[Solution]

Students should examine, explain, and contribute a thoughtful reflection on Cravia’s 2014 cash flow which was negative due to its investments in ZwZ in Saudi…

Students should examine, explain, and contribute a
thoughtful reflection on Cravia’s 2014 cash flow which was negative due to its
investments in ZwZ in Saudi Arabia. This 
investment will presumably pay off, but it has implications for the Five
Guys opportunity. Instead of allowing current cash flow to support future
investment, Cravia will have to seek outside financing. As noted in the case,
Saudi Arabia is a massive market of 31 million people with a large and growing
middle class (see case p. 11), and at least anecdotal evidence (see case p. 12)
supports the idea that burger chains do well in the Middle East. Students
typically believe that Hajj should pursue the Five Guys franchise. Many
students, especially those familiar with the brand and/or the Saudi Arabian
consumer, believe that Five Guys will succeed in Saudi Arabia (Bahrain is a
much smaller market, only about 1.3 million, but the consumer profile is similar
to Saudi Arabia). However, it seems that Hajj neither wants to give up any
control over Cravia nor take on debt. He notes in the case (on p. 2) that
selling a stake in his company would be like “giving up his freedom” and the
importance of his family and his own legacy to the decision. If these latter
points do not come up in the case, the instructor can read the quote on page 2
of the case. To give students a tool to calculate risk exposure, the instructor
should distribute TN Exhibit 6, the Risk Exposure Calculator. This tool allows
students to estimate Cravia’s exposure to three types of risk: growth risk,
culture risk, and information/control risk.
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