Business Plan : Sony in Chile

DOING BUSINESS IN SOUTH AMERICA Jean LEMERCIER Ccilia COSNARD DES CLOSETS 08/06/2012

TABLE OF CONTENTS
EXECUTIVE SUMMARY............................................................................................ - 2 INTRODUCTION: WHY INVEST IN CHILE .............................................................. - 3 A region facing daunting energy challenges ......................................................... - 3 A stable and dynamic business context ................................................................ - 4 A country with high energy efficiency potential ................................................... - 5 -

THE COMPANY & PRODUCT .................................................................................. - 6 The company ............................................................................................................. - 6 The Product................................................................................................................ - 6 -

MANAGEMENT TEAM .............................................................................................. - 9 MARKET AND COMPETITION ................................................................................- 10 The Consumer Electronics Market .........................................................................- 10 Competition...............................................................................................................- 10 -

MARKETING AND SALES .......................................................................................- 12 The marketing plan ..................................................................................................- 12 Key distribution partners ........................................................................................- 12 Pricing strategy ........................................................................................................- 13 -

BUSINESS SYSTEM & ORGANIZATION ...............................................................- 14 The partnership with Tresfa Electricidad ..............................................................- 15 Hiring Plan.................................................................................................................- 15 -

IMPLEMENTATION SCHEDULE .............................................................................- 17 Schedule....................................................................................................................- 17 Responsibilities ........................................................................................................- 17 Milestones .................................................................................................................- 18 -

FINANCE ...................................................................................................................- 19 Assumptions .............................................................................................................- 19 Financial Performance Analysis ............................................................................- 21 -

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EXECUTIVE SUMMARY
This proposal outlines the processes for Sonys implementation of the IJ100IM Energy Storage Module on the Chilean market. Sony is a leading electronic devices manufacturer benefiting from an international reputation for making high quality and advanced products. The corporation recently launched the production of its energy storage module, a device that reduces electricity consumption, stores energy and represents a back-up power resource for businesses and residential homes. The consumer electronics market and energy efficiency market in Chile have proven to be very attractive for businesses in the past few years, as the Chilean political stability and economic growth have considerably improved, key elements that drove Sony to open a subsidiary. In order to succeed when producing the module, Sony has created a new management team, made of 2 managers, 10 plant workers and 15 salesmen that will advertise the product in Chile. Although competing products do exist on the market, we believe our energy storage module will make a difference and is unique as it targets households and is powered by olivine-type lithium-ion iron phosphate cells. 2 different marketing strategies have been identified to reach as many customers as possible; we plan on penetrating the market with the help of our 3 partners, namely ABCDin and WEI to reach out for households on the consumer electronics market and Tresfa to help businesses concerning maintenance and installation issues, along with establishing a presence on the energy efficiency market. As previously mentioned, we plan on creating the Sony Chile Ltd subsidiary, which the Sony Corporation will have full control on. Our hiring plan consists of favoring the local active population as to reduce unemployment; the hiring process will disregard ethnicity or origins and will be based on background experience. Our implementation schedule describes our actions for the next 3 years to come, with the ultimate goal of expanding our operations to the neighboring countries, along with making this project profitable. Our first objective is to increase our sales by 20% in addition to having good press coverage and reputation of our business activities. Finally after taking into account all the possible expenses we will encounter, our financial calculations show that we will be able to recover our initial investment before the end of 2015, meaning that our investment is safe. We expect profit to be relatively high with a net income over 1 million euro in 2017 and 2018: this is why we believe that our project is financially viable and could deliver high value for any stakeholders who will participate.

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INTRODUCTION: WHY INVEST IN CHILE

A region facing daunting energy challenges When considering investing in the energy efficiency industry, South America appeared swiftly as a very promising area. In spite of its natural resources wealth (fossil fuels, minerals such as iron ore, bauxite, tin...), it is facing a hefty energy challenge. With an ever-increasing crude price and a robust economic growth, meeting the demand for electricity in Latin America will be harder over the coming decades. It is estimated that approximately $600 billion would need to be invested in the electricity sector between now and 2030 for the energy demand to be met (Economic Commission for Latin America and the Caribbean)i. However, it is important to grasp that alternative energy is soaring in Latin America (mainly wind, solar and hydro powers)ii and more than 183 Gigawatts of new power generation units are under consideration in Latin Americaiii. Despite those efforts in increasing electricity generation capacity, many South American countries such as Venezuela, Brazil, Chile and Ecuador faced electricity shortfalls in the past few years. In fact, electricity is mainly produced through Hydropower and therefore the droughts of the last few years triggered electricity cuts and forced many governments to rationalize its use.

After considering all these elements, South America emerged as a very interesting region to invest in. However, it is not very realistic to expect that we will be able to enter all these South American economies at the same time, thus we had to decide of a country which would act as an anchor point in the continent. We finally decided to invest in Chile, since it is one of the countries that is the most affected by power blackouts. To address this issue, the government of Chile started in December 2011 a campaign called En verano, quitate la corbataiv (In summer, take off your
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tie) in order to save electricity. The government is willing to set up further energy efficiency measures, and now even the Chilean small and medium enterprises are striving to trim their energy bill. In this purpose, Chile implemented a program supported by the Inter-American Development Bank to facilitate the connection between these companies and consulting firms specialized on energy usage. Besides, the IDB will lend money to the Chilean Energy Efficiency Agency ($2.6 million) which will be used to provide training to energy efficiency consulting firms. The new energy strategy initiated by president Piera aims to ease the national energy demand up to 12% by 2020v. It is our belief that this urge for energy savings is very likely to be favorable to our investment as we could benefit from the government approval and possibly grants. A stable and dynamic business context Another element not to neglect is the relatively safe investment environment in Chile compared to others South American economies. According to the three most famous grading agencies (Standard & Poors, Fitch and Moodys) Chile is the country with the lowest risk in Latin America, with grades ranging from A+ to AAA. The 2012 Index of Economic Freedom developed by The Heritage Foundationvi ranked Chile as the 7th most free country on a business standpoint in the world and denoted a transparent and stable business climate. On average, taxes, trade barriers and government intervention in the business area are quite low as well as inflationary pressures, and contractual agreements are secure.

Country/Indexes CPI Ease of doing (Corruption business rank Perception Index) 10 = No corruption 0 = Very corrupted Brazil 3.8 126th Argentina Peru Chile 3 3.4 7.2 113th 41th 39th

GDP growth 2011 (CIA world factbook)

Inflation 2011 (CIA world factbook)

+2.7% +8% +6.9% +6.5%

+6.5% +22% +3.4% +3.3%

Based on international rankings, Chile is the most interesting country to invest in since it is a good compromise of economic growth, transparency, and stability.

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 A country with high energy efficiency potential Apart from the countrys overall economic stability, its strong orientation towards the mining industry leaves good prospects for energy efficiency companies. In fact, a study by the Programa de Estudios e Investigaciones en Energia revealed that about 20% of the countrys global electricity demand could be saved by 2021 (chart below). Although we have to take into account the fact that Chile is a reasonably small market (17 million people), we believe that a sound strategy could enable us to be successful in niche markets.

Source: PRIEN (2008)

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THE COMPANY & PRODUCT

The company Established in Japan on May 7th 1946 by Mr. Ibuka, Sony Corporations is a leading consumer electronics manufacturer operating worldwide (offices on every continent), its headquarters based in Tokyo. With the lead of Howard Stringer (chairman) and Kazuo Hirai (CEO), Sony performs a wide range of activities, namely digital imaging, electronic components, telephones, televisions, audio and video devices, computer and computer devices as well as games. These activities are divided in several branches such as the Sony Picture Entertainment, Sony Music Entertainment, Sony Computer Entertainment, Sony Electronics, Sony Network Entertainment, Sony Mobile Communication to name but a few. Some company figures: Sony hires 168,200 people worldwide, runs more than 1,200 subsidiaries and its shares are exchanged on the New York Stock Exchange at $13.59 per share under the ticket SNE (June 6th 2012); in 2011, the company achieved $80.5 billion net sales1. Sony strives to provide the best quality electronic devices and is constantly on the lookout for innovations, improvements and designing products with style: all these features make the enterprise a leading and dominant actor on the consumer electronics market, which is proven by its mission statement: To experience the joy of advancing and applying technology for the benefit of the public. Their strategy to emotionally touch and excite their customers drives the Japanese conglomerate to invest a lot in Research and Development while maintaining market leadership. Sonys rich product and service portfolio allows the company to strengthen its position on the market and ensure profits. The television product range and branch is the one generating most revenue (35%): in fact, Sony brought the television sphere to a new level by introducing an innovation such as the LCD flat screen television, showing it is always improving its products with a higher quality. Games represent the companys second largest revenue-generating unit with products such as the Play Station and the Play Station Portable2. The Product In April 2011, Sony launched the IJ1000IM Energy Storage Module on the Japanese market. The energy storage module is a chargeable appliance that stores energy thanks to its olivine-type lithium-ion iron phosphate cells: these are rechargeable batteries that
1

"LexisNexis Academic & Library Solutions." LexisNexis Academic & Library Solutions. 22 May 2012. Web. 06 June 2012. <http://www.lexisnexis.com/hottopics/lnacademic/>. 2 "Sony Corporation." Login. 22 May 2012. Web. 06 June 2012. <http://subscriber.hoovers.com/H/company360/fulldescription.html?companyId=41885000000000>.

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have a 10 year lifespan, ensure safety, have a smaller impact on environment (the batteries do not include cobalt or any other rare metal that are dangerous for the environment) and their capacity does not decline under humidity, temperature, storage and over charging. The batteries boast excellent energy efficiency, high power density and most importantly ensure a superior energy storage capacity. Below is a chart demonstrating the performance of lithium-ion batteries3:

The IJ100IM Energy storage module has a 1.2 kWh capacity and many other components can be connected to it. It can be used for several purposes, the main one being to load-level the energy (load-leveling is a method that reduces the fluctuations that occur in electricity demand by storing excess electricity in periods of low demand to use it during periods of high demand), thus reducing energy consumption. It is also employed as a back-up power source in case of unplanned events as the energy is being stored and can be used during an electricity outage 4. There are numerous advantages when utilizing the module. 5 important ones have been identified: Its life-long span (about 10 years), if the device is charged once a day, thanks to the olivine-type lithium-ion iron phosphate cells and their advanced properties. Furthermore, in comparison with commonly used batteries such as cadmium (Ni-Cad) batteries, lithium-ion batteries do not demonstrate any memory effect (a phenomenon that occurs when a

"Sony Global - Sony and the Environment - Products - Energy Storage Module IJ1001M."Sony Global - Sony and the Environment - Products - Energy Storage Module IJ1001M. N.p., 2012. Web. 08 June 2012. <http://www.sony.net/SonyInfo/csr/SonyEnvironment/products/lineup/IJ1001M.html>. 4 "Green Car Congress: Sony to Ship 1.2 KWh Energy Storage Modules Using Rechargeable Li-ion Batteries Made from Olivine-type Phosphate." Green Car Congress: Sony to Ship 1.2 KWh Energy Storage Modules Using Rechargeable Li-ion Batteries Made from Olivine-type Phosphate. N.p., 18 Apr. 2011. Web. 08 June 2012. <http://www.greencarcongress.com/2011/04/sony-20110418.html>.

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battery is repeatedly recharged without having been fully discharged first, meaning that it causes its capacity to be reduced and shortening the actual time that a battery can be used). This illustrates well what energy-saving benefits the energy storage module has to offer.

The module is safe and reliable, as it includes a built-in self-monitoring function that detects any anomalies. The IJ100IM recharges up to 90% of its capacity in less than an hour. The product is also very scalable as variables such as the voltage and capacity can be customized for different applications by connecting other modules either in series or in parallel with the device. No maintenance is required to keep the module in good stand5.

Sony.net

"Sony Global - Sony to Ship 1.2kWh Energy Storage Modules Using Rechargeable Lithium-ion Batteries." Sony Global Sony to Ship 1.2kWh Energy Storage Modules Using Rechargeable Lithium-ion Batteries Made from Olivine-type Phosphate. N.p., 18 Apr. 2011. Web. 08 June 2012. <http://www.sony.net/SonyInfo/News/Press/201104/11-053E/>.

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MANAGEMENT TEAM
As our company will be producing the IJ100IM Energy Storage module in Chile, a new team was created to manufacture the product and advertise it in Chile. This team is made of two managers, 10 plant workers and 15 salesmen. The salesmen and plant workers are all Chileans and one of the two managers is Chilean as well; the other one is Japanese. The Chilean managers role is to supervise the production plant and manage the 10 workers. He has a 5 year experience as a manager and has worked for several other consumer goods companies in his past. He is a good orator and knows how to motivate the workers and communicate with them. He works closely with the Japanese manager and speaks English fluently, as he has had experiences abroad. The Japanese manager is the link between headquarters and the Chilean unit. He has a 10 year experience with Sony. This assignment is his second international assignment (the first one was in the United States), he speaks fluently English as well which enables him to communicate with his fellow local manager. The Japanese manager regularly reports progress to Headquarters in Japan and is the one to take strategic decisions. He is used to uncertainty and knows how to cope with stress, as well as working efficiently. The 15 Chilean salesmen have all graduated from a business school and count at least 3 years experience. They will all benefit from a one month training sessions which will enable them to sell as many modules as possible, at least 2 per salesmen per month.

HQ

Japanese Manager Salesmen

Chilean Manager Plant workers

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MARKET AND COMPETITION

The Consumer Electronics Market As previously stated in the first part of this report, Chile hosts more than 17 million inhabitants, which represents a smaller market compared to other South American countries and market such as Brazil, for example. However, the economic growth and stability Chile has witnessed during the past few years as well as its political stability make it a key market to start a business and to invest in. Our product falls into two different markets, namely the consumer electronics market and the energy efficiency market, which doubles the chances of succeeding in implementing the module, yet we will only focus on the consumer electronics market6. After the earthquake that hit Chile on the 27th February 2010, many Chileans saw their homes and appliances destructed and needed to replace them, after the situation got more stable. This was a huge opportunity for consumer electronics companies and retailers as their sales grew due to an important demand and thanks to the Chileans greater purchasing power. Although most Chileans purchasing decisions are price-driven, they are also looking for comfort, portability and sophistication, as they increasingly need electronic devices that allow them to perform several activities and function in reduced amounts of time. The consumer electronics market is expected to grow at a compound annual growth rate of 6.8% to $2.9 billion by 20147. Competition Existing energy storage modules can be found on the market, such as ABBs energy storage module or Corvus Energys AT6500 Energy Storage Module. ABB is a Swedish power and automation technology company operating worldwide that enables customers to improve their performance while lowering their environmental impact. ABBs module offers the same service the IJ100IM module (power load-leveling and back-up energy resource) and offers up to 2 MWh. Given the fact that ABB has offices in Chile and that it is a renowned enterprise on the energy efficiency market, this can represent a threat for Sony; however ABB targets mainly businesses and the module does not feature any lithium-ion battery, hence the ABB module is not as efficient8.
6

"Consumer Electronics in Chile." Passport. N.p., 12 Apr. 2012. Web. 07 June 2012. <http://www.portal.euromonitor.com/Portal/Pages/Search/SearchResultsList.aspx>. 7 "New Market Research Report: Chile Consumer Electronics Report Q4 2010." PRLOG Press Release Distribution. N.p., 19 Oct. 2010. Web. 08 June 2012. <http://www.prlog.org/11005850-new-market-research-report-chile-consumer-electronicsreport-q4-2010.html>. 8 "Energy Storage Modules (ESM)." ABB. N.p., Feb.-Mar. 2012. Web. 08 June 2012. <http://www.abb.com/product/db0003db004279/420d3ae414b13c1285257782004792b5.aspx>.

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The second module, Corvus Energys AT6500 Energy Storage Module , is also made of a lithium-ion battery and seems to offer the same advantages the IJ100IM module offers, yet the company has no business in Chile or South America and only target businesses as well. This company does not seem to be a significant threat for Sony as it does not have our companys reputation nor is the module as power efficient and esthetical as ours9.

"Corvus Energy - Lithium Ion for Industry." Corvus Energy - Lithium Ion for Industry. N.p., n.d. Web. 08 June 2012. <http://www.corvus-energy.com/energy_module.html>.

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MARKETING AND SALES

The marketing plan The IJ100IM Energy Storage Module has a very broad target market since the product can be used by anyone for the same purpose. Businesses and middleincome and high-income households are targeted, which means that the marketing plan for these 3 segments will be different. Concerning the business and professional target market, as previously mentioned, Sony salesmen will be hired in order to sell the module to Chilean companies all around the country. This technique, direct marketing, is often employed to target B to B customers. This is an opportunity for Sony to acknowledge the market in a better way as well as getting closer to the customer, establishing a lasting relationship with them. It is of course also an opportunity for the companies to purchase and possess the energy storage module, since it will allow them to operate even in case of an unplanned event (such as earthquakes) and save money on their energy bill. The salesmen will be trained beforehand and will hand out brochures and demonstrate how the product works while visiting companies. This plan will take approximately one year, focusing mainly on the capital, Santiago, and on other big cities at first (Antofagasta & Conception). The households on the other hand, have another way of responding to marketing plans and Sony therefore created a B to C marketing plan. Billboards in cities and retail stores will be displaying the product, as well as the Sony Logo, the price and a sentence that will say Be prepared for the unplanned: s tore your energy in Spanish. Retail store magazines as well as technology-oriented magazines will also advertise the module and give a brief description on how it works along with the key benefits one can get from buying and using it. It will take approximately 2 months to have these advertisements printed. A television commercial will also be released at the end of the first year when businesses will start utilizing the product and households awareness is raised, which also gives enough time to create the commercial. The advertisement will be informative so that it allows customers to raise their curiosity and be informed. Emotional clues will be included in the commercial as well to increase the feeling of need for this product. Key distribution partners We identified 2 key retail partners that will be able to distribute the IJ100IM Energy Storage Module: ABCDin, owned by AD Retail SA, and WEI. ABCDin is the leading retail company in Chile and the most wellknown and trusted outlet by Chileans, which makes it a strategic decision for Sony to create a partnership. ABCDin is located everywhere in Chile and sells mid-priced home appliances and electronic devices to middle
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income segments, which fits Sonys marketing approach well. A noticeable advantage concerning ABCDin is that the retail company created its own credit card which makes it easier for consumers to buy products as they pay by fees. Sony will also sell the module through ABCDins internet website, as a recent research shows that the online buying trend is growing in Chile10. The second retail partner is WEI, an electronic specialist that has presence in Santiago only. The retailer sells mid-priced products imported directly from Asia and the USA and targets middle-income households: our corporation will benefit from the companys habit of doing business with Asian countries; it will then be easier for the module to be integrated on the Santiago market, as consumers are used to foreign products. Pricing strategy Knowing that 1 equals 642.08 Chilean peso (CLP) and taking into account that the energy storage module should be accessible and reach as many mid-income and high-income households and companies as possible, we estimated the selling price of the product to be 189,575 CLP, which represents about 300. Although this price seems high, the product will progressively get democratized in customers minds, meaning that as time will pass, the price will seem normal. It will represent an investment for households; however the 10 year lifespan the module will procure allows the investment to be profitable. Moreover, Sony intends to decrease the price during year 2 in order to attract more customers.

10

"Consumer Electronics in Chile." Passport. N.p., 12 Apr. 2012. Web. 07 June 2012. <http://www.portal.euromonitor.com/Portal/Pages/Search/SearchResultsList.aspx>.

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BUSINESS SYSTEM & ORGANIZATION

Before developing the Business organization in detail, it is important to know that Sony already entered the Chilean market, and has even opened a few shops in Santiago de Chile. In fact, Chile and Japan even concluded an Economic Agreement in 2007 which will reduce the overall risk of our investment and that will have to be taken into consideration when building the business organization. If we believe it is important to keep our retail shops to market our energy storage module, we want to look at possible alliances at the same time in order to adapt more quickly to the Chilean business context. Therefore our Business team organization will be the following:
Sony entertainment (100% Equity)

Sony Chile Ltd

Marketing Department & Customer Service Partnership with Tresfa Electricidad Production department

Sonys will have a full control on the subsidiary, in fact it was essential for us to assure the production and to protect the technology Sony developed for many years to come up with this product. The factory will be built in Rancagua, a city located near Santiago, which is a good compromise between rent rates and distance to the Sony shops in Santiago. In addition, Sony has already set up 4 shops in Santiago, one in Concepcion and one in Antofagasta.

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 The partnership with Tresfa Electricidad Tresfa Electricidad is a company offering a wide range of electrical services: maintenance and installation of electrical networks, air conditioning installation, electrical isolation and energy audit. The company is based in Santiago and is at its inception; therefore we are more likely to interest them as we will give them a strong product to put forward to their clients. In fact, if they have the credibility and technical instruments to measure a companys electrical performance, the partnership with Sony will enable them to offer businesses a strong energy efficiency solution. Therefore we want this partnership to result in a stake in Tresfas marketing team so as to acquire a consumer insight on the energy efficiency market. In fact, having a stake in Tresfa marketing team will help us tailor our offer to the specific requirements of the Chilean market, and in the meantime our own marketing team will be able to adapt to the way of doing business in Chile. For example, the relations to time, working relationships and even religion are totally different in Chile and our company needs to quickly adapt to it. If it should not be a problem for a company operating on a global scale like Sony, the partnership with Tresfa will lower the risk of business failure and poor communication with customers. Hiring Plan Our hiring strategy is crucial to the overall success of the venture; it is estimated that about half of the business ventures fail within 4 years, and this is often due to a weak human resources strategy. Sonys human resources policy is to foster divers ity within its workforce, and to choose the best person for the position disregarding its citizenship/ethnicity. Taking this into account, we developed the following human resources strategy based around three main pillars: Plant workers: We will hire about 10 workers for the factory in Rancagua. If it seems like a quite low number of people, it is important to understand that most of the production process is made by machines and robots. Even though the nationality is not relevant in our selection process, we want to foster the integration of local people in our workforce. The main skill we will be looking for is adaptability, and a good general understanding of the products requirements. In order to raise awareness in our workforce, we will make them try the product at home and get them to participate to tutorials related to the use of the product. By doing so, they will be able to fully embrace the Sony company and the importance of delivering a state of the art product like our energy storage module. Plant managers: We want to hire two managers, one of them being one of the Sony employees in order to keep a good and constant communication between the subsidiary and the Headquarters. The two managers will receive training on the company policy and as well on how to conduct business meetings and general management practices in Chile. They will both have to speak perfect Spanish and English. Another important aspect we will be looking for in the future plant managers
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will be an international experience; managers having an international management background are more likely to be successful in driving the Chilean business. Sales team: We want to hire a total of 15 salesmen: by doing so we will be able to reach a good part of the Chilean businesses and homes. Our strategy will remain quite similar to the plant workers: we will be looking for people with obviously strong communication and sales skills but as well a good general understanding of our product and company will be highly valued.

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IMPLEMENTATION SCHEDULE
Schedule We designed the following Implementation plan beginning 2013 (our sales starting 2014):

Short term (2013) 1st Semester : Recording the company at the Chilean chamber of commerce Visiting premises in order to set up the factory Shipping machines to the plant Meet with banks and the Headquarter to obtain a loan to finance the company/project Meet with Tresfa, ABCDin and WEI to discuss the terms of the partnership and to show the product to their team 2nd semester: Put in place the Hiring plan (Meeting candidates & posting job advertisements) Keep in touch with Tresfa, ABCDin and WEI and prepare the marketing strategy (posters and various advertisements) Meet with locals and advertise the products to them Prepare the shops with the ads and set up the factory utilities and machines. Responsibilities

Middle term (2013-2016)

Long term (After 2016)

Launch production in the Acquire new shops in Chile factory and proceed to if the company is adjustments if the quality successful enough reached in not sufficient Expand operations to other Schedule video Latin American economies conferences and meetings (possibly Brazil/Argentina) with the Chilean managers to control the companys Obtain an interest in Tresfa results and atmosphere or in another energy efficiency auditor Share insights and techniques with Tresfa marketing team and report necessary adjustments to sales techniques Expand the sales team (5 additional employees in 2016 and 2018)

The second plant manager from Sony will be in charge of all the administrative tasks and the communication with the Headquarters. He will be in charge of the overall strategy of the Chilean implementation. Financial tasks and others complex
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transaction will be outsourced directly to the Sony Headquarter to ensure a better reporting. Milestones In order to benchmark the performance of our investment, we decided to put in place a set of milestones: 2014 - Increase our sales by 20% - Have good press coverage of our business activities. 2016 Recover the initial investment Open 2 new shops. 2018 Being financially able to enter the Argentinean market.

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FINANCE
Note: In order to be more accurate, all calculations and statements have been made in Euros instead of Chilean Pesos. Assumptions Since we do not have the figures of the Sony Corporation regarding the product cost and other parameters, we decided to make a few assumptions in order to build pro forma statements: Revenue The first year (2014) our energy storage modules will be sold through the six already existing shops. We estimate that approximately 50 units per month will be sold in each shop. As discussed in the pricing section, we will sell our product for 300 (189,575CLP) .Therefore, the revenue grossed by our retail networks will be the following: 1year Revenue retail = 50 units * 300 * 12 months * 6 shops = 1,080,000 For the revenue generated by selling the storage module to companies, we estimate that nearly 250 companies will contract with us. This assumption is mainly based on the fact that we will benefit from Tresfa , ABCDin and WEIs wide pool of customers. On average, these companies will need 10 storage modules to see consequent gains on their energy bill and to have a safe energy backup service. Consequently, we calculated the following revenue for the Business to business section: 1 year Revenue B2B: 10 units * 250 companies * 300 = 750,000 Therefore the total revenue for the 1st year amounts to 1,830,000 Growth Rates The following Growth rates have been used for the revenue: +20% in Y2 and Y3 due to increased number of salesmen, +15% in Y4 and finally +15%. The reason for the growth phasing out is that the market gets saturated and competition increases as our company penetrates the Chilean market. Expenses Cost of Goods sold: Obviously, it is impossible to find data related to the cost of producing these energy storage modules since this information is confidential and Sony does not wish to disclose it. However, for a technological product such as our energy storage device, we believe that most of the cost resides in Research and Development and not in the actual production process. For this reason, we assumed that COGS was 50% of our revenue.
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Wages In order to calculate the expenses related to wages, we used the Ingreso Minimo Mensual (Monthly minimum wage) which amounts to 3456 a year. With the purpose of motivating our sales and production team, we will respectively pay them 2 times and 1.5 times above the minimum wage. The calculations for wages are the following: Year 1 Wages= 3456* 1.5 * 10 plant works + 10000* 2 plant ma nagers + 2456*2*5 salesmen = 106,400 In year 3, 5 additional salesmen will integrate the team increasing the wage payment to 140,960, and likewise the wage account will rise up to 175,520 in year 4. Marketing The marketing strategy explained in further details in the first part of the report will incur a 200,000 marketing strategy, that will steadily decrease as our products gets more and more known in Chile major cities. Investment cost Land Land prices in Rancagua are very cheap. After examining prices on the internet (http://www.vivastreet.cl/loteos-lotes+rancagua) we believe approximately 50,000 should be enough to buy a land of 5,000 m, which is a considerable space meeting our requirements for the production processes. Machines We believe this cost will be very high. For this kind of technology, it is very unlikely that we can purchase those machines from a country close to Chile. The most realistic scenario is buying the machines from Germany, which will be very costly in terms of transportation costs. In addition, those cutting-edge machines are very expensive. This is why we believe that buying and shipping the machines & equipment to Chile will cost us approximately 1,000,000. Factory Another major expense will be actually building the plant in Chile. In order to build a state of the art factory, we believe 2,000,000 should be sufficient due to lower construction prices in Chile.

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Revenue breakdown

Sales

Business to Customer Business to Business

According to our assumptions, an important part of our sales is made up from business to customers (almost 60%). We believe that to be more accurate, the % of our households customers will softly increase over the investment span to reach 60%. In fact, many expensive technologies comparable to ours are firstly bought by businesses and then customers adopt it after the price shrinks. Financial Performance Analysis Analysis based on the free cash flows shows that the payback period of the project is 1.8 years. This means that we will recover our investment before the end of 2015, and is a sign that our investment is safe. In addition, profit expectations are quite high with a net income over 1 million euro in 2017 and 2018. If we use a cost of capital of 15%, the net present value of the project is very high (above 3M). Therefore we believe that the project is financially sound and could deliver high value for stakeholders, not only on a monetary basis but also in terms of social benefits for Chileans, economic development in the country and public image for Sony. In order to reduce the risks inherent to the project, we could use an export strategy through our partners retail shops so as to assess the demand in the first time, and af terwards establish the plant in the upcoming years.

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http://www.commodityonline.com/news/latin-america-will-need-$572bn-for-power-sector-28025-328026.html ii http://www.energy-enviro.fi/index.php?PAGE=2&NODE_ID=4&ID=3976 iii http://www.marketwire.com/press-release/Latin-American-Growth-Driving-Next-Round-of-PowerGeneration-Investment-1291241.htm iv http://www.youtube. com/watch?v=YSfuKC7TUEM v http://switchboard.nrdc.org/blogs/amaxwell/an_analysis_of_chiles_new_nati.html vi http://www.heritage.org/index/about

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