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Establishment of a
Coffee and Food-Service Firm
A Feasibility Study
In Fulfilment of the
Requirements of the Subject
Master of Quality Management
This paper is a feasibility study performed for a potential coffee and food-service firm in Dubai, UAE. The wealth of academic literature on the global coffee and service industry service industry maintains that the said category of a developed economy is fast-gaining acknowledgement as an important contributor to a nation’s economy as a whole. Also, the emergence of a global coffee culture has made the coffee industry one of the most lucrative and productive businesses. Roots of such culture could be seen from Central Asia and parts of the Middle East. Thus, coffee drinking on the context of the United Arab Emirates culture has acquired a considerable mark on its culture. It is impossible to ignore the fact that Dubai has now emerged onto the global business scene, in where the speed of Dubai’s growth began accelerating at a pace that has not yet slowed down, which is why an emphasis on the particular emirate was deemed fit for this paper. It is expected that the industry will grow at a faster rate than it did in the past years that they have been flourishing in Dubai. With the study comes the determination of the viability of Dubai as a lucrative area of operations, the assessment of the Dubai coffee and food-service market in general, to be able to come up with a full report of the practicability of establishing a coffee and food-service firm in the emirate of UAE. The discussions provided accounts on the industry background, target market, competitive strategy for the firm, strategic vision, utilisation of new service development techniques and the desired culture of the firm. Moreover, a diagram of the expected service pattern as well as the projected costs and revenues (three-year projection) will be presented.
There are three main industrial categories of a developed economy. The primary industry is the extraction of natural resources, i.e. agriculture, hunting, forestry and fishing while the secondary is the manufacturing industry, which makes use of various tools and a processing medium to transform raw materials into finished goods intended for sale. It is in the tertiary sector, or the service industry, that this paper is focused on, specifically on the coffee and food-service industry in Dubai, United Arab Emirates (UAE) and its feasibility as a profitable business venture. In economic literature, the services rendered by businesses are termed as intangible goods, the bulk of activities of service-oriented organisations being on interacting with people and serving the customer rather than transforming physical goods, which is the characteristic inherent to the manufacturing sector.
The wealth of academic literature on the global coffee and service industry service industry maintains that the said category of a developed economy is fast-gaining acknowledgement as an important contributor to a nation’s economy as a whole. The coffee and food industry, like any other industry, responds to the needs and desires of the consumer. People all over the world are now more conscious about food, health, and nutrition. The ethnic and religious diversity of the people that come to Dubai has encouraged the coffee and food industry in it to prepare products which are suitable to different groups such as the Chinese, Japanese, Italian, Indian, Mexican, Seventh Day Adventist, vegetarian, Jewish, Muslim, among many others. This paper critically reviews the previous statements in the context of a feasibility study performed for a potential coffee and food-service firm in Dubai, UAE. With the study comes the determination of the viability of Dubai as a lucrative area of operations, the assessment of the Dubai coffee and food-service market in general, to be able to come up with a full report of the practicability of establishing a coffee and food-service firm in the particular emirate of UAE, Dubai.
According to (2004), since oil was first discovered in Dubai in 1966, the speed of Dubai’s growth began accelerating at a pace that has not yet slowed down. This was to change the life of not only the people in Dubai forever, but also the economic activities that goes within the place. It is impossible to ignore the fact that Dubai has now emerged onto the global business scene. According to (2004), over one million additional people will be living and working in the Jumeirah, Umm Suqeim and Jebel Ali districts by 2010. Presently, people from every corner of the world live and work there: Brazilian barmen, Burmese gardeners, Indian masseurs, Polish shop assistants, Bangladeshi builders, Philippine nannies, Irish house owners, American architects and Australian musicians, among many others. Due to the oil discovery in 1966, the emirate is young and developments in the tourism industry are seen as viable future prospects (2003). Increasingly, Dubai is distinctively gaining popularity compared with other members of the UAE, as most of the others account their revenues mainly from oil. Dubai is a different case, as they have been more progressively been able to source their income from Jebel Ali Free Zone and tourism ( 2006). From tourism are they able to develop their coffee and food industry further. Locally, their cuisine is mainly based on Middle Eastern dishes and largely borrowed from other countries in the region, particularly in Lebanon, Syria and Iran ( 2004). The diet of the Bedouin who inhabited the area that is now Dubai consisted only of fresh fish, dried fish, dates, camel meat and camel milk (2006). Traditional Emirati cuisine does not lend itself to tantalising interpretations of these ingredients. The range of cuisines offered in Dubai is wide, but mainly falls into several categories. Besides Middle Eastern, one finds plenty of European, Indo-Pakistani and Asian or Far Eastern eateries.
The coffee shops industry, on the other hand, is one of the most lucrative beverage businesses in the emirate, as liquor is generally prohibited. Alcohol in Dubai is only served in licensed outlets associated with hotels (restaurant and bars) plus a few leisure clubs (such as golf clubs and sports clubs) and associations (2006). Restaurants outside of hotels that are not part of a club or association are not permitted to serve alcohol. Non-Muslims who wish to drink alcohol will have to go through the hassle of obtaining a drinking license before they could have alcohol in Dubai. Next to soda, coffee is the preferred drink in Dubai (2006). (2005) described the serving of Arabic coffee as an important social ritual in the Middle East, where local coffee is mild with a distinctive taste of cardamom and saffron and is served black without sugar. It is considered polite to drink about three cups of coffee when invited. Moreover, the locals prefer working at night, as the days are hot, humid, and oppressive, which is definitely not conducive to working. Thus, they drink coffee to stay alert and in focus while doing their work at night.
This background provides an insight to the present state of the Dubai coffee and food-service industry. From projections to the same, it is expected that the industry will grow at a faster rate than it did in the past years that they have been flourishing in Dubai. This thus presents a very lucrative opportunity for anyone who wants to invest in the coffee and food industry in Dubai. The emergence of a global coffee culture has made the coffee industry one of the most lucrative and productive businesses. Roots of such culture could be seen from Central Asia and parts of the Middle East. Thus, coffee drinking on the context of the United Arab Emirates culture has acquired a considerable mark on its culture. Given the growth in world trade and globalisation of the coffee and food-service industry, it is important to recognize that companies in this sector may not fit the assumptions of the standard, perfectly competitive model. The following discussions will provide a feasibility study on the establishment of a coffee and food-service establishment in UAE, with specific emphasis in Dubai. Accounts on the industry background, target market, competitive strategy for the firm, strategic vision, utilisation of new service development techniques and the desired culture of the firm would be provided. Moreover, a diagram of the expected service pattern as well as the projected costs and revenues (three-year projection) will be presented.
Specifically, the primary objectives of this feasibility study are:
Ø To have a closer look at the coffee and food-service industry in Dubai
Ø To determine the practicability of establishing a coffee and food-service firm in Dubai
Ø To enumerate business specifics for the proposed coffee and food-service firm in Dubai
Ø To propose the action to be taken; whether to establish a coffee and food-service firm in Dubai, or not.
The people who will be impacted by this feasibility study would be:
Ø Potential entrants to the coffee and food-service industry in Dubai.
Ø Tourists who want to know about the coffee and food-service scene in Dubai.
Ø The government of Dubai, in the formulation of regulation and policies of the coffee and food-service industry in their emirate.
Ø Other researchers interested in the coffee and food-service industry of Dubai
The service industry is increasingly become an important contributor to the general revenue-generating sector of business. In order for the service industry to flourish, not only is service to be provided on the spot, like products, it also needs a certain level of quality when delivered to customers of the service firm. (2000) identified five dimensions of service quality which affects the process quality and outcome of services being delivered to the customer. These are: (1) Reliability or the ability to deliver services as promised; (2) Responsiveness or the willingness to provide prompt service and help customers; (3) Assurance or the ability to communicate credibility and to convey trust and confidence; (4) empathy or the willingness to provide caring and individualized attention to customers; and (5) Tangibles or the maintenance of the appearance of physical facilities and personnel.
Other factors like role ambiguity (vague expectations and norms, and lack of information about a task) and role conflict (incompatible expectations regarding a task) could also affect service quality delivery (1988). These dimensions or factors are the causes of the major concerns with service delivery issues such staff qualifications, staff-to-client ratios, specific service delivery practices, record keeping, confidentiality protections and condition of facilities. As asserted by (1992), managing service industry quality is a major exercise in applied management strategy, modern organization design, human resource development, data base management and statistics because the complexities are potentially immense in that the variety of systems configurations alone that offer potential in any given industry offers decades of study and experiment as to their quality implications. For the coffee and food-service industry, this implies a great deal. The meaning of quality service may be different for different firms – even firms in the same industry (2004). Thus the idea that customers within an industry, in this paper’s context, the coffee and food-service industry, can hold different expectations for service quality involves an in-depth look at the concerned industry under analysis.
The food-service industry in Dubai has witnessed an impressive growth in the past several years, in parallel with the growing number of tourists who go to Dubai. The main target market for the food-service facet of the firm is therefore the tourists who go to Dubai to experience Arab cuisine in its finest. The secondary target market will be the locals, who have sustained the growth of the food-service industry through their continued patronage of the local restaurants, eateries, fast foods, and other food establishments in Dubai. Specifically, the demographic profile of the market to the food-service firm will be the middle-aged generation of customers, from the 25 to 40 age bracket, as middle-aged people are known to have the most passion for eating out and experiencing new and exotic food.
The coffee market in UAE has been flourishing in the past decades. The coffee drinking culture in the said country has been one of the most eclectic from ‘gourmet’ to the local blends served in coffee houses (2005). The beverage has been served in various ways thus making the market rather varied as well. It is proposed that the target market on this context would be the younger generations of coffee drinkers. Particularly, the drinkers from the age bracket of 16 to 21 years old should be taken into consideration. A need to cater to a specific demographic has spawned the need to acquire a competitive advantage with the rest of the players in the market.
Just because the future of the coffee and food-service industry in Dubai is said to hold so much promise for potential entrants, it does not that the proposed coffee and food-service firm must stagnate. All three competitive strategies for sustainability of a business – acquisition, international expansion, and growing existing businesses (1993) – holds opportunities, though the firm will have to be more focused than all the others’ performance in the past if it wishes to capture them. The company should concentrate on smaller deals at the business unit or category level – not just because of the dearth of big takeover targets, but because smaller deals create more shareholder value. The reason is simple: large acquisitions take a long time to assimilate, so that releasing substantial value through economic synergies is a slow process. After a few years of successful operations, the firm may wish to widen its scope of market outside of Dubai. When expanding internationally, the company should concentrate on specific categories or markets and avoid spreading itself too thinly. The best international margins are enjoyed by single-category businesses or worldwide brand dominators such as Coca-Cola, Wrigley, and Kellogg (1993).
The second-best competitive strategy is to focus on selling a broad range of categories to a limited group of markets. According to (1996), Heinz takes this approach, deriving about two-thirds of its international revenue from just four markets. Companies with a multi-category presence across many markets, such as Sara Lee, Procter & Gamble, and CPC, have earned more modest returns (1993). Kick-starting a stagnant home market will entail managing an organization to encourage innovation. That means the right people in the right jobs, the right management processes, and the right environment to foster growth.
Productivity is another one of the major keys in gaining competitive advantage. Those who have high quality production with the most production are generally those with higher profit margins and lower costs. This allows them to hold a larger market share, proving that productivity improvement efforts are worth the changes in operation, culture, and philosophy that such implementations incur. Through the successes of productivity and quality leaders, the firm would find that enhancing productivity (and quality) is based not only on resources, processes, and techniques but also a correct set of corporate attitudes and goals that recognise and incorporate this goal into its strategies.
At the bottom of the scale, opportunistic or inconsistent strategies seem to reap the worst rewards. Evidence suggests that many of today’s companies are simply not equipped to exploit opportunities for growth. Often, they spend their limited budgets ineffectively; in some cases, as much as 40 percent of a development budget was expended on unproductive projects. Management systems were evidently not able to put a stop to these projects quickly enough.
Strategic Service Vision
The mission of an organization serves as a guiding light on which the company intends to follow in its operations. Specifically, it serves as the framework on which the specific objectives and goals of the company is formed. There have been a considerable number of players in the industry, both foreign and local companies (2007). It is thus important for the company to differentiate itself from the other coffee houses in Dubai. Thus, this organization seeks to provide an atmosphere where middle-aged food lovers and young coffee drinkers could have a place with friends and loved ones to spend quality time while enjoying a serving of the company’s food and beverage.
Utilising New Service Development Technique
The new service development technique can be minor — modifying or updating an existing service (based on already established coffee and food-service firms in Dubai) — or they can be major, based on entirely new service platforms (1999). Regardless of the nature of the innovation, the fact remains that rapid and successful new service development has become a vital business endeavour. The dilemma faced by the firm’s management is that the need for new service development is stronger than ever, but organisations themselves do not have the tools and methods to bring new services to market. The three cornerstones for effective new service development are discussed by (1994): strategy, resources and process. Strategy, according to (1994) is a well-known success factor, means tying new service development to the corporate strategy and goals, identifying areas of focus for service development, taking a long-term thrust, and ensuring that the innovation strategy is clearly enunciated throughout the company. Resource allocation is another familiar success factor. It means having enough of the right people and adequate development financing in place (1994). Of the three cornerstones, process — more specifically, a high quality development process that guides innovations from idea to launch — is less recognized as a critical success factor. Ironically, of the three, it is process — its nature and quality — that has the strongest impact on the business’s new service performance (1994).
Development of new services is one of the most important business challenges that the firm’s management faces. But the design and implementation of a new service development process is one of the most difficult tasks, both conceptually and operationally, that the organisation will face. Putting in place a new service development technique is very much like developing and launching a new service. The difference is that the firm is developing a new management process and the customer is now internal – the company per se– rather than external. Came foremost is the realisation that process change is one of the most difficult types of organisational planning, because it affects company culture. Second is the realisation that this is a major undertaking that requires the help and input of many people in the organisation, including the organisation’s leadership team. Once the support of key individuals had been secured, the following three steps were pursued: defining the process requirements, designing the process, and implementing the process. Thus, a service blueprint diagram (see Figure 1) was produced, as part of this feasibility study.
Service Blueprint Diagram
The diagram below provides a representation of the process flow that the organization intends to establish in its daily operations.
Figure 1. Service Blueprint Diagram of Dubai Coffee and Food House
The figure above is a simple representation of the service blueprint diagram of the company. The blueprint presented above presents the areas of operations of the coffee and food-service house. Specifically, it presents the areas of operations in which the customer could see as well as the unseen areas. This marks down the areas in which the coffee and food-service house should look closely. Similarly it also provides the operational plan that the organisation should acquire the moment there are malfunctions in the operation. This is particularly seen in the delivery of the drink or food to the customers. At this instance of failure, a return to the brewing or food cooking step is in order.
Desired Organisational Culture
The co-operation of organisation and culture is complex and rich. Through interaction processes, organizational members create and re-create unique organizational cultures; while, at the same time, organizational entities are embedded and saturated in a cultural milieu. Just as individual human organizational members are cultural members of their organizations, organizations are cultural members of the societies in which they are embedded. In a multicultural society, like the United States, organizational members bring a multitude of cultures with them in their constitution of organization, and the organizational entity is embedded in a multicultural environment. All organisations are rich with a potential for the study of culture and communication that has not been realized by communication scholars.
Services that the coffee and food-service firm might be the nuts and bolts of the, but organisational culture is their driving engine. The culture influences the joie de vivre, the engagement and enthusiasm of staff. It influences not only the direct outputs and efficiencies of an organisation but also the health and flexibility of employees. Culture exists. Understanding, paying attention to, and tending the culture of an organisation will enable the firm’s management to maximise the intellectual, attitudinal, and behavioural capital that each employee ‘owns’ and chooses to share with the organisation. The culture that the firm’s management influences and builds with their employees exerts a huge impact on what individuals and teams achieve for their organisation. Culture is either an asset or a liability.
The organisational culture intended to exist on the company should reflect a rather homey appeal. The employees should have positive relationship with each other. Specifically, a rather casual atmosphere should be felt in the organization. One way of ensuring that this will indeed take place is by establishing a flat organizational structure. This will make the communications line ‘clearer and initiate a personal relationship with the workforce’ (1992). The positions and rankings of the employees should only be recognized only among those at the upper level of the organization. A rigid hierarchy would be avoided in this instance. In establishing such a relaxed and laid-back atmosphere in the coffee shop, it is anticipated that this will radiate to the customers as well. The environment that the coffee house will offer thus intends to reflect the general strategic mission of the company. The organisation intends to adapt a culture that would focus on never-ending growth and development, allowing the firm’s employees to take into account new and different information that expands employees’ reservoir of performance capabilities, while they are applying the principle of continuous renewal and performance capacity. As a result, the organisation will enjoy enhanced competitive readiness and the ability to constantly grow and develop, avoiding the plateau periods of maturity as well as the slippery slopes of decline.
Also, the firm would establish a culture of coachability, which maintains that employees must be selected based on their aptitude and desire for growth and development. As a result, they will be receptive to constructive criticism, suggestions, and honest efforts to help improve their performance. Employees with high coachability are willing to learn, discover, and accept new ways of performing. Additionally, they are enthusiastic about learning, interested in new methods and innovations, receptive to performance feedback, career-focused, inclined to compare themselves with high achievers, and predisposed to reflective and critical thinking skills. Lastly, the coffee and food-service firm would adopt a principle of performance mastery, which maintains that organisations orchestrate best practices by applying an effective, efficient performance management system. Performance mastery occurs when individuals rely on their strengths and perform without conscious awareness of the steps involved. Employees enjoy supreme satisfaction when allowed to demonstrate performance mastery; they feel invincible and powerful, wanting to repeat the performance over and over again. These experiences enhance employee self-esteem and shape their confidence, where employees own their work, take responsibility for their own growth and development, and focus on both current and future obligations.
Three-Year Projected Income Statement Assumptions
Ø Gross sales for the coffee orders increases by 20% yearly.
Ø Gross sales for both the food orders increases by 15% yearly.
Ø Cost of sales is 15% for the coffee orders, and is constant throughout the three years.
Ø Cost of sales is 17% for the food orders, and is constant throughout the three years.
Ø Energy & Utility Expense is 20% of gross sales for the 1st year, and 15% for the 2nd and 3rd years.
Ø Insurance is fixed at 1000 annually.
Ø Rent expense is 10,000 at start-up year, 5,000 for succeeding years.
Ø Salaries and wages are 25% of gross sales, and are constant.
Ø Employee Benefits are 10% of gross sales, and are constant.
Ø Advertising Expense is 10,000 during the 1st year, and 2000 for the following years.
Ø Operating Expenditures are allowed 7000 for the 1st year and 5,000 for the succeeding years.
Ø Repairs and Maintenance allowance is 500 annually.
The above assumptions were made based on current industry standards and are in dollar currency. Figures for the three year projection could not be said for the following years to come, as local and global economic conditions could notably affect the demand and supply in the coffee and food-service industry.
It can be said that managing both outcome and process quality of a service-oriented organisation, whether on the private or public sector, both on the internal and external environments, is critical to the quality of the service industry as a collective whole. Through excellent handling of the mechanisms and processes involved in the delivery of services whose effects ultimately shows evidence in service outcomes and customer perceptions, an organisation could gain sufficient strategic competitive advantage in the field of service provision. Admittedly, not everything can be proceduralized and, in the service sector, the customer often falls through the gap between alternative procedure outcomes, therefore the only way to solve the problem of quality in the service sector is to employ trained, educated staff and grant them the freedom necessary to do the job (2002). As succinctly claimed by (1994), the management and development of professional skills of the members of the service-oriented organisation is the key to service quality. In a world fast-becoming borderless, service quality has become essential for the survival of the service sector.
From the analysis of the coffee and food-service industry in Dubai, it could be conclusively said that it is very feasible to establish a business venture in the said industry in the emirate. The present rate of growth of the coffee and food service industry in Dubai is one of the most outstanding factors that has been taken into consideration in this feasibility study. Secondly, the present situation of the demand for coffee and food-services in the place is considerably attractive for investing in a business venture in the same line of specialty. The presented proposals and presentation of business specifics further strengthened the author’s conviction that there is a very profitable future for a coffee and food-service business venture in Dubai.
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