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A Proposal of Recycled Polyester Manufacturing Facility Establishment

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Table of Contents
1. Introduction:........................................................................................................... 3
1.1 Background of business:............................................................................................ 3
1.2 Objectives of the business:......................................................................................... 4
2. Analysis of the process involved in the entrepreneurial venture:...........................4
2.1 Idea Generation:...................................................................................................... 5
2.2 Planning:............................................................................................................... 6
2.2.1 Selection of country:........................................................................................... 6
2.2.2 Conduct of market analysis and identifying target market:.............................................6
2.2.3 Projection of sales:.............................................................................................. 7
2.2.4 Production plan:................................................................................................. 7
2.2.5 Direct material plan:............................................................................................ 7
2.2.6 Direct labor plan:................................................................................................ 8
2.2.7 Planning of production facility:.............................................................................. 9
2.2.8 Overhead plan:.................................................................................................. 9
2.2.9 Selling and Administration overhead expenses:.........................................................10
2.2.10 Cash Budget:................................................................................................. 10
2.3 Resources collection:.............................................................................................. 11
2.4 Legal processes:.................................................................................................... 12
2.5 Building facilities:.................................................................................................. 12
2.6 Implementation:.................................................................................................... 13
3. Statement of financial projection:........................................................................13
4. Conclusion:........................................................................................................... 16
5. References:........................................................................................................... 16
6. Notes and assumptions:....................................................................................... 17

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1. Introduction:
In todays hyper competitive business environment, assurance of cost effectiveness and ecofriendliness can help every business organization to run business operations successfully.
Through bringing new business venture which can reduce environmental pollution and reach the
underserved or poorly served market segment, Coats Bangladesh Ltd can protect the human race
from extreme population and poverty. Plastic which is a major cause of pollution can be used to
make polyester yarn. The PET (Polyethylene terephthalate) bottles used to meet human needs of
serving mineral water, soda and other different sorts of beverages can be used in this purpose.
Coats Bangladesh Ltd. can use these PET bottles as raw material for producing polyester yarn
which will not only reduce the ecological threats but also will contribute to the textile industry.
1.1 Background of business:
Coats PLC is the largest sewing thread manufacturing company in the world. It was founded in
1755 in UK. It is an unrivaled industrial thread manufacturer operating in over 70 countries and
employing over 20000 people (Coats official website). Almost 1 in every 5 garments and textile
industries in the world use the thread manufactured by Coats. It has a long heritage of over 250
years and is famous for producing quality sewing thread. For more than 250 years, it has been
acclaimed a pioneer in industrial thread manufacturing. Coats Bangladesh is a subsidiary of
Coats UK Ltd. and has been operating in Bangladesh for quite a long time.
1.1.1 Mission and vision statement of Coats Plc.:

Mission Statement (give a mission statements &)


Vision Statement
Under mission you have to discuss goals and objectives
1.2 Objectives of the business:
Some of the main objectives behind preparing this report are given below.
i.

Proposing a specific and feasible polyester yarn business idea in terms of the
appropriateness and market structure of a geographic location.

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ii.

Describing the ins and out of the venture and the possible challenges in the

iii.

implementation of project plan.


Analyzing and measuring feasibility, allocation of resources, financial prospects etc.

2. Analysis of the process involved in the entrepreneurial venture:


Some of the necessary steps involved in the startup and implementation of the project are given
below. All of these steps must be sequentially followed in the organization to ensure successful
implementation.
Idea Generation

Planning

Resources Collection

Legal Processes

Building Facilities

Implementation

Coats Bangladesh Ltd. will start their business operation of making polyester yarn from recycled
pet bottles in Bangladesh by 1st July 2015. To make the project marketable, they will require 18
months to complete as this project will be started from 1st January 2014.
The company will utilize the following time frame to implement the venture as it is required to
make it feasible.
1

10

11

12

13

14

15

16

1
7

18

Idea generation
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Planning
Resources
obtaining
Legal
processing
Building
facilities
Implementatio
n of venture
2.1 Idea Generation:
The Business Idea is generated for Coats Bangladesh which includes production of polyester
yarn for the company from recycled PET bottles in Bangladesh. Bangladesh is a country with
great potentials in Ready-made garments (RMG) sector. In 2011, RMG sector contributed to
almost 13% of the GDP in Bangladesh (The World Bank, 2012). Although Coats is producing
polyester yarns in Bangladesh, the idea of producing polyester yarn from recycled PET bottles is
new in the country. Also it will be cost efficient for the company and will reduce the cost of
production by approx. 55%. Supply of Polyester yarn produced from Recycled PET bottles will
reduce PET bottles out of landfills and, consequently, decreases the amount of trash(Centre for
Policy Dialogue (CPD) Bangladesh. 2002.).

Bangladesh had about 27500 tons of waste PET

bottles in 2009. And every year this amount increases by approximately 20% (Bangladesh
Bureau of Statistics, 2009). Production of Polyester Yarn by Coats Bangladesh will prove to be
an excellent strategy since it has both domestic and foreign demand.
Although there are certain challenges and opportunities that will likely be faced by the company.
The challenges include:
1. Availability of adequate skilled worker.
2. Bureaucratic behavior of the country.
3. Corruption in the country.
The opportunities are also tremendous for Coats Bangladesh. Its greatest opportunities are:
1. No restriction regarding the amount of foreign investment is imposed.
2. Since Textile is a potential industry in the country, government subsidizes and helps the
organization helping textile industry.
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3. There is not much of a competition of Coats and certainly none as polyester manufacturer
in Bangladesh.
2.2 Planning:
2.2.1 Selection of country:
The PEST analysis can help to identify the influential factors in case of country selection.
2.2.1.1 PEST analysis:
i.

Political Factors: The prevalence of political factors impact the overall performance of
the industry. The government of Bangladesh patronizes and encourages this textile

ii.

industry in which major of the export of the country depends.


Economic Factors: The abundance and cheapness of labor in Bangladesh makes the
business operation more cost effective comparing to other countries (Nelson D. et al.

iii.

2006.)
Sociological Factors: The availability of input and the higher demands of Bangladeshi
products instigate the Coats Bangladesh Ltd to pursue this cost effective venture in
Bangladesh. According to a statistics of 2009, in Bangladesh there were about 27500 tons
of waste PET bottles that year and every year this amount increases by approximately

iv.

20% (Bangladesh Bureau of Statistics, 2009).


Technological Factors: The favorableness of the technological condition of the country
is also considered. Although Bangladesh is extremely technological advanced. But the
country always attempts to facilitate the operations of textile industry comparing to other
industry.

2.2.2 Conduct of market analysis and identifying target market:


2.2.2.1 Porters Five Forces Model Analysis:
i.

Rivalry among the competitive firms (high): There are so many companies are running
business operations in this industry such as Muslin Textile Mills Ltd., Jamuna Group,
Partex Group etc. which make the market of polyester yarn more competitive (William

ii.

E., 2002).
Potential entrants (high): Higher level of potential of the industry instigates other firms
to enter into the industry which increases the threat of potential entrants.

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iii.

Potential developments of substitutes (medium): The substitute of making polyester

iv.

yarn using the PET flakes is not so easy because of the cost effectiveness of PET flakes.
Bargaining power of suppliers (low): The bargaining power of suppliers is low as the

v.

main raw materials, PET bottles, are largely available in Bangladesh.


Bargaining power of customers (medium): There is medium degree of bargaining
power of the customers in case of our proposed company in this industry in Bangladesh. .

Through having a look over this analysis, the higher market potential of the venture in the textile
industry in Bangladesh seems quite satisfactory.
2.2.2.2 Segmentation Targeting and Positioning Model:
The following STP model can be used to identify a strategic position for the venture.
Market positioning
Market targeting
Market segmentation
Identifying suitable
Figure: The STP Model
Evaluating
Segmenting the
positioning strategy
effectiveness
of each
As there
is anaccording
ever-increasing
demand of
polyester yarn
in
market
to
Developing and
Bangladesh,
making necessary yarn fromsegment
recycled pet bottles
variable
communicating the
Selecting target
Developing profile
can be a great business opportunity to the company because
chosen strategy
segment
of
market
segment
of the cost effectiveness of production and abundance of pet bottles. As the textile industry of
Bangladesh contributes 81% of the export earnings of the country each year, there is an ever
increasing domestic and international demand of polyester yarn. The initial target market of is
RMG (Ready Made Garments) sector. Currently the total market of polyester yarn in Bangladesh
is BDT 275, 83, 96,210. After fulfilling the demand of domestic market, the company can grasp
the opportunity of exporting in future. For capturing the market, Coats Bangladesh .Ltd. can
focus on 3R as a marketing strategy which refers to the reuse, recycle and reduce.
2.2.3 Projection of sales:
Sales Budget
Budgeted unit sales(metric

Year 1
800

Year 2
1000

Year 3
1150

tons)
Average selling price ()
Budgeted sales revenue ()

950
760000

950
950000

950
1092500

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2.2.4 Production plan:


Production Budget

Year 1

Year 2

Year 3

Budgeted unit sales (metric tons)

800

1000

1150

Total requirements

800

1000

1150

Total requirements of production

800

1000

1150

2.2.5 Direct material plan:


Direct Materials Budget:
Total requirements of production
Total PET Flakes needed (Metric Ton)
Total Material needs
Total purchase of materials (Metric Ton)

Year 1
848
2120
2120
2120

Year 2
1012
2530
2530
2530

Year 3
1159
2897.5
2897.5
2897.5

Expected cash disbursement for Material

Quarter 1

Quarter 2

Quarter 3

Total purchase of materials (Metric Ton)

2247.2

2809

3223.15

Average cost per metric ton ()

145

145

145

Cost of material ()

325844

407305

467356.75

2.2.6 Direct labor plan:

Direct labor budget

Year 1()

Year 2 ()

Year 3 ()

Wages of production line

51,000

51,000

51,000

Total cost of labor

51,000

51,000

51,000

Budgeted production units

800

1000

1150

Labor cost per metric ton

63.75

51.00

44.35

workers

2.2.7 Planning of production facility:


Items
Land

Year 1
110,000

Year 2
110,000

Year 3
110,000
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Factory building
Machineries
Vehicles
Office building

70,000
85,000
55,000
80,000

70,000
85,000
55,000
80,000

70,000
85,000
55,000
80,000

2.2.8 Overhead plan:


The overhead plan includes two types of cost such as variable overhead and fixed overhead.
Manufacturing overhead Budget
Year 1
Total requirements of production
848
Variable overhead:
Cost of packing and purchasing PET Flakes(metric 320
ton)
Total variable overhead
Fixed overhead:
Factory building depreciation (5%)
Machineries depreciation (10%)
Vehicles depreciation (8%)
Office building and warehouse depreciation (10%)
Total fixed overhead
Total factory overhead
Less: Non cash cost(depreciation)
Required disbursement of cash
Total overhead per metric ton ()

Year 2
1012

Year 3
1159

320

320

271360

323840

370880

3500
8500
5500
3775
21275
292635
21275
271360
345.0884434

3500
8500
5500
3775
21275
345115
21275
323840
341.0227273

3500
8500
5500
3775
21275
392155
21275
370880
338.3563417

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2.2.9 Selling and Administration overhead expenses:

lling & administrative expense budget

Year 1

Year 2

Year 3

dgeted unit sales (metric tons)

800

1000

1150

elivery expense (Per metric ton)

20

20

20

tal variable selling cost

16000

20000

23000

4500

4500

4500

ministrative cost

2000

2000

2000

tal fixed selling & administrative cost

6500

6500

6500

tal selling & administrative cost ()

22500

26500

29500

riable Expenses:

xed Expenses:

dvertisement

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2.2.10 Cash Budget:


Cash Budget for Coats Bangladesh

Year 1 ()

Year 2 ()

Year 3 ()

Initial Cash Balance

1,000,000

689296

1080651

Sales Revenue

760000

950000

1092500

Total Available Cash

1760000

1639296

2173151

Material Cost

325844

407305

467356.75

Direct Labor Cost

51,000

51,000

51,000

Collections of Cash:

Less: Cash payments

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Factory Overhead

271360

323840

370880

Selling and Administration Cost

22500

26500

29500

Land

110,000

Factory Building

70,000

Machineries and Installations

85,000

Vehicles

55,000

Office Building

80,000

Total cash payments

1070704

808645

918736.75

Ending cash balance

689296

830651

1254414.3

Fixed Assets:

2.3 Resources collection:


To start up the venture, the organization will require both financial and physical resources.
Initially the organization needs to invest 168000 to acquire necessary fixed assets and to meet
preliminary expenses. Through having a deep look over the projected cash budget, we can infer
the requirements and their cost structure. They must ensure the establishment of necessary
factory building to start their operations. They also must collect necessary raw materials, PET
bottles, from different available sources such as hotels and restaurants, grocery shops and local
confectionaries etc. After running of business activities for some days, they can construct their
own facilities and factories for getting their raw materials.
Possible challenges in resource collection:
i.
ii.

Availability of PET flakes.


Environmental issues.

Existing opportunities in resources collection:


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i.
ii.
iii.

Availability and cost effectiveness of PET bottles in Bangladesh


Strong infrastructure of textile industry
Strong financial position of the company.

2.4 Legal processes:


The legislations in Bangladesh are not too strict. And foreign investment is always welcomed at
the country. Coats Bangladesh is a subsidiary of Coats PLC in UK. But they can easily register
as a public limited company. In such case, they will need to acquire in the office of registrar of
Joint Stock Companies in Bangladesh where they have to be registered as per the legislation of
Joint Stock Company Act, 1994. The investment types of Coats Bangladesh fall under the
category of Act of Foreign Private Investment of 1980.
Challenges:
1. Availability of adequate skilled worker.
2. Bureaucratic behavior of the country.
3. Corruption in the country.
Opportunities:
4. No restriction regarding the amount of foreign investment is imposed.
5. Since Textile is a potential industry in the country, government subsidizes and helps the
organization helping textile industry.
6. There is not much of a competition of Coats and certainly none as polyester manufacturer
in Bangladesh.
2.5 Building facilities:
Building a facility in Bangladesh requires the authorization of respective authorities. The
building of facilities includes a number of activities. These activities are mandatory and
legislation stands to impose punishment if all of them are not properly maintained (Scott, A. S.
2010). The supervision process of building a facility or factory might include:

Inspection of the site


Testing the resistance level of Soil.
Designing the building
Construction of the building.
Building adequate safety measures at the facility.
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Challenges:
1. In most of the cases the soil in Bangladesh is not perfect for building a very high storied
facility.
2. It is often hard to finish building the facility in time.
3. Often natural calamities hinder the construction.
Opportunities:
1. The labor cost for building facilities is lower than other countries.
2. There is availability of high quality building material at the country.
3. The government of Bangladesh appreciates industrialization and building of facilities at
the country.

2.6 Implementation:
Often the actual operation may vary widely from the planning segment. Proper observation must
be given to align the implementation as planned earlier. The main steps can be as follows.

Care has to be taken in case of distributing authority and responsibilities to the

employees (DruckerP. F. 2006).


The production line should be up to date and able to meet the uncertainties.
Control of the implementation should be continuous; this will ensure that there is no
problem regarding the process and the quality of production(Ries,E. 2011).

3. Assessment of Feasibility, Profitability & Resource Allocation:


3.1 NPV of the project:
The PV of the cash flows is calculated assuming 10% discount rate. From the
following table, we can see that the NPV of the project is positive which helps
to make acceptance decision.
NPV calculation
Cash inflow
Present value factor
Present value of cash flow
Total PV of cash flows

Year 1
725546
0.909
659521.3
2288413

Year 2
830651
0.8264
686450

Year 3
1254414
0.7513
942441.4

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Initial investment
NPV
3.2 IRR of the project:

-1000000
1288413

Internal rate of return is a discount rate at which NPV of a project is zero. It means it is a rate
when PV of cash inflow = PV of cash outflow. To find out IRR, lets have a look over three
scenarios.

At 20% discount rate,

NPV calculation

Year 1

Year 2

Year 3

Cash inflow

725546

830651

125441
4

Present value factor

0.8333

0.6944

0.5787

Present value of cash flow

604597.

576804.

725929.

Total PV of cash flows

190733
1

Initial investment

100000
0

NPV

907331.
1

At 35% discount rate,

NPV calculation

Year 1

Year 2

Year 3

Cash inflow

725546

830651

125441
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4
Present value factor

0.7407

0.547

0.4064

Present value of cash flow

537411.

454366.

509794

Total PV of cash flows

150157
2

Initial investment

100000
0

NPV

501572

At 50% discount rate,

NPV calculation

Year 1

Year 2

Year 3

Cash inflow

725546

830651

125441
4

Present value factor

0.6667

0.4444

0.2963

Present value of cash flow

483721.

369141.

371682.

Total PV of cash flows

122454
6

Initial investment

100000
0

NPV

224545.
8

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Therefore, NPV will close to zero only when the discount rate is quite more than 50%. In this
regard, the IRR will be more than 50%. If the IRR of the project is larger than the prevailing
market rate of return, then the project should be accepted.
3.3 Break-even point of the project:
Sales price per unit = 950
Variable cost per unit = 320
Fixed cost = 400000
Calculation of BEP
Price per unit
VC per unit

Year 1
950
339.2

Year 2
950
323.84

Year 3
950
322.504

FC

400,000

400,000

3
400,000

Break Even point in Sales unit (Metric

654.878

638.814

637.454

Tons)

Break Even point in pounds amount

622134.

606873.

605581.

3.4 Unit cost & sales price:


Calculation of BEP
Estimated Unit Sales (Metric Ton)
VC per unit
FC
Fixed Cost per unit
Sales Price per unit
Unit cost
Profit

Year 1
800
339.2
400,000
500
950
839.2
110.8

Year 2
1000
323.84
400,000
400
950
723.84
226.16

Year 3
1150
322.5043
400,000
348
950
670.33
279.67

4. Conclusion:
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From the above discussions, it is clear that there is a constant demand of polyester yarn and
threads in both Bangladesh and other countries. And building a facility which will recycle the
harmful PET flakes into wearable Polyester yarn will not only be cost effective but also will help
in maintaining the ecological balance of the environment. So if a renowned company like Coats
comes forward produce polyester in Bangladesh, it will financially benefit the company, help the
increasing demand and give Coats Bangladesh a competitive edge in their operations.

5. References:
1. Bangladesh Bureau of Statistics. 2009. Environmental Census. Ministry of
Environment and Forest.Statistics Division. Government of The Peoples
Republic of Bangladesh.
2. Centre for Policy Dialogue (CPD) Bangladesh. 2002. Contribution of RMG
Sector to Bangladesh Economy.Paper.50.
3. Coats PLC. 2013. Polyester Yarn.Online.Available at http://www.coats.com/index.asp?
pageid=18.Extracted on 26th August, 2013.
4. Drucker P. F. 2006. Innovation and Entrepreneurship.Reprint edition.Harper
Business.page. 217.
5. Islam R. Ahmad, M. 2004. Living in the cost problems and opportunities
and challenges.Ministry of Water Resources.Government of The Peoples
Republic of Bangladesh.
6. Kawasaki, G. 2004. The Art of the Start: The Time-Tested, Battle-Hardened
Guide for Anyone Starting Anything.First edition.Portfolio Hardcover, page.
68.

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7. Moazzem, G. K. 2005. State of Compliance of the RMG Sector of


Bangladesh.Research Fellow.Center for Policy Dialogue (CPD).
8. Nelson D. et al. 2006. Vietnam U.S. Textile Agreement. Available at
http://www.trade.gov/press/press_releases/2006/vietnam,%20viwed%20on
%2014/02/2010
9. Ries, E. 2011. The Lean Startup: How Today's Entrepreneurs Use
Continuous Innovation to Create Radically Successful Businesses. First
edition.Crown Business. page. 219.
10. Scott, A. S. 2010. The Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs,
Investors, and Policy Makers Live By. First edition.Yale University Press.page. 183.
11. Thorp, H et al.2013.Engines of Innovation: The Entrepreneurial University
in the Twenty-First Century.Second edition.The University of North Carolina
Press.page. 147.
12. The World Bank. 2012. Bangladesh: Towards Accelerated, Inclusive and
Sustainable Growth- Opportunities and Challenges. Volume I: Overview.
September, 2012. Page 54-56.
13. William E. 2002. The Elusive Quest for Growth: Economists' Adventures
and Misadventures in the Tropics. Massachusetts: The MIT Press.

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6. Notes and assumptions:

Item

Coats Bangladesh Polyester Manufacturing Facility


Income Statement
Year 1
Year 2 Year 3
Amount Amou Amoun

Sales
COGS

nt

760000

95000

10925

669479

0
80342

00
91051

1.8

Gross Profit

90521

14658

18198

Less: Selling & Admin Expense

22500

0
26500

8.3
29500

Net Profit

68021

12008

15248

8.3

Calculation of COGS & inventory

Year 1

Year 2

Year 3

Cost of direct material total


Cost of Labor
Total Overhead

()
325844
$51,000
292635

()
407305
$51,000
345115

()
467356.8
$51,000
392155

Total Cost
Cost of material
Cost per Metric Ton
COGS ($)

669479
325844
836.8488
669479

803420
407305
803.42
803420

910511.8
467356.8
791.7493
910511.8

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Coats Bangladesh Polyester Manufacturing Facility


Balance Sheet
Amount Year 1
Year 2
Year 3
Assets
Non Current Assets:
Land
Factory Building
Less: Depreciation
Machineries and
Installations
Less: Depreciation
Vehicles
Less: Depreciation
Office Building
Less: Depreciation

70,000
3500
85,000
8500
55,000
5500
80,000
3775
Total

Current Assets:
Cash
Total

110,000

110,000

110,000

66500

63000

59500

76500

68000

59500

49500

44000

38500

76225
378,725

72450
357,450

68675
336,175

689296
1,068,02

830651
1,188,10

1254414
1,590,58

1,000,00

689,296

1,080,65

0
68021

120080

1
152488.3

$0
0
1,068,02

$51,000
327,725
1,188,10

$51,000
306450
1,590,58

Liability and Equity


Equity
Add: Net income
Liabilities
Wages payable
Material cost payable
Total

Coats Bangladesh Polyester Manufacturing Facility


Cash flow statement
Amou Total Amount
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nt
Year 1

Year

Year 3

2
Cash flow from operation:
Net income
Add: Depreciation
Factory building depreciation
Machineries depreciation
Vehicles depreciation
Office buidling and warehouse

68021

1200

15248

80

8.3

21275

2127

21275

89296

5
1413

17376

55

3.3

3500
8500
5500
3775

depreciation

Total cash flow from operation

Cash flow from investing activities:


Land

110,0

Factory Building

00
70,00

Machineries and Installations

0
85,00

Vehicles
Office Building

0
18750
80,00

0
0

0
Total Cash flow from investing

activities

363,75

0
Total Cash flow from financing

1,000,0

6892

10806

activities

00

96

51

Ending Cash Balance

725546

8306

12544

51

14

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