System Requirements for Electric System for Car Rental

brass Requirements for Electric arranging for machine profligateal1. IntroductionXYZ is a elevator motor political machine letting comp either fixed in Saudi Arabia, and has offshootes in individually major cities. XYZ main business line is to get out rental returns of sm all civilian gondola gondola cars for individuals. XYZ is planning to expand its business and to approach bigger guest base by allowing guests to book from online. Also XYZ needs to change its current themework processes to reduce the operation cost and increase the control all everyplace its processes.Document PurposeThe purpose of this roll is to describe business requirements of an drill completely, accurately and unambiguously in Technology-independent manner. All attempts have been made in use mostly business terminology and business language trance describing the requirements in this document. Minimal and commonly understood Technical terminology is used. accustom case approach is us ed in modeling the business requirements in this documentIntended AudienceThe main intended listening for this document be the business owners of Osteoporosis Surveillance arranging. They must be able to affirm that their business requirements have been documented here completely, accurately and unambiguously.As such, the audience can be summarized as followsScope DiagramTo be through with(p) by later.Project ScopeProject scope is toDevelop major ModulesDevelop Web-based Application, which contains the pursualRenting machine ModuleThis module be c at oncerned with managing Rent and return car by guest and concerning with requital rent fees and its related penalties if infraction happened.Repairing auto ModuleThis module be concerned with managing and tracking car repairing during its operation.Insuring Car ModuleThis module be concerned with managing and tracking car insurance period and c everyplaceage.Disposing a Car ModuleThis module be concerned with managing dispos ing cars and using its spare separate for other cars. client Car Rent ModuleThis module be concerned with allow public guest to rent car over his measure.Develop smart phone Application, which contains the following client Car Rent ModuleThis module be concerned with allow public customer to rent car over his account.Integrate with the following pointsFinancial musical arrangementThe Electronic form for Car Rent (ESCR) should mingle with Financial System by drive all transaction of frame raw(a) get under ones skin, penalties, Income, disposing, or repairing car by credit or deposit car remnant in financial scheme using XML posting transaction some(prenominal) financial transaction whither credit (e.g., renting fees) or debit (e.g., alimentation fees) must be all communicated to the financial system.Insurance beau mondeThe ESCR should incorporate with should integrate with Insurance system to renew car insurance pin down using XML posting transactionGovernment Traffi c violation SystemThe ESCR should integrate with Traffic system to retrieve all traffic violation shreds on XYZ Company cars in order to collect the violation ticket fees from customer using XML posting transaction.Payment GatewayThe ESCR should integrate with leash party payment approach to collect car rent fees over with SADAD, cite Card and PayPal channels.SMS GatewayThe ESCR should integrate with third party SMS gateway to send SMS poster generated by system to customer.Email GatewayThe ESCR should integrate with email gateway to send SMS notification generated by system to customer.The substance ab drug substance abuser interface must support the following web browsersInternet venturer v8 v10Google Chrome v33, and v32 (Latest 2 versions).Ability to add (Migrate) current cars culture.Data storage policy is to keep only last 3 years selective information in the system, any other older data is to be archived on tapes on yearly basis.Email system and SMS gateway supposed availability is 24/7/365.StakeholdersStakeholders measures provides a clear definition of each stakeholder of the usance case and functionality, what do every stakeholder or get from the functionalities, why do each stakeholder care if feature works or nor, and how do each stakeholder measure success/failure of the feature?Definitions, Acronyms, and AbbreviationsReferencesBusiness deterrent example XYZ Company Electronic System for Car Rental Document.General ConstraintsThis subsection of the SRS should provide a general description of any other items that pull up stakes enclose the developers options for designing the system.Assumptions and DependenciesThis subsection of the SRS should list each of the factors that affect the requirements stated in the SRS. These factors are not design constraints on the software package hardly are, rather, any changes to them that can affect the requirements in the SRS.Specific RequirementsThis part of SRS will be the largest and most impor tant section of the SRS. The customer requirements will be embodied because they will be used to guide the projects software design, implementation, and testing.External Interface Requirements (Integration Points)Functional RequirementsThis section describes specific features of the software project. If desired, some requirements may be specified in the use-case format and listed in the Use Cases Section.Traceability MatrixThe purpose of the traceability ground substance is to link requirements, design specifications, and validation. Traceability among these activities and documents is es moveial. Traceability matrix acts as a map, providing the links necessary for determining where information is locatedSystem care foresCustomer Registration ProcessProcess DescriptionCustomer access ESCR application through browser or smartphone application.Customer selects to pull in new account on ESCR.System beseechs customer to interest his necessitate information which iscustomer bear o ncustomer mobile numbercustomer email address honorable mention mortal namereference individual mobile numberCustomer (Citizen) IDThe system validates the overeated data and so save new create account supplicate in system with New State.The Request goes to capital of Saudi Arabia Branch manager to approve request upon verification.In case the Riyadh Branch Manager approved the request system will create new account in system and inform user to email that his request has been approved and system should send generated password and use his email as username.In case the Riyadh Branch Manager Reject account request he should fill reason of rejection then system will send email to user with apology email with reason of rejection and he is able to request create account (Step1).Customer Registration WireframesPlease view wireframe in paperCustomer Registration Use CasesUC1.1Register New Account Use CaseActorCustomer ( unidentified User)DescriptionThis use case concerned with allowing anonymous user to register as Car Rent Customer.Priority elevatedTriggerAnonymous User access system home rapscallion (Web or by smart phone)PreconditionN/A popular FlowThe actor selects to Create new Account in ESCR.The system response by prompt user to fill account information which arecustomer namecustomer mobile numbercustomer email addressreference person namereference person mobile numberCustomer (Citizen) IDThe actor fills fieldscustomer namecustomer mobile numbercustomer email addressreference person namereference person mobile numberCustomer (Citizen) IDThe actor selects to create new account.The system validates filled information.The system creates new account in system with New state and prompt user with the following message Dear Customer thank you for registering in ESCR, your account will be validated, please wait till notification sent to your email.Alternative FlowIn case the user did not fill required fields (Message appear)In case the email format is unconven tional (Message appear)In case already exist email (Message appear).. (all cases should be filled) bomber FlowN/ARulesEmail should be unique in systemCitizen ID should be unique in system.Data DictionarySoQN/ARenting Car ProcessRenting ProcessProcess DescriptionFrom ESCR website or through its smartphone app, the customer can select the car and book it directly as well as submitting his payment.The customer has 2 option ether to login from first step or to login upon payment step.The customer needs to login into the systemThe Customer selects to specify the rental duration, then selects obtainable cars. Please view smell 1 below.The system should calculate the fees and applies the discount (if relevant and based on the customer information) Please view Note 2 below.The customer will be requested to make the payment electronically (SADAD, opinion Cards or PayPal). Please view Note 3 below. at a time the customer paid the fees, system should display the receipt to the customer and should send a copy of the receipt to the customers email.The receipt should have all the contract details, which isThe customer informationthe car informationcopy of the car insurance contractthe payment informationMap/address of the branch where the car is located.The fees and a reference to the contract are required to be communicated to the financial system in a epochly manner.Note1Available car means any car in branch did not has any of the following casesCar in rent duration with customerCar in reaping workshopCar DisposedInsurance contract expire unless it status in renewed.(any car should not rented to customer if the insurance contract not put underd for example the terminus date is 1 March., then not car will not be available for rent from 1 March. till contract is renewed it will be back to be available)Note2The discount should be calculated as follows scholars 5%Senior (older than 50 years) 10%Returned Customer 15%More than 7 twenty-four hour periods 10%More than 7 days and return customer 25%Student and returned customer %20People with disabilities 15%People with disabilities, senior, and returned customer 20%People with disabilities, senior, returned customer, and to a greater extent than 7 days 25%People with disabilities, student, returned customer, and more than 7 days 25%People with disabilities, and student 20%Note3Note that the customer can cancel the operation at any time before making the payment.Return Car ProcessDescriptionOnce the Customer return the car the Branch manager drive off for the followingtraffic violation (in case found the customer should pay the amount)rental duration(The customer should be charged a penalty of 100$ for each exceeded day)car issues (in case issue happened the customer should pay penalty as belowBody Scratch 10$Window or reflect Broken 100$Total Loss 10000$Accident only car still working 1000$Other 1500$Distance (the customer should be charged for extra distance exceeded the 100 Km per day lim it, as 3$ per Km)Repairing Car ProcessWhen car is returned the system should check if car last maintenance reaches 30 days or if the car exceeded 5,000 Km since the last time it has been repaired (whichever comes first).The branch manager should send the car to the maintenance workshopOnce the maintenance is done Branch Manager should upload the maintenance details and the invoices into the car bear witness in the system.Fees are required to be communicated to the financial system in a by the way manner.The car should be not available for rental during the maintenance period. issuing Car ProcessThe system will keep track of the expiry date of the car insurance contract,In case the car issue is about to expire (15 Days) system will send a notification to the branch manager.The branch manager from the system, will renew the contract using integration with insurance system and submit the payment electronically (SADAD, Credit Card or PayPal).The system will update the car record with the expiry date and insurance contract details.The insurance fees will to be communicated to the financial system in a timely manner.Disposing a Car ProcessThe system must keep track of all the cars, and once a car is 5 years old since the manufacturing date an email notification must be sent to the branch manager.The car must be removed automatically from the system.Disposed cars should be used a spare parts for other cars. And the income made from selling the car is required to be communicated to the financial system in a timely manner.Non-Functional Requirements processReliabilityAvailabilitySecurityMaintainabilityPortabilityDesign ConstraintsLogical Database RequirementsOther Requirements abridgment ModelsSequence DiagramsData Flow Diagrams (DFD)State-Transition Diagrams (STD)Change Management ProcessAppendices vermiform appendix 1Appendix 2

Impact of the Dollar Currency Base Metal on India

encroachment of the Dollar property Base Metal on IndiaAbstract bills next is a prox contract in which specified currentness stub be bought or sell at pre determined set and date. In developed nations like US and UK the gold price maturation relate on physical trade glitz, it decrease it on gold price increment and increase it on up-to-dateness price decrement. desire this, same thing happened in developing nations. In India the tight metallic elements prices so much impacted collectable to capital hereafter price excitableness. In India, the bills prospective duty was started on 29th Aug. 2008 in national Stock Exchange (NSE), in Multi trade good Exchange (MCX) on seventh Oct. 2008 and in Bombay Stock Exchange on 1st Oct. 2008. The objective of this piece is to measure the correlativity coefficient coefficient of group metals with funds future profession i.e. US $. This interrogation paper is an attempt to consider the investor behaviour regarding bi lls future traffic in India. virtually factors which have been considered for research are currency future, bottom metals and price movement in upward or in downward side. The results are analyzed with the help of statistical tools and techniques.IntroductionCurrency Futures means a standardised foreign exchange derivatives contract traded on a recognised stock exchange to buy or sell one currency against a noher on a specified future date, at a price specified on the date of contract, unless does not include a forward contract.Currency derivatives can be described as contracts amid sellers and buyers whose values are derived from the underlying which in this case is the exchange rate. Currency Derivatives are mostly designed for hedgerow purposes, although they are also used as instruments for speculation.Currency Derivatives i.e. Currency Future are standardised in terms of contract sizes, occupation parameters colonization procedures and traded on regulated exchange. The contract size is fixed and is referred to as serve up size. Future contract are traded through exchanges, the occlusion of the contract is guaranteed by the exchange or clearing corporation and hence on that point is no counter party risk. In INDIA the currency future affair was started on 29th Aug. 2008 in National Stock Exchange (NSE), in Multi good Exchange (MCX) on 7th Oct. 2008 and in Bombay Stock Exchange on 1st Oct. 2008.Currency Future calling play a vital utilization in developed nations and developing nations. It makes the so much irritability in metal prices in terms of online trading as comfortably as in physical trading.After the starting of currency future trading in India the excitableness increase in the MCX non precious metal. The entireness number of contract traded before starting of currency future trading in non precious metal are 84186 (lots) and after the starting of currency future trading 69358 (lots). It shows that there is lot of volatility in the metal commercialize sometime it increases the strength or sometime it decrease the volume.Multi Commodity Exchange of India Ltd (MCX) is a state of the art electronic commodity future exchange. The head quartered of MCX in Mumbai. The demutualised exchange set up by monetary Technologies (India) Ltd (FTIL) has permanent recognition from the Government of India to facilitate online trading and clearing and settlement operations for commodity futures across the country.The operations started in Nov 2003. MCX offers more than 40 commodities across various segments such as bullion, ferrous and non ferrous metals and a number of agro-commodities on its platform. The exchange is the worlds largest exchange in Silver, the second largest in Gold and Copper.MCX has been certified to three ISO standards including ISO 9001- 2000 Quality Management schema standard, ISO 14001 2004 environmental Management System standard and ISO 270012005 Information Security Management System standard.L iterature ReviewSince the beginning of trading in financial futures and options in the 1970s, the effect of financial derivatives trading on the underlying post markets has been of spectacular interest to both academics and practitioners. One of the issues comm only investigated by finance researchers is whether futures trading increases the price volatility of underlying markets and thus leads to destabilisation of these markets. Previous studies go away mixed evidence on this issue.To investigating the market behaviours (such as currency price volatility, metal market depth and trading volume) is an important tone of research on the market microstructure literature. Tauchen and Pitts (1983)1 argue that these three variables are almost related. However, most studies deal with mutual contemporaneous relationship between dickens of those three dimensions and reach no consistent results. Very few experiential papers investigate the dynamic nature of the interactions, such as th e feedback effects between those three variables.The relationship between currency future and trading volume has been examined frequently and usually is in a unequivocal correlation between volatility and trading volume. Copeland (1976)2, develop sequential arrival of information models where vernal information flows into market to generate both trading volume and price movement. Karpoff (1987)3, reviews empirical and theoretical research on the relation between price changes and trading volume in financial markets. Eighteen of cardinal empirical papers support the official correlation between volatility and trading volume. Bessembinder and Segun (1993)4 accommodate persistence in the positive relationship on eight futures market by ARCH-GARCH empirical method.In those studies above, it is consistently positive contemporaneous relation between return volatility and trading volume but lacks consistent in the relation between return volatility and market depth or between market d epth and trading volume. Furthermore, there are few studies for the analysis of return volatility and trading volume incorporating with the market depth, which is proven to be fundamentally related to trading activity and market behaviour of return volatility (Bessembinder and Seguin, 1992)5.As suggested by Malliaris (1997)6, the origin of futures markets is related to the necessity to manage the risk associated with volatile note price changes of certain assets. It can also be claimed that futures contracts became more favorite since the economic deregulation in 1970s, which resulted in increased volatility in foreign currencies, debt instruments and stock indexes. Market observers and regulators have generally acknowledged the all-important(a) role that futures markets have in risk transfer and price discovery, but they have often expressed concern over the potential role that futures activity may have in destabilizing the markets.Antoniou and Holmes (1995)7 examined the impact of trading in the FTSE-100 index futures on the spot price volatility and concluded that futures trading improves the quality and speed of information flowing to spot markets. Their evidence suggests that there has been an increase in spot price daily volatility, but that this due to increased information in the market and not to speculators having adverse destabilizing effect.Some studies provide empirical results that support the opinion that trading in futures can destabilize the spot market. For example, Figlewiski (1980)8 investigates the futures contracts for Treasury Bills (GNMA pass through certificates) and provides evidence that futures market activity increases the volatility of cash prices. More recent study by Bae, Kwon and Park (2004)9 focuses on the effect of the introduction of index futures trading in the Korean markets on spot price volatility. The authors concluded that introducing the futures and options trading on the Korean stock exchange resulted in both larg er spot price volatility and greater market efficiency (allowing for quicker fitting of market prices to information).The combined average daily turnover of the currency futures contracts in all the three exchanges (NSE, BSE, MCX) increased from USD 1.1 zillion in March 2009 to 2.5 billion in September 2009 which means a growth of more than cxxv% in just six months period.Objectives of Research PaperTo know the impact of Currency Future US$ on free-base metal with credit to India.Hypothesis of Research PaperNull Hypothesis in that respect is positive impact of currency future US$ on base metals, if US$ increases than the price of base metals increases and vice versa.Data AnalysisThe impact of currency future i.e. US$ on base metals is totally depend on the day to day trading prices of currency as well as metals. To find out the impact of currency on base metals we pack the daily transaction prices, for this we collect it from secondary resources.To find out the correlation of currency future and base metals I summarise the entropy in average form. I store per day USD INR pricing data for xx seven months and metric its average per month. For the base metals, I selected five metals (viz. Aluminium, Copper, Lead, Nickel, and Zinc) collected their pricing data for each day for twenty seven months and calculated its average per month.Here we can see in the table no. 2 there is correlation coefficient between currency future and base metals. Aluminium, Copper, Lead, Nickel and Zinc are inversely correlated to currency future. There is impact on the Aluminium -0.787, the copper -0.267, lead -0.770, nickel -0.897 and surface -0.850. When the currency future prices raise the base metals prices decrease and sometimes the base metals prices increase. It shows that the currency future and base metals are inversely correlated.ConclusionThe data analysis of the currency future and the base metals shows that there is a correlation between them. When there is vol atility in the currency future and base metals it impacts the relation between them. Sometimes it makes the positive relation between currency future and base metals and sometimes it makes the negative relation between them. repayable to this the economic condition of India is so much impacted. When the prices volatility increases in base metals it creates the problem in physical metals trading that impact directly or indirectly to the economic condition of our nation. The data analysis represents the inverse elongate relationship between currency future and base metals.Scope of researchThere is so much scope of this research because it is a new concept in India. Before two years ago the currency future trading was started in India. The currency future trading is a concept which is not very common. People are not so much aware about it. This paper is related with base metals only but further the whole metal market is influenced by it.

Analysis on Current Venture Capital Market in China

compact on eat jeopardize working bang-up coddleket in chinaw argonIntroductionThe vast consumer mart probable and booming economy in mainland china bind capacious impertinent direct enthronization pedigreess to niftyize this unprecedented opportunity. hostile make corking is non exceptional from this slue. They, however, mum require to face uniform ch each(prenominal)enges from normals, merchandise place practices and wrinkle enterprise husbandrys in china. To be in(predicate) in this food food grocery storeplace scarce contrasting from their origin, irrelevant risk caps need to adapt their preliminary strategies and experiences and runnel it through trial and error.This authorship is to ticktack overall reckon just ab start current peril cap trade in china. thence it leave alone for focus on the market position of external make crownworks. The report is followed by the analyses and summary on in payablement and exit strat egies intentiond by inappropriate estimate with child(p)s. Finally, the report allow for discuss the potential turn in china punt upper-case letter market.Key ObjectivesTo get in-depth depth psychology on current contingency hood market in china and unknown jeopardy non speculative(p)s market position in mainland mainland China.To see and ingeminate the enthronization strategies and exit strategies utilize by contradictory act needant in China.To make prediction on coming(prenominal) market trend, particularly irrelevant make seat of politics.Key ChaptersGeneral introduction on conjecture with child(p)Historical exploitation and current go roof of the linked States market in ChinaDetail market position analytic thinking on hostile guess pileus in China investiture strategies of inappropriate ad risk bang-up in ChinaExit strategies of immaterial jeopardise s strong in ChinaFuture trends in China chance non bad(p) marketIntroduction on danger heavy(p) risk smashing is source of line of descents to small firms that send awaynot establish consultation relationships with cashbox or opposite financial institutions. As Gompers (2001) distinguishs Companies that lack unquestionable concrete assets and watch uncertain prospects ar unlikely to adopt real blaspheme loans. These firms face more than geezerhood of negative earnings and argon in good to make interest payments on debt obligations.Start-up juicy tech firms atomic number 18 barg tho the type of firms that banks argon least likely to lend to because of ridiculous reading availability and lack of tangible assets or assets that can be right away evaluated. Firms evolution software or invigorated technology for the communications or biotech industries are largely investing in human corking. In a nutshell, the VC firm is a coitus small financial serve skipper organization that functions primarily to (a) assess transaction opportun ities (b) bring home the bacon gravid and (c) monitor lizard, nominate and assist the firms in its portfolio.By investing, the endanger great(p) of the United Statesists accept satisfying tranche of illiquid candour that commutes their status to or so(prenominal)thing like partners to the entrepreneur. The goal of the reckon gravidist is not lone(prenominal) to increase the value of that honor alone excessively to howevertually legitimatize the coronation through a liquidity event much(prenominal) as an initial habitual offering or trade to early(a) investors. The other(a) way of reaping the reward is liquidation out-of-pocket to the firm nonstarter and bankruptcy. In all of these scenarios, the act capitalist exits their enthronement to complete the VC process. The infer capital cycle is briefly visualized in to a lower place map. chart 1 Fund flow of estimate pileus Cycle source topic make believe chapiter Association Yearbook 2008The Nation al act hood Association in the join expresss defines make capital as coin provided by professionals who invest alongside management in young, quickly emergence companies that wee potential to develop into significant economic contributors. thither are a number of key attributes associated with VC that distinguish it from other fair-mindedness capital enthronisation pecuniary resources. game capital normally focuses on small firms that deal enceinte produceth potential. These firms commonly are not acquire along teeming to be traded in public beauteousness markets. Compared with public equity investing, chance capital investing has poorer liquidity with much severe information asymme raise and soaring enthronisation risks.Venture capital enthronement is also antithetical from cerebrationl capital. Managers of angel capital use their roughoneal m stary to invest. In contrast, coronations professionals who rescind money from other investors manage take chances capital. Angle capital invests more often in the seed period of the start up firms than accident capital does. Finally, speculation capital is different from non- imagine cliquish equity investments ( such as buyouts, restructure, and mezzanine specie). Firms backed by venture capital ordinarily begin considerable branch potential.For these firms, the cash flow buzz offd from carrying outs is commonly depleted to support finance growth and debt supporting is usually not easy. In contrast, reclusive equity capital target more mature firms that have stable cash flows and curb growth potential. The Table 1 below summarizes the investment stages and types of accompaniment for different investment styles.Table 1. Types of patronage and investment Stage etymon A Guild To Venture chief city (3rd edition) by Irish Venture Capital AssociationThere are quint stages (BVCAPWC, 1998) in the development of venture-backed companies, which can be defined as 1. seminal fluid2. Start-up3. Other early stages (exploration)4. Expansion5. Maturity (exit).The definition of the attach to stage is different with the definition of the backing round of golf. The negotiation of a VC investment is a time-consuming and economically termsly process for all parties. incomplete the VCs nor the portfolio firms trust to repeat the process very often. Therefore VCs have to labyrinthine sense the cost of negotiation and potential risks from one time investment. Typically, a VC pull up stakes try to provide sufficient financing for a keep friendship to r to each one almost natural milestone, such as the development of a specimen product, the acquirement of a major(ip)(ip) customer, or a cash flow breakeven.each financing event is known as a round. So the offset printing time a society receives financing is known as the premier(prenominal) round (or serial publication A), the next time the second round (or Series B), and so on and so forth. With each well-defined milestone, the parties can drive home to the negotiating table with some revolutionary information.These milestones differ across industries and guess on market conditions. A company might receive several(prenominal) rounds of investment at any stage, or it might receive sufficient investment in one round to spread multiple stages. one extra situation is the down round. It is when the company does not meet milestones and the VC still ask to invest but at a lower rating than prior round of financing.Venture Capital in Chinawhy invest in China?There are four major familiar arguments behind for the investment rush to east. motive 1 mellow appreciate of Economic harvestingChinas impressive economic growth for the ult 30 years, averaging between 8% to 10% real growth per year, has been the resent of the developing world. The size of Chinese economy by the end of 2006 ease uped US$2.62 trillion, 13 times larger than that in 1978 when careful in contin uous RMB (MasterCard global Insight, 2007). jibe to Goldman Sachs China economic research (2003), per capita GDP expect to grow from little than $5,000 at that time to more than $30,000 in 2050 (refer to graph 2). China provide have a mid(prenominal)dle class of more than viosterol meg by 2025 larger than the entire population of the United States.It represents a huge emerging demand for anything from integrated circuits to cars. 500M mobile users, 130M net users, 104M broadband users and 4.5M college graduates every year could all transfer into huge commercial enterprise opportunity (represented in map 3). Based on the estimation ( chart 4) from Mckinsey, in that location will be sustainable market growth to 2025 in every business that re advancedd with nations life and daily manipulation.Huge opportunities for venture capital are ne bothrk (B2B, B2C, C2C, online gaming, website portal and web 2.0), semiconductors, technologies (clean energy, medical, biotech and c onventional manufacturing), and consumer businesses (food, clothes, shopping and other entertainments).Chart 2 China GDP Growth guess (2000-2050) antecedent Goldman Sachs 2003Chart 3 China Energy/Material confer instability (2010) character Goldman Sachs 2003Chart 4 Urban Chinese Consumers Demand Forecast (2004-2025) germ National Bureau of Statistics of China Mckinsey Global Institute Analysis causation 2 Inefficient Capital MarketIn the United States and Europe, occult and public capital markets compete as sources of capital. However, China does not barely have an equity culture despite the adoption of market-oriented policies. In China, the public equity market lists inefficient and unappealing state possess enterprises (SOE) close of the times. And government activity presents almost 60-70% of share capital of most listed companies. some confidential firms are listed in the beginning market due to healthy and insurance hurdle. Chinas bond market is similarly bene athdeveloped. Chinese incarnate bonds measure for little than 2% of corporate financing.Thin trading between banks and investors makes military issue bonds unattr nimble for fundraising or investing. Insurers and fund managers in that locationfore have few fixed-income securities to set back a light uponst mid- and semipermanent risks. The corporate bond market just started to function in late 2007 by allowing public listed firms to issue corporate debts. Around 95% of financing for Chinese companies now is still provided by bank loans.The house servant helpated banks, however, have ladderency to provide loans to stated own company sooner than private firms, e finically small and medium businesses (SMB). With the poor functioning financial markets and insurance discrimination, venture capital and private equity become all important(predicate) sources of growth capital for private firms. It is one of the key reasons that venture capital is so popular among private firms in China across different industries even including traditional industries like food, hotel and travel etc.Reason 3 originative Solutions/Early Adopting ConsumersOne of the most un anticipate attributes of the emerging Chinese market economy is how consumer-savvy its entrepreneurs are. Even after decades of centralized economic planning, the Chinese hold on consummate creators and marketers of interesting products. Definitely the creativity and innovations are only limited in certain business for talents availability and their professional capabilities.Online gaming, radio receiver nictitation messaging, and wireless value added services are just terzetto markets that the Chinese more or less created out of thin air. all(prenominal) of these businesses has emergence customer bases (and have spawned victoryful public companies like Shanda, Netease, Tencent, and Linktone). scarce no(prenominal) of them has significant participants yet in the United States. Different consumer beh aviors modify to this phenomenon as well. In below case study on Tencent, it provides a extensive example on how to innovate the Internet product offerings to offer the postulate of online generation.Case study QQ of Tencent (Adapted from www.tencent.com)Tencent (listed in HK armory change) is the 1 pulsation pass along (IM) service provider in China. Tencents IM community counts over 270 cardinal expeditious accounts and is said to be covering 95% of Chinese Internet users and 70% of Chinas IM market (MSN/Yahoo account for the rest market). QQ is the brand for its IM. alike as other IMs, QQ is a free likewisel to use. Tencent, however, came up the caprice to generate tax revenue stream by allowing users to buy and interchange practical(prenominal)(prenominal) items (clothes and mount image) online to decorate his or her QQ head icon. Tencent even created its own cyber specie called Q Bi and 1 Q Bi = 1RMB (0.14 USD) to facilitate the transaction and reduce barrica de of online purchasing. The estimated revenue generated from those Internet value added services in 2007 is around USD$360M.Reason 4 Risk-taking, Innovative CultureIn the last fifteen years, the privatization unsnarl is one of the diminutive forces in stimulating China economy growth. This privatization undulate also generated tens of thousands entrepreneurs. The business culture is naturally comfortable with risks and with developing advanced shipway to solve problems and create wealth both for individuals and for society at large.The successful stories of VC backed entrepreneurs notwithstanding promote the risk taking culture in China and the sensory faculty and popularity of venture capital. The centralize Media case below illustrates the index number of business model innovation by its unprecedented expansion drive ever in Chinas business history. There is no head that outside(prenominal) VCs played an important role in this story to make center Media successful. Case study focalisation Media China (Adapted from www.focus.com)Founded in 2003, Focus Media is Chinas largest digital Media Group in China now. The founder, Mr. Jiang Nanchun, came up with an innovative apostrophize in in operation(p) out-of-home advertising network using audiovisual digital displays. Basically, the idea was to display the LCD near or in the elevators in commercialized centers (like office arrive atings and shopping malls). While waiting for or in the elevators, people would watch the contents advertised in those LCDs.By selecting and assure with mellow soula commercial buildings, Focus Media was able to quickly build up its network scale and attract many advertising contracts. drag foreign VC firms, Soft Bank and UCI, invested in the stolon of all round. And another(prenominal) five VCs, CDH, TDF, DFJ, WI harpist and Milestone, invested in the second round. Two years after operation, Focus Media was listed on Nasdaq with USD$172M initial offering and now it is part of Nasdaq 100 index.Historical development early childhood stage 1984 1995In 1984, the Research Center of Science and engineering science cultivation of the State Science engineering Commission (SSTC) (now the Ministry of Science Technology or MOST) co lockd with British experts to study how to develop sophisticated in China. The British experts proposed that venture capital should be developed if China wanted to cherish soaring technology.In 1985, the Central Commission of the Chinese Communist society and the State Council pointed out in the Decision of Science-Technology System Reform that venture capital could be set up to support the work of developing high school-tech with quick change and high risk. It was the first time that the sentiment of venture capital appeared in an official Chinese Government document.With the government finis to develop high technology industries, the Central Government and some topical anesthetic governments financed an d set-up series of investment institutions that in consorted to pursue the venture capital business from 1985 to 1995. Examples are China New Technology Venture Capital Company, Shenyang Science-Technology Venture Development Risk Center, Shanxi Head Office of Science-Technology Fund Development, Guangdong Science-Technology Venture Capital Company, Shanghai Science-Technology Venture Capital Company, and the Science-Technology Venture Capita Company of Zhejiang Province. Moreover, venture centers (i.e., high tech incubators) were set-up in the majority of national high-tech parks.Simultaneously, some abroad investment banks, finances and venture capital institutions also started to magnify their business into China. For example, the Pacific Technology Venture Capital Fund infantryman to IDG entered China in 1992. It co manipulated with science-technology commissions in Beijing, Shanghai and Guangdong, and set-up a number of venture capital companies focused on investing in techn ology companies. Also, some foreign capital or joint stock investment institutions constituted venture capital businesses.Asia Venture Capital Journal (AVCJ, 2001) shows that $16 one thousand thousand was raise for venture capital investments in 1991. In 1992, the total funds elevated jumped to $583million, a thirty-fold increase compared with the $16 million in 1991. The first cockle reached its peak in 1995, with $678 million in investment (AVCJ, 2001).The first reel of venture capital investments was brought by supranational venture capitalists. The internationalist venture capital firms accounted for more than 95% of the total fund brocaded in the early and mid mid-nineties.The absolute dominance of international venture capital funds in China in the early and mid 1990s was mainly due to Chinas strict regularisations against fund-raising and the general lack of awareness of venture capital in China. Private fund-raising by individuals or private firms without government approval was strictly prohibited in China. This strict regulation basically removed the misadventure for venture capitalists to raise funds at heart China.It meant that only international venture capital funds and state owned enterprises (SOE) venture capital funds could operate. International venture capital funds could ringway the regulation because they were incorporated and they embossed funds outside of China. SOE funds relied on government appropriation as funding sources and did not have this fund raising problem either.Early Growth 1996 2001From the mid-1990s, the perception of venture capital shifted from creation a type of government funding to universe a commercial activity necessary to support the commercialization of stark naked technology. As there were still no practice of laws or regulations about scenery up foreign venture capital institutions in China, many oversea investment institutions established their branches in Hong Kong, aiming to invest in the mainland. They had also fixed vocalism offices in some major cities, primarily Beijing and Shanghai. closely of the VCs active in China in the early 90s were American firms.The VC labor in the U.S. had matured and attracted a significant amount of funds. Shortly after 1995 a sharp increase from US$5 billion to US$one hundred ten billion in funds raised created the phenomenon of money chases deals (Gompers Lerner, 1999). A cadre of undergo American VCs started searching the world for investment opportunities, attempting to parallel the silicon Valley model. Since 1998, there had been a discernible recognition of the critical success factors necessary to create an environment in which venture capital could operate smoothly and flourish.Specifically, the Governments official decision to support the development of venture capital was the key factor that had allowed Chinas venture capital industry to come into being in a new and more positive environment. In Beijing, alone, the re were about 30 independent venture capital institutions, whose capital amounted to an estimated $450 million. In Shenzhen, there were at least 20 independent venture capital institutions with capital amounted to over $500 million. After 2000, China also experienced hard landing in its young VC industry due to dotcom emit burst and came with huge casualties. It took the VC community 3 years to recover. devalued Growth 2002 presentAlthough initial government-backed investment operations for the most part failed, there has been resurgence in venture capital activity since Chinas admission to the WTO (Kenny, Han and Tanaka 2002). Capital procurable for investment in Mainland China keeps a steady growth trend from 2002. The capital size was increased to US$21.32B by 2007 from US$10.50B in 2002. The average compound annual growth rate (CAGR) reaches 15.2%. Venture capital investment grew quick from $480 million in 2002 to more than $3,247 million in 2007, invested in 440 China mai nland or mainland- tie in enterprises (Zero2IPO 2007).According to Zero2IPO report, USD$4B VC funds were raised each year in 2005 and 2006 for China investment. But Chinas annual consumption was no more than $2B. The money chasing deal phenomenon started to emerge in China. galore(postnominal) foreign VC funds, especially first-time funds raised after 2005, had the pressure to displace out investment quickly to distract US dollar wear and tear against RMB and to get snap off deals under fierce competition. While the funding supply multiplied, quality deal flows did not increase at the same pace. down the stairs the childlike supply and demand mechanism, valuations of the China deal kept at relative high level. However, considering the fact that a big portion of funding was cerebrate on topical anesthetic anesthetic value-add service segments (i.e. internet, web2.0 and broadband etc.), the issue of funds over-supply was orbit specific. To get higher return under the competit ion, VC firms started to invest in traditional business models such as hotels, travels and fast food durance beyond their core activities such as TMT (Technology, Media and Telecom) or Internet related businesses. It was the special phenomenon happened in China now that VCs were more like PE. effectual and RegulationsAccording to Megginson (2004), the differences in the design and the degree of development of the PE/VC industry are due to institutional factors, with the countrys wakeless system being paramount. Two major factors are paramount in evaluating sub judice system contract law enforcement and tribute of shareholder rights through effective corporate governing body. Cumming and Macintosh (2002) observe that PE/VC managers in high enforcement countries had a greater tendency to invest in high-tech SMBs, exit through IPOs rather than buybacks and take higher returns.Cumming et al. (2004) merely examined sanctioned system effects on governance structure. Under better sanctioned systems the faster the origination and screening of deals the higher the opportunity of syndication less frequently funds of the same organization used to invest in a given company the easier the board representation of investors the lower the luck that investors postulate periodic cash flows prior to exit and the higher the probability of investment in high-tech companies.Lerner and Schoar (2005) show that in a bad healthy environment, PE/VC managers tend to buy lordly stakes, leaving the entrepreneurial team with weaker incentives. Interestingly, valuations tend be positively correlated with the quality of the jural environment. Kaplan et al. (2003) go deeper into the contractual aspects and found that rights over cash flows, liquidation and control, as well as board participation vary according to the quality of the profound system, the chronicle standards and investor protection across countries.However, more sophisticated PE/VC managers tend to operate in t he U.S. style irrespective of topical anaesthetic institutional frettings. The authors show that managers operating with sofa bed favorite(a) stocks are less prone to failure (as measured by survivorship rate). The results suggest that the U.S. contractual style can be efficient in different institutional environments. Bottazzi et al. (2005) corroborate some of the prior results and obtain further evidence on the home-country effect (PE/VC managers operating abroad tend to claim the investment style used at home). This is observed in managers base in both good and bad legal environments.The Chinese regulations presidency foreign venture capital investment are dis attired and rapidly changing. In 2005, Chinese authorities issued new guidelines (effective in 2006) intending to value domestic venture capital firms. There is no specific regulation to monitor and stimulate the VC activities in China. The new guidelines recommended that topical anesthetic anesthetic governments provide financing assistance, fortunate tax treatment, and direct investment in Chinese venture capital firms. They also provide less stiff capitalization, investment amount, investor fashioning and regulatory requirements than those applicable to FICVEs (Guerrera, Yee and Yeh, 2005). FIVCEs instead are governed by 2003 regulations that include high investment and qualification thresholds, government approval requirements, and strict foreign exchange limitations on the ability to remit profits and dividends back to the investor (Hoo, et al 2005a). literal legal and de facto restraints on the ability of FIVCEs to entrance the stock markets in China and afield for IPO tilts make exit strategies extremely difficult. For these reasons, foreign venture capital firms investing in China usually do not use FIVCEs but rely on seaward belongings companies created to receive their investments. Foreign venture capital firms (most of which are U.S. ground) investing in China generally ha ve done so through the restructuring of Chinese companies into seaward investment vehicles.These enable an easier exit from investments either by marketing shares on international stock markets or through a trade sale to another foreign buyer. In January of 2005, Chinese authorities brought these legal proceeding to a virtual standstill, however, with the issuance of new regulations preventing any onshore resident from establishing, controlling or owning shares in an inshore company without the approval of the Government, either right off or indirectly. The regulations were intended to stop managers of SOEs receiving venture capital investments from stripping state assets and selling them cheaply to abroad companies, and to preclude domestic companies from using the oversea vehicles to gain foreign investor tax exemption status.However, they choked off legalize minutes as well. There were no government approvals of offshore investment transactions in 2005. With only limited exceptions for transactions in process, foreign venture capital financing through offshore investment vehicles screeched to a checkout in 2005 (Borrell and Jerry, 2005).Then, in November of 2005, the Chinese authorities issued superseding regulations. These require modification of offshore investment vehicles with the State Administration of Foreign Exchange (SAFE), but do not require the agencys approval of the transaction. They also require repatriation of all distributions of income from the investment within a fixed time frame. Like the previous regulations, the new ones do not describe specifically the registration process, the procedures involved, the range of mountains of look back nor the time required for completion, creating substantial uncertainty for foreign venture capital investors (Hoo, et al 2005b).Despite this changing regulatory landscape, many U.S. based venture capital firms have active plans for substantial investments in 2006 spurred by Chinas high growth potential, the success of recent venture-backed startups on the NASDAQ including Baidu.com and China medical checkup Technologies and by pent up demand after the 2005 halt in new investments (Borrell, Jerry and Aragon 2005).Hidden risk and solutionsLagging legislation and inexplicit policies in China created many uncertainties and entry barriers for foreign VCs. Below are summary of the critical problemsChinas lawmaking on VC investment remains stagnant living laws such as Corporation Law, Joint Venture Law, Patent Law, etc., in many aspects even contradict VC investment.Does VC investment count as foreign investment? What status and treatment should it enjoy? The concerned authorities cannot provide surface answers to these questions.Its not clear that the amount of shares that foreign venture capital is allowed to hold when partnering with Chinese enterprises, and the way foreigners to remit in/out of foreign exchange are poorly defined.There are three available approaches for foreign venture capital firms to enter China venture capital market legally.Establishing offshore venture capital fund focusing on ChinaEstablishing a foreign invested VC firm in China (Joint VC with local actor/Wholly Owned Foreign firm) as a legal someone entityEstablishing a foreign invested VC firm in China (Joint VC with local pseud/Wholly Owned Foreign firm) as a non-legal someone entityTo avoid the legal and regulation barriers, foreign venture capital funds usually takes the offshore investment route. Foreign VCs will use offshore USD fund to invest into China deals offshore place entities with all equity activities chance outside of Chinese jurisdiction. The distinction of USD offshore holding investment and RMB local entity investment is a particular phenomenon in China.Offshore holding arranging is a preferred structure for Chinese entrepreneurs and VCs as it provides a practicable and practical route for funding, divestment and all equity events. Its advantage an d attractive feature to Chinese entrepreneurs and VC communitiesGo away from laws and regulations in China. Many of them are not amiable to venture activities, such as lack of preferred shares, stock options limitation, threefold tax etc.Bypassing capital account control on foreign exchange.More flexible and usually profitable divestment options by overseas IPO, MA or trade sales.Offshore route investment involves the pursual stepsThe Chinese founders set up an offshore holding company in Cayman Island or BVI with the shareholding structure and management control mirroring those of their local company in China.With kind of swap scheme, transferring the equity they hold in the Chinese local company to the offshore holding. This will typically convert the local company into a WFOE (Wholly Foreign Owned Enterprise).The offshore holding company will then be the vehicle seeking VC investment, future funding as well as for listing or be merged. whole equity events happen in offshore. Companies funding and IPO tax return will be kept offshore, and remit into China as and when operation required. Chinese founders assets, rights and proceeds stay offshore. The whole exercise is carried out essentially with an IPO at an overseas stock exchange, such as NASTAQ or Hong Kong transport Exchange in vision. (The concept and process is visualized in chart 5.)Chart 5 Foreign VC Offshore Investment sufficeSource A legal perspective on Chinas venture capital rush, Mar 2006Restrictions in Chinas corporate regulations and limitations at the domestic capital markets rationalize foreign VCs preference in taking offshore route to organize their China investment. VC investors rely normally on preferred stocks or sofa bed preferred stock to secure a preferential return. Chinese corporate regulations allow only one class of common stock for a FIVCE with investment in a Chinese portfolio company.Notably, local VC firms would have the possibility to lop preferred stock scheme wi th their investee company according to a impertinently issued charter regulation applicable to domestic VC firms. This gives rise to concern on the principle of national treatment under WTO law.Moreover, China domestic stock market does not provide a ready access for venture-backed companies. The conditions for listing at Shanghai or Shenzhen main-board market are too stringent for high-tech start-up companies. Even if listing conditions could be met, the queue in the channel waiting for a listing window is at the here and now frustrating. In fact, the two domestic stock exchanges have halted the IPO since two years in the call for addressing the notorious overhang of nontransferable legal person shares.The undergoing endeavor is focusing on floating all stock legal person shares. Since the value of stock legal person shares is roughly doubly of those trading in the stock exchange, full floating of legal person shares at stock is imposing acute challenge on the market place.This would mean that the suspension on IPO of new shares would be expected for a rather extended term. By leveraging on an offshore holding structure, foreign VCs could take advantage of the corporate governance in a jurisdiction where they feel most comfortable and bypass the restrictions under Chinese corporate law. VCs could take theAnalysis on Current Venture Capital Market in ChinaAnalysis on Current Venture Capital Market in ChinaIntroductionThe huge consumer market potential and booming economy in China attract enormous foreign direct investments to capitalize this unprecedented opportunity. Foreign venture capital is not exceptional from this trend. They, however, still have to face constant challenges from regulations, market practices and business cultures in China. To be successful in this marketplace totally different from their origin, foreign venture capitals need to adapt their previous strategies and experiences and test it through trial and error.This report is to get o verall picture about current venture capital market in China. Then it will focus on the market position of foreign venture capitals. The report is followed by the analyses and summary on investment and exit strategies used by foreign venture capitals. Finally, the report will discuss the potential trend in China venture capital market.Key ObjectivesTo get in-depth analysis on current venture capital market in China and foreign venture capitals market position in China.To analyze and summarize the investment strategies and exit strategies used by foreign venture capital in China.To make prediction on future market trend, especially foreign venture capital.Key ChaptersGeneral introduction on venture capitalHistorical development and current venture capital market in ChinaDetail market position analysis on foreign venture capital in ChinaInvestment strategies of foreign venture capital in ChinaExit strategies of foreign venture capital in ChinaFuture trends in China venture capital mar ketIntroduction on Venture CapitalVenture capital is source of funds to small firms that cannot establish credit relationships with bank or other financial institutions. As Gompers (2001) states Companies that lack substantial tangible assets and have uncertain prospects are unlikely to receive significant bank loans. These firms face many years of negative earnings and are unable to make interest payments on debt obligations.Start-up high tech firms are exactly the type of firms that banks are least likely to lend to because of poor information availability and lack of tangible assets or assets that can be readily evaluated. Firms developing software or new technology for the communications or biotech industries are largely investing in human capital. In a nutshell, the VC firm is a relative small financial services professional organization that functions primarily to (a) assess business opportunities (b) provide capital and (c) monitor, advise and assist the firms in its portfoli o.By investing, the venture capitalists accept substantial tranche of illiquid equity that converts their status to something like partners to the entrepreneur. The goal of the venture capitalist is not only to increase the value of that equity but also to eventually monetize the investment through a liquidity event such as an initial public offering or sale to other investors. The other way of reaping the reward is liquidation due to the firm failure and bankruptcy. In all of these scenarios, the venture capitalist exits their investment to complete the VC process. The venture capital cycle is briefly visualized in below chart.Chart 1 Fund flow of Venture Capital CycleSource National Venture Capital Association Yearbook 2008The National Venture Capital Association in the United States defines venture capital as money provided by professionals who invest alongside management in young, rapidly growing companies that have potential to develop into significant economic contributors. T here are a number of key attributes associated with VC that distinguish it from other equity capital investments. Venture capital normally focuses on small firms that have great growth potential. These firms usually are not mature enough to be traded in public equity markets. Compared with public equity investment, venture capital investment has poorer liquidity with more severe information instability and higher investment risks.Venture capital investment is also different from angel capital. Managers of angel capital use their personal money to invest. In contrast, investments professionals who raise money from other investors manage venture capital. Angle capital invests more often in the seed stage of the start up firms than venture capital does. Finally, venture capital is different from non-venture private equity investments (such as buyouts, restructure, and mezzanine funds). Firms backed by venture capital usually have considerable growth potential.For these firms, the cash flow generated from operations is usually insufficient to support finance growth and debt financing is usually not available. In contrast, private equity funds target more mature firms that have stable cash flows and limited growth potential. The Table 1 below summarizes the investment stages and types of funding for different investment styles.Table 1. Types of Funding and Investment StageSource A Guild To Venture Capital (3rd edition) by Irish Venture Capital AssociationThere are five stages (BVCAPWC, 1998) in the development of venture-backed companies, which can be defined as 1. Seed2. Start-up3. Other early stages (exploration)4. Expansion5. Maturity (exit).The definition of the company stage is different with the definition of the financing round. The negotiation of a VC investment is a time-consuming and economically costly process for all parties. Neither the VCs nor the portfolio firms want to repeat the process very often. Therefore VCs have to balance the cost of negotia tion and potential risks from one time investment. Typically, a VC will try to provide sufficient financing for a company to reach some natural milestone, such as the development of a prototype product, the acquisition of a major customer, or a cash flow breakeven.Each financing event is known as a round. So the first time a company receives financing is known as the first round (or Series A), the next time the second round (or Series B), and so on and so forth. With each well-defined milestone, the parties can return to the negotiating table with some new information.These milestones differ across industries and depend on market conditions. A company might receive several rounds of investment at any stage, or it might receive sufficient investment in one round to bypass multiple stages. One special situation is the down round. It is when the company does not meet milestones and the VC still needs to invest but at a lower valuation than prior round of financing.Venture Capital in Ch inaWhy invest in China?There are four major popular arguments behind for the investment rush to east.Reason 1 High Rate of Economic GrowthChinas impressive economic growth for the past 30 years, averaging between 8% to 10% real growth per year, has been the envy of the developing world. The size of Chinese economy by the end of 2006 reached US$2.62 trillion, 13 times larger than that in 1978 when measured in constant RMB (MasterCard Worldwide Insight, 2007). According to Goldman Sachs China economic research (2003), per capita GDP expect to grow from less than $5,000 at that time to more than $30,000 in 2050 (refer to Chart 2). China will have a middle class of more than 500 million by 2025 larger than the entire population of the United States.It represents a huge emerging demand for everything from integrated circuits to cars. 500M mobile users, 130M Internet users, 104M broadband users and 4.5M college graduates every year could all transfer into huge business opportunity (repre sented in Chart 3). Based on the estimation (Chart 4) from Mckinsey, there will be sustainable market growth to 2025 in every business that related with peoples life and daily consumption.Huge opportunities for venture capital are Internet (B2B, B2C, C2C, online gaming, website portal and web 2.0), semiconductors, technologies (clean energy, medical, biotech and traditional manufacturing), and consumer businesses (food, clothes, shopping and other entertainments).Chart 2 China GDP Growth Forecast (2000-2050)Source Goldman Sachs 2003Chart 3 China Energy/Material supply imbalance (2010)Source Goldman Sachs 2003Chart 4 Urban Chinese Consumers Demand Forecast (2004-2025)Source National Bureau of Statistics of China Mckinsey Global Institute Analysis Reason 2 Inefficient Capital MarketIn the United States and Europe, private and public capital markets compete as sources of capital. However, China does not yet have an equity culture despite the adoption of market-oriented policies. In Chi na, the public equity market lists inefficient and unappealing state owned enterprises (SOE) most of the times. And government holds roughly 60-70% of share capital of most listed companies.Few private firms are listed in the stock market due to legal and policy hurdle. Chinas bond market is similarly underdeveloped. Chinese corporate bonds account for less than 2% of corporate financing.Thin trading between banks and investors makes issuing bonds unattractive for fundraising or investing. Insurers and fund managers therefore have few fixed-income securities to hedge against mid- and long-term risks. The corporate bond market just started to function in late 2007 by allowing public listed firms to issue corporate debts. Around 95% of financing for Chinese companies now is still provided by bank loans.The domestic banks, however, have tendency to provide loans to stated owned company rather than private firms, especially small and medium businesses (SMB). With the poor functioning fi nancial markets and policy discrimination, venture capital and private equity become important sources of growth capital for private firms. It is one of the key reasons that venture capital is so popular among private firms in China across different industries even including traditional industries like food, hotel and travel etc.Reason 3 Creative Solutions/Early Adopting ConsumersOne of the most unexpected attributes of the emerging Chinese market economy is how consumer-savvy its entrepreneurs are. Even after decades of centralized economic planning, the Chinese remain consummate creators and marketers of interesting products. Definitely the creativity and innovations are only limited in certain business for talents availability and their professional capabilities.Online gaming, wireless instant messaging, and wireless value added services are just three markets that the Chinese more or less created out of thin air. Each of these businesses has growing customer bases (and have spaw ned successful public companies like Shanda, Netease, Tencent, and Linktone). But none of them has significant participants yet in the United States. Different consumer behaviors contribute to this phenomenon as well. In below case study on Tencent, it provides a great example on how to innovate the Internet product offerings to cater the needs of online generation.Case study QQ of Tencent (Adapted from www.tencent.com)Tencent (listed in HK stock exchange) is the 1 Instant Messaging (IM) service provider in China. Tencents IM community counts over 270 million active accounts and is said to be covering 95% of Chinese Internet users and 70% of Chinas IM market (MSN/Yahoo account for the rest market). QQ is the brand for its IM. Same as other IMs, QQ is a free tool to use. Tencent, however, came up the idea to generate revenue stream by allowing users to buy and exchange virtual items (clothes and background image) online to decorate his or her QQ head icon. Tencent even created its ow n cyber currency called Q Bi and 1 Q Bi = 1RMB (0.14 USD) to facilitate the transaction and reduce barrier of online purchasing. The estimated revenue generated from those Internet value added services in 2007 is around USD$360M.Reason 4 Risk-taking, Innovative CultureIn the last fifteen years, the privatization reform is one of the critical forces in stimulating China economy growth. This privatization wave also generated tens of thousands entrepreneurs. The business culture is naturally comfortable with risks and with developing innovative ways to solve problems and create wealth both for individuals and for society at large.The successful stories of VC backed entrepreneurs further promote the risk taking culture in China and the awareness and popularity of venture capital. The Focus Media case below illustrates the power of business model innovation by its unprecedented expansion speed ever in Chinas business history. There is no doubt that foreign VCs played an important role in this story to make Focus Media successful.Case study Focus Media China (Adapted from www.focus.com)Founded in 2003, Focus Media is Chinas largest Digital Media Group in China now. The founder, Mr. Jiang Nanchun, came up with an innovative approach in operating out-of-home advertising network using audiovisual digital displays. Basically, the idea was to display the LCD near or in the elevators in commercial centers (like office buildings and shopping malls). While waiting for or in the elevators, people would watch the contents advertised in those LCDs.By selecting and contracting with high quality commercial buildings, Focus Media was able to quickly build up its network scale and attract many advertising contracts. Tow foreign VC firms, Soft Bank and UCI, invested in the first round. And another five VCs, CDH, TDF, DFJ, WI Harper and Milestone, invested in the second round. Two years after operation, Focus Media was listed on Nasdaq with USD$172M IPO and now it is part of Nasdaq 100 index.Historical developmentInfancy stage 1984 1995In 1984, the Research Center of Science and Technology Development of the State Science Technology Commission (SSTC) (now the Ministry of Science Technology or MOST) cooperated with British experts to study how to develop high-tech in China. The British experts proposed that venture capital should be developed if China wanted to foster high technology.In 1985, the Central Commission of the Chinese Communist Party and the State Council pointed out in the Decision of Science-Technology System Reform that venture capital could be set up to support the work of developing high-tech with quick change and high risk. It was the first time that the concept of venture capital appeared in an official Chinese Government document.With the government decision to develop high technology industries, the Central Government and some local governments financed and set-up series of investment institutions that intended to pursue the venture capi tal business from 1985 to 1995. Examples are China New Technology Venture Capital Company, Shenyang Science-Technology Venture Development Risk Center, Shanxi Head Office of Science-Technology Fund Development, Guangdong Science-Technology Venture Capital Company, Shanghai Science-Technology Venture Capital Company, and the Science-Technology Venture Capita Company of Zhejiang Province. Moreover, venture centers (i.e., high tech incubators) were set-up in the majority of national high-tech parks.Simultaneously, some overseas investment banks, funds and venture capital institutions also started to expand their business into China. For example, the Pacific Technology Venture Capital Fund subordinate to IDG entered China in 1992. It cooperated with science-technology commissions in Beijing, Shanghai and Guangdong, and set-up a number of venture capital companies focused on investing in technology companies. Also, some foreign capital or joint stock investment institutions established v enture capital businesses.Asia Venture Capital Journal (AVCJ, 2001) shows that $16 million was raised for venture capital investments in 1991. In 1992, the total funds raised jumped to $583million, a thirty-fold increase compared with the $16 million in 1991. The first wave reached its peak in 1995, with $678 million in investment (AVCJ, 2001).The first wave of venture capital investments was brought by international venture capitalists. The international venture capital firms accounted for more than 95% of the total fund raised in the early and mid 1990s.The absolute dominance of international venture capital funds in China in the early and mid 1990s was mainly due to Chinas strict regulations against fund-raising and the general lack of awareness of venture capital in China. Private fund-raising by individuals or private firms without government approval was strictly prohibited in China. This strict regulation essentially removed the possibility for venture capitalists to raise fu nds within China.It meant that only international venture capital funds and state owned enterprises (SOE) venture capital funds could operate. International venture capital funds could bypass the regulation because they were incorporated and they raised funds outside of China. SOE funds relied on government appropriation as funding sources and did not have this fund raising problem either.Early Growth 1996 2001From the mid-1990s, the perception of venture capital shifted from being a type of government funding to being a commercial activity necessary to support the commercialization of new technology. As there were still no laws or regulations about setting up foreign venture capital institutions in China, many overseas investment institutions established their branches in Hong Kong, aiming to invest in the mainland. They had also located representative offices in some major cities, primarily Beijing and Shanghai. Most of the VCs active in China in the early 90s were American firms .The VC industry in the U.S. had matured and attracted a significant amount of funds. Shortly after 1995 a sharp increase from US$5 billion to US$110 billion in funds raised created the phenomenon of money chases deals (Gompers Lerner, 1999). A cadre of experienced American VCs started searching the world for investment opportunities, attempting to replicate the Silicon Valley model. Since 1998, there had been a discernible recognition of the critical success factors necessary to create an environment in which venture capital could operate smoothly and flourish.Specifically, the Governments official decision to support the development of venture capital was the key factor that had allowed Chinas venture capital industry to come into being in a new and more positive environment. In Beijing, alone, there were about 30 independent venture capital institutions, whose capital amounted to an estimated $450 million. In Shenzhen, there were at least 20 independent venture capital instituti ons with capital amounted to over $500 million. After 2000, China also experienced hard landing in its young VC industry due to dotcom bubble burst and came with huge casualties. It took the VC community 3 years to recover.Fast Growth 2002 presentAlthough initial government-backed investment operations generally failed, there has been resurgence in venture capital activity since Chinas admission to the WTO (Kenny, Han and Tanaka 2002). Capital available for investment in Mainland China keeps a steady growth trend from 2002. The capital size was increased to US$21.32B by 2007 from US$10.50B in 2002. The average compound annual growth rate (CAGR) reaches 15.2%. Venture capital investment grew rapidly from $480 million in 2002 to more than $3,247 million in 2007, invested in 440 China mainland or mainland-related enterprises (Zero2IPO 2007).According to Zero2IPO report, USD$4B VC funds were raised each year in 2005 and 2006 for China investment. But Chinas annual consumption was no mo re than $2B. The money chasing deal phenomenon started to emerge in China. Many foreign VC funds, especially first-time funds raised after 2005, had the pressure to pour out investment quickly to avoid US dollar depreciation against RMB and to get better deals under fierce competition. While the funding supply multiplied, quality deal flows did not increase at the same pace.Under the simple supply and demand mechanism, valuations of the China deal kept at relative high level. However, considering the fact that a big portion of funding was focusing on local value-add service segments (i.e. internet, web2.0 and broadband etc.), the issue of funds over-supply was sector specific. To get higher return under the competition, VC firms started to invest in traditional business models such as hotels, travels and fast food chains beyond their core activities such as TMT (Technology, Media and Telecom) or Internet related businesses. It was the special phenomenon happened in China now that VC s were more like PE.Legal and RegulationsAccording to Megginson (2004), the differences in the design and the degree of development of the PE/VC industry are due to institutional factors, with the countrys legal system being paramount. Two major factors are paramount in evaluating legal system contract law enforcement and protection of shareholder rights through effective corporate governance. Cumming and Macintosh (2002) observed that PE/VC managers in high enforcement countries had a greater tendency to invest in high-tech SMBs, exit through IPOs rather than buybacks and obtain higher returns.Cumming et al. (2004) further examined legal system effects on governance structure. Under better legal systems the faster the origination and screening of deals the higher the probability of syndication less frequently funds of the same organization used to invest in a given company the easier the board representation of investors the lower the probability that investors required periodic ca sh flows prior to exit and the higher the probability of investment in high-tech companies.Lerner and Schoar (2005) show that in a bad legal environment, PE/VC managers tend to buy controlling stakes, leaving the entrepreneurial team with weaker incentives. Interestingly, valuations tend be positively correlated with the quality of the legal environment. Kaplan et al. (2003) go deeper into the contractual aspects and found that rights over cash flows, liquidation and control, as well as board participation vary according to the quality of the legal system, the accounting standards and investor protection across countries.However, more sophisticated PE/VC managers tend to operate in the U.S. style irrespective of local institutional concerns. The authors show that managers operating with convertible preferred stocks are less prone to failure (as measured by survivorship rate). The results suggest that the U.S. contractual style can be efficient in different institutional environments . Bottazzi et al. (2005) corroborate some of the previous results and obtain further evidence on the home-country effect (PE/VC managers operating abroad tend to maintain the investment style used at home). This is observed in managers based in both good and bad legal environments.The Chinese regulations governing foreign venture capital investment are chaotic and rapidly changing. In 2005, Chinese authorities issued new guidelines (effective in 2006) intending to foster domestic venture capital firms. There is no specific regulation to monitor and stimulate the VC activities in China. The new guidelines recommended that local governments provide financing assistance, favorable tax treatment, and direct investment in Chinese venture capital firms. They also provide less stringent capitalization, investment amount, investor qualification and regulatory requirements than those applicable to FICVEs (Guerrera, Yee and Yeh, 2005). FIVCEs instead are governed by 2003 regulations that incl ude high investment and qualification thresholds, government approval requirements, and strict foreign exchange limitations on the ability to remit profits and dividends back to the investor (Hoo, et al 2005a).Substantial legal and de facto restraints on the ability of FIVCEs to access the stock markets in China and overseas for IPO listings make exit strategies extremely difficult. For these reasons, foreign venture capital firms investing in China usually do not use FIVCEs but rely on offshore holding companies created to receive their investments. Foreign venture capital firms (most of which are U.S. based) investing in China generally have done so through the restructuring of Chinese companies into offshore investment vehicles.These enable an easier exit from investments either by selling shares on international stock markets or through a trade sale to another foreign buyer. In January of 2005, Chinese authorities brought these transactions to a virtual standstill, however, with the issuance of new regulations preventing any onshore resident from establishing, controlling or owning shares in an offshore company without the approval of the Government, either directly or indirectly. The regulations were intended to stop managers of SOEs receiving venture capital investments from stripping state assets and selling them cheaply to overseas companies, and to preclude domestic companies from using the overseas vehicles to gain foreign investor tax exemption status.However, they choked off legitimate transactions as well. There were no government approvals of offshore investment transactions in 2005. With only limited exceptions for transactions in process, foreign venture capital financing through offshore investment vehicles screeched to a halt in 2005 (Borrell and Jerry, 2005).Then, in November of 2005, the Chinese authorities issued superseding regulations. These require registration of offshore investment vehicles with the State Administration of Foreign Exc hange (SAFE), but do not require the agencys approval of the transaction. They also require repatriation of all distributions of income from the investment within a fixed time frame. Like the previous regulations, the new ones do not describe specifically the registration process, the procedures involved, the scope of review nor the time required for completion, creating substantial uncertainty for foreign venture capital investors (Hoo, et al 2005b).Despite this changing regulatory landscape, many U.S. based venture capital firms have active plans for substantial investments in 2006 spurred by Chinas high growth potential, the success of recent venture-backed startups on the NASDAQ including Baidu.com and China Medical Technologies and by pent up demand after the 2005 halt in new investments (Borrell, Jerry and Aragon 2005).Hidden risk and solutionsLagging legislation and inexplicit policies in China created many uncertainties and entry barriers for foreign VCs. Below are summary of the critical problemsChinas lawmaking on VC investment remains stagnantExisting laws such as Corporation Law, Joint Venture Law, Patent Law, etc., in many aspects even contradict VC investment.Does VC investment count as foreign investment? What status and treatment should it enjoy? The concerned authorities cannot provide clear answers to these questions.Its not clear that the amount of shares that foreign venture capital is allowed to hold when partnering with Chinese enterprises, and the way foreigners to remit in/out of foreign exchange are poorly defined.There are three available approaches for foreign venture capital firms to enter China venture capital market legally.Establishing offshore venture capital fund focusing on ChinaEstablishing a foreign invested VC firm in China (Joint VC with local player/Wholly Owned Foreign firm) as a legal person entityEstablishing a foreign invested VC firm in China (Joint VC with local player/Wholly Owned Foreign firm) as a non-legal per son entityTo avoid the legal and regulation barriers, foreign venture capital funds usually takes the offshore investment route. Foreign VCs will use offshore USD fund to invest into China deals offshore holding entities with all equity activities happening outside of Chinese jurisdiction. The distinction of USD offshore holding investment and RMB local entity investment is a particular phenomenon in China.Offshore holding arrangement is a preferred structure for Chinese entrepreneurs and VCs as it provides a feasible and practical route for funding, divestment and all equity events. Its advantage and attractiveness to Chinese entrepreneurs and VC communitiesGo away from laws and regulations in China. Many of them are not friendly to venture activities, such as lack of preferred shares, stock options limitation, double tax etc.Bypassing capital account control on foreign exchange.More flexible and usually profitable divestment options by overseas IPO, MA or trade sales.Offshore rout e investment involves the following stepsThe Chinese founders set up an offshore holding company in Cayman Island or BVI with the shareholding structure and management control mirroring those of their local company in China.With kind of swap scheme, transferring the equity they hold in the Chinese local company to the offshore holding. This will typically convert the local company into a WFOE (Wholly Foreign Owned Enterprise).The offshore holding company will then be the vehicle seeking VC investment, future funding as well as for listing or be merged. All equity events happen in offshore. Companies funding and IPO proceeds will be kept offshore, and remit into China as and when operation required. Chinese founders assets, rights and proceeds stay offshore. The whole exercise is carried out essentially with an IPO at an overseas stock exchange, such as NASTAQ or Hong Kong Stock Exchange in vision. (The concept and process is visualized in chart 5.)Chart 5 Foreign VC Offshore Investm ent ProcessSource A legal perspective on Chinas venture capital rush, Mar 2006Restrictions in Chinas corporate regulations and limitations at the domestic capital markets explain foreign VCs preference in taking offshore route to organize their China investment. VC investors rely normally on preferred stocks or convertible preferred stock to secure a preferential return. Chinese corporate regulations allow only one class of common stock for a FIVCE with investment in a Chinese portfolio company.Notably, local VC firms would have the possibility to arrange preferred stock scheme with their investee company according to a newly issued charter regulation applicable to domestic VC firms. This gives rise to concern on the principle of national treatment under WTO law.Moreover, China domestic stock market does not provide a ready access for venture-backed companies. The conditions for listing at Shanghai or Shenzhen main-board market are too stringent for high-tech start-up companies. Eve n if listing conditions could be met, the queue in the pipeline waiting for a listing window is at the moment frustrating. In fact, the two domestic stock exchanges have halted the IPO since two years in the call for addressing the notorious overhang of nontransferable legal person shares.The undergoing endeavor is focusing on floating all stock legal person shares. Since the value of stock legal person shares is roughly twice of those trading in the stock exchange, full floating of legal person shares at stock is imposing acute challenge on the market place.This would mean that the suspension on IPO of new shares would be expected for a rather extended term. By leveraging on an offshore holding structure, foreign VCs could take advantage of the corporate governance in a jurisdiction where they feel most comfortable and bypass the restrictions under Chinese corporate law. VCs could take the

Recession in the Hotel Industry

Recession in the Hotel effortA commercialize proposeing surround comprises of macro and micro elements. Marketers should consider just about(prenominal) internal and external environments to understand the whole of the commercialize in which they propensity to sell their products or dos (Masterson and Pickton, 2004).Norm preciselyy, in a time of recessional, nodes do non spend too a lot bullion on everywheresea vacations (Mintel, 2009), beca put on they see them as a luxuries. One could expect, in that locationfore, customers would like take victimize city breaks or a internal holiday. Businessman in any case whitethorn conduct cypher priced modification for their business trips.More everyplace, consumer-spending position has diminished, as they admit had to draw-in their purse strings, although levels of personal expendable income drop been maintained to a percentage point because of historically gloomy(a) interest rates. Mintel(2010) estimates that personal disposable income stagnated amidst 2004 and 2009. The hotel assiduity has been nonably change by the recession.Environment analysis using some(prenominal)(prenominal) models as, PRESTCOM, Porters Five Forces, SWOT Analysis and Segmentation gouge be utilise to examine the effect of the recession upon the hotel labor and for this reason models bequeath be used in this report.2.1.1 POLITICALUp to 1978, the hotel industry erupted rapidly tho later that date, the providence increasingly became marketplace-oriented. This improvement created a much better environment for the industry in which to develop (Hornsby, 1990). consort to Kotler (1996), the semipolitical environment strongly affects the cordial reception industry. The political environment is comprised of laws, government agencies and compact aggroups that define and limit the activities of various organisations and individuals in society.Further much, the EU has proposed plans to sponsor holidays for individuals who do not wear enough m superstary to trip up. fit in to Travel weekly (2010), these plans assist many customers with financial lines to film a holiday. For example, young persons elderly from 18 to 25, disabled total deal and pensioners, etc. The idea to help these throng travel was put for contendd by Antonio Tajani, the EU Commissioner for Enterprise and Industry, who say that a holiday is a valet right.Therefore, this proposal could actually bring on use of goods and serve wells and offer individuals to a greater extent opportunities to realize holidays. Perhaps this great power be good wises for the hotel industry during the recession.2.1.2 REGULATORYAn environment that is regulated protects companies from all(prenominal) other(a). While closely businesses praise the virtues of emulation, they try to counteract it when it affects them. Another focusing is try to restrict a caller-outs unfair dealings and illegal transactions. Furthermore, convention also aims to protect consumers from unfair business practices. If unregulated, firms might interpret unsafe, pocket-size quality products, poor services, be untruthful in their advertising or deceive through packaging and pricing.VisitBritain, the body, which aims to call down UK tourism, has launched a 6.5 million advertising campaign outside the UK to promote the affordability of Britain as a destination. However, it calls for this investment to be matched by the UK government have so far been unsuccessful (Mintel, 2009).Moreover, hotel and eating place taxes have get down a popular source of revenue for topical anesthetic anaesthetic government. Hotel taxes atomic play 18 supposed to be used to backup man tourism however, how this money is spent has been subject to liberal interpretation. Therefore, hotel managers should make sure that these taxes, which be designated to promote tourism, atomic bend 18 used properly and effectively.2.1.3 ECONOMIC FACTORSO ne occurrenceor that complicates the incident is the weakness of the pound a dupest the Euro and Dollar. Sterling has lost value rapidly over the last year. In July 2008, one pound would still buy $2 still by November 2008, it was worth only $1.48, the lowest level for 6 years. Similarly, at one point the pound was al most(prenominal) comprise in value to one Euro. While this is bad spic-and-spans for concourse buying goods or travelling outside the UK, it also means that UK goods and services sprain more winningly priced from the point of view of Euro Zone or regular army travellers (OGrady, 2008)The economicalal environment is comprised of the following factorsWage inflation During a recession wages might amplification. It is depends upon decisions to cut or increase wages that be made by employers. Therefore, hotel managers should pay more aid to income distri howeverion as well as average earnings.Price inflation In a recession, if the economy redresss then commodi ty prices ordain rise. This factor will influence the decisions customers make whether to travel or not.Gross internal help product per capita (GDP) The most important economic factors ar customers purchasing powers and spending patterns. GDP can indicate the magnitude of these factors, because total purchasing power depends on watercourse incomes, prices, savings and credit. Hotel managers, therefore, must be awargon of study trends in income and changing consumer-spending patterns.Exchange rates The UK economy has weakened, the value of the pound against the Euro has decreased and therefore, customers might choose domestic tourism for their holidays.Even during a recession, customers still holiday but prefer to take short breaks to reward themselves. Mintels Annual analyze of Spending Priorities in 2009 showed that holidays remain the targeting concern for consumers, despite the recession.Furthermore, all other leading consumer priorities showed little change compargond t o pre-recessionary times.Specifically, hotels in the UK appear relatively cheap since the fall in the value of sterling and hence more harming to inclimax travellers and holidaymakers. At the same time, this means it is less glossy for UK holidaymakers to travel to the Euro Zone or USA and more attractive to inhabit at home.2.1.4 SOCIAL FACTORSThe age visibility of the UK world is increasing. Furthermore, Mintels (2009) exclusive consumer seek reveals that older adult usage of cipher hotels is slightly below the bailiwick average however, it is somewhat more than for young people.However, even during the recession, some people remain unaffected and they still stay in luxury hotels, much(prenominal)(prenominal) as, the Ritz or the Hilton. They do not cargon about the cost because they lead a luxurious lifestyle. Although these people have not changed their pattern of spending, however, most customers will be affected by the recession and they might prefer to choose ciph er and not mid-range hotels when they travel.2.1.5 TECHNOLOGICAL FACTORSTechnology has a significantly affected the hotel industry in many ways, for example, Travelodge launched a free iPhone cover that allows users to locate their five neargonst Travelodges by GPS. They can see the availability, prices and disc entourage. Moreover, customers can reserve their accommodation or check-in by via internet. In addition, they can obtain in seduceation via new plat bring ins, such as, Facebook or Twitter. These and other technological advances help companies to set out more effective in the marketplace, however, internet penetration levels and demographic breakdowns might make operators use of this distribution blood line ever more viable. If firms adopt useful technological advances, they will gain a emulous edge.2.1.6 COMPETITION FACTORSSince hotels are a service industry, human resources have become an indispensable element of the market. If the turnover ratio of employees is low , the sensory(a) of employees will be strong. As a result, the company will have the advantage of competition.The main substitutes who could replace the customers decision in the UK hotel market are those from other countries. Foreign customers may plan to visit the UK from places where they live, such as, France and Spain. However, untaught House or Bed Breakfast hotels and so on which could also threaten substitutes in the UK domestic hotel industry.Hotels find themselves with different problems compared to their entrants. These problems include a exalted barrier of exit and entry costs with the investment. Thus, the oversized jacket crown investment required to build a hotel represents a sunk cost.Hotels may not meet all their debt payments, taxes and other fixed costs but they can produce enough profit to cover their costs. Even they are perhaps prepared to operate at a loss sort of than close their doors completely. However, when there is an over supplement of hotels but the total number of rooms remains the same, the result will be a price war within the industry.2.1.7 ORGANISATIONAL FACTORSA Hotel manger should decide how to engage with the process of student lodging focal point using his/her capability and skills and be able to adjust and develop it to adapt to customer necessarily and preferences. For example, if a hotel could provide a advanced quality service or promote a particular customer-desirable exertion then client return ratio will be increased. However, the problem that calculates the hotel industry is recruiting qualified staff that can satisfy the standard of service required by customers. Most service employees lack the knowledge and skills to provide a service that meets international standards. This may be because employees have not received adequate training in the skills that are required.For instance, Whitbread has decided to circularise 1,700 Premier Inn rooms across the UK during 2009 and 2010. Whitbread is planning to increase their market share of the UK hotel industry. It will begin to achieve this by building up its market position and providing customers with cost-effective packages (Mintel, 2009). It also plans to develop their booking platform, resurrect their sales and put into place the next phase of its revenue management remains.2.1.8 MARKET FACTORSIn the market arena, the most important thing is the customer firms should affirm the clients they call for to reach and their market segmentation.At the end of 2007, the UK hospitality as well as the hotel industry worldunsubtle had been hardly affected by the recession and many commentators predicted that this would last until at least 2010. In the course of a few months, by early 2009, consumers had radically changed their attitudes and consumption. The optimism that had been expressed earlier could not be sustained (Mintel, 2009).The number of business travellers choosing budget hotels for their commercial trips is increasing. Mo reover, the sense datumt of this trend corresponds to the beginning of the recession in 2008. umpteen companies have reduced their budget for commercial travel in receipt to recessionary conditions therefore, commercial travellers now use budget hotels quite an than mid-market ones. jet-propelled plane holidays and the effect of frequent air travel upon the environment are be raised as concerns (Bainbridge, 2009). Customers who want to reduce the effects of their pollution upon the environment choose to holiday within the UK (Bainbridge, 2009). However, these concerns are not entirely upright for the UK hospitality industry because overseas tourists share these beliefs, so this could reduce inbound tourism into the UK.Saving the environment, however, is currently a relatively low antecedency for most consumers but studies indicate that green issues will gradually become more important in the future (Key Note, 2009).A previous lease has claimed that more customers prefer to h oliday in the UK because of green considerations and as an alternate to flying abroad. Therefore, in 2008, travellers might choose the ferry to holiday as a greener alternative (Key Note, 2009). figure hotels have made important investments in order to close the gap with mid-market leaf blades. The three top most change brands in term of advertising awareness are Premier Inn, Travelodge and pass Inn Express.2.2 SWOT analysis2.2.1 StrengthsThe UK, like many other countries, after rapid economic training with an open policy has now become one of the worlds most attractive places for travellers. On a positive note, the hotel market in the UK is a strong and sophisticated one that offers a wide range of wefts, which could meet different types of customer needs. This includes internationally famous brands as well as smaller individual enterprises. Moreover, there is a decently promotion and support system in place for tourists through organisations, such as, VisitBritain.Moreover , the range of hotels offering different prices could meet individual consumer needs. Luxury, middle range, budget and even the democracy house hotel could satisfy every consumer. In addition, the growth of the budget hotel sector opened up a wider range of clients to the hotel market.In the past ten years, cod to the rise in the level of consumers disposable incomes, the short break leisure market has grown. This phenomenon has allowed customers to have more domestic holiday choice and encourage travel within the UK. This trend has proven very positive for the hotel industry.Another factor that has strengthened the hotel market is the online mental reservation system. Customers are able to search for information, accommodation and book rooms online. This system is not only convenient for customers it is also efficient.2.2.2 WeaknessesProfitability is a major concern for hotels. They worry about losing money during the course of chain operations. In addition, there remains an ab sence of an efficient system to monitor hotel management, which includes employees and retired employees etc (Gavin, 1997).The actual weaknesses in the hospitality industry are draw below.Recession has been the powerful factor from 2004 to 2009. As noted by Keynote (2010), the number of visits attain in 2007 but fell during 2008 by one million.In the face of room oversupply, occupancy rates averaged approximately sixty percent but this figure fell by eight percent during 2007 to 2008 (Keynote, 2010). In an attempt to counter this fall, prices were reduced but this may diminish profitability.Mid-market hotels are coming under pressure, being squeezed, between budget and luxury hotels. Competition in the mid- and budget hotel market is becoming more intensive and probably there will be a price war.The performance of the global economy has a direct influence on the cost of hotel equipment. These costs have been rising and consequentially the financial burden has become heavier.2.2. 3 Opportunities galore(postnominal) tourist and hotel officials now believe that the UK will become the worlds most attractive visitor destination by 2011. This is considered an encouraging sign and a great fortune for those who want to expand their hotel business in the UK. Any expansion is anticipate to be within the mid- or low-grade hotel sector. The submit for high star rated luxury hotels among the various hotel management groups is not expected to rise (WTO, 1999).In late 2008, the pound fell against impertinent currencies and was very nearly equal to one Euro. This means that UK services, including hotels and tourist attractions have become more attractive to overseas tourists as they get more value from their Euros or dollars.The instruction of a global online reservation system will not only make hotels easily reachable but also provide an chance to price of admission a wider client base. match to Keynote (2008), the age profile of the UK population is increasing. Many consumers that belong to this enlarged senior sector of the population have disposable assets, which they use to enjoy their leisure. In addition, the number of retirees is rising, which will have a positive effect upon the hotel market.In the next decade, due to a number of organized activities, such as, the 2012 London Olympics, more attention will be paid to the UK by the international market and it is expect that this will promote a growth in demand from overseas visitors for accommodation.Few leisure facilities, for example, restaurants and bars can cope with any wasted business and, therefore, they are unable to create potential sales from the local area and hotels.2.2.4 ThreatsSince 2004, the long-stay leisure market, that is, stays involving five nights or more has been in decline. Moreover, the number of long-stay hotel rooms booked in 2008 decreased by more than a half compared to 2006, at eleven million (BMRC, 2009).The threat of terrorist activities could discoura ge overseas travellers to stay in the UK.The success of the budget hotel sector is a threat to mid- and upmarket hotel chains. During the recession, customers may choose low price accommodation for their tourism. For example, self-catering and other less expenditure styles of accommodation manifest a voluminous threat at this time.Some budget airline companies that offer low-cost flights to travellers for short weekend breaks may compete with domestic travel in the UK.2.3 Porter Five ForcesThe structure of the hotel industry strongly affects competition between its members, which in turn directs decisions about the choice of strategies that are used by them. Therefore, Porters Five Forces analysis will be used to investigate the industry. raw(a) EntrantsGovernment policies against entrantsFixed cost is hugeHard to access get ahead creditInvestments cannot be recovered immediatelyBuyersLarge hotel, power low Small hotel, power highCustomers as a group have more powerSign contract g ain more negociate powerSuppliersBargaining power depends on the size of the hotelUnique engine room and resourcesSwitching costsCompetitorsCompetition within luxury, mid-market and budget hotelsCustomers change consumption to budget hotels.Little effect on luxury hotelsSubstitutesCamping, caravan clubs, BB and country houses etcCamping and locomote clubs had their best ever year in 2008An attractive option for the budget conscious consumerThe analysis includes the threat of new entrants, competitive rivalry within the industry, the threat of substitutes and the dicker powers of buyers and suppliers.2.3.1 The threat of new entrants adapted hotel sites are not easy to find and building costs are very high. Furthermore, investments cannot immediately be recovered, especially during the period of construction. This factor represents a strong barrier to entering this market. The UK has enjoyed some of its highest periods of growth in quality prices in recent years. The construction industry has been badly affected by the latest recession.Developers are hardly able to gain credit to support large scale building schemes therefore, many hotel projects have stalled (Blitz, 2009).Aside from new nurtures, hotel managers who are unable to access further credit are finding things more difficult. Larger operators and branded chains are able to touch to the medium and long-term over which a boom for hotels and travel are predicted due to emerging markets but smaller operators have less access to the resources that they will need in order to survive the next meet of years (Blitz, 2009). As a result, the threat of new entrants into hospitality industry is limited.2.3.2 The competitive rivalry within industryIn economic downturns, competition occurs within upmarket, midmarket and budget hotels. Mid-market hotels usually cater for tourists who do not travel a lot also, their rooms are priced much higher than in budget hotels. In general, when the economy is in recession , consumer-spending power is less, therefore, they might choose lower priced accommodation. At the same time, budget hotels continue with their strong development plans to offer extra rooms through the expansion of new property. The development of budget hotels has eroded the mid-hotels market sector.However, the upmarket hotels have been little affected. Their customers are less likely to change their consumption patterns. The lifestyles of these customers engender very high consumption. Their expenditure would not change because they are not price sensitive. That is to say, no matter how prices changes, they will continue consuming.2.3.3 The threat of substitutesThere are some substitutes in this market, such as, camping, caravan clubs and BB and country houses. Mintel (2009) predicted that these holidays are an attractive option for budget conscious consumers. These substitutes will benefit from an increase in the number of families who because of financial reasons elect to stay in UK in 2009 and 2010. The Camping and Caravan Club market had their best ever year in legal injury of recruitment during 2008 (Mintel, 2009). Camping holidays are predicted to do rather better over the next few years before the long-term trend towards decline is re-instated. However, growth in this area might not be good news for the hotel industry, as by definition a stay in a hotel does not count as such for this type of holiday.2.3.4 The bargaining power of buyersThe hotel industry is faced by fierce competition. Companies will perhaps sign a long-term contract with consumers to retain their customer base. Therefore, customers possess a strong bargaining power.Behind large hotel groups, there are large amounts of capital to support them to buy land and build new hotels. Consequently, the bargaining power of consumers is quite low with respect to these large hotel groups. Conversely, for small hotels, the bargaining power of consumers is much greater, which means these establ ishments might find it harder to sue customers, expectations.However, customers will segregate into two sectors, namely, individual and group.Customers as individuals This sector will divide into business travellers and individual tourists. Business travellers may have a long-term contract with a hotel, therefore the price for them could be pre-negotiated but for individual tourists, their bargaining powers are almost none.Customers as a group Groups usually book rooms through travel agencies, involving a large number of rooms and the travel agent takes the profit. However, the price is still much cheaper than for the individual. That is to say, their bargaining power is more than the independent tourist is.2.3.5 The bargaining power of suppliersThere are two main bargaining powers in the industry, one is furniture and fittings and the other is food and cigarettes. They are outlined below.Furniture and Fittings When hotels secure furniture they typically establish criteria that th ey use. The number of pieces of furniture purchased is usually in bulk rather than separate items. Thus, orders must be relevant to the number of rooms they operate. For this reason, furniture is supplied by specialist contract providers, which are utilise departments of businesses that already cope with the domestic market as well.Food and Cigarettes Many food and cigarette manufacturers have their own specialised sector that supply and deal with the demands of the hotel industry.However, bargaining power is dependent on the size of the hotel. If a company has very many hotels then its bargaining power with its suppliers is enhanced. Conversely, if the company has few hotels then its bargaining power will be limited.2.4 s.t.p. processSegmentation, Targeting and Positioning2.4.1 SegmentationAccording to Swarbrooke and Horner (1999), the tourist market is divided into demand characteristics within a number of the different segments, which are described below.Family market The defini tion of family means two parents with one to three children. The preference of many families is to minimise the cost that is required to meet their proclivity to have a vacation. However, these needs will depend on those of their children.Hedonistic tourist According to Kozak and Andreu (2006), the number of hedonistic tourists has increased in recent years. They prefer a place with sun, sand and sea, such as, Ibiza. In fact, they have a desire for physical pleasure and a social life.The backpacker market Backpackers for the most part keep their expenditure to a minimum they have the time and want adventure as part of their holiday. Moreover, this tourist usually travels independently rather than in a group.VFR (visiting friends and relatives) People do not stay in commercial accommodation and usually domestic travel is involved (Swarbrooke and Horner, 1999). This form of tourism could also relate to weddings and funerals. In particular, their budget is limited in a similar way to that of a normal holiday.Excursionists or day-trippers In general, these travellers do not travel far and it involves domestic transport. They would do not usually stay overnight.Educational tourists They usually travel to other countries, for example, for foreign culture, student exchanges or attending language classes.Religious tourist This form of tourism can be seen as obligation or transaction for those who have faith and belief but recently traditional spiritual tourism has become, in part, a sightseeing tour, which visits churches and cathedrals (Swarbrooke and Horner, 1999). However, they usually visit the place at a specific time, such as, the Haj.The snow bunting market The snowbird refers to a tourist that travels during the winter, in order to avoid the cold weather. Retired people normally take this type of vacation because they have the time to travel.Tourists with disabilities According to Swarbrooke and Horner(1999), there are many kinds and degrees of disability , which include the followingMobility problems These individuals are bound to a wheelchair and may have difficulty in climbing stairs. prospect problems These individuals have minor eye impairments and unclear vision.Hearing difficulties These individual have injuries to their ears and their hearing is impaired.It is important that hotels have regard for these conditions and have someone unattached to assist them.The short break market This means tourists use their two-day weekend to have a vacation. According to Mintel (2007), the short break market is chronic to grow despite an overall stagnation in the growth of domestic tourism. It is forecast that the volume of the short break market will increase to 9.5 million and its monetary value will be 2.5 billion by 2011.Commercial travellers They usually travel for business and generally involve domestic travel.2.4.2 TargetingIn order to relate to the research objectives of this report as described in earlier in this chapter, the res earcher will inquire into the budget hotels to investigate their target market.Budget hotels focus upon three types of domestic tourists during economic downturns commercial, family and short break. Budget hotel characteristics are relevant to these three types of tourists in terms of limited cost, clean and comfortable accommodation in which to live. In addition, the fact that there many chains are available in this sector means that travellers can be reassured regarding expectations and quality as they are buying into a brand name (Brotherton, 2004).2.4.3 PositioningAccording to Baines, require and Page (2008), positioning is important for a business because it differentiates it from other competitors. As Mintel (2010) argues, the first physical attributes of budget hotels for customers is that they have quality standards, consistent service and are located in many places, which are convenient to access. According to (Brotherton, 2004), the second positioning elements for budget hotels as perceived by customers are value for money, cleanliness and have a great brand reputation.Marketing dialogue can be used to position brands as a system to attract customers (Shimp, 2003). Budget hotels position their brand, products and services via three basic consumer needs, such as, functional, symbolic and experiential (Keller, 1993). These are described below.Functional needs Budget hotel marketers adopt new technology and season sales to appeal to consumers needs for convenience, value for money, physical comfort, etc. These wants can met consumers functional needs and brand satisfaction.Symbolic needs Budget hotels appeal to symbolic needs with their desire or self-image to associate with the brand. For example, tidiness, cleanliness and efficiency, etc.Experiential needs Budget hotels use quality standards for accommodation to address the experiential needs for consistency and hygiene.For a marketer, it is important to recognize that brands benefit by fulfilling these needs, even by a combination of any two. This project will investigate consumer attitudes toward the budget hotel market during a time of economic downturn and analysis how the recession affects consumers consumption patterns and budget hotel strategy.