Stylz Company, a recent start-up fashion retailer based in theUnited States, is deciding between opening its first

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Stylz Company, a recent start-up fashion retailer based in theUnited States, is deciding between opening its first sales presence in eitherItaly\\\'s Tuscany Region or Spain\\\'s Matarrana Region. Stylz\\\'s financialgroup surveyed potential customers in both markets and has complied a businessplan that estimates the financial impact for the first 5 years. This5-year financial plan estimates that entering Tuscany would generate $9M ofoperating income for Stylz in the first year, which would increase by 10% peryear throughout the plan period. The plan also estimates that enteringMatarrana would generate $5M of operating income for Stylz in the first year,which would increase by 50% per year throughout the plan period.

Inaddition, after completing its 5-year financial plan focusing on operatingincome, Stylz\\\'s management decided also to conduct a business sustainabilityanalysis. Based on Stylz\\\'s strategy, management identified the company\\\'sfour most important stakeholders for its initial sales region decision to besuppliers, employees, regulators, and the local community (in addition toinvestors and customers whose insights drove the results of the 5-yearfinancial plan). The results of management\\\'s stakeholder engagementanalysis, including additional insights with respect to how each stakeholder isexpected to impact Stylz\\\'s performance measures are as follows:

Suppliers: Suppliers carry to impact the sourcing of Stylz\\\'s products inthe chosen sales region. The existing supplier network in Tuscany ismature and already works with other fashion companies in the region; thus,Stylz could connect with this supplier network at a negligible cost. However, the existing supplier network in Matarrana is much less establishedbecause there are fewer competing fashion retailers in the region. Whileless competition offers greater growth opportunities for Stylz, the Matarranaregion\\\'s less established supplier network will require Stylz to spendapproximately $5M during each of its 2 years in the region in order to createadequate supply chain quality and reliability.

Employees: Employees affect the existence and quality of Stylz\\\'s workforcein the new sales region. The stakeholder engagement interaction revealedthat the regions have a very similar cost of living (and therefore, verysimilar wage rates), as well as sufficient numbers of potential hourly storeemployees. However, the Tuscany region has significantly fewer potentialstore managers. As a result, Stylz expects that choosing Tuscany regionhas significantly fewer potential store managers. As a result, Stylzexpects that choosing Tuscany would lead the company to spend an additional $2Mannually to train and develop its store managers that it would not need tospend if it choose the Matarrana region.

Regulators: Regulators affect the cost of Stylzcomplying with any applicable existing or new regulations. Thestakeholder engagement sessions revealed an atmosphere of growing pressure onregulators to increase the number of environmental regulations for companiesoperating in the region. Stylz management estimates that it would need tospend $1M annually in the Tuscany region to comply with these fully expectednew environmental regulations that it would not face in the Matarranaregion. Alternately, stakeholder engagement sessions in the Matarranaregion revealed s surprisingly lax atmosphere in which it is commonplace to paybribes to secure deals and contracts with various necessary business partnersin the region. As a result, Stylz management estimates that it would needto spend additional $3M annually on training its own employees, as well as manyof its business partners, on how to conduct business ethically and incompliance with the Foreign Corrupt Practices Act (FCPA, which is required forall US-based companies). This training would help the company avoidintentional or unintentional unethical activity. Stylz managementdoes not believe it would need to incur this additional FCPA training cost ifit chose Tuscany.

Local Community: The local communityreflects the general attitude of the underlying population toward a particularcompany and its policies. Stakeholder engagement sessions suggestedthat Stylz generally would have the support of the Tuscan community. However, these sessions also revealed a strong undercurrent of resentment amongmany local residents in the Matarrana region from those residents who do notwant a US-based fashion retailer placing its economic, social, or environmentalfootprint within its community. However, Stylz management believes thatits footprint will be significantly positive as it will hire and train localworkers, give back to the community through various programs and new communityparks, and employ state-of-the-art environmental policies throughout its valuechain that will have a net-zero impact on the environment. Stylzmanagement estimates that it would need to spend $1.5M each year to convincethe Matarrana community of its significantly positive footprint. Inaddition, if the Matarrana region is chosen, Stylz management believes it wouldneed to spend an additional $3.5M in the first year only in order to win the approvalof the most influential activist group in the community.

Required:

1. Considering only the results of Stylz financial group\\\'s initial 5-yearfinancial plan (i.e. ignore the business sustainability analysis for thisrequirement), estimate the operating income over the 5-year period for eachsales region - Tuscany and Matarrana. Based solely on the operatingincome from this 5-year financial plan, which region should Stylz Companymanagement select in order to maximize its estimated total operating income? Explain your answer.

2. Next consider only the results of Stylz management\\\'s business sustainabilityanalysis (i.e. ignore the 5-year financial plan for this requirement) thatincorporated the findings from the stakeholder engagement sessions with Stylzfour key stakeholders - suppliers, employees, regulators, and the localcommunity. Based solely on this business sustainability analysis,estimate the impact of the four stakeholders would have on Stylz Company\\\'soperating income over the 5-year period. Explain your answer.

3. Now considering both the initial 5-year financial plan AND the businesssustainability analysis, estimate the total operating income over the 5-yearperiod for each sales region. Based on this combined analysis, which regionshould Stylz Company management select in order to maximize its estimated totaloperating income over the 5-year period? Explain your answer.

4. Conceptual Connection. Identify one important qualitative factor that youbelieve Stylz management should consider in making its initial sales regiondecision. Explain how this qualitative factor potentially change yourquantitative answer to Requirement 3.