Last article in the series on Capitalism Lab ended with me having set up factories and R&D -centers in Harbin. Harbin was the cheapest city in the game world. Then I built out discount megastores in Tokyo which had the highest average salaries.
In the end I had built a business operation that produces products cheaply. These are sold at the highest possible price. I improve the quality with the R&D -centers I set up.
Appointing a Chief Operating Officer
My next step was to hire a Chief Operating Officer. The candidate best suited for my needs as a company with manufacturing, R&D and retail, was Jack Ma.
In the real world, Jack is known for his Alibaba E-commerce -empire. Now, this fictional Jack would get to help me run an optimized manufacturing and sales operation. Virtual-Jack’s expertise in retailing is 100/100, manufacturing 80/100 and R&D 100/100.
Instructing the COO
I gave Jack instructions to strive to:
- Maximize market share under pricing policy
- Have low freight concern. This meaning he won’t mind shipping costs when moving products from one city to another
- Never to sell products below costs.
I also instructed the COO to:
- Look for factory supplies from any companies
- To have a low tolerance for low supply. This because of production stopping because of low supply of a resource is an annoyance!
He will only sell products from Bintel Corporation in the stores. Vertical integration makes it easier to:
1) build distinguished products with product R&D and marketing
2) sell factory-produced goods at production cost, being able to provide cheaper and better goods than competitors.
As I set all my factories on the “internal sale” -setting, no competitor can buy Bintel’s products.
I left the rest of the COO instruction values as defaults.
Managing Retail Stores in My Capitalism Empire
I put Jack Ma in charge of every retail store of my company. He has a 100/100 expertise on retailing so he should do fantastically well managing retail stores. Jack now has the power to change product prices, marketing- and training budgets in stores. The COO will also follow my instructions on
- pricing policy: aiming to capture market share (aggressive, lower pricing)
- never to sell below costs.
Risky Financial Moves
I decided to take out bank loan and maximize Bintel’s credit card one more time. This in order to fund business expansion and buying stock in other companies. I increased my loan by 10 + 1 = 11 million. This brought the total loan up to 131 million and monthly interest to 737.000. This is a reasonable sum to pay if Bintel is to become the conglomerate I envision it to become.
At this point, Bintel had just began producing a solid profit. Jack Ma’s addition as the COO would surely positively contribute to earnings from the 6 retail stores owned by Bintel. The cash from 11 million dollar loan was used to finance expansion and buying stock in other companies.
As cash was flowing into Bintel’s coffers I was allowed to take additional 3 million loan. This was boosting total debt to 134 million.
I spent the cash in the bank on a new 24 million dollar discount megastore in Tokyo. After this expansion Bintel would have 7 stores in total.
The land assets acquired in the process made Bintel eligible for another 4 million dollar loan. Now the total debt sits at 138 million.
Capitalism Lab At Its Best – Retailing Fun!
The COO’s retailing expertise started to carry fruit as Bintel’s stores were more profitable than ever and revenues skyrocketed. Highest portion of revenue was from Early Computers, lowest from Crème Lipstick.
Taking Out Even More Loans
The positive development in Bintel’s operations led the bank to loan me 82 more millions. This would balloon the company’s debt to a massive 220 million. At the same time this allowed me to build more stores and even buy stocks in other publically traded companies.
64 millions were spent on building the 8th, 9th and 10th discount megastore in Tokyo. Every new store in the same city benefits from the marketing efforts of the other stores. This making it possible to have high selling prices across the board. This, alongside with high average salaries in Tokyo, is my primary reason for investing in one city. This instead of diversifying to others yet.
My Empire In Capitalism Lab So Far
As a result of my actions thus far, Bintel has become the 1st in:
- operating profit
- annual net profit
- total deb
- employs the most people
- has most product classes
- most product types it produces
- has the best return on equity
Bintel still has a relatively low net worth and cash. This is as I’ve spent literally everything and massive amount of loans to finance aggressive growth by opening new stores.
Bintel’s strength is it’s efficient use of capital and vertical integration between manufacturing and retail. Weakness is the massive amount of debt and low net worth, making the business highly risky during economic downturns. If the positive sales growth would suddenly stop and reverse, Bintel would be highly vulnerable and might go bankrupt.
The product making Bintel most of it’s earnings is Early Computer. This one product produces 27 million in annual gross product. The second place, leather wallet only brings in 6 million. This means Bintel’s business is highly concentrated on the success of one product. This can be a pro or con depending on how well the company manages the competition.
Bintel’s stores are bringing in huge piles of cash, thanks to Jack Ma as the COO. His expertise has given a measurable boost to revenues and earnings as can be seen in the graphs above. When Jack was appointed, there’s an upside notch in the earnings.
Summary Of Part 2 Of Capitalism Lab Strategy Guide
All in all, so far so good. Bintel is producing good cash and has a solid business model. It’s become the largest company in the world in terms of revenue, earnings and people employed. At the same time it has a highly leveraged balance sheet and this means there’s a considerable risk in the business going forward unless Bintel’s growth will go as planned and make it possible to finance its debt.
I will continue the strategy guide on Capitalism Lab so stay tuned for the next article!
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