E-COMMERCE HANDICRAFT

E-COMMERCE HANDICRAFT 2017

1 Executive Summary

Popular culture is no longer regional. The advent of cable television, radio programs and the internet has created the world. The speed of our telecommunication system has increased expectation of young customers and demands for the product that represents their social status.

Over a period, e-commerce channel has grown considerably in Bhutan, which has led to increasing number of small sized craft business selling through online. The online services have shown a positive figure for the small businesses. So the proposed business unit will offer handicraft product to the entire district and other countries. The proposed business always focused on the all the group customer. The business unit will exclusively advertise in communities with the population of 7, 89,871 and the resident of the country.

The sources of finance for the proposed business are as follows:

 REDCL (Rural Enterprise Development Corporation Limited)  Loden Foundation  Self-funding  Financial institutions at average rate of 12%

The report presents in detail the justification for the project, market analysis, location of the business, Implementation of the project, cost presentation and financial analysis: i. Justification of the Project: E-commerce has become a leading trend in Bhutan, and around 80% of people use online service as selling and buying the product. The Bhutanese are purchasing most of the imported goods. So the proposed businesses will sell the entire handicraft product through online service within and out of Bhutan to preserve its culture and promote the beauty of Bhutanese textile. ii. Market Analysis: Presently there are eight online stores and most are of international. Since the demand for the online service is becoming the trend in Bhutan, the proposed business will deal with the sale of handicraft product through online. iii. Location of the Business: The proposed business will be located at Chubachu, Thimphu Dzongkhag, since most the handicraft shops are already set up in Thimphu, whereby the handicraft shops can sell their product in and out of Bhutan through this proposed business. iv. Implementation of the project: The proposed business will implement its activities in six months including pre-project activities.

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v. Cost presentation and financial analysis:

Particulars Amount Working Capital 88,500 Total Project Startup Cost 540,000 Total Investment 628,500 BEP 8308 ROI 106% ROI on Net profit 30.6%

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TABLE OF CONTENTS 1 Executive Summary ...... 1 2 Justification of the project ...... 5 2.1 The need of the project ...... 5 2.2 Competition Analysis ...... 5 2.3 SWOT Analysis ...... 6 Strength ...... 6 Weakness ...... 6 Opportunity ...... 6 Threat ...... 6 2.4 2.1 Critical success factors ...... 6 3 Market Analysis ...... 7 3.1 Demand vs. Supply ...... 7 3.2 COST OF PRODUCT ...... 9 3.3. MARKETING AND PACKAGING ...... 9 3.4. Pricing and Marketing Strategies ...... 9 3.5. MARKET SHARE ...... 10 3.7. Special attributes desired by target customers ...... 11 4. Project Implementation Schedule ...... 13 5. Financial Analysis ...... 13 5.1. Total Project capital Costs ...... 13 5.2. Working Capital Costs ...... 13 5.3. Cost of Production per unit ...... 14 5.4. Human Resource cost ...... 14 5.5. Marketing Cost ...... 14 5.6. Project profit and Loss Statement ...... 15 5.7. Projected Cash flow statement ...... 16 5.8. Projected Balance sheet statement ...... 17 6. Financial Ratio analysis ...... 18 6.1. Interest on loan ...... 18

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6.2. Break Even Point ...... 18 6.3. Return on Investment ...... 18 6.4. Net Present Value and Internal Rate of Return ...... 18 7. Conclusion...... 19 8. References ...... 20

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2 Justification of the project

2.1 The need of the project The Bhutanese are very keen to protect their national heritage, as reflected in numbers of ways through wearing of national dress and preserving of traditional style and craft skill. The tradition of arts and craft has existed in Bhutan for centuries, and it is one of the category which touches people heart even today and the feel of those handmade product crafted with human hands.

Over a period, e-commerce channel has grown considerably in Bhutan, which has led to increasing number of small sized craft business selling through online. The online services have shown positive figure for the small businesses.

The proposed business is about doing e-commerce business for the sale of handicraft goods. It will help handicraft importer and small local producer to sell their handmade product across the Bhutan, and at the same time, an individual customer will benefit.

2.2 Competition Analysis Although there are six online service dealers, who deal with online service to sell their both imported and produced goods. But e-commerce handicraft business will mainly focus on Bhutanese handicraft product as many people love to have tradition textile product for decorating home and others purpose.

The following table shows the list of the store which most of the Bhutanese people go for shopping:

International National i. Snapdeal Druk online shopping (https://www.facebook.com/Druk-Online- 708854219153255) ii. Gaze online store Bbay Bhutan (https://www.facebook.com/groups/bbaybhutan/) iii. Ebay Bhutan shopper(https://www.facebook.com/bhutanshoppershome/) Bhutan online boutique(www.instagram.com/bhutanonlinebotique/) Bhutan Fabulous(www.facebook.com/BhutanFabulousFinds/) Shop.bt

The proposed business has an opportunity to capture large market since most of the population prefer to buy goods through online rather than going to a shop. At the same time, there is around 30 handicraft shop in Thimphu, but it's rear for them to sell their product to the customer. The business will not only look for selling it a product, but it indirectly helps to preserve and promote the rich culture and tradition of Bhutan to the visitor of the Bhutan as well as outside the world.

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2.3 SWOT Analysis

Strength Weakness  Large, diversified and potential market.  Inadequate information on new  Proximity and accessibility to the technology. potential customers  Lack of promotion of product.  Large product variety  Less interest of young people in craft  Need low capital investment business.

Opportunity Threat  Development of domestic and  Entrant of competitor international tourism sectors  Online retail  Export  Potential source of foreign revenue.

The proposed business has a threat, and the weaknesses that are uncontrollable but the proposed business will take a step with its strength and opportunity to overcome all the external and internal factors of the firm.

2.4 2.1 Critical success factors a) User-Friendly website:

The proposed business has a website whereby the handicraft shop and dealers can post their unlimited product so as to reach worldwide people to sell their goods. b) High security for transactions:

The proposed business deals with e-commerce handicraft whereby people around the world can see and purchase but the customer always make sure, whether the website is valid SSL(Secure) certificate or not. So, therefore, the e-commerce business has high security for the customer service. c) Product images and information

The proposed business will ensure product details and information to its customer since no one wants to buy something that they cannot see or they have no information. The goal of the business is to make sure that the customers are better informed when they are doing their shopping.

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3 Market Analysis

3.1 Demand vs. Supply

According to National Statistics Bureau (NSB) the total population in Bhutan is around 7, 86,793 out of which 211,896 of the population uses the internet. According to Kuensel dated on January 3rd, 2015, most of the Bhutanese go for online shopping with its verity of choice, reasonable price and quality goods as well as convenient and AliExperess has become the fast gaining popularity among many urbanites with deliveries being made right in the home. Currently, there are eight online stores that sells the products, viz., Snapdeal Bhutan, Druk online Shopping, bBay Bhutan, eBay Bhutan, gaze online store, Bhutan online boutique, Bhutan Fabulous and AliExpress. Even though there is online services dealer in Bhutan, but almost all the service provider deals with imported goods. Following chart shows the usage of e-commerce in Bhutan.

Source: builtwith.com

The above diagram shows, around 80 % of people use Woo commerce and 20% of people use Ubercart as an online shopping service.

This indicates the market for the e-commerce business is growing in the market of Bhutan.

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Source: internet live stats

Internet user in Bhutan has grown up drastically from 0.4% (2,262 populations) in 2000 to 36.9% (289,177 populations) in 2016. So the proposed business has an opportunity to capture large market since most of the population prefer to buy things through online rather than going to a shop. With the growing number of users, even the Government of Bhutan has introduced Bhutan Immediate Payment service (BIPS) as an e-payment gateway for the public (Kuensel, January 28, 2017).

Till now Bhutan has ventured in few online service deliveries, but none of this service deals with handicraft product. So, the proposed have high market demand for the e-commerce handicraft products. The business will not only look for selling its products but it will indirectly help to preserve and promote the rich culture and tradition of Bhutan to the visitor of the Bhutan as well as outside the world.

This marketing effort will call for a strategy based on segmenting, targeting and positioning.

Segmenting: The market segmentation for the E-commerce handicraft will work for those who want to buy through online and those who don't have time to visit the market.

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Targeting: The proposed will more focus on that customer and seller who want to sell and buy through the online system.

Positioning: For the proposed business some of the viable positioning statement could be:

 Detail description of product  Affordable price for those sellers who wanted to sell through online  Update on product

3.2 COST OF PRODUCT

Although there are suppliers of handicraft in the market such as that of handicraft shops above Taj Tashi hotel and those local distributors in the town, the price set on this products are ranging above Nu 5000. However, it is not able to provide the convenience and product details as much as that of the E-Handicraft since the people involved with the handicraft distribution are having trouble with language. To provide details for their products, the proposed business will charge Nu 300 as a service fee to the owner of the product.

3.3. MARKETING AND PACKAGING

The information of the proposed business will be provided through social media such as Facebook, and Instagram since these platforms freely available and accessible to the most customers. According to the internet live statistics, 2016, there are 2, 89,177 internet users out of which around 93.69 % use Facebook. So the proposed business will post pictures of the products and increase its outreach in the online forum and make money.

3.4. Pricing and Marketing Strategies

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Source: Statcounter.com

3.5. MARKET SHARE

E-commerce channel is growing considerably in Bhutan which has led to increasing number of small sized craft businesses selling their product through online channels. These are many crafts importers and small local producers. Most of the products sold on online are of the western outfit in Bhutan. So, therefore, it gives us opportunities to sell Bhutanese handicraft products of those manufacturers but couldn’t sell their products. It also provides an opportunity to export handicraft product across the country.

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3.6. E-commerce handicraft process

The customer will purchase or place an order from the proposed business website/ store. The store will forward the order to the particular vendor and supplier will ships the product directly to the customer.

3.7. Technological changes that could impact costing

One of the biggest technological changes that can impact the way the unit would conduct business in the future would be the progress of information technology in shaping e- commerce and its adaption in the Bhutanese economy.

It may be used to find out the customers on line. Similarly, it may be possible to generate and respond to customer’s enquiries on line and transact business with those who stay outside the country.

Most of the online goods that are imported ones that are being sold in the markets. So, if the goods are the products that are produced within the Bhutan can be the product more cost effective.

The underlying impact of all this would help to reduce the cost and therefore the price of the product.

3.8. Competitiveness of the project

The proposed business is based on selling the handicraft product through the online system. The setup of business would compete against some of the online business dealers of Bhutan.

3.7. Special attributes desired by target customers In general customer would prefer:

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4. Credibility and visually appealing 5. Product selection

However, the customer needs and wants may vary from one customer to another. E-commerce consumer expects instant access and a quicker purchase process. So therefore, the proposed business will go for all the customer preference to be fulfilled.

Products

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4. Project Implementation Schedule

PROJECT TIMELINE 2017 Activities 1st Month 2nd Month 3rd Month 4th Month Feasibility study and development of the project proposal

Start of the business

5. Financial Analysis

5.1. Total Project capital Costs Particulars Amount Working Capital 88,500 Total Project Startup Cost 540,000 Total Investment 628,500

5.2.Working Capital Costs

Particulars Monthly Yearly Advertising 2,500 30,000 Delivery Expenses 5,000 60,000 Miscellaneous 2,000 24,000 Payroll 54,000 648,000 Rent or Lease 10,000 120,000 Utilities & Telephone 5,000 60,000 Electricity cost 1,000 12,000 Wages 9,000 108,000 Total 88,500 1,062,000

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5.3. Cost of Production per unit

Year 1 Year 2 Year 3 Year 4 Year 5

Total Units 4,320 4,752 5,227 5,750 6,325

Cost of Production 1,115,100 1,290,868 1,062,000 1,170,855 1,229,398 Unit Cost of 245.83 234.66 223.99 213.81 204.09 Production

5.4. Human Resource cost

MANPOWER COST Particulars Monthly Year 1 Year 2 Year 3 Year 4 Year 5

Direct Labor 9,000 108,000 113,400 119,070 125,024 131,275 Salary & Allowances 45,000 540,000 567,000 595,350 625,118 656,373

Total 54,000 648,000 680,400 714,420 750,141 787,648

5.5. Marketing Cost

The following table shows the marketing cost annually:

Particulars Yearly Advertising 30,000

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5.6. Project profit and Loss Statement

INCOME STATETMENT PROJECTION FOR 5 YEARS

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

Revenue 1,296,000 1,496,880 1,728,896 1,996,875 2,306,391

Cost of Goods Sold 120,000 126,000 132,300 138,915 145,861

Gross Profit / (Loss) 1,176,000 1,370,880 1,596,596 1,857,960 2,160,530

Expenses 901,500 943,200 986,985 1,032,959 1,081,232 Net Operating Income / (Loss) 274,500 427,680 609,611 825,001 1,079,298

30% BIT on NOI 82,350 128,304 182,883 247,500 323,789

Net Income / (Loss) after BIT 192,150 299,376 426,728 577,501 755,509

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5.7. Projected Cash flow statement

Projected Cash Flow Statement Year 1 Year 2 Year 3 Year 4 Year 5 Beginning Cash

Balance 322,500 704,280 1,262,321 2,029,799 Accts. Rec. Collections 129,600 149,688 172,890 199,688 230,639

Loan Proceeds 628,500

Sales & Receipts 1,166,400 1,347,192 1,556,007 1,797,188 2,075,752 Total Cash Inflows 1,924,500 1,496,880 1,728,896 1,996,875 2,306,391

1,924,500 1,819,380 2,433,176 3,259,197 4,336,190 Available Cash Advertising Balance 30,000 31,500 33,075 34,729 36,465

Delivery 60,000 63,000 66,150 69,458 72,930

Miscellaneous 24,000 25,200 26,460 27,783 29,172

Payroll 648,000 680,400 714,420 750,141 787,648

Rent or Lease 120,000 126,000 132,300 138,915 145,861 Utilities & Telephone 60,000 63,000 66,150 69,458 72,930

Other: 120,000 126,000 132,300 138,915 145,861

Subtotal 1,062,000 1,115,100 1,170,855 1,229,398 1,290,868 Capital

Purchases 540,000 Other Cash Out Subtotal Flows: 540,000 - - - - Total Cash Outflows 1,602,000 1,115,100 1,170,855 1,229,398 1,290,868 Ending Cash

Balance 322,500 704,280 1,262,321 2,029,799 3,045,322

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5.8. Projected Balance sheet statement Projected Balance Sheet For 5 Years Year 1 Year 2 Year 3 Year 4 Year 5

Assets

Cash & Bank 322,500 704,280 1,262,321 2,029,799 3,045,322

Accounts Receivable 129,600 149,688 172,890 199,688 230,639 Inventory

Prepaid Expenses 90,000 Other Current Assets

Total Current Assets 3,275,961 542,100 853,968 1,435,211 2,229,487

Net Fixed Assets 382,500 315,000 247,500 180,000 112,500 Other Assets

Total Assets 3,388,461 924,600 1,168,968 1,682,711 2,409,487

Liabilities & Capital

Accounts Payable 199,403 445,174 955,189 1,671,879 2,632,953 Total Current 2,632,953 Liabilities 199,403 445,174 955,189 1,671,879

Long-Term Notes Payable 533,047 424,418 300,794 160,107 (0) Total Long-Term Liabilities 533,047 424,418 300,794 160,107 (0)

Total Liabilities 2,632,953 732,450 869,592 1,255,983 1,831,986

Net Profit 192,150 299,376 426,728 577,501 755,509

Total Capital 192,150 299,376 426,728 577,501 755,509

Total Liabilities & 3,388,462 Capital 924,600 1,168,968 1,682,711 2,409,487

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6. Financial Ratio analysis

6.1.Interest on loan

Year 1 Year 2 Year 3 Year 4 Year 5 Interest 70,168 57,790 43,842 28,125 10,414 Loan Principle 97,600 109,978 123,926 139,643 157,353 Loan Balance 530,900 420,922 296,996 157,353 0 EMI 167,768 167,768 167,768 167,768 167,768

6.2.Break Even Point

BREAK EVEN X BREAK EVEN Y LABEL 8,308 2,492,400 break even unit =8308

6.3.Return on Investment

RETURN ON INVESTMENT Product Year 1 Year 2 Year 3 Year 4 Year 5 Delivery 106% 138% 175% 218% 267% Total ROI 106% 138% 175% 218% 267%

6.4.Net Present Value and Internal Rate of Return

Net Present Value (NPV) 1,473,770 Internal Rate of Return (IRR) 62%

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7. Conclusion

The proposed business is based on E-commerce handicraft and until now there are more numbers of handicraft shops in Bhutan whereby people can get at any time. However E- commerce business is feasible in the market but the following point to be noted:

Firstly, there is a number of handicraft shops in Bhutan as well as the local producer, but most fail to sell their product in the market due to lack of information of the product and location of the handicraft shops. So, therefore, the proposed business has the capability to capture the market in and out of Bhutan since the business deals with online services, and it keeps every update of the product and its price.

Secondly, Handicraft products are the most beautiful textile of Bhutan, and it is one of the attracted by the tourist. Everyone cannot travel from country to country, but the proposed business the handicraft product will be available and can make an order with their test and preference by just a click and the product will be available at their hand in a week.

But there are some drawbacks for e-commerce business, as e-commerce mainly talks about the selling of product through the online platform. To export the product to another country will require shipment charges, which will lead to more expenditure and troubles for the business and sell handicraft product. Though e-commerce is hard for the Bhutanese people, since Bhutanese people are more sensitive to what they are buying This nature of Bhutanese leads to lack of trust to the products that are sold online.

However, the proposed business is feasible in a market since online service is becoming the trend in the market and most people prefer to buy through online with their choice, convenient, with the price.

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8. References

1. Starting from Zero pdf by Fred Lam 2. Buildwith. (2017,june19).Retrived from https://trends.builtwith.com/shop/country/Bhutan 3. Ecommerce in Bhutan. (2017,Febeurary10).Retrived from http://twoschmucks.com/country/bhutan-e-commerce-data/ 4. Tshedup, Younten. (January 28, 2017). Online internet payments now possible. Kuenselonline. http://www.kuenselonline.com/online-interbank-payments-now-possible/ 5. Tshomo, Dechen. (January 3, 2015). Virtual Shopping goes viral among Bhutanese. Kuenselonline. http://www.kuenselonline.com/virtual-shopping-goes-viral-among- bhutanese/

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