Should East Asian Trading expand their business by investing in food processing facilities?

East Asia Trading is a firm based in Mumbai, which exports fruits and vegetable to the Middle East. It is operated by the ABC system of inventory control. It is one of the dominant players in the market. Part of the Raw Vegetables and fruits usually gets wasted due to Fluctuating demand in the Middle East market. Hence, they are considering to invest in Food processing facilities so that the Vegetables and fruits, otherwise wasted can be used efficiently to develop a new business of processed food by adding value to it.

• Growth and Evaluation
• Organisational planning tools
• Costs and Revenue
• Break Even Analysis
• Final Accounts
• Profitability and liquidity ratio analysis
• Budgets
• The role of operations management
• Production Planning

• Interview with the Managing Director, operations Manager of Raw House and Financial Manager in India and Marketing Manager in gulf.
• Interview with selected buyers - To understand whether the buyers are interested in buying Processed Fruits and Vegetables
• Questionnaire survey with potential domestic retailers - To understand the potential demand for processed food in the local market.
• Personal Observation in selected Middle East hypermarkets - To know the potential demand for processed food in the Middle-East market and to know about the major suppliers of processed food.

• Existing competitors in Middle East in Food Processing business - their strength and weakness.
• Procedure necessary for expanding business in Middle East
• Economic Conditions in Dubai, Oman and Bahrain.

East Asia Trading is a firm based in Mumbai, which exports fruits and vegetable to the Middle East countries such as Oman, Bahrain, UAE and Qatar. The Kallatra Parivar operates it. It is one of the dominant players in the market. Its head office is based in Mumbai and has many other offices in the Middle East. Their raw house is also based in Mumbai. Part of the Raw Vegetables and fruits usually is wasted due to Fluctuating demand in the Middle East market. Hence, they are considering investing in Food processing facilities so that the Vegetables and fruits, otherwise wasted can be used efficiently to develop a new business of processed food by adding value to it.

It is very important for a company in the primary sector to diversify to the secondary sector to reduce risk and grow. The prospect of food processing plant is to use the left out fruits and vegetables. The left out raw material will be used as raw materials for food processing, so that that the cost of wastage can be saved and used efficiently. This would prove as an expansion strategy for the company to spread the risk.

Therefore, Should East Asia Trading expand the business by investing in food processing facilities?

The study will be based on primary data. Several sources will be used for data collection such as interviewing the stakeholders, review and suggestion from the customers.

East Asia Trading a leader in the export of superior quality fresh fruits and vegetables from Mumbai. They cater to retailers, importers, wholesalers and distributors in more than 40 countries, majorly in the Middle East countries, regularly, for twenty years. They are appreciated by their clients for their ‘reliable service’ and ‘attention to detail’. They have offices in Oman, Bahrain and UAE. It is very important for a company in the primary sector to diversify to the secondary sector to reduce risk and grow.

• Supply chain Mechanism - They have tie ups with many local producers from in and around Mumbai, Pune and Nasik. Hence they have abundant supply of fresh fruits and vegetables as they strongly believe in the JIC method of inventory.
• ABC Approach for inventory Management - They have adopted a sound system of inventory management that emphasizes on rating their stocks from A to C as follows:
  • Based on the above principle they decide on the stocking of such goods and maintain their supply chain to their outlets abroad.
  • E.g.: Tomatoes is an all season vegetable and used at most of the food recipes, fall under rating B and processed accordingly.
• Quality control - They have in place a very strong system of quality control whereby their own inspectors and Perishable Products Export Control Board unit meticulously check and inspect the finest of quality before exporting.
• Packaging and Labelling - Packaging in EAT is designed to offer maximum protection to maintain freshness and transportation in the most freight-efficient manner, right from collection to the final despatch/loading in the crafts.
  • They place great emphasis on pack-shed standards; they adopt correct washing and drying procedures, palletisation and scientific labelling codes, to guarantee correct reach of every consignment to the respective countries.
• Human Resources and Infrastructure facilities - EAT has a very experienced and skilful trained staff to handle mixed loads of produce for both air and sea shipments that is their USP, without compromising on quality, timing of delivery or price.
• Research and Development - EAT is always seeking for  improvement in customer satisfaction levels by constantly striving for in-house research and development in processing, packaging and delivery by retaining the quality.

Fish Bone Analysis is used to study the cause and effect relationship between factors to arrive at a decision.

Gross Profit Ratio = \(\frac{Gross\ Profit}{Net\ Sales\ (Net\ revenue\ from\ opeRatios)}\times\)100

Gross Profit = \(\frac{216816.60}{3408944.32}\times\) 100 = 6.36%

Net Profit Ratio = \(\frac{ Net\ Profit }{Sales\ (Revenue\ from\ opeRatios)}\times\)100

Net Profit = \(\frac{43763.86}{3408944.32}\times\)100 = 1.28%

Current Ratio = \(\frac{Current\ Assets}{Current\ Liabilities}\)

Current Assets = \(\frac{975581.71}{387458.30}\)

= 2.51 times  a very sound ration as its able to meet its short term debts.

Liquidity Ratio = \(\frac{Liquid\ Assets}{Current\ Liabilities}\)

\(\frac{= 143235.68}{387458.30}= 0.369 \times\)

Not at all sound position. Make arrangements to recover the dues under APEDA and VKGUY as early as possible.

STEEPLE Analysis is an indispensable tool for strategic management decision making. EAT management can use this tool for deciding on launching the processed food at a better quality and cheaper cost,in the Middle East Countries, where its currently exporting fresh fruits and vegetables.

STEEPLE ANALYSIS includes a cross section analysis of the following external environmental factors which can affect the decision of EAT-

• Social and Cultural Factors – More awareness about health and hygiene factors in GCC at a rise, whereby people are opting for fresh food and vegetables to take care of obesity and diabetes. Moreover, mass interests are now inclining towards vegetarianism and veganism as well. The marriage age of girls are rising and hence families are left with more members. Hence, the local community are expecting wide variety of spreads, jams and sauces at a good marketing strategy like bulk buying at discounted prices.
• Sustainability and affordability is also a key determinant factor in the changing trends of local consumers. Hence, EAT can expect increasing demand for their products.
• Technology - Various exhibitions, food shows and conferences like GULFOOD Manufacturing, are held in GCC from time to time to provide a common platform to share the latest technological breakthrough in the areas like block chain, artificial intelligence and robotics that can be very useful facility for EAT also to expand further in this business. Also, digital retailing has made a comfortable access for the local community to seek for EAT products.
• Economic Factors - In 2017, IMF had announced a cut for Arabian Gulf OIL Producers, followed by a decline in oil GDP by 2.9%. Average inflation was expected to rise by some 2 points as well.
• Environmental Factors - EAT is planning to set up its processing unit in India only, hence environmental factors related to waste management and use of water management is a prime consideration here. However, in Middle east Countries the factors related to storing and transportation has to be planned and executed without jeopardizing environmental concerns.
• Political - In a shocking declaration, the UAE ministry of Education has banned nine types of food as unhealthy and not to be sold in school canteens including fries, soft drinks, chocolates and noodles. This opens more scope for fruits and vegetables in any form.
• The GCC government are all set to provide for cold storage facilities to smoothen the supply chain of processed food products into the market.
• Legal Factors - The Government is very particular on the processed food items to be imported. There is a strict law in place for getting prior approval of the Ministry of climate change and Environment. EAT needs to obtain such approval and maintain highest levels of standardization and quality parameter to adhere to the safety concerns. Failing which may have to bear severe penalties and other legal ill consequences.
• Ethical Factors - The main ethical consideration to be focussed by EAT should be to give upthe use of plastics right from the dtage of procurement of raw materials to the end stage of packaging and delivery of the final products. The withdrawl of plastics has been made mandatory by the Indian Government and to abide by that will be a biggest contribution to sustainable development by EAT.

In the light of the above analysis, I would recommend ETA to enhance its growth prospects by stepping in to food processing unit. As the land is already available and the existing machineries are operating in 80% capacity only, hence there is scope for further expansion. However, the following recommendations are noteworthy-

• Getting proper approval for renting cold storages provided by the Governmentof India.
• Also, Obtaining proper sanctions and approval from the law department of the concerned country in Middle East/ GCC.
• The International Standards for Quality Control and accreditation.
• Funds arrangement from Banks and the repayment terms.
• Training and skills upgradation by the staff for hygiene and preserving shelf life of the produce.
• The strong well established brands already existing in India and abroad.
• EAT has to take immediate and strong measures to get the amounts of refund under APEDA and VKGUY to get a better cash supply in hand to meet working capital requirements easily.

Hence, as a final note it is advised that ETA can think of growth by diving in food processing unit but should take up on a small scale operations only. Further, this is only a basic research done from my end. ETA should undertake a much elaborate and deep market research from their end to take a final decision.