Business Plan: Sony in Chile, June 2012

Business Plan : Sony in Chile

DOING BUSINESS IN SOUTH

AMERICA

Jean LEMERCIER

Cécilia COSNARD DES CLOSETS

08/06/2012

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TABLE OF CONTENTS

EXECUTIVE SUMMARY............................................................................................ - 2 -

INTRODUCTION: WHY INVEST IN CHILE .............................................................. - 3 -

A region facing daunting energy challenges ......................................................... - 3 -

A stable and dynamic business context ................................................................ - 4 -

A country with high energy efficiency potential ................................................... - 5 -

THE COMPANY & PRODUCT .................................................................................. - 6 -

The company ............................................................................................................. - 6 -

The Product................................................................................................................ - 6 -

MANAGEMENT TEAM .............................................................................................. - 9 -

MARKET AND COMPETITION ................................................................................- 10 -

The Consumer Electronics Market .........................................................................- 10 -

Competition...............................................................................................................- 10 -

MARKETING AND SALES .......................................................................................- 12 -

The marketing plan ..................................................................................................- 12 -

Key distribution partners ........................................................................................- 12 -

Pricing strategy ........................................................................................................- 13 -

BUSINESS SYSTEM & ORGANIZATION ...............................................................- 14 -

The partnership with Tresfa Electricidad ..............................................................- 15 -

Hiring Plan .................................................................................................................- 15 -

IMPLEMENTATION SCHEDULE .............................................................................- 17 -

Schedule ....................................................................................................................- 17 -

Responsibilities ........................................................................................................- 17 -

Milestones .................................................................................................................- 18 -

FINANCE ...................................................................................................................- 19 -

Assumptions .............................................................................................................- 19 -

Financial Performance Analysis ............................................................................- 21 -

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EXECUTIVE SUMMARY

This proposal outlines the processes for Sony’s implementation of the IJ100IM

Energy Storage Module on the Chilean market. Sony is a leading electronic devices

manufacturer benefiting from an international reputation for making high quality and

advanced products. The corporation recently launched the production of its energy

storage module, a device that reduces electricity consumption, stores energy and

represents a back-up power resource for businesses and residential homes. The

consumer electronics market and energy efficiency market in Chile have proven to be

very attractive for businesses in the past few years, as the Chilean political stability

and economic growth have considerably improved, key elements that drove Sony to

open a subsidiary. In order to succeed when producing the module, Sony has

created a new management team, made of 2 managers, 10 plant workers and 15

salesmen that will advertise the product in Chile. Although competing products do

exist on the market, we believe our energy storage module will make a difference and

is unique as it targets households and is powered by olivine-type lithium-ion iron

phosphate cells. 2 different marketing strategies have been identified to reach as

many customers as possible; we plan on penetrating the market with the help of our

3 partners, namely ABCDin and WEI to reach out for households on the consumer

electronics market and Tresfa to help businesses concerning maintenance and

installation issues, along with establishing a presence on the energy efficiency

market. As previously mentioned, we plan on creating the Sony Chile Ltd subsidiary,

which the Sony Corporation will have full control on. Our hiring plan consists of

favoring the local active population as to reduce unemployment; the hiring process

will disregard ethnicity or origins and will be based on background experience. Our

implementation schedule describes our actions for the next 3 years to come, with the

ultimate goal of expanding our operations to the neighboring countries, along with

making this project profitable. Our first objective is to increase our sales by 20% in

addition to having good press coverage and reputation of our business activities.

Finally after taking into account all the possible expenses we will encounter, our

financial calculations show that we will be able to recover our initial investment before

the end of 2015, meaning that our investment is safe. We expect profit to be relatively

high with a net income over 1 million euro in 2017 and 2018: this is why we believe

that our project is financially viable and could deliver high value for any stakeholders

who will participate.

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INTRODUCTION: WHY INVEST IN CHILE

A region facing daunting energy challenges

When considering investing in the energy efficiency industry, South America

appeared swiftly as a very promising area. In spite of its natural resources wealth

(fossil fuels, minerals such as iron ore, bauxite, tin...), it is facing a hefty energy

challenge. With an ever-increasing crude price and a robust economic growth,

meeting the demand for electricity in Latin America will be harder over the coming

decades. It is estimated that approximately $600 billion would need to be invested in

the electricity sector between now and 2030 for the energy demand to be met

(Economic Commission for Latin America and the Caribbean)i. However, it is

important to grasp that alternative energy is soaring in Latin America (mainly wind,

solar and hydro powers)ii and more than 183 Gigawatts of new power generation

units are under consideration in Latin Americaiii. Despite those efforts in increasing

electricity generation capacity, many South American countries such as Venezuela,

Brazil, Chile and Ecuador faced electricity shortfalls in the past few years. In fact,

electricity is mainly produced through Hydropower and therefore the droughts of the

last few years triggered electricity cuts and forced many governments to rationalize

its use.

After considering all these elements, South America emerged as a very

interesting region to invest in. However, it is not very realistic to expect that we will

be able to enter all these South American economies at the same time, thus we had

to decide of a country which would act as an anchor point in the continent. We finally

decided to invest in Chile, since it is one of the countries that is the most affected by

power blackouts. To address this issue, the government of Chile started in December

2011 a campaign called “En verano, quitate la corbata”iv (In summer, take off your

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tie) in order to save electricity. The government is willing to set up further energy

efficiency measures, and now even the Chilean small and medium enterprises are

striving to trim their energy bill. In this purpose, Chile implemented a program

supported by the Inter-American Development Bank to facilitate the connection

between these companies and consulting firms specialized on energy usage.

Besides, the IDB will lend money to the Chilean Energy Efficiency Agency ($2.6

million) which will be used to provide training to energy efficiency consulting firms.

The new energy strategy initiated by president Piñera aims to ease the national

energy demand up to 12% by 2020v. It is our belief that this urge for energy savings

is very likely to be favorable to our investment as we could benefit from the

government approval and possibly grants.

A stable and dynamic business context

Another element not to neglect is the relatively safe investment environment in

Chile compared to others South American economies. According to the three most

famous grading agencies (Standard & Poor’s, Fitch and Moody’s) Chile is the country

with the lowest risk in Latin America, with grades ranging from A+ to AAA. The 2012

Index of Economic Freedom developed by The Heritage Foundationvi ranked Chile as

the 7th “most free country” on a business standpoint in the world and denoted “a

transparent and stable business climate”. On average, taxes, trade barriers and

government intervention in the business area are quite low as well as inflationary

pressures, and contractual agreements are secure.

Country/Indexes CPI

(Corruption

Perception

Index) 10 = No

corruption 0 =

Very

corrupted

Ease of doing

business rank

GDP growth

2011 (CIA

world

factbook)

Inflation 2011

(CIA world

factbook)

Brazil 3.8 126th +2.7% +6.5%

Argentina 3 113th +8% +22%

Peru 3.4 41th +6.9% +3.4%

Chile 7.2 39th +6.5% +3.3%

Based on international rankings, Chile is the most interesting country to invest in

since it is a good compromise of economic growth, transparency, and stability.

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A country with high energy efficiency potential

Apart from the country’s overall economic stability, its strong orientation towards

the mining industry leaves good prospects for energy efficiency companies. In fact, a

study by the “Programa de Estudios e Investigaciones en Energia” revealed that

about 20% of the country’s global electricity demand could be saved by 2021 (chart

below). Although we have to take into account the fact that Chile is a reasonably

small market (17 million people), we believe that a sound strategy could enable us to

be successful in niche markets.

Source: PRIEN (2008)

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THE COMPANY & PRODUCT

The company

Established in Japan on May 7th 1946 by Mr. Ibuka, Sony Corporations is a

leading consumer electronics manufacturer operating worldwide (offices on every

continent), its headquarters based in Tokyo. With the lead of Howard Stringer

(chairman) and Kazuo Hirai (CEO), Sony performs a wide range of activities, namely

digital imaging, electronic components, telephones, televisions, audio and video

devices, computer and computer devices as well as games. These activities are

divided in several branches such as the Sony Picture Entertainment, Sony Music

Entertainment, Sony Computer Entertainment, Sony Electronics, Sony Network

Entertainment, Sony Mobile Communication to name but a few. Some company

figures: Sony hires 168,200 people worldwide, runs more than 1,200 subsidiaries and

its shares are exchanged on the New York Stock Exchange at $13.59 per share

under the ticket “SNE” (June 6th 2012); in 2011, the company achieved $80.5 billion

net sales1.

Sony strives to provide the best quality electronic devices and is constantly on

the lookout for innovations, improvements and designing products with style: all these

features make the enterprise a leading and dominant actor on the consumer

electronics market, which is proven by its mission statement: “To experience the joy

of advancing and applying technology for the benefit of the public”. Their strategy to

“emotionally touch and excite their customers” drives the Japanese conglomerate to

invest a lot in Research and Development while maintaining market leadership.

Sony’s rich product and service portfolio allows the company to strengthen its

position on the market and ensure profits. The television product range and branch is

the one generating most revenue (35%): in fact, Sony brought the television sphere

to a new level by introducing an innovation such as the LCD flat screen television,

showing it is always improving its products with a higher quality. Games represent

the company’s second largest revenue-generating unit with products such as the

Play Station and the Play Station Portable2.

The Product

In April 2011, Sony launched the IJ1000IM Energy

Storage Module on the Japanese market. The energy

storage module is a chargeable appliance that stores

energy thanks to its olivine-type lithium-ion iron

phosphate cells: these are rechargeable batteries that

1 "LexisNexis® Academic & Library Solutions." LexisNexis® Academic & Library Solutions. 22 May 2012. Web. 06

June 2012. <http://www.lexisnexis.com/hottopics/lnacademic/>. 2 "Sony Corporation." Login. 22 May 2012. Web. 06 June 2012.

<http://subscriber.hoovers.com/H/company360/fulldescription.html?companyId=41885000000000>.

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have a 10 year lifespan, ensure safety, have a smaller impact on environment (the

batteries do not include cobalt or any other rare metal that are dangerous for the

environment) and their capacity does not decline under humidity, temperature,

storage and over charging. The batteries boast excellent energy efficiency, high

power density and most importantly ensure a superior energy storage capacity.

Below is a chart demonstrating the performance of lithium-ion batteries3:

The IJ100IM Energy storage module has a 1.2 kWh capacity and many other

components can be connected to it. It can be used for several purposes, the main

one being to load-level the energy (load-leveling is a method that reduces the

fluctuations that occur in electricity demand by storing excess electricity in periods of

low demand to use it during periods of high demand), thus reducing energy

consumption. It is also employed as a back-up power source in case of unplanned

events as the energy is being stored and can be used during an electricity outage4.

There are numerous advantages when utilizing the module. 5 important ones

have been identified:

It’s life-long span (about 10 years), if the device is charged once a day,

thanks to the olivine-type lithium-ion iron phosphate cells and their

advanced properties. Furthermore, in comparison with commonly used

batteries such as cadmium (Ni-Cad) batteries, lithium-ion batteries do not

demonstrate any “memory effect” (a phenomenon that occurs when a

3 "Sony Global - Sony and the Environment - Products - Energy Storage Module IJ1001M."Sony Global - Sony and the

Environment - Products - Energy Storage Module IJ1001M. N.p., 2012. Web. 08 June 2012. <http://www.sony.net/SonyInfo/csr/SonyEnvironment/products/lineup/IJ1001M.html>. 4 "Green Car Congress: Sony to Ship 1.2 KWh Energy Storage Modules Using Rechargeable Li-ion Batteries Made from

Olivine-type Phosphate." Green Car Congress: Sony to Ship 1.2 KWh Energy Storage Modules Using Rechargeable Li-ion Batteries Made from Olivine-type Phosphate. N.p., 18 Apr. 2011. Web. 08 June 2012. <http://www.greencarcongress.com/2011/04/sony-20110418.html>.

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battery is repeatedly recharged without having been fully discharged first,

meaning that it causes its capacity to be reduced and shortening the actual

time that a battery can be used). This illustrates well what energy-saving

benefits the energy storage module has to offer.

The module is safe and reliable, as it includes a built-in self-monitoring

function that detects any anomalies.

The IJ100IM recharges up to 90% of its capacity in less than an hour.

The product is also very scalable as variables such as the voltage and

capacity can be customized for different applications by connecting other

modules either in series or in parallel with the device. No maintenance is required to keep the module in good stand5.

5 "Sony Global - Sony to Ship 1.2kWh Energy Storage Modules Using Rechargeable Lithium-ion Batteries." Sony Global -

Sony to Ship 1.2kWh Energy Storage Modules Using Rechargeable Lithium-ion Batteries Made from Olivine-type Phosphate. N.p., 18 Apr. 2011. Web. 08 June 2012. <http://www.sony.net/SonyInfo/News/Press/201104/11-053E/>.

Sony.net ©

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MANAGEMENT TEAM

As our company will be producing the IJ100IM Energy Storage module in

Chile, a new team was created to manufacture the product and advertise it in Chile.

This team is made of two managers, 10 plant workers and 15 salesmen. The

salesmen and plant workers are all Chileans and one of the two managers is Chilean

as well; the other one is Japanese.

The Chilean manager’s role is to supervise the production plant and manage the 10

workers. He has a 5 year experience as a manager and has worked for several other

consumer goods companies in his past. He is a good orator and knows how to

motivate the workers and communicate with them. He works closely with the

Japanese manager and speaks English fluently, as he has had experiences abroad.

The Japanese manager is the link between headquarters and the Chilean unit. He

has a 10 year experience with Sony. This assignment is his second international

assignment (the first one was in the United States), he speaks fluently English as well

which enables him to communicate with his fellow local manager. The Japanese

manager regularly reports progress to Headquarters in Japan and is the one to take

strategic decisions. He is used to uncertainty and knows how to cope with stress, as

well as working efficiently.

The 15 Chilean salesmen have all graduated from a business school and count at

least 3 years experience. They will all benefit from a one month training sessions

which will enable them to sell as many modules as possible, at least 2 per salesmen

per month.

HQ

Japanese Manager

Salesmen

Plant workers

Chilean Manager

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MARKET AND COMPETITION

The Consumer Electronics Market

As previously stated in the first part of this report, Chile hosts more than 17

million inhabitants, which represents a smaller market compared to other South

American countries and market such as Brazil, for example. However, the economic

growth and stability Chile has witnessed during the past few years as well as its

political stability make it a key market to start a business and to invest in. Our

product falls into two different markets, namely the consumer electronics market and

the energy efficiency market, which doubles the chances of succeeding in

implementing the module, yet we will only focus on the consumer electronics

market6.

After the earthquake that hit Chile on the 27th February 2010, many Chileans

saw their homes and appliances destructed and needed to replace them, after the

situation got more stable. This was a huge opportunity for consumer electronics

companies and retailers as their sales grew due to an important demand and thanks

to the Chileans greater purchasing power. Although most Chileans’ purchasing

decisions are price-driven, they are also looking for comfort, portability and

sophistication, as they increasingly need electronic devices that allow them to

perform several activities and function in reduced amounts of time. The consumer

electronics market is expected to grow at a compound annual growth rate of 6.8% to

$2.9 billion by 20147.

Competition

Existing energy storage modules can be found on the market, such as ABB’s

energy storage module or Corvus Energy’s AT6500 Energy Storage Module.

ABB is a Swedish power and automation technology company operating

worldwide that enables customers to improve their performance while lowering their

environmental impact. ABB’s module offers the same service the IJ100IM module

(power load-leveling and back-up energy resource) and offers up to 2 MWh. Given

the fact that ABB has offices in Chile and that it is a renowned enterprise on the

energy efficiency market, this can represent a threat for Sony; however ABB targets

mainly businesses and the module does not feature any lithium-ion battery, hence

the ABB module is not as efficient8.

6 "Consumer Electronics in Chile." Passport. N.p., 12 Apr. 2012. Web. 07 June 2012.

<http://www.portal.euromonitor.com/Portal/Pages/Search/SearchResultsList.aspx>. 7 "New Market Research Report: Chile Consumer Electronics Report Q4 2010." PRLOG Press Release Distribution. N.p., 19

Oct. 2010. Web. 08 June 2012. <http://www.prlog.org/11005850-new-market-research-report-chile-consumer-electronics-report-q4-2010.html>. 8 "Energy Storage Modules (ESM)." ABB. N.p., Feb.-Mar. 2012. Web. 08 June 2012.

<http://www.abb.com/product/db0003db004279/420d3ae414b13c1285257782004792b5.aspx>.

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The second module, Corvus Energy’s AT6500 Energy Storage Module, is also

made of a lithium-ion battery and seems to offer the same advantages the IJ100IM

module offers, yet the company has no business in Chile or South America and only

target businesses as well. This company does not seem to be a significant threat for

Sony as it does not have our company’s reputation nor is the module as power

efficient and esthetical as ours9.

9 "Corvus Energy - Lithium Ion for Industry." Corvus Energy - Lithium Ion for Industry. N.p., n.d. Web. 08 June

2012. <http://www.corvus-energy.com/energy_module.html>.

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MARKETING AND SALES

The marketing plan

The IJ100IM Energy Storage Module has a very broad target market since the

product can be used by anyone for the same purpose. Businesses and middle-

income and high-income households are targeted, which means that the marketing

plan for these 3 segments will be different.

Concerning the business and professional target market, as previously

mentioned, Sony salesmen will be hired in order to sell the module to Chilean

companies all around the country. This technique, direct marketing, is often

employed to target B to B customers. This is an opportunity for Sony to acknowledge

the market in a better way as well as getting closer to the customer, establishing a

lasting relationship with them. It is of course also an opportunity for the companies to

purchase and possess the energy storage module, since it will allow them to operate

even in case of an unplanned event (such as earthquakes) and save money on their

energy bill. The salesmen will be trained beforehand and will hand out brochures and

demonstrate how the product works while visiting companies. This plan will take

approximately one year, focusing mainly on the capital, Santiago, and on other big

cities at first (Antofagasta & Conception).

The households on the other hand, have another way of responding to

marketing plans and Sony therefore created a B to C marketing plan. Billboards in

cities and retail stores will be displaying the product, as well as the Sony Logo, the

price and a sentence that will say “Be prepared for the unplanned: store your energy”

in Spanish. Retail store magazines as well as technology-oriented magazines will

also advertise the module and give a brief description on how it works along with the

key benefits one can get from buying and using it. It will take approximately 2 months

to have these advertisements printed. A television commercial will also be released

at the end of the first year when businesses will start utilizing the product and

households’ awareness is raised, which also gives enough time to create the

commercial. The advertisement will be informative so that it allows customers to raise

their curiosity and be informed. Emotional clues will be included in the commercial as

well to increase the feeling of need for this product.

Key distribution partners

We identified 2 key retail partners that will be able to distribute the IJ100IM

Energy Storage Module: ABCDin, owned by AD Retail SA, and WEI.

ABCDin is the leading retail company in Chile and the most well-

known and trusted outlet by Chileans, which makes it a strategic decision

for Sony to create a partnership. ABCDin is located everywhere in Chile

and sells mid-priced home appliances and electronic devices to middle

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income segments, which fits Sony’s marketing approach well. A noticeable

advantage concerning ABCDin is that the retail company created its own credit card

which makes it easier for consumers to buy products as they pay by fees. Sony will

also sell the module through ABCDin’s internet website, as a recent research shows

that the online buying trend is growing in Chile10.

The second retail partner is WEI, an electronic specialist that

has presence in Santiago only. The retailer sells mid-priced

products imported directly from Asia and the USA and targets

middle-income households: our corporation will benefit from the

company’s habit of doing business with Asian countries; it will then be easier for the

module to be integrated on the Santiago market, as consumers are used to foreign

products.

Pricing strategy

Knowing that 1€ equals 642.08 Chilean peso (CLP) and taking into account

that the energy storage module should be accessible and reach as many mid-income

and high-income households and companies as possible, we estimated the selling

price of the product to be 189,575 CLP, which represents about 300€.

Although this price seems high, the product will progressively get

“democratized” in customers’ minds, meaning that as time will pass, the price will

seem normal. It will represent an investment for households; however the 10 year

lifespan the module will procure allows the investment to be profitable. Moreover,

Sony intends to decrease the price during year 2 in order to attract more customers.

10

"Consumer Electronics in Chile." Passport. N.p., 12 Apr. 2012. Web. 07 June 2012. <http://www.portal.euromonitor.com/Portal/Pages/Search/SearchResultsList.aspx>.

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BUSINESS SYSTEM & ORGANIZATION

Before developing the Business organization in detail, it is important to know

that Sony already entered the Chilean market, and has even opened a few shops in

Santiago de Chile. In fact, Chile and Japan even concluded an Economic Agreement

in 2007 which will reduce the overall risk of our investment and that will have to be

taken into consideration when building the business organization.

If we believe it is important to keep our retail shops to market our energy

storage module, we want to look at possible alliances at the same time in order to

adapt more quickly to the Chilean business context. Therefore our Business team

organization will be the following:

Sony’s will have a full control on the subsidiary, in fact it was

essential for us to assure the production and to protect the technology

Sony developed for many years to come up with this product. The

factory will be built in Rancagua, a city located near Santiago, which

is a good compromise between rent rates and distance to the Sony

shops in Santiago. In addition, Sony has already set up 4 shops in

Santiago, one in Concepcion and one in Antofagasta.

Sony entertainment

(100% Equity)

Sony Chile Ltd

Marketing Department & Customer

Service

Partnership with Tresfa Electricidad

Production department

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The partnership with Tresfa Electricidad

Tresfa Electricidad is a company offering a wide range of

electrical services: maintenance and installation of electrical

networks, air conditioning installation, electrical isolation and

energy audit. The company is based in Santiago and is at its

inception; therefore we are more likely to interest them as we

will give them a strong product to put forward to their clients. In

fact, if they have the credibility and technical instruments to measure a company’s

electrical performance, the partnership with Sony will enable them to offer businesses

a strong energy efficiency solution. Therefore we want this partnership to result in a

stake in Tresfa’s marketing team – so as to acquire a consumer insight on the energy

efficiency market. In fact, having a stake in Tresfa marketing team will help us tailor

our offer to the specific requirements of the Chilean market, and in the meantime our

own marketing team will be able to adapt to the way of doing business in Chile. For

example, the relations to time, working relationships and even religion are totally

different in Chile and our company needs to quickly adapt to it. If it should not be a

problem for a company operating on a global scale like Sony, the partnership with

Tresfa will lower the risk of business failure and poor communication with customers.

Hiring Plan

Our hiring strategy is crucial to the overall success of the venture; it is estimated

that about half of the business ventures fail within 4 years, and this is often due to a

weak human resources strategy. Sony’s human resources policy is to foster diversity

within its workforce, and to choose the best person for the position disregarding its

citizenship/ethnicity. Taking this into account, we developed the following human

resources strategy based around three main pillars:

Plant workers: We will hire about 10 workers for the factory in Rancagua. If it seems

like a quite low number of people, it is important to understand that most of the

production process is made by machines and robots. Even though the nationality is

not relevant in our selection process, we want to foster the integration of local people

in our workforce. The main skill we will be looking for is adaptability, and a good

general understanding of the product’s requirements. In order to raise awareness in

our workforce, we will make them try the product at home and get them to participate

to tutorials related to the use of the product. By doing so, they will be able to fully

embrace the Sony company and the importance of delivering a state of the art

product like our energy storage module.

Plant managers: We want to hire two managers, one of them being one of the Sony

employees in order to keep a good and constant communication between the

subsidiary and the Headquarters. The two managers will receive training on the

company policy and as well on how to conduct business meetings and general

management practices in Chile. They will both have to speak perfect Spanish and

English. Another important aspect we will be looking for in the future plant managers

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will be an international experience; managers having an international management

background are more likely to be successful in driving the Chilean business.

Sales team: We want to hire a total of 15 salesmen: by doing so we will be able to

reach a good part of the Chilean businesses and homes. Our strategy will remain

quite similar to the plant workers: we will be looking for people with obviously strong

communication and sales skills but as well a good general understanding of our

product and company will be highly valued.

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IMPLEMENTATION SCHEDULE

Schedule

We designed the following Implementation plan beginning 2013 (our sales starting

2014):

Short term (2013)

Middle term (2013-2016)

Long term (After 2016)

1st Semester : Recording

the company at the Chilean

chamber of commerce –

Visiting premises in order to

set up the factory –

Shipping machines to the

plant – Meet with banks

and the Headquarter to

obtain a loan to finance the

company/project – Meet

with Tresfa, ABCDin and

WEI to discuss the terms of

the partnership and to show

the product to their team

Launch production in the

factory and proceed to

adjustments if the quality

reached in not sufficient

Schedule video

conferences and meetings

with the Chilean managers

to control the company’s

results and atmosphere

Share insights and

techniques with Tresfa

marketing team and report

necessary adjustments to

sales techniques

Expand the sales team (5

additional employees in

2016 and 2018)

Acquire new shops in Chile

if the company is

successful enough

Expand operations to other

Latin American economies

(possibly Brazil/Argentina)

Obtain an interest in Tresfa

or in another energy

efficiency auditor

2nd semester: Put in place

the Hiring plan (Meeting

candidates & posting job

advertisements) – Keep in

touch with Tresfa, ABCDin

and WEI and prepare the

marketing strategy (posters

and various

advertisements) – Meet

with locals and advertise

the products to them –

Prepare the shops with the

ads and set up the factory

utilities and machines.

Responsibilities

The second plant manager from Sony will be in charge of all the administrative tasks

and the communication with the Headquarters. He will be in charge of the overall

strategy of the Chilean implementation. Financial tasks and others complex

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transaction will be outsourced directly to the Sony Headquarter to ensure a better

reporting.

Milestones

In order to benchmark the performance of our investment, we decided to put in place

a set of milestones:

2014 - Increase our sales by 20% - Have good press coverage of our business

activities.

2016 – Recover the initial investment – Open 2 new shops.

2018 – Being financially able to enter the Argentinean market.

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FINANCE

Note: In order to be more accurate, all calculations and statements have been made

in Euros instead of Chilean Pesos.

Assumptions

Since we do not have the figures of the Sony Corporation regarding the product

cost and other parameters, we decided to make a few assumptions in order to build

pro forma statements:

Revenue

The first year (2014) our energy storage modules will be sold through the six already

existing shops. We estimate that approximately 50 units per month will be sold in

each shop. As discussed in the pricing section, we will sell our product for 300€

(189,575CLP) .Therefore, the revenue grossed by our retail networks will be the

following:

1year Revenue retail = 50 units * 300€ * 12 months * 6 shops = 1,080,000€

For the revenue generated by selling the storage module to companies, we

estimate that nearly 250 companies will contract with us. This assumption is mainly

based on the fact that we will benefit from Tresfa, ABCDin and WEI’s wide pool of

customers. On average, these companies will need 10 storage modules to see

consequent gains on their energy bill and to have a safe energy backup service.

Consequently, we calculated the following revenue for the Business to business

section:

1 year Revenue B2B: 10 units * 250 companies * 300€ = 750,000€

Therefore the total revenue for the 1st year amounts to 1,830,000€

Growth Rates

The following Growth rates have been used for the revenue: +20% in Y2 and

Y3 due to increased number of salesmen, +15% in Y4 and finally +15%. The reason

for the growth phasing out is that the market gets saturated and competition

increases as our company penetrates the Chilean market.

Expenses

Cost of Goods sold: Obviously, it is impossible to find data related to the cost of

producing these energy storage modules since this information is confidential and

Sony does not wish to disclose it. However, for a technological product such as our

energy storage device, we believe that most of the cost resides in Research and

Development and not in the actual production process. For this reason, we assumed

that COGS was 50% of our revenue.

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Wages In order to calculate the expenses related to wages, we used the ”Ingreso

Minimo Mensual” (Monthly minimum wage) which amounts to 3456€ a year. With the

purpose of motivating our sales and production team, we will respectively pay them 2

times and 1.5 times above the minimum wage. The calculations for wages are the

following:

Year 1 Wages= 3456€* 1.5 * 10 plant works + 10000* 2 plant managers +

2456*2*5 salesmen = 106,400€

In year 3, 5 additional salesmen will integrate the team increasing the wage payment

to 140,960€, and likewise the wage account will rise up to 175,520€ in year 4.

Marketing

The marketing strategy explained in further details in the first part of the report will

incur a 200,000€ marketing strategy, that will steadily decrease as our products gets

more and more known in Chile major cities.

Investment cost

Land – Land prices in Rancagua are very cheap. After examining prices on the

internet (http://www.vivastreet.cl/loteos-lotes+rancagua) we believe approximately

50,000€ should be enough to buy a land of 5,000 m², which is a considerable space

meeting our requirements for the production processes.

Machines – We believe this cost will be very high. For this kind of technology, it is

very unlikely that we can purchase those machines from a country close to Chile. The

most realistic scenario is buying the machines from Germany, which will be very

costly in terms of transportation costs. In addition, those cutting-edge machines are

very expensive. This is why we believe that buying and shipping the machines &

equipment to Chile will cost us approximately €1,000,000.

Factory – Another major expense will be actually building the plant in Chile. In order

to build a state of the art factory, we believe 2,000,000€ should be sufficient due to

lower construction prices in Chile.

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Revenue breakdown

According to our assumptions, an important part of our sales is made up from

business to customers (almost 60%). We believe that to be more accurate, the % of

our “households” customers will softly increase over the investment span to reach

60%. In fact, many expensive technologies comparable to ours are firstly bought by

businesses and then customers adopt it after the price shrinks.

Financial Performance Analysis

Analysis based on the free cash flows shows that the payback period of the

project is 1.8 years. This means that we will recover our investment before the end of

2015, and is a sign that our investment is safe. In addition, profit expectations are

quite high with a net income over 1 million euro in 2017 and 2018. If we use a cost of

capital of 15%, the net present value of the project is very high (above 3M€).

Therefore we believe that the project is financially sound and could deliver high value

for stakeholders, not only on a monetary basis but also in terms of social benefits for

Chileans, economic development in the country and public image for Sony. In order

to reduce the risks inherent to the project, we could use an export strategy through

our partners’ retail shops so as to assess the demand in the first time, and afterwards

establish the plant in the upcoming years.

Sales

Business to Customer

Business to Business

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i http://www.commodityonline.com/news/latin-america-will-need-$572bn-for-power-sector-28025-3-28026.html ii http://www.energy-enviro.fi/index.php?PAGE=2&NODE_ID=4&ID=3976

iii http://www.marketwire.com/press-release/Latin-American-Growth-Driving-Next-Round-of-Power-

Generation-Investment-1291241.htm iv http://www.youtube. com/watch?v=YSfuKC7TUEM

v http://switchboard.nrdc.org/blogs/amaxwell/an_analysis_of_chiles_new_nati.html

vi http://www.heritage.org/index/about