Management techniques

SITUATION

Tibor Horvath, a businessman from Budapest, wants to set up a company to recycle waste paper in Hungary. He has discovered that Melina Karavatis, daughter of a Greek shipowner, has inherited a paper mill in Thessaloniki which she wants to redevelop. Most of the equipment will be scrapped, and Tibor is interested in acquiring it for his new venture. He has the backing of Arturo Foscatelli, and Alan Scott has been called in to arrange the finance. They meet in Rome to try to sort out the problems of setting up this new business.

CHARACTERS

Alan Scott  
Arturo Foscatelli  
Receptionist at the Hotel Palestrina. She is Italian.
Tibor Horvath is a businessman. He is Hungarian.

All of these characters are British.

LANGUAGE

Vocabulary Company finance; negotiation and agreement.
Skills Checking into a hotel; making contact with someone you know only by name; looking at a problem from different points of view.
Structures If and the conditional; quantity.
Documents A telex; a letter; a critical path analysis (CPA) diagram; a spreadsheet.

Information for a management decision

16.1 Document study

Arturo Foscatelli has set up a new project with Tibor Horvath, a businessman from Hungary. He sends Alan Scott and Tibor Horvath a telex about the project. Read through it carefully. What raw material will Tibor Horvath's factory require, and what will its main product be?

487290 METRO ITL

CONS NO. 9422 11.09.91 12.15

11.9.91

ATTN: TIBOR HORVATH
URBAN PROJECT
ATTN: ALAN SCOTT
METRO-POLO UK

FROM: FOSCATELLI

RE PROPOSED RECYCLING PLANT AND PAPER MILL see the meaning
I AH HAPPY TO INFORM YOU THAT AGREEMENT ON TRANSFER OF MACHINERY FROM THESSALONIKI TO BUDAPEST HAS BEEN REACHED IN PRINCIPLE. see the meaning A BANK LOAN HAS ALSO BEEN AGREED BUT NO DECISION HAS BEEN MADE AS TO TIMING. MISS KARAVATIS HAS GIVEN US 3 WEEKS TO SETTLE DETAILS OF FINANCE AND TRANSPORT. I SHOULD LIKE TO HAVE YOUR ADVICE ON MATTERS IN WHICH YOU ARE EXPERT AND THEREFORE REQUEST YOU BOTH TO MEET ME IN ROME ON 17 SEPTEMBER. I HAVE RESERVED ROOMS FOR YOU AT THE HOTEL PALESTRINA FOR THE NIGHTS OF THE 17 AND 18. PLEASE INFORM ME AT ONCE IF THIS ARRANGEMENT IS NOT CONVENIENT FOR YOU. I PROPOSE WE HAVE LUNCH AT THE HOTEL AT 1 PM.

REGARDS
FOSCATELLI
487290 METRO ITL
/ENDS
Key

16.2 Listen and read

Alan Scott checks into the Hotel Palestrina. Listen to what he and the desk clerk say. Is Tibor Horvath in the hotel?

DESK Buon giorno, signor.
ALAN Good morning. My name's Scott. I have a reservation.
DESK Mr Scott - yes, that's right. For two nights. You are in room 735. Would you like to sign the register, please?
ALAN Yes, certainly. By the way, do you have a Mr Horvath staying here? see the meaning From Hungary. I'm supposed to be meeting him for lunch.
DESK Mr Horvath? - Yes, we do. I think he's in the bar. Shall I page him for you? see the meaning
ALAN In a few minutes, perhaps. I'd like to freshen up a bit first. see the meaning
DESK Certainly, sir. I'll get the porter to show you to your room. Gino!
Key

16.3 Document study

This is the letter that Tibor Horvath sent to Arturo Foscatelli several weeks before. Read through it carefully. Why do you think that Tibor wants Arturo to become involved in his new project?

Dear Arturo,

How are you, my old friend? I hope you are keeping busy cleaning your offices! I am writing to tell you about something you might be interested in.

Karavatis - you remember him, he was very big in shipping see the meaning - has died, and left everything to his daughter, the delightful Melina. She wants to concentrate on the shipping side of things, and has a site in Thessaloniki she wants to develop as a container terminal. see the meaning

Now, this is where it gets interesting. At the moment there is a paper mill on the site. Most of the machinery will be scrapped, but some of it may be useful in my new venture in Budapest - paper recycling!

How would you like to get involved? Perhaps you could talk to Melina about financing the sale and transfer of the machinery?
Key

16.4 Listen and read

Alan and Tibor are discussing the plans in the hotel coffee shop. Listen to what they say. What is the problem?

ALAN Now, let me get this right. You're setting up a company to recycle waste paper in Hungary, and Metro-Polo is backing you.
TIBOR That's correct. We shall in fact become a wholly-owned subsidiary of Metro-Polo when all the formalities have been completed. see the meaning Everything would have been settled a fortnight ago, if it had gone according to plan.
ALAN Yes, I gathered there'd been some kind of legal problem. I can't say I'm surprised. There usually is with deals like this.
TIBOR Lawyers! Well, anyway, I am right in thinking, aren't I, that you are here to help sort out the financing?
ALAN Well, I presume that's what Foscatelli wants to talk about. There seems to be a problem in the timing. The bank loan has been agreed, the question is when to draw down the money. see the meaning
TIBOR That's it in a nutshell. I'm so pleased we have this opportunity to talk before Foscatelli comes, because ...
ALAN Ah! Here he comes now. Buon giorno, Signor Foscatelli!
ARTURO Tibor! Alan! Welcome to Rome! How are you both? I see you have already introduced yourselves. Now, we have a lot to discuss...
Key

16.5 Reading for key words

Find the words or phrases in 16.1 and 16.4 that show the following:

1 We agree on the main points, but the details have not been settled.
2 We have not yet decided exactly when these things will be done.
3 I want to confirm or correct my knowledge. (Two ways of saying this.)
4 To manufacture paper from paper that has been used and thrown away.
5 In very few words.
Key

16.6 Structure practice: if and the conditional

In 16.4, Tibor Horvath says:

Everything would have been settled a fortnight ago ...

He means that everything wasn't settled a fortnight ago. He continues:

... if it had gone according to plan.

He means that it didn't go according to plan.

To describe something in the past that didn't happen, and so is in a sense 'imaginary', we use 'would have' with the '-ed' form of the verb. To explain why it didn't happen, we use an 'if'-clause and 'had' with the '-ed' form of the verb. For example:

I would have stayed longer if I had saved more money.

This means 'I didn't stay longer because I didn't save more money.'

We would have walked to the station if it hadn't rained.

This means 'We didn't walk to the station because it rained.'

Join these sentences together, using 'would have' and an 'if'-clause, to show the reason why something didn't happen.

1 The contract wasn't signed. The formalities weren't completed.
2 The formalities weren't completed. There was a legal problem.
3 We didn't start work on the factory. We didn't get the bank loan.
4 We didn't talk about the financing. Foscatelli arrived.
Key

Discussing resource limitations

16.7 Listen and read

Alan and Tibor are discussing the recycling project. Listen to what they say. Is shredded paper easier or more difficult to recycle?

TIBOR Another coffee? Or would you prefer a cognac?
ALAN No, thanks! But I will have an espresso, thank you.
TIBOR Waiter!
ALAN Tell me, Tibor, how did you become interested in recycled paper?
TIBOR Ah, well! I realised that my country, like most such bureaucracies, doesn't just consume huge amounts of paper, it also produces a great deal of waste paper. These offices do everything not just in duplicate or triplicate, they do it in twelve, fifteen, twenty copies.
ALAN Yes, but the vast majority of government documents are confidential, surely?
TIBOR A few of them go into the archives see the meaning - maybe five per cent of the total. A lot of official papers get shredded. see the meaning
ALAN That's good. Shredded paper is much easier to recycle.
TIBOR Yes and no. It is easier to recycle, but it's much more expensive to transport. Still, they've done part of our work for us. But most of the stuff goes into departmental filing cabinets. Sooner or later, all the filing cabinets are full; boxes of old papers in all the corridors; piles of paper on the desks; paper everywhere; that's what we're after.
Key

16.8 Structure practice: quantity

In 16.7 there are many words used to describe quantities. Look for examples of 'another', 'most', 'one', 'all' and 'few'. There are also phrases describing quantities. Look for 'huge amounts of', 'a great deal of', 'the vast majority of', 'a lot of' and 'part of'.

The questions below are based on the dialogue. Write answers using the words and phrases listed above.

1 What does Tibor say his country consumes?
2 What does it produce?
3 What does he compare his country to?
4 What does Alan say about government documents?
5 What happens to them, according to Tibor?
6 What gets shredded?
7 What does Tibor say happens to most government paper?
8 So what happens sooner or later?
Key

16.9 Listen and read

Alan and Tibor continue their discussion. Listen to what they say. Why must Tibor make the new business grow so quickly?

ALAN Yes. You'd think waste paper would be cheap, wouldn't you? In fact, I was amazed when I found out how expensive it was.
TIBOR Recycling only starts to pay when you achieve economies of scale. That's why we've got to move fast on this project. The plant's got to come on stream within two months of the contract being signed. see the meaning We want sales to hit five hundred thousand US dollars a month within one year.
ALAN Hm. Don't you think that's rather a tall order? see the meaning
TIBOR Look, I'll draw you a critical path analysis diagram for the installation of the recycling plant. see the meaning
Key

16.10 Reading for key words

Find the words or phrases in 16.7 and 16.9 that show the following:

1 In three copies.
2 Provides a profit.
3 Reductions in unit cost as a result of large-scale operation.
4 We must put this plan into operation quickly.
5 Difficult to achieve.
Key

16.11 Document study

This is what Tibor draws. Study it carefully. You will need it for 16.12.

16.12 Listen and read

Alan and Tibor discuss the diagram. Listen to what they say and study the diagram in 16.11. Which is the critical path? What will happen if one stage of it is completed five days late?

ALAN So this is your network analysis, is it?
TIBOR That's my CPA diagram, yes.
ALAN I see. We read it from left to right; each stage on each path has to be completed before the next stage can begin. The numbers in the circles show the total number of days from the start until each stage is complete. And which is the critical path?
TIBOR Believe me, anything that has to do with getting licences, permits - anything that has to go through a government office - that's critical!
Key

Using a spreadsheet

16.13 Listen and read

Alan is working on some figures the next day when .Tibor arrives. Listen to what they say. Are Alan's figures likely to be very accurate?

TIBOR Good morning, Alan!
ALAN Oh, Tibor, good morning. How are you this morning?
TIBOR Fine, thank you. Tell me, do you always share your breakfast table with a computer?
ALAN Ah! Well, no, but as we're going to meet Foscatelli in a few minutes I thought I'd show you what I was working on last night after we got back from the cafe. Look!
TIBOR Aha! A spreadsheet. see the meaning
ALAN Yes. I tried to sketch out a cash-flow forecast for the first year's operation of your paper recycling plant. see the meaning I didn't have very much to go on, of course - just some estimates you and Foscatelli had mentioned - but, er, I'd like to see your reaction to it.
Key

16.14 Reading for key words

Find the words or phrases in 16.13 that show the following:

1

To make a rough draft of a proposal.

2

I had to work with very few facts, very little evidence.

3

I wonder what you will think of this.

Key

16.15 Document study: the spreadsheet

This is the spreadsheet that Alan has prepared. Study it carefully. You will need it for the rest of this lesson.

The spreadsheet
(click to enlarge)

16.16 Document study

Tibor is looking at the figures, trying to work out what they mean. He asks Alan a number of questions. Answer the questions for Alan, using the figures from the spreadsheet in 16.15.

1 In October, the balance is $151,000 - that's good! Why is it so high? Because you've got your start-up capital - that's $500,000 - and expenditure is low, except for a payment of $240,000 for equipment.
2 But by December we're $39,000 in the red. Why? see the meaning
3 And then a month later, we're in the black again, $36,000. How come? see the meaning
4 Then it goes down, then up in March. Why up in March?
5 The worst month is May. How can it be so bad?
6 Then after that it gets better, but why so slowly?
Key

16.17 Listen and read

Alan and Tibor are discussing the figures on the spreadsheet. Listen to what they say. What is Alan's solution? Why does Tibor think that it won't work?

TIBOR This is why I wanted to talk to you yesterday before Foscatelli arrived. Isn't there some way we can delay repaying the bank loan? I don't want him to think I'm getting cold feet. see the meaning If he gets cold feet as well, then it will all be - pouf!
ALAN Hm. Well, there's that figure for equipment. What's that? Six hundred and twenty thousand dollars altogether. If Melina would agree to postpone the start of repayments for a few months, that way you'd have a chance to build up some capital reserves.
TIBOR If we start to pay for the machinery in April - and spread the payments over six months instead of three. But won't she need the cash to build her new container terminal?
ALAN Not straight away. They have to clear the site first. She won't really need it till next year, when they're ready to start rebuilding.
TIBOR We'll pay her interest on what we owe her, of course. What if we make that a hundred and ten thousand dollars a month for six months, starting in April? Aagh! What's happened? The screen's gone blank.
ALAN It's all right, you've pressed the wrong key, that's all.
Key

16.18 Find the right word

Read the text below on financing the recycling plant. Write a word from the box to fill each of the gaps.

container formalities mill paper postponed
principal principle recycle repayments
scale spreadsheet subsidiary terminal

Tibor Horvath plans to set up a a b which will c waste paper. He has got the support of Arturo Foscatelli, and when the d are complete, Horvath Paper will be a e of Metro-Polo. A bank loan has been approved in f , with g spread over several years. Horvath intends to buy used machinery from a site in Greece which is to be redeveloped as a h i . According to Alan Scott's j calculations, the company will still be deep in the red at the end of the first year. The k reason seems to be that Melina Karavatis is demanding immediate payment. If this can be l until the factory comes on stream, things will be easier. But Horvath appreciates the importance of economies of m in operating a business like this. The company won't start to make a profit until it is producing at least 500,000 dollars' worth of paper every month.

Key


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