficient enough to make further decision. Most of calculation also on based on predicted values and data from questionnaire might be not reliable. Hence, further research on a larger population is needed.
Based on present data, it is recommended that this Koperasi Ehsan should consider start their own coin laundry service. They also need to set their price as competitive as possible so they can stay longer in this industry. They should set up their business near to a larger population so they can easily gain more customers
However, the results from both primary and secondary research might be not be reliable. The honesty of the respondent might affect the quality of the response which lead to misinterpretation of the data. In addition, bias analysis might affects the decision making in this project.