Assess risk adjusted opportunities vs. the operating environment in the two target markets of Poland and Bulgaria based on the following documents. Bulgaria ReportCountry BackgroundBulgaria's population is 7.2 million. Its GDP is $56 billion, and its per capita income is $7,853.⁹Market BackgroundThe Bulgarian furniture market is $350 million but may grow rapidly over the next several years.There are 11 companies in Bulgaria that hold a market share between 3% and 10%, and these comprise70% of the market. These furniture companies are predominantly national brands, as internationalbrands like IKEA have not contested this market due to the excise taxes and size of the market itself.Channels of DistributionMore than 80% of Bulgarian consumers shop in one store for their furniture. They purchase almostall their furniture via retail stores; e-commerce was less than 1% of sales. Single-brand retail stores,which are owned by a manufacturer or have exclusivity contracts with a specific manufacturer,accounted for 65% of retail sales. The other 35% of furniture is sold at multi-brand retailers.Consumer InsightsBulgarian consumers focus on functionality and durability and gravitate toward well-establishedbrands that have a long history of furniture manufacturing.ForecastsForta Branded Entry. In the Bulgarian market, forecasts suggest that Forta could build a 1% marketshare in year one, an additional 3% in year two, and an additional 4% in year three, totaling an 8%market share as a branded entry. Based on Forta's cost of capital, all revenue streams in years two andthree should be discounted by 10% annually. Retailer margins are 25%. To reach this level of marketpenetration, Forta would need to spend $3 million in marketing expenses over the three-year periodand another $500,000 in design and production improvements. It is estimated that Forta's productwould have an average retail price of $90.Forta Private-Label Entry. Forecasts suggest that Forta could build a 1% market share in year one,an additional 1% in year two, and an additional 2% in year three, totaling a 4 % market share. Becauseproducts are already priced quite low in the Bulgarian market, Forta would find it difficult to haveBRIEFCASES | HARVARD BUSINESS SCHOOL6Forta Furniture: International Expansion | 918-547private-label price points that would satisfy the local brands. Forta would have to pass through 25% ofrevenues to the retailer and another 20% to the consumer-facing brand. The retailer would charge anaverage price of $90. Forta would require $500,000 in marketing expenses and $500,000 in design andproduction improvements.Abilit Branded Entry. Forecasts suggest that Abilit could build a 1% market share in year one, anadditional 2% in year two, and an additional 3% in year three, totaling a 6% market share as a brandedentry. Retailer margins are 25%. To reach this level of market penetration, Abilit would need to spend$5 million in marketing expenses over the three-year period and another $1 million in design andproduction improvements. The challenge for Abilit is that its brand is modern and young; it does nothave the history and tradition that the Bulgarian market desires. It is estimated that an Abilit productwould have a retail price of $130. Poland ReportCountry BackgroundPoland's population is 38.2 million. Its GDP is $545 billion, and its per capita income of $14,340.7Consumers in Poland are culturally a blend of eastern and western Europe.Market BackgroundThe Polish furniture market is $3.2 billion and has consistently grown at least 5% annually over thepast several years. Nine companies in Poland hold at least 3% market share. The largest brand is IKEA,which has been grown rapidly there for the past three years, sold just under $700 million in Poland in2014, and has a market share of 22%.Channels of DistributionMore than 70% of Polish consumers shop for furniture across multiple stores, looking for the bestcombination of price and style. Polish consumers purchase over 80% of their furniture in retail stores.E-commerce in Poland accounts for about 9% of category sales. Single-brand retail stores account for30% of retail sales. The other 70% of furniture is sold at multibrand retailers.Consumer InsightsBoth durability and aesthetics are important to Polish consumers. Interior design is a growingphenomenon in Poland, so trendy products are valued. The most successful companies release newstyles of furnishings quickly. However, many companies produce trendy products that have lowerprice points, but these products are not very durable.ForecastsForta Branded Entry. In the Polish market, forecasts suggest that Forta could build a .5% marketshare in year one, an additional .5% in year two, and an additional 1.5% in year three, totaling a 2.5%market share as a branded entry. Retailer margins are 30%. To reach this level of market penetration,Forta would need to spend $20 million for marketing and another $6 million in design and productionimprovements. It is estimated that a Forta product would have a retail price of $110.Forta Private-Label Entry. In comparison, forecasts suggest that Forta could build a .5% marketshare in year one, an additional 1% in year two, and an additional 2.5% in year three, totaling a 4%market share as a private-label entry. The large private-label forecasts are due to Forta's ability tounderprice competition to gain a foothold, which in turn is due in large part to lower labor costs andexcess capacity. As a private label, Forta would need to pass through 30% of revenues to the retailerand 25% to the consumer-facing brand. The retailer would charge an average price of $110. Forta wouldneed to spend $5 million for marketing and $6 million in design and production improvements.HARVARD BUSINESS SCHOOL | BRIEFCASES918-547 Forta Furniture: International ExpansionAbilit Branded Entry. Forecasts suggest that Abilit could build a .5% market share in year one, anadditional 1% in year two, and an additional 1.5% in year three, totaling a 3% market share as a brandedentry. Retailer margins are 30%. Abilit would need to spend $17 million for marketing and $3 millionfor design and production improvements. It is estimated that an Abilit product would have a retailprice of $199.5

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The question asked to assess the risk-adjusted opportunities for Forta and Abilit in the furniture…