Butterflies of Costa Rica PDF

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Case Analysis of Butterflies of Costa Rica...

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Cosman, Fayad, Husseini, Jennings, Vitsentzatos, Wiebe Butterflies of Costa Rica Butterflies of Costa Rica 1 Issue Identification Joris Brinckerhoff, the founder and CEO of CRES (Costa Rican Entomological Supplies) has to decide whether he should take the RBA’s offer to enter the deadstock market. 2.External Analysis 2.1.Industry Overview Overall, the butterfly industry was conventionally split and few data existed about dealers or customers and the market could be divided between deadstock market and live species. The deadstock market consisted mainly of collectors who would pay as much as $1,000 for a rare specimen. Those were regularly mounted in frames, so the wings could also be used in the decorations. On the other hand, the live species market focuses more in Europe and the United States. One breeder said “There are now a lot of people in this business. Raising butterflies is easy, anyone can do it”. This led to an oversupply situation, particularly in rainy seasons when butterflies laid more eggs. In 2007, oversupply was critical with the blue morpho pupae which made some breeders sell them for 30 cents. The market for pupae was seasonal, with the greatest demand during the warm summer months (MayAugust). There are 40 international suppliers of live pupae (12 in Latin America, 12 in Asia, and 3 in Europe). One of the major exporters was the Tropical Entomological House in Penang Malaysia which exported 120,000 pupae per year. In 2005 inspections were increased to one month with new breeders. Each inspection costs between $50.00 and $100.00. In 1990 most countries have endured more than a decade of civil war which decreased tourism significantly. In September 2001, there was terrorist attacks which put all sales at a halt. 2.2. PESTEL – (political, environmental, socio-cultural, technological, economic, legal) · Economic: Due to the attack on 9/11, many industries were left negatively affected by this event. One of these industries being tourism in the United States. ·

Legal: After new-fashioned exportation ideas were helped by the government, it included exception of income tax and duty fees on equipment and machinery.

·

Ecological: Costa Rica is viewed as a good nation as there are not many conflicts and a third of the country is a national park which helps the tourism industry.

2.3Five Forces – “Average” Industry Profitability Overall, the butterflies industry is somewhat profitable and that because most of the five forces are between moderate and high in the industry. First, the threat of new competitors is moderate to high because anyone can enter the industry, it didn’t require a large capital. The suppliers power, is low to moderate and that because there are variety of suppliers. Which basically means if a company wanted to change the supplier, it would be an easy thing, because it would cause an oversupply situation. On the other hand the threat of the customer is high and that due to difficulty in making loyal customers because there are a few different options for customers to choose to buy butterflies from. The threat of substitutes is high and because of the quantity of alternatives, which makes people have several choices, such as having puppies. Finally, the threat of rivalry is high to moderate because there are few rivalries, also since any one can enter the business, there will be a high degree of rivalry.

Cosman, Fayad, Husseini, Jennings, Vitsentzatos, Wiebe Butterflies of Costa Rica

3. Internal Analysis 3.1. Firm Overview Costa Rican Entomological Supplies (CRES) was founded in 1983 by Joris Brinkerhoff, and now has 85% of the national market share and 449,000 exports shipped annually. In November 1985, Joris contacted a wholesaler in England to help increase sales, and together they acquired family and friends to invest $25,000 in expanding their business by purchasing land in La Guácima. CRES received support from the government by excluding them from paying a $2.00 export tax charge on every unit. They also received tax rebate certificates that can be used for the payment of income taxes functional for ten years. CRES had seven part-time employees, twelve part-time packers, and Joris as the general manager. They received inventory every Monday and Thursday, with on average 600 pupae per week, except in the dry season (December-April) when CRES was dealing with undersupply. CRES was unable to sell all the inventory they received so in 2005 they began giving an extra 30% to its customers. CRES offered 50 species of butterfly pupae, and they provided a shipment that included 20% of the “premium” species, and no more than 5% of the remaining 25-30 species outstanding. By 2006 over 97% of the pupae exported by CRES were obtained by breeders in other countries. In CRES’ first few years in business, their sales accelerated. In 1986 their sales totaled to $9,850, increasing to $28,175 in 1987, and increasing to $46,530 in 1988. They also export pupae to exhibitors in Europe and North America for $2.40. In 1986 CRES bought their pupae from suppliers for $1.60, but in the mid-1990’s the price changed to $1.00 which decreased their overhead expenses. In the 1990s Joris Brinkerhoff had begun his second legal entity “The Butterfly Farm” in Africa which cost $25,000 with a variety of 60 butterflies and 50 types of food plants. The Butterfly Farm was experiencing over 100 visitors per day, and each visitor paid a $9.00 entrance fee, usually another $20.00 on souvenirs. In 2003 CRES was the only major exporter until new competitors began in the business such as El Bosque Nuevo had begun advertisement emphasizing environmental protection. With El Bosque Nuevo’s advertising CRES prices collapsed 30% but they recovered in 2005 with large quantities of exports were sent to Europe 3.2 Competitive Advantage

Live Costa Rica supplies about 20% of the worlds livestock butterfly market and CRES is one of the major exporters owning 85% of national market shares. Joris B, owner of CRES prides his company quality and variety of their products and services. They offer 50 different species of pupae, farmed by local famers creating the growth of ecological tourism in Costa Rica. For Joris live pupae are popularly farmed throughout Costa Rica, therefore making cost of pupae cheap to buy. Live pupae are sold to mainly the U.S and Europe to be shown in butterfly exhibits. With the live stock market there will always be a chance that you have an unpredictable season, this affects sales as well as development and spread of diseases thought the pupae. Another disadvantage is that during shipment the costs per inspection was between $50-$100 USD

Dead Expanding into the deadstock market will pull CRES into new business opportunities, as collectors will pay up to $1000 on insect collections. and can possible provide Joris with a steady yearly extra

Cosman, Fayad, Husseini, Jennings, Vitsentzatos, Wiebe Butterflies of Costa Rica income as well as give the breeders opportunities to sell about 200 extra butterflies a week. The RBA has a steady market base (schoolchildren, Parents/ Families), their products are sold in kiosks or at street corners. Since the Blue Morpho and black-yellow Papilio Thoas are from Costa Rica Joris can provide these butterflies for the RBA. Accepting the RBA offer will be more costly for Joris, adding oven and freezer expenses, and frames. As well as the process is long. 3.3. SWOT – (Strengths, Weaknesses, Opportunities, Threats) CRES has grown significantly since opening in 1983, but only has a temporary competitive advantage and cyclical revenue as a result of its focus on customer growth. CRES’ sales have doubled every year, and in 2006 they had 85% of the national market share and 449,000 exports shipped in one year. However, many new companies are entering the butterfly business since it is easy to produce and has sizable growth in sales. Opportunities CRES has obtained receiving support from the government, family, friends, and customers to expand the business and increase profit. Coercions that CRES has developed is the growth in competitors which creates a lack of customers. 4. Alternatives Reject the RBA offer Accept the RBA offer 4.1 Decision Criteria Revenue Profit Investment Cost Extra Expenses 4.2 Analysis of Alternatives Estimated total profits per year

Overall cost

Agree to take the offer

$654,529

$505,153

Refuse to take the offer

$507,109

$380,963

Advantages

The only provider for RBA

Alternative 1: Reject the RBA proposal and stay on the existing live species market. The live species marketplace in Costa Rica at that time became competitive, so the CRES may lose its lead if another investor enters the market with a great capital. While, the livestock marketplace has a great revenue compared with its costs. CRES’ sales in the last five years are around $291,157, and it controls about 85% of live pupae exports from Costa Rica, which considered as a temporary benefit. In the article the state que displays an increase in selling in 2006, $292,196 and a revenue of 37,839 which, is about 511.47% growth since 2005. By refusing the offer CRES would only retain the operating costs they have now, so there are not any more additional investments. Alternative 2: Agree to take the RBA proposal: if Joris accepts the proposal, CRES would gain more revenues of $147,420, with an extra investment in the expenses cost of $33,450 if the offer last only one year. An extra operating cost of $90,470 would happen too. Which it would even benefit the company with a revenue of $56,680. By accepting this offer, CRES would simply be the only seller of

Cosman, Fayad, Husseini, Jennings, Vitsentzatos, Wiebe Butterflies of Costa Rica butterflies’ market from Costa Rica. Also, if Joris accepts the offer, it would create more work opportunities. Even more, the deadstock market is stable more than the livestock market. 4.3 Recommendation With regards to the decision criteria, we have decided that Joris should venture into the deadstock market. He would gain an extra $56K in revenue annually on top of the current revenue from the livestock. The RBA offer would be negotiated starting in January in order to start producing enough butterflies in order to keep up with both sides of the business. 5 Implementation 5.1 Implementation Plan Joris should start contract negotiations right away for the initial shipment of 36000 framed butterflies in January and to have monthly shipments for the coming months. Ideally, he will want to have a multi-year deal to keep up with the business. He will also have to hire employees and buy items such as mounting boards and frames in order to make the deadstock frames. Joris will also have to make sure that he has enough pupae in order to keep up with both the deadstock and livestock industries. 5.2 Control Measures Joris will have to keep track of his sales as he will have to ensure that he is on track for an additional revenue of $56K. If he is not reaching the necessary mark of ~$4.5K per month, he will have to stop ordering and selling the deadstock. He will have to resort to the contingency plan if he does not reach the necessary marks. 5.3 Contingency Plan If CRES does not start making a profit of over $600K within the first six months, he will have to start selling the supplies that he has purchased in order to try to recoup some of his investment cost. He will have to try to revert back to just a livestock business. He would also have to try to sell the excess butterflies that he has in order to regain some of his money. Appendix Gantt Chart

Cosman, Fayad, Husseini, Jennings, Vitsentzatos, Wiebe Butterflies of Costa Rica...