Jadelink of a couple of million HK
Jadelink Case Study Q1: What were the issues that caused Chung to obtain external funding? In 2006, Jadelink had sales of a couple of million HK dollars, which increased several times in 2007. In the first two months of 2008, when the sales volume was three times the sales for the same period in 2007, the business broke even. Jadelink realized a lucrative profit, and was expected to have a brighter future. Chung was confident that no potential competitors could emerge fast enough to threaten Jadelink’s business in a few years.
Therefore, he wished not only to open 30 to 50 shops in all major cities of China but also to promote the brand internationally, expanding to Taiwan, Singapore and Japan, making Jadelink a leading player in the industry. Chung believed that Jadelink was good enough to survive well in the market with this existing scale. However, if he wanted to push the growth of Jadelink forward, he would have to expand the company within five years, which would require an estimated RMB100 million (about 16 million dollars) investment. As Jade industry is capital-intensive, there is too much capital being backlogged in the raw jadeite.The production period usually lasts long, which puts a lot of pressure on capital turnover.
Besides, the payback period for a Jadelink shop is two years and it requires about six months for a counter in a department store. As a result, though the company has started to make profit, the existing amount of cash flow is not satisfying enough. More stores and years are required to obtain enough funding to implement Chung’s plan for expansion. If Chung chose to develop at a conservative pace, using the company’s retained earning, he might miss the opportunity to grow with the expanding China market.Also, potential competitors could also emerge. Therefore, Chung decided to obtain external funding from venture capitalists and other forms of private equity.
Q2: Give recommendations for promoting the expansion of Jadelink. 1. Optimize the internal management system. Jadelink should record practices and set up clear guidelines and training manuals. As Jadelink expands, the company will come across more problems in daily activities. Some of the problems may be similar so there is no need to discuss how to handle it every time.
With clear guidelines and training manuals, employees will know how to deal with the affairs under certain circumstances. 2. Attract professional staff. Since the policies? customers’ preference? culture and resources are different in varies countries, Jadelink should hire experts who have a good knowledge of each country in order to adjust to and broaden the market. Designers are supposed to know one country’s custom and culture well so that they can manufacture products which cater for the need of customers in different countries. .
When searching for external funding, Chung had better choose the investors who would respect his effort and vision in addition to focusing on the monetary value of Jadelink. Thus the investors would feel an attachment to the company and be able to relate to their own affections for the company, and they will have the same target as Chung, which is to transform Jadelink into a world-famous brand. Otherwise investors may hold different opinions against the CEO, which would make the operation and management difficult.