LAHORE SCHOOL OF ECONOMICS

Business Policy
Summer 2015

Section: B

Assignment ID: 1

WAC Title: Cold Storage v/s Knitwear

Bisma Amjad

11-05-2015

Background of the Case

In the case we are presented with the situation that two proprietors; Ajay and Durgesh have
recently completed their MBA and are looking forward to establishing two businesses.
1. Cold Storage
2. Knitwear Manufacturing
Both the businesses have various characteristics that set them apart. Where the Cold Storage
business has lower initial investment and a guaranteed revenue stream, the knitwear business is
more capital intensive in nature and has higher return on investment however the returns for this
business are more risky. This is a classic case of Higher risk guarantees higher return.

Analysis of the Case

For each of the businesses, Ansoffs Matrix can be applied and it can be ascertained where both
of the businesses stand.
Cold Storage
Product-market scope
Growth Vector
Competitive Advantage

High (perishable commodities can be used)

Lower (product is undifferentiated)
Higher (Durgeshs Father is a renowned land

Synergy

owner)
Durgeshs family experience can be used to
leverage a competitive advantage

Knitwear
Product-market scope

High (India has a large population and

Growth Vector

knitwear is not a cyclical product)

High (product can be differentiated through

Competitive Advantage

branding)
High (Ajays father has a renowned clothing

Synergy

business)
High (Ajays family business can be used to
push the product through channels)

Although according to Ansoffs Matrix both businesses offer good business opportunities but
both of them can be differentiated when seen through the lens of the Mintzberg model. Where
the cold storage business is operating in a slower market with a guaranteed return since farmers
and food producers will inevitably need to freeze produce at the cold storage, Durgesh will need
to take on an adaptive approach where his business model would be more reactive rather than
tapping into newer opportunities. However, in the case of the Knitwear business, Ajay will have
to take an entrepreneurial approach where all the decisions will have to flow from him and he
will steer the company through thick and thin. Why an entrepreneurial approach is necessary in
the latter case is because the business is capital intensive and hell have to take bold decision
with regards to branding in order to differentiate the product from the competition.
Business Policy Pyramid: Knitwear
Major Policy:
Knitwear Business

Secondary Policy: Retail Level

Business, Eastern UP
Functional Policy: Market and Brand the
Knitwear in order to differentiate it from the
competition
Procedure and Standard Operating Plan:
Operations in locality or expansion into the
national market
Rules: Working hours, number of workers, safety
protocols etc

Business Policy Matrix: Cold Storage

Major Policy: Enter
the Cold Storage
Business

Secondary Policy: Keep the

business in the local vicinity

Functional Policy: Offer Trade Discounts

to clients

Operational Policy: Grow within the existing vicinity

Rules: Working environment, Health & safety environment

etc

Conclusion
Both businesses are operating in dramatically different environments. Where one guarantees a
stable stream of income with lower capital costs but with much lesser returns, the other promises
higher income streams but with more risk, more initial capital requirements and the need to do
extensive branding. Both the projects have a payback period of around 3 years which weighs
more heavily in the favor of the Knitwear business since this implies that the Knitwear business
is so profitable that it can pay off its higher cost of capital in as much a time as the Cold Storage

business and after this has been accomplished, the Knitwear business will go on to make much
higher amount of returns on a year-to-year basis.