Candidate:

Sure. May I know exactly what kind of livestock do they manufacture nutrients for?

Interviewer:

For sheep and goats.

Candidate:

Ok. And my understanding is that these nutrients help fortify the meat of sheep and goats that the end customer buys?

Interviewer:

Correct. These nutrients also help to increase the size of the meat.

Candidate:

Is the client targeting a specific overseas market?

Interviewer:

Yes, Indian.

Candidate:

Do we know why the Indian market?

Interviewer:

Because according to our client’s research, the Indian market is twice the size of Canadian market.

Candidate:

Ok. And which metric does the client want to base their decision on?

Interviewer:

Good question. On potential profits. They’ll take a call based on that.

Candidate:

Ok. Does our client plan to manufacture these nutrients in Canada and sell them in India? Or do they want to manufacture and sell in India?

Interviewer:

Manufacture and sell in India.

Candidate:

I will take a decision after analysing the Customer, Product, Company & Competition.

Interviewer:

Ok. Go ahead.

Candidate:

Customer

May I please know how the customers of these nutrients in India are segmented?

Interviewer:

Segment

Small Farm Holder

Community Farm Holder

Big Organizations

Candidate:

Thank you. Do we have data regarding the size of these customer segments?

Interviewer:

Segment	Size of the Total Indian Market
Small Farm Holder	80%
Community Farm Holder	10%
Big Organizations	10%

Candidate:

Thank you. Do we have data regarding their growth?

Interviewer:

Segment	Size of the Total Indian Market	Growth Rate in last 3 years
Small Farm Holder	70%	2%
Community Farm Holder	15%	10%
Big Organizations	15%	88%

Candidate:

Can you please explain who are community farm holders?

Interviewer:

Small farm holders donate a few livestock to the community pool and they are jointly looked after using advanced techniques. The income is then divided amongst the contributing farmers.

Candidate:

I see. I’m now curious to know how are our client’s customers segmented in Canada?

Interviewer:

In Canada, all of our client’s customers are big organizations.

Candidate:

And what is their growth rate?

Interviewer:

4%.

Candidate:

Ok. I’m quite sure that small farm holders are price sensitive and buy in smaller quantities whereas big organizations must be buying in bulk and will be more sensitive about the quality of the product than its price. Am I right?

Interviewer:

Yes, you are. Good.

Candidate:

How are the customers in India concentrated geographically?

Interviewer:

Small farm holders are quite scattered. Big organizations are consolidated. Community farm holders fall in between.

Candidate:

Ok. So far, the big organizations seem to be an attractive target because:

i. Their growth rate is quite high in India (88%)

ii. Our client has experience dealing with big organizations

iii. Big organizations are less price sensitive

iv. Distribution costs will be lower since big organizations are consolidated

However, the small farm holders constitute a significant chunk of the Indian market (70%) and therefore cannot be overlooked.

Interviewer:

Good. What next?

Candidate:

Product & Competition

Do we have any competition in the Indian market?

Interviewer:

Not a direct one. But from substitute products.

Candidate:

Ok. Do you have any data to compare the price of our product to that of the substitute?

Interviewer:

Client’s product: 90 cents/unit

Substitute: 50 cents/unit

Candidate:

Ok. That’s much cheaper. How is the substitute’s quality?

Interviewer:

It causes side effects.

Candidate:

Ok. This means that small farm holders who are price sensitive must be buying substitutes. And in order to cater to them, our client will have to bring down the price of its nutrients. Is my analysis correct?

Interviewer:

Yes, but our client cannot reduce the price of its nutrients.

Candidate:

Ok. Will community farm holders buy our product for its quality?

Interviewer:

Yes, because they don’t want to see side effects.

Candidate:

Ok. But I feel it’ll be difficult to reach out to small farm holders and community farm holders since they are scattered all over. So, I think we are left with big organizations.

Company

Do we know how much investment is required for expansion in India?

Interviewer:

$120,000. Variable cost would be 40 cents/unit.

Candidate:

Ok. What is the total size of the Canadian market?

Interviewer:

15 BN units.

Candidate:

Ok. That means the size of the big organizations’ segment in the Indian market is:

15% * 30BN = 4.5 BN

Is it reasonable if we assume that we are able to capture 25% of the market share in India in the first year of our entry?

Interviewer:

Yes.

Candidate:

That’ll give us:

Market Size * Market Share

4.5 BN * 25% = 1 BN units approx.

Profit = Market Size * Market Share * Profit/Unit – Fixed Costs

= 1 BN * (90 cents/unit – 40 cents/unit) – $120,000

= $500 MN approx.

This will be our profit in the 1^st year and growth will likely be >88% every year thereon as our client continues to capture more and more market share.

Interviewer:

Good work.

Candidate:

Sure. May I know how does the client’s business work?

Interviewer:

His company mines diamonds in Africa in large quantities. They are then shipped to various countries where the local cartels purchase them from the client and sell them to the end customers.

Candidate:

Ok. Does the client have any other stream of revenue?

Interviewer:

No.

Candidate:

Do we know if this issue is industry wide? Have other traders suffered losses too?

Interviewer:

No.

Candidate:

Ok. Is there a particular country which has taken the hit?

Interviewer:

The South American countries have reported lower profits.

Candidate:

Ok. I will tackle the situation mathematically first.

Profits = Revenue – Cost

Has the Cost changed in the last 1 year?

Interviewer:

No.

Candidate:

This means I need to focus on Revenue.

Revenue = #Units sold * Price per unit

Has either or both of #Units sold, Price per unit been affected?

Interviewer:

The #Units sold have gone down.

Candidate:

Ok. #Units sold has gone down which explains why the South American countries reported lower profits.

Let me analyse the value chain:

Mining -> Transportation -> Distributors in each country -> Local cartel demand

Is the client able to transport 100% of the diamonds that they mine?

Interviewer:

Yes.

Candidate:

Do we know if the distributors are able to push the diamonds to the cartels? And do we know if there is ample demand for diamonds?

Interviewer:

Good question. Yes, the demand exists.

No, the distributors are not pushing enough despite the demand.

Candidate:

That’s interesting. Two possible scenarios are:

i. Unsold diamonds are sitting in the stock

ii. Diamonds are going missing during transit (probably getting stolen)

Interviewer:

Good, but neither is the case here.

Candidate:

Ok. May I think for a minute?

Interviewer:

Sure.

–after 1 min. —

Candidate:

Is it that these diamonds are getting confiscated by the authorities at ports? Probably because some or all of them are not being declared to escape paying duty on them?

Interviewer:

Exactly. But why only in South American countries?

Candidate:

May be because the enforcement of duty has become stringent in these countries in the last 1 year.

Interviewer:

Good. It turns out that due to stricter enforcement, the local cartels have been receiving diamonds coming from alternate and less riskier routes and the client’s competitors have moved to them.

Candidate:

Sure. My first question might sound like a ‘no-brainer’, but it’s important that I get it clarified early on than later.

By ‘losses in the business’, do you mean monetary losses i.e., a dip in profits?

Interviewer:

Yes.

Candidate:

Thank you. How many cafes does the client own?

Interviewer:

20.

Candidate:

Where are they located?

Interviewer:

On the Jaipur-Delhi highway.

Candidate:

Thank you. I’m assuming that the cafes have both dine-in and drive-through options?

Interviewer:

Only drive throughs.

Candidate:

Ok. Do we know if other cafes/similar businesses on that stretch have also experienced losses?

Interviewer:

Yes, they have.

Candidate:

This means that the reason behind the losses is not specific to only our client. Since how long has this been the case?

Interviewer:

6 months.

Candidate:

Ok. My guess is that our client sells both tea and coffee at his cafes. If that’s true, have the sales of both tea and coffee gone down? What else does the client sell at his cafes that brings in revenue?

Interviewer:

Majorly, tea and coffee. The sale of both has gone down.

Candidate:

Ok. I will now zero down on the drivers that have affected the profits of the client.

Profit = Revenue – Cost

Do we know by how much have the profits gone down in the last 6 months?

Interviewer:

30%.

Candidate:

Ok. And which of Revenue and/or Cost has been affected in this time period?

Interviewer:

Revenue.

Candidate:

Do we know by how much has the Revenue gone down?

Interviewer:

20%.

Candidate:

Ok.

Revenue = # Transactions * Revenue per Transaction

Do we have any information regarding which out of # Transactions and/or Revenue per Transaction has taken the hit?

Interviewer:

# Transactions has gone down by 25%.

Candidate:

Alright. I will now focus on the root cause of reduced profits i.e., reduced # Transactions.

# Transactions at Client’s Cafes = (# Vehicles using the Jaipur-Delhi highway) * (% Vehicles buying tea/coffee) * (% Market Share of Client)

Since, we know that this is an industry wide issue, the following scenarios are possible:

i. Lesser number of vehicles are using the Jaipur-Delhi highway

ii. % Vehicles buying for tea/coffee has gone down

Do we have any information about the above scenarios?

Interviewer:

Your first hypothesis is correct. Lesser number of vehicles are using the Jaipur-Delhi highway.

Candidate:

I would like to know if a certain category of vehicles (cars, buses, trucks etc.) is not using the highway as much as before.

Interviewer:

Cars.

Candidate:

Thank you. The population of Jaipur or Delhi obviously cannot have reduced in the last 6 months. Nor the need to travel on this highway could have been impacted so drastically all of a sudden.

I believe that cars have started taking an alternate(s) route.

Interviewer:

No new road or highway has come up.

Candidate:

Interesting. How about air travel? Has there been an increase in the frequency of flights between Jaipur and Delhi per day? Or has air fare on this route become cheaper?

Interviewer:

The latter is true. Well done!

Candidate:

Thank you so much.