rketing efforts to increase its market share. In my opinion, if the LBS Corporation had decided to manufacture and market computers for personal use when it had that opportunity, it would have succeed much more than it had, though it would have faced significant difficulties connected with the last financial crisis in Russia. p> But the LBS Corporation decided to invest the biggest part of its profit in bonds. It was extremely profitable until 1997 to have your money invested in the government bonds. Later the market of shares began to grow, and the LBS Corporation reinvested in shares. But then, approximately in may, 1998 the economic situation in the country began to dramatically and rapidly deteriorate. For the LBS Corporation it meant a partial loss of the money invested in bonds and shares. p> But the management of the LBS Corporation did not want to hold all eggs in one basket. In 1995 they decided to go into the food industry. h2> The choice of the industry.
The basic motives which made the LBS Corporation chose this industry were the following:
1. The food industry in Russia and especially in big cities was growing fast. After the Perestroika it survived a significant decline which was actually a crisis caused by old methods of business administration, antiqueness of technology, poor quality of products and packaging and availability of imported foods. Then the process reversed: more and more of consumers realized that the imported foods they used to buy were of poor quality though packaging was good-looking. In addition to this Russian manufacturers began to use more progressive methods of business administration and more modern technology of manufacturing and packaging. This made the consumer's preferences to change in favor of the Russian manufacturers and Russian foods. p> 2. Market size. p> 3. The fact that most of foods are necessities. As a consequence of this, people will not reduce their consumption of foods or will reduce it less than consumption of other products.
4. Absence or low competition with Russian manufacturers due to small quantity of them, the tendency of pushing the foreign manufacturers out of the market, and as a consequence-an opportunity to capture a significant market share and relatively low entering barriers.
5. The demand for many foods is not seasonal, neither the prices are.
6. Short operation and production cycle. p> After the industry had been chosen it was necessary to choose the concrete product to be manufactured. The management of the LBS Corporation decided that the most acceptable product according to the resources possessed was pastas. p> The basic advantages of this decision were:
1) Easy to start:
a) The technology of pasta production is not sophisticated
b) The equipment is relatively inexpensive and available
c) Short list of ingredients required
d) On the first stage automated packaging process is though desirable but not necessary. This significantly decreases the capital necessary to start-up because in the food industry the cost of a packaging line very often is similar to or even exceeds the cost of the production line.
2) Market size:
a) Pastas are necessities. Because of this people with low disposable income are among the potential buyers. This is extremely important in Russian environment. p> b) The technology makes it possible to vary the quality of the product by using wheat of different quality and different technology of packaging. Using the wheat of lower quality allows to decrease costs and, as a consequence, the price of the product. This allows to cover more segments of the market of pastas if we make an income segmentation of it. This is important because income of people of different stratas in Russia differs dramatically.
c) Market stability. The biggest indirect competitor of pastas is potato. Of course, the price of potato does vary during the year, but:
i) The period when the price of potato is significantly below average is short,
ii) The seasonal variation of the price of potato does not usually exceed 40%. p> iii) Since potato and pasta have a lot of different features, the decision to purchase this or that is greatly influenced by consumer's preferences. As a result of it we should not expect the cross-price elasticity to be high. We certainly can estimate it to be less than one.
As a result of what was said, we can estimate the market of pastas to be stable and to be a subject for seasonal changes in a low degree.
3) Long life-cycle of the product.
4) As a result of all this, high economic efficiency.
Entering the market of pastas and the present position of the company.
In 1995 the LBS Corporation started manufacture of pastas. Since the biggest part of its capital was in the financial market, the LBS Corporat...
