«Carolina Coelho Advisor: Prof. Nuno Guedes Dissertation submitted in partial fulfillment of requirements for the degree of MSc in Business ...»
Science4you in the UK:
a toy story
Advisor: Prof. Nuno Guedes
Dissertation submitted in partial fulfillment of requirements for the degree of MSc in Business
Administration, at the Universidade Católica Portuguesa, June 2016
Science4you in the UK: a toy story
Title: Science4you in UK: A toy story
Author: Carolina Melo Coelho
Founded in 2008, Science4you is a Portuguese company that develops, produces and
commercializes educational toys. Since day one, the founder aimed to go abroad and conquer new markets outside Portugal. Hence, the company started its internationalization program one year later through exports. Five years after its foundation, Science4you had already opened its first subsidiary in Spain and made the decision to enter the UK market.
The UK market offers great opportunities but at the same time great challenges. The company had the possibility to enter the largest toy market in Europe, with a significant upper middle class and where toys represented a relevant weight on the country’s GDP. But, it also had to face a massive direct and indirect competition, huge number of players in the niche of educational toys and different consumer’s characteristics.
The following thesis is presented in the form of a Case Study and aims to function as an important tool for class discussion where the strategies and progress of Science4you in the Portuguese and Spanish market can be analyzed, as well as the decision and strategy used to enter the U.K market and the challenges the company had to address.
2 Science4you in the UK: a toy story Resumo Título: Science4you in UK: A toy story Autor: Carolina Melo Coelho Fundada em 2008, a Science4you é uma empresa portuguesa que se dedica ao desenvolvimento, produção e comercialização de brinquedos educacionais. Desde o início que o fundador tem como objectivo ir para fora e conquistar novos mercados para além de Portugal. Consequentemente, a empresa começou o seu plano de internacionalização um ano depois da sua fundação através de exportações. Cinco anos depois, a Science4you tinha já aberto a sua primeira subsidiária em Espanha e tomado a decisão de entrar no mercado do Reino Unido.
O mercado do Reino Unido oferece muitas oportunidades mas ao mesmo tempo grandes desafios. A empresa teve a possibilidade de entrar no maior mercado de brinquedos da Europa, com uma classe média alta significativa e onde os brinquedos representam uma fatia relevante no seu PIB. Mas, teve também de enfrentar uma forte competitividade, grande número de empresas no nicho de brinquedos educacionais e diferentes características dos consumidores.
A seguinte tese é apresentada na forma de Estudo de Caso e tem como objectivo funcionar como uma importante ferramenta para discussão da matéria em aula onde as estratégias e o progresso da Science4you no mercado português e espanhol podem ser analisados, assim como a decisão e estratégia utilizada para entrar no mercado do Reino Unido e os desafios que a empresa teve de encarar.
Acknowledgements I would like to thank Science4you, especially Dr. Miguel Pina Martins and Cátia Gil, for their interest in this project and precious help providing me with all the information and data I needed for the development of the case study, and, for their sympathy and availability as well.
A special thanks to my thesis advisor Professor Nuno Guedes, for his significant guidance throughout the whole process, all of the important insights and knowledge, his patience and availability.
Lastly, I want to thank the most important people in my life, my parents, my brother, my friends and my boyfriend, for their support, incentive and words of advice during this important project.
TABLE OF CONTENTS
1. CASE STUDY
1.1. The Company
1.3. Where can we find the toys?
1.4. Stay in or go out?
1.5. The Toy Industry in Europe
1.6. UK Decision/UK Market
1.7. Competitors in UK
1.8. The Future
EXHIBITS - CASE STUDY
2. LITERATURE REVIEW
2.1.1. Entry Barriers
2.2. Toy Industry
2.2.1. Educational Toys
2.2.2. Children vs Gender
2.4. Competitive environment
2.4.1 Competitive Advantage
2.4.2. Porter’s Five Forces
2.5. Product Differentiation and Cost Leadership
3. TEACHING NOTE
3.1. Teaching Objectives
3.2 Assignment questions & Analysis
EXHIBITS – TEACHING NOTE
1. CASE STUDY Miguel Pina Martins, founder and CEO of the Portuguese toy company Science4you S.A., had the dream of conquering the world with his educational and scientific toys. In 2013, five years after the birth of Science4you and two years after the opening of the first subsidiary in Madrid, Miguel made the decision of entering the largest toy market in the EU, the UK market, where there were already a great number of players operating in the same niche as Science4you. Now, in March 2014, after the results of the previous year came out, Miguel was thinking of the promising market and challenges ahead of his subsidiary in London.
1.1. The Company
Science4you S.A. was a 100% Portuguese company that operated into two distinct business areas:
toys and educational activities. It produced, developed and commercialized a wide range of educational toys (Figure 1) related with science, chemistry, renewal technologies, geology and mineralogy, distributed by different product lines such as Games&Puzzles, Build&Play, EcoScience, Science, JuniorScience (3 to 5 years old), Animal Planet, QI Activator, Craft4you and Animals4you.
Thereby, according to the company’s vision, it allowed children to learn while they were playing and having fun.
Toys were the core business of Science4you with 95% of the company’s revenues in 2013 (Exhibit 1).
Educational activities represented the other 5% and included birthday parties, holiday camps, science workshops, scientific entertainment and also experimental science classes in schools, as well as training for teachers. All the toys came with instruction books explaining all the science behind the toy, all the experiments that could be done with it and a bit of the theory involved with the theme.
Thus, it allowed children at an early age to be aware and stimulated for the understanding of how scientific methods worked. These booklets were carefully and specially designed to be very simple, interesting and fun. They were very visual with a lot of figures that children could explore and at the same time they made life for the parents easier. Moreover, it was also a way to encourage the parents to play and spend quality time with their kids.
The company was driven by the aim of improving the education standards in society by offering toys and activities that helped children to understand the world around them and learn, with the help of their parents and family, through a product that offered education and fun at the same time.
It all started in 2007, in a classroom of ISCTE-IUL when 21 year old Miguel Pina Martins took a raffle from the hat that his professor was holding; inside that hat were 10 different business ideas for further development as an entrepreneurship project.
Miguel thought of using the logo, as a certification of the University, in something more interesting:
scientific educational toys. And one year later, on the 30th of January 2008 Miguel founded Science4you endorsed by FCUL, with only €1.125 of his own money and 15 shareholders including students and professors that invested in the project. The money that was missing to reach the €50 thousand of initial investment was obtained through Business Angels and venture capital from InovCapital, within the FINICIA program from IAPMEI1.
In May 2008 the company signed the partnership agreement with FCUL and in October it was ready to start selling, its first three toys (Exhibit 2) – Chemistry 500, First Steps in Science and Wind Energy.
At this point Miguel was the only employee in the company and the only person making all the decisions. Thereon, and despite the very serious financial crisis that was felt in Portugal, within 4 years the company achieved a turnover of more than €1 million, in 2012 (Exhibit 3). At that time the biggest obstacle was to convince the retailers to dedicate some space in their shops for a few new toys that no one knew anything about, and make them believe that the products had the quality and credibility to be sold in those spaces. It wasn’t easy, the company didn’t have a consolidated brand yet and the consumers didn’t know the company or its products. Hence, these initial steps were critical for the company growth and brand awareness.
The company went from a turnover of €606.183 in 2010 to €1.135.941 in 2011, registering a growth of 147%, a situation that was replicated from 2012 to 2013 with a growth of 146%. Concerning the income statement, in 2013 the costs of goods reached €979.176 and the gross margin was 65% 1 Institute that supports investment in small and medium enterprises (SMEs)
7Science4you in the UK: a toy story
(Exhibit 4). Compared to the previous year, it decreased 10% and this loss of margin was explained by the entry in international markets and by campaigns at the national level. The staff costs amounted to €441.658 and supplies and services €1.144.113. The development of exports and the entrance in the Spanish market contributed to the recent growth. In 2011, Science4you started to export to Angola (September) and Brazil (November) which became one of the largest Science4you markets. In 2013 it opened in London its second office out of Portugal, after Madrid. Miguel decided that London would be a key spot to establish the new affiliate which was supposed to represent a great step for the company.
1.2. Strategy Since the very beginning this journey started with a discovery of a gap in the market. There weren’t any scientific toys in the Portuguese market, and Miguel saw here a concept totally unexplored yet very promising. As an entrepreneurship project, the company was always investigating new ideas and trying new experiences in order to go forward with the process of constant innovation.
Science4you invested on innovation in order to come up with new lines of products and different activities and concepts for the children. In 2009 the company only had an offer of 3 different toys and 4 years later it already had 204 different types of products. One of the most significant strategies, regarding the products, was the toy offer especially designed for girls. The outcome was a cosmetic science toy called Perfume Science that automatically jumped to the best seller products list of 2013 (Exhibit 5). Regarding the production process, following the CEO guidelines, the products were designed in the Research and Development department and then produced and packed in the Science4you factory (Exhibit 6) located in Loures, in the suburbs of Lisbon. Then, the final product delivery was taken care of by TNT, one of the largest transportation companies in the world.
In the Science4you value chain, Miguel considered that Human Resources was the most important asset in the company along with marketing and sales. With more than 70 employees in 2013 (Exhibit 7) - including the workers in the warehouse, in the factory and the personnel abroad - with a 28 year old average age, the team was very young and very diversified in terms of background, including graduates in Design, Management, Biology, European Studies, Psychology, Multimedia, Human Resources among others. The CEO considered this diversity to be a great strength for the company.
Furthermore, for the purpose of cost reduction, Science4you recruited new employees under the IEFP program2. Those internships were 90% financed by the Government, with the possibility of joining the company at the end, depending on their performance.
2 Instituto do Emprego e Formação Profissional (Institute of Employment and Professional Training): aims to promote entrepreneurship, creation of jobs and the economic growth, through financial support.
In order to reach more consumers and increase Science4you visibility, the company had been regularly present in two of the main International Fairs: London Toy Fair and Nuremberg Toy Fair, which served the purpose of providing important indicators about the toy sector and where the company exposed its products to retailers and distributors worldwide. Miguel stated “Nowadays, networking is crucial for establishing successful commercial relations, entering new markets and innovating”. Partnerships were also a big bet, since the first partnership with FCUL. Science4you realized that it was a strategy with great value. Besides having the partnerships with Universities of Science in countries where Science4you is established – University of Oxford in London and Universidad Autónoma de Madrid in Spain – it has partnerships with several Science Museums and Educational Parks in Portugal and Spain, as well as several companies. In Portugal, in 2013, Science4you had already a partnership with 16 Science Museums and 33 companies, including large Portuguese companies like Sonae3 and REN4 (Exhibit 8).
Another way to develop and promote the brand’s name and its quality awareness, was winning awards! Science4you has already won 7 prizes awarded by both national and international entities.