DonDuck and GoldHood

A Case Study in Selection of

Facility Location
Ankit
Procter and Gamble
15410005
IT Business Challenge, 2017
PI, 3rd Year
Aim
Increasing Fabric Care Market in Africa

Decision to be taken
Whether to start facility in East (Kenya) or
West (Algeria) Africa
 DonDuck GoldHood
FMCG Fabric Care Company

1. Will provide capital for 1. Will operate the e-

internet infrastructure commerce company

2. Will provide marketing 2. Will provide discounted

expertise and resources advertising rates
Factors to be considered
1. Cost - Infrastructure and Legal Cost
2. Return on Investment
3. Payout period
4. Risks - Economic and Political
5. Per Capita Income
 Cost Considerations - Kenya

Internet Infrastructure Cost: 8 Million USD

Legal Cost: 24.5% of Infra. Cost = 2 Million USD
Total Cost: 10 Million USD
 Returns on Investment - Kenya

1. Increase in Fabric Care Market = 8% = 0.12B USD

2. DonDuck’s Share = 16.7% = 0.02B USD
3. Decrease in Media Spending = 8.7% = 0.015B USD

Total Returns: (0.02 + 0.015)*1000 = 35M USD

 Payout Period - Kenya

Total 48 months
i) 27 months for Infrastructure Dev. - Prone to
Govt. Change
ii) Rest 21 months for other tasks
 Risks Involved - Kenya

i) All such previous attempts during last 2

years have failed
ii) East Africa (Kenya) is highly politically and
economically unstable
Per Capita Income & Growth Rate Index

Per Capita Income = 5740 PPP Dollars

Growth Rate = -1.5%
 Summing up
1. Input = 10M USD
2. Output = 35M USD
3. Payout Period = 48 months
4. Risk Involved: High
5. Per Capita Income: Low and Decreasing
 Cost Considerations - Algeria

Internet Infrastructure Cost: 12 Million USD

Legal Cost: 30% of Infra. Cost = 3.6 Million USD
Total Cost: 15.6 Million USD
 Returns on Investment - Algeria

1. Increase in Fabric Care Market = 6% = 0.1B USD

2. DonDuck’s Share = 12% = 0.012B USD
3. Decrease in Media Spending =12% = 0.018B USD

Total Returns: (0.012 + 0.018)*1000 = 30M USD

 Payout Period - Algeria

Total 54 months
i) 36 months for Infrastructure Dev. - Prone to
Govt. Change
ii) Rest 18 months for other tasks
 Risks Involved - Algeria

i) No history of such attempts

ii) West Africa (Algeria) is moderately
politically stable, and economically unstable
Per Capita Income - Algeria

Per Capita Income = 14720 PPP Dollars

Growth Rate = +3.7%
 Summing up
1. Input = 15.6M USD
2. Output = 30M USD
3. Payout Period = 54 months
4. Risk Involved: Low
5. Per Capita Income: Higher and Increasing
Quantification of Qualitative Factors

Risk Scale Per Capita Income Scale

(Range-Wise)
1. Very High = 1
2. High = 2 1. Up to 5000 PPP = 1
3. Medium = 3 2. 5000-10,000 = 2
4. Low = 4 3. 10,000-15,000 = 3
5. Very Low = 5 4. Above 15000 = 4
Factor Ratings

1. New venture means high uncertainty, so more focus on

growth, less on current income

So, Growth Rate is most important factor.

Factor Rating = 0.3

Factor Ratings

2. New venture should start with minimal risk

So, Risk is 2nd most important factor = 0.25

3. Followed by input = 0.2, output = 0.2 and payout period =

0.05
Normalisation of Factor Values
Kenya Algeria

Input = 10/10 = 1 Input = 10/15.6 = 0.64

Output = 35/(30) = 1.17 Output = 30/30 = 1

Payout Period = 48/48 = 1 Payout Period = 48/54 = 0.88

Risk = 2, PCI = 2 Risk Involved = 4, PCI = 4

Growth Rate = -1.5/5.2 = -0.3 Growth Rate = 3.7/5.2 = 0.7

Total Scores for the 2 Sites

Kenya Algeria

-0.3*0.3 + 0.25*2 + 0.2*1 + 0.3*0.7 + 0.25*4 + 0.2*0.64

0.2*1.17 + 0.05*1 + 0.2*1 + 0.05*0.88
= 1.074 = 1.582
Sources of Information

1. Case Study: Procter and Gamble, IT Business Challenge,

2017, www.pg.com/itbc
2. Growth Rate and Per Capita Income Data: World Bank,
www.data.worldbank.org/indicator/GDP
3. Political Stability: Wikipedia,
www.data.worldbank.org/data/reports/politicalstability
Thank you!

Questions??