Market Opportunity: Day Care in Saudi Arabia - Example

Business Plan for “Little Stars” Child Care Centre Jeddah, Saudi Arabia TABLE OF CONTENTS a. 2.2 Ownership of the Business 2 3.4 Target market Demographic Analysis 8 The owner of the business will initially be responsible for the overall management operations of Little Stars Child Care including the selection and retention of employees, as well as the expenditure of funds. She does not have a formal experience in child care but she has got a management degree and skills to that will help her to manage the business. She is also studying an internationally recognized MBA degree from La Trobe University, Australia. 14 b) Other personnel 14 a) Strengths 23 b. Weaknesses 24 c. Opportunities 24 d. Threats 24 1. EXECUTIVE SUMMARY “Little Stars” child care centre will be the first international standard child care center to e established in Saudi Arabia and will be located in Jeddah city. The owner estimates that she will require $53,000 in order to launch the operations of this business successfully. The owner will invest $10,000 in this project and she is seeking additional funding amounting to $43,000 from the Saudi Credit and Saving Bank. 1.1 The company “Little Stars” is going to be a limited liability company. The founder does not have prior experience in child care but she has got a management degree and skills and some practical knowledge on child care that will greatly support her in operating the business. She also plans to enroll in an online “child care services” course to obtain formal qualification working with children. 1.2 services The “Little Stars” child care centre is going to exploit an opportunity emerging from the increasing need for institutionalized child care services in Saudi society and is going to provide the services to the residential community surrounding Al-Safa district in Jeddah. 1.3 Business/Market strategy Market analysis confirms that the strategy of the proposed business will be successful. The elements of the company’s strategy include providing of offering sales discounts, promotions and advertisement of our services through various media. 1.4 Financial projections The business projects $14,000 and $10,575 monthly revenues and expenses per month respectively, which are expected to remain constant during the first year. These figures are expected to give an annual gross profit of $41,100 and a positive cash flow of $68,073. 2. BUSINESS INFORMATION 2.1 Name of the Business The name of the business plays an important role for marketing purposes. Thus, after careful consideration the child care centre will be known as “Little Stars”. a. 2.2 Ownership of the Business The business will be established as a limited liability company and owned 100% by the founder. There are no regulations in Saudi Arabia to establish special entity for child care centers. Thus, most of the operations will be carried out under generally accepted business rules. 2.3 Vision Statement Little Stars is dedicated to become the leader in providing international level child care services in Saudi Arabia. 2.4 Mission Statement The mission of little stars is to provide quality child care services to local and foreign residents of the Jeddah city where kids can grow smile and socialize. The organization aims at operating in harmony with parents and to excel in providing secure, reliable, demanding service in accordance with international standards in the Jeddah city. 2.5 Services Little Stars will provide child care services to the Jeddah residential community (Al-Safa district) located within 10 km radius of the proposed center location. 2.6 Business location and facilities The proposed business location will be at a villa located in Al-Safa district in Jeddah, which is offered for lease. The property has necessary facilities including indoor and outdoor facilities with an area of 400 square meters of indoor space and 500 square meters of outdoor space. 2.7 Business registration The registration of the business will take three main steps: 1. The registration of the company via the Unified Registry/Ministry of Commerce and Industry 2. Opening bank account with the Saudi credit and savings bank 3. Signing the articles of association in witness of a notary public The whole process may take up to 10 days to start the business. 2.8 Legal requirements The business will be in compliance with the rules and regulations of the Safety department and Jeddah municipality. The owners will obtain the required operating licenses. Our preliminary investigation showed that currently, there are no strict regulations and formal license, specifically license for the child care services is not required. However, we anticipate that the government will take necessary steps to regulate this industry upon increasing number of providers. 2.9 Total set up costs The following figure provide outline of the set up cost of the business. The property will be leased prior to establishment of the business to install the furniture and reconstruct certain areas including toilets and kitchen for easy access and use by the children. Table 1.0 Set up costs Setup Cost at the Beginning of 2013       Registration fee to open a child care centre $500 (Preliminary Expenses)   Furniture & Equipment $20,500 Furniture $5000 Air-conditioning Facilities $5000 Toys $3000 Computer & Printers $5000 Safety equipment $1500 Cleaning Equipment $750 Stationeries $250     Advance Rent $10,000 (Monthly Rent @$2000)   Visa Processing fees to be paid to government to   hire four foreign experts @3000 $12,000 Minimum Cash balance Required $10,000     Total Setup Cost $53,000     Investment by Owner $10,000 sInterest free loan from Bank $43,000 Total Long-term Capital $53,000     Little stars requires capital of $53,000 in order to launce its operations successfully. 2.10 Business loan and terms Out of the required capital of $53,000, the owner of Little Stars will invest $10,000 in this project and she is seeking additional funding amounting to $43,000 from the Saudi Credit and Saving Bank. This financial institution provides interest free loan for small and medium enterprises with long term payment terms and conditions. 3. MARKET ANALYSIS 3.1 Market opportunity Little stars child care is a business that is increasingly becoming necessary in Saudi Arabia. There has been a tremendous rise in the number of women joining work force in the Kingdom, which has created an opportunity for the enterprising individual – child care (Phillips, 2010). In a study conducted by American Debu, (2008) on Saudi women, they advised that they would highly welcome an opportunity to take their children to a facility that would take care of them during business hours. This opportunity has been driven by various developments in the Kingdom, recently. First, Saudi government has established policies aimed at providing women with more opportunities to participate in the work force. Secondly, the government has established policies that make it more difficult for locals to hire foreigners to work as nannies or housemaids, including increasing visa costs for such persons (Santolan, 2011). As well, the government has been increasingly investing in large infrastructure projects and increased spending on the education and health sectors. Generally, there is no doubt that there is a room in the market for growth of a child care facility providing high quality services in Saudi Arabia. 3.2 Market growth Saudi Arabia is oil rich country with the majority of the labor force employed in oil industries (International human development indicators, 2011). The following figure provides key statistics for Saudi Arabia. As the figure shows the population of the Saudi Arabia is increasing rapidly. The GDP per capita is very high compared to developing countries. Table 2.0: Key Statistics – Saudi Arabia Source: Lasalle (2010, p. 2) Saudi government has recently taken measures to increase the income of the households. This included a large increase in civil service employment and wages. On average Saudi family earns around $5000 per month, (International human development indicators, 2011). 3.3 Target market Little stars will be established in Jeddah city, Saudi Arabia. Jeddah is commercial and industrial city and its economy remains very strong compared to other cities (Lasalle, 2010, p. 3). Gross Domestic Product (GDP) in the Makkah region, for which Jeddah and Makkah are the economic engines, is 217.5 billion SAR ($58 billion USD), the third highest in the Kingdom. Jeddah’s economy has diversified around activities related to the Jeddah Islamic Port and to the global network of Islamic business (Jeddah Strategic Plan, 2011). It is expected that the economy of the Jeddah will grow substantially driving the household income to increase. 3.4 Target market Demographic Analysis Jeddah’s total population is estimated at around 3,400,000 and by 2029 it is expected to grow to over 5,000,000 (CIA World Factbook, 2011). The current population is made up of 52% Saudi nationals and 48% Non-Saudi nationals, which demonstrates the city’s demographic diversity. The population is roughly equally split between males and females. The following is the approximate population structure in Saudi Arabia provided by CIA World Factbook (2011). 0-4 years of age: 10 % 5-14 years of age: 19.4% 15-64 years of age: 67.6% 65 years and over: 3% The birth rate in Saudi Arabia is 19.34 children per 1000 population. The population growth rate is 1.536% (CIA World Factbook, 2011). The percentage of children in the kingdom is thus expected to increase with time, given the current trend. This same structure holds for Jeddah region. 3.5 Competitor analysis The customs and culture in Saudi Kingdom requires working mothers to either have a housemaid or a nanny to take care of children at home (American Debu, 2011). A few day care centers exist but are more like play groups and they do not usually accept children below the age of two years. They also work for condensed hours such as from 8.00 hours to 1200 hours. Some child care facilities are available in Western compounds where working expats live. Some regional shopping centers offer child care while parents are doing shopping (American Debu, 2011). In Jeddah, there is one child care entre called Mommy Deb's Day Care, located in Salamah District. It operates from 7am until 3pm every day except Friday, with some care available into the evenings (Deb's Day Care, 2011). The facility provides care for children of all ages, including infants. Strengths of Mommy Deb's Day Care: It is already established in the area. Weaknesses: limited hours of operation, lower standard of services 3.6 Competitive advantages From our market research, there are three distinctive areas that little stars will have competitive advantages over the competitor. These are extended hours of operation, provision of services with international standards and employment of staff with high levels of knowledge in childcare business. 4. STRATEGY AND IMPLEMENTATION PLAN 4.1 Objectives a) Our strategic objectives will be as follows: b) To provide quality care c) To comply with international standards for child care services d) To realize monthly revenue in the range shown in the Table 4 e) To maintain good reputation in the community 4.2 Strategy The market analysis shows that we can take advantage of an unexploited market niche in the targeted location, in Saudi Arabia. Little stars will be work to achieve and maintain competitive edge, given that there is no competitor offering the targeted concept and quality of child care services. We will work hard to maintain our strategy, business development, marketing and fulfillment. In essence, our strategy will be focused on providing international standards of childcare services, to maintain flexibility in the hours that we offer our services and make sure that we always higher competent staff. a) Compliance with international standards In order to provide a quality child care we will abide by international standards. The following staff to children ratio has been identified feasible for our services. Table 3.0. Staff to student ratio Age of children Maximum Number of Children in a group Ratios Toddlers (12-24 months) 10 1:5 2 - 3 year olds (24-36 months) 14 1:7 3-5 year olds (36-60 months) 16 1:8 As the table above shows, there will be three groups in the centre including toddlers group, 2-3 years old and 3-5 years old. These ratios are found to be the standard in many developed countries around the world including the Unites States, Australia and the United Kingdom (Oberhuemer, Schreyer & Neuman, 2010, p. 313) b) Flexible services Our services will be offered between 5:00 A.M. to 21:00 P.M. from Saturday to Thursday. The centre will be closed on Fridays and during the public holidays. The centre will also provide services from 21:00 to 5 A.M. with sleep over facilities. The major reason for offering the extended services is that most of the special occasions in Saudi Arabia occur after 9.00 pm and continue until 3-4 A.M. in the morning due to hot weather conditions. Children are usually not allowed to attend together with parents. 4.3 Marketing strategy In order to market our brand, we will depend on advertisements, offering free sessions and discounts to our customers a) Advertisement Little Stars Child Care Centre will be promoted in various types of media. The business will heavily utilize internet advertising. Word of mouth advertising will be one of the key factors to expand the “Little Stars Child Care”. We are planning to advertise using this approach three months before the day when center will be scheduled to be opened. People are using internet extensively as the internet search provides quick and comparable search results for services and products. The internet penetration in Saudi Arabia is very high (about 36% of population use internet) and almost all internet searches are being carried out on Google search engine (Internet World Statistics, 2010). To capitalize on the use of booming internet services, we have taken necessary steps to register two domain names. Other advertising sources will include local newspapers such as “Okaz” and “Al-Madina” and distribution of flyers in the regional malls. b) Free session We will provide free one day session for all children attending our child care to asses our facility and sign up for our services. c) Discounts We will provide discounts for parents who will utilize our services on a full-time basis for 5 days with the discounts ranging up to 10%. 4.4 Management Plan a) General Manager The owner of the business will initially be responsible for the overall management operations of Little Stars Child Care including the selection and retention of employees, as well as the expenditure of funds. She does not have a formal experience in child care but she has got a management degree and skills to that will help her to manage the business. She is also studying an internationally recognized MBA degree from La Trobe University, Australia. She has gained practical knowledge in child care during several meetings held with the staff of the La Trobe Child Care Centre and ABC Learning Centre in Bundoora. She is also planning to enroll in the online “child care services” course provided by International Child Care College to obtain formal qualification in providing child care services. b) Other personnel The following positions will also prevail in the care centre: Director of the centre Head of the toddlers group Assistant to the head of the toddlers group Head of the 2-3 years old group Assistant to the head of the 2-3 years old Head of the 3-5 years old group Assistant to the head of the 3-5 years old In total, the organization will have 9 employees including the owner of the business. All employees will be screened for the experience as well as police check and formal qualification working with children. The organization will also consider employing workers from foreign countries in case there will be scarcity of suitable candidate locally. In that case, the hiring will be outsourced to the human resources companies in Jeddah city. The organization will also be training volunteers with the view to employ after gaining required experience to work at our centre. As the operations of the organization become increasingly complex in the future, future, the owner will appoint individuals from among the management to assist here in the management of the entity. 5. FORECASTING 5.1 Revenues Forecasts Revenues will be generated by providing reliable and quality child care services. Full accounting records will be maintained by ‘Little Stars” Child Care. Initial enrollment is expected to be around 40 children. One of the reasons of full capacity forecast is the projected high demand for child care services and the campaign three months prior to opening child care centre. The financial projections are based on monthly revenues of $14,000 and are expected to remain at this level by the end of the first year of operation. These projected revenues would give the company a gross profit of $41,100 and positive cash flow of $68,073 during the first year. Detailed financial information is depicted below. 5.2 Yearly Break Even Analysis The organization will pass break even point when it enrolls 19 children, based on the average figures of the first year for total sales and operating expenses: No. of Children = Fixed Cost / Contribution Margin (CM) per Child. CM per Child = Yearly service fees per student – Yearly Variable Cost per Child Assuming that rent and depreciation are fixed cost and all other expenses are variable: Total projected annual sales: $168,000 Yearly Fixed Cost: Rent $24, 000 Depreciation $12, 300 Total Fixed Costs $36, 300 Yearly Variable Costs: Wages $48000 Utility $12000 Food $12000 Nappies $9600 Insurance $9000 Total Variable cost $90600 CM per Child= (168000-90600) / 40 = 1935 Break Even= 36300/1935 = 19 child 5.3 Income statement/profit and loss account The projected revenues and the costs are brought together in the profit and loss account. Table 3. Profit and loss account Items Jan Feb March April May June July August Sep. Oct. Nov. Dec. Total Revenue:                           Service Fees: 40 Childs @350 per month $14,000 $14,000 $14,000 $14,000 $14,000 $14,000 $14,000 $14,000 $14,000 $14,000 $14,000 $14,000 $168,000                             Expenses:                           Wages: 8 Workers @ $500 per month $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $48,000 Rent $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $24,000 Utilities bills $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $12,000 Food $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $12,000 Nappies $800 $800 $800 $800 $800 $800 $800 $800 $800 $800 $800 $800 $9,600 Insurance $750 $750 $750 $750 $750 $750 $750 $750 $750 $750 $750 $750 $9,000 Depreciation on Furniture @5% $1,025 $1,025 $1,025 $1,025 $1,025 $1,025 $1,025 $1,025 $1,025 $1,025 $1,025 $1,025 $12,300                             Total Expenses $10,575 $10,575 $10,575 $10,575 $10,575 $10,575 $10,575 $10,575 $10,575 $10,575 $10,575 $10,575 $126,900                             Profit from operation before taxes: $3,425 $3,425 $3,425 $3,425 $3,425 $3,425 $3,425 $3,425 $3,425 $3,425 $3,425 $3,425 $41,100 Taxes (Zakat @2.5%) $86 $86 $86 $86 $86 $86 $86 $86 $86 $86 $86 $86 $1,028 Net profit $3,339 $3,339 $3,339 $3,339 $3,339 $3,339 $3,339 $3,339 $3,339 $3,339 $3,339 $3,339 $40,073                             5.4 Projected cash flow statement The following table provides the data for the cumulative cash flow projection for one year. Table 5. Projected Cash Flow Statement Items Jan Feb March April May June July August Sep. Oct. Nov. Dec. Total Beginning Cash Balance $10,000 $16,364 $22,729 $29,093 $35,458 $41,822 $46,186 $50,551 $54,915 $59,279 $63,644 $68,008 $10,000                             Collection From Clients $14,000 $14,000 $14,000 $14,000 $14,000 $14,000 $14,000 $14,000 $14,000 $14,000 $14,000 $14,000 $168,000 Total Cash available $24,000 $30,364 $36,729 $43,093 $49,458 $55,822 $60,186 $64,551 $68,915 $73,279 $77,644 $82,008 $178,000                             Payment to supplies:                           Wages: 8 Workers @ $500 per month $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $48,000 Rent           $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $14,000 Utilities bills $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $12,000 Food $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $1,000 $12,000 Nappies $800 $800 $800 $800 $800 $800 $800 $800 $800 $800 $800 $800 $9,600 Insurance $750 $750 $750 $750 $750 $750 $750 $750 $750 $750 $750 $750 $9,000 Zakat paid $85.63 $85.63 $85.63 $85.63 $85.63 $85.63 $85.63 $85.63 $85.63 $85.63 $85.63 $85.63 $1,028 Repayment of Bank Loan                       $4,300 $4,300 Total Cash Expenses $7,636 $7,636 $7,636 $7,636 $7,636 $9,636 $9,636 $9,636 $9,636 $9,636 $9,636 $13,936 $109,928 Ending Cash Balance $16,364 $22,729 $29,093 $35,458 $41,822 $46,186 $50,551 $54,915 $59,279 $63,644 $68,008 $68,073 $68,073                                                         From the above figures, it is clear that cash inflows will start to exceed cash outflows by the first month of operation. Therefore, our maximum funding requirement will be $43,000 to assist in launching the operations of the business. Table 6. Balance Sheet as at the end of the year 2011 6. RISK ANALYSIS 6.1 SWOT analysis The following is an outline of the strengths, weaknesses, opportunities, and threats. At the moment our strengths and opportunities outweigh our weaknesses. a) Strengths First child care centre in Jeddah with international standards Highly educated founder of the business Location of the service Extended hours of operation Knowledge of the child care business b. Weaknesses Limited number of professional staff locally. There may be need to hire from overseas. This becomes a competitive advantage to the organization given that the competitors may not take similar move. No experience of the founder in the child care business c. Opportunities Growing number of women at work Tough regulations of foreign employees in Saudi Arabia to work as a maid and nanny in the household The need for children to socialize at early stages of the development Demand by students returning home from overseas with their children who attended western child care facilities abroad d. Threats Tough government regulations Entrance of big companies into the market. This will be solved through expansion of little stars so that it will maintain competitive edge in the face of competitors. 7. CONCLUSION After subjecting this business to the most rigorous analysis, we conclude that the little stars child care business can be viable under all realistic scenarios. We firmly believe that in this plan, we have identified a solid new business based on real and exciting opportunities. The conclusion from extensive marketing analysis is that our services will be unique and far much better from those of our competitors and this will assist us to maintain a competitive advantage against our competitors in the market. Based on the analysis, we have established a solid strategy to outdo our competitors by providing international standards childcare services, maintaining flexibility in the hours that we offer our services, employing competent staff and enhancing an effective marketing strategy. We have aligned our organization in respect to our immediate needs and on this basis, established the management and other personnel requirements for the organization to run effectively. Our financial projections indicate that the business will be highly profitable, irrespective of the fat that they are a bit conservative. We believe that our performance will even exceed the projections by a wide margin. We have examined the potential strengths, weaknesses, opportunities and threats to establishment and development of the business. We have realized that the number of threats and weaknesses are much less compared to the strengths and opportunities. In fact, some weaknesses are very manageable while some threats can be turned to our competitive advantage. Generally, this business plan provides a very opportunistic view and will consider adapting it by studying the environment more upon successful start in 2013 when I return to Saudi Arabia after I finish my studies. 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