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Submitted to
Sir Zaheer Abbas

Submitted by
Saima Kausar

Asad Waheed

Kanwal Teresa

Shahana Muzaffar

Anam Ikram


University Institute of Management Sciences


The case is mainly about the proposal that the Takahashi has presented to the PLASTICS
R US Ltd. (PRUL). This proposal is about the operation of a new plant in China for
specifically manufacturing bath tub covers and exporting them to Japan. PRUL was
recently operating in Taiwan. The operations of the company are running successfully in
Taiwan. It is manufacturing plastic products- from compounding to extrusion to finished
products. As well as doors (foldings, bifolds, bypass, and folding shower doors). Other
featured plastic products included louver panels, bath tub covers, vertical blinds, wood-
like Venetian blinds and extruded plastic foam products.

In this case only the production of bathtub covers in considered. In Japan it is the
necessity of the working, as they want to relax at night after a tiresome day. For this
purpose they take a warm bath and to preserve the heat of the water bathtub covers are
very necessary. So PRUL is one of the major companies in Taiwan who manufactures
high quality bathtub covers and export them to Japan. The market chain comprises

Manufacturers Distributors Retailers Consumers

PRUL is acquiring 15% margin from the sales of the bathtub covers. Now PRUL want to
expand in the market for this purpose they had a proposal from Takahashi. Although the
proposal is a good opportunity for expanding but there are several other issues present for
accepting or rejecting the proposal. After several meetings with the senior executives of
the PRUL and three options were raised regarding this proposal which were as:
1. Turn down the proposal and expand as needed in Taiwan.
2. Invest with Takahashi in building a new factory in China to produce bath tub
covers exclusively for Takahashi and share profit based on the investment share
by each party.
3. Invest in building a new PRUL factory in China to produce bath tub covers and
sell them to all Japanese customers without exclusivity.

All the three options have its pros and cons that will be discussed in the following
There are present following issues in the case discussed
• Production cost of bath tub covers

• Low labor cost in China

• Production efficiency improvement
 Production cost of bath tub covers:
Production cost is one of the key elements of PRUL’s vision. PRUL want
to reduce the production cost of bathtub cover, for this reason Takahashi has presented
the proposal for the reduction of production cost. As PRUL would establish a plant in
China their production cost of bathtub covers will be lowered. They would not pay 3.9%
import duty while exporting their products from Japan to Taiwan.

 Low labor cost in China:

As PRUL was recently operating in Taiwan they have to pay higher wages
to the workers of the factory. But if they accept the proposal they will have to bear low
labor cost because the labor cost in china is lower as compared to Taiwan. Now David
Chung, the president of PRUL is planning to establish plant in Shinghai which is major
industrial commercial base in China, although the labor costs in the core of the city were
very high, in the nearby suburban areas, they were comparable with other industrial cities
of China. So we can say that the labor cost would be lowered.

 Production efficiency improvement:

PRUL also want to improve their production efficiency by transferring the
production of only bathtub covers to the new plant in China. PRUL would be able to
increase their production in other products by utilizing the plant left in Taiwan. Further
they may be able to compete with their competitors who had set their plants in China
earlier and are having high cost advantage because PRUL has got higher efficiency in
producing bath tub covers and in addition Takahashi would also cut down their in house
production of bath tub covers and depend wholly on PRUL for bath tub cover production.

For the issues discussed three options are given which are independent solutions. The
three solutions are as follows and the pros and cons are discussed in this section.



Under this option PRUL should undergo the contract with Takahashi in which a
manufacturing factory will be setup in China and the bathtub covers produced exclusively
for PRUL.

1. The initial investment cost will be divided. PRUL will not have to invest 100% on
its own and it will reduce its production cost initially.

2. The joint venture with Takahashi insures the increasing market share from 15% to
30% in Japan. And this is also the target of PRUL.
3. Under this contract the profit margin will increase from 19% to 27%
4. Due to the involvement of Japanese company (Takahashi) China will facilitate
Taiwan and in any case of political disagreements or clashes China will facilitate
PRUL due to the involvement of Japanese company. Because China will never
like to spoil relations with Japan.
5. PRUL will have to pay less expenses and import duty to China.
6. Access to information of the Chinese market. And it could help in future to
establish market in China.

1. Privacy issues will definitely arise. Takahashi as a partner will get access to
PRUL information, copyright, trademark.
2. Takahashi bargaining power will increase. Because they will know the each and
every step of the manufacturing process of PRUL and they can claim low prices if
PRUL sets up high margin
3. Relationships with other customers Nakai, ABE, and 4 others will deteriorate
because Takahashi is their competitor and they will feel ignored it may effect the
market in Japan.


Second option is that PRUL should focus on the 100% investment on its own by setting
up manufacturing factory in China and distributing its products through all of it
wholesalers not just Takahashi.

1. Under this option PRUL has privacy and security of its methods, procedures,
trademark, formulas, cost techniques.
2. Relationships with other customers (wholesalers) will remain good and the
production can be increased and decreased according to the requirement of
3. Decision making authority will be 100% under PRUL.
4. PRUL can have the access to Chinese market and it can expand in there if it wants
5. The import duties from Taiwan to Japan for all the customers will be saved to
6. The target of achieving market share of 30% is still achievable under this option.
7. Returns are high in this option.

1. Risk will be high in this case because everything will be on its own.

2. Takahashi support may be lost because Takahashi will get disappointed due to
rejection of project.
3. Takahashi is the major distributor and bad relations with them may be a hurdle in
its way.
4. Research and Development expenses will be more.
5. There will be no favor from Chinese govt. that it could get if is engaged with
Japanese partner.

Under this option PRUL will neither invest on its own nor through the contract with
Takahashi and keep the business going on as it is going.

1. The business is going as it is going
2. No risk is involved
3. Relationships with other customers will remain good as now.

1. Profit margins are may not increase
2. No Growth
3. Relationships with Takahashi may get worse.

After discussing the facts and figures the best option that we have chosen is

“Invest in building a new PRUL factory in China to produce bathtub covers and sell
them to all Japanese customers without exclusivity.”

The pros are already discussed which are the reasons for which we have chosen this
option. PRUL will have has privacy and security of its methods, procedures, trademark,
formulas, cost techniques. The bargaining power, decision-making will be under the
control of PRUL. Supply to all customers will be same. If we see the share of customers
in revenue of company out of $60100, Takahashi just contributes $19400. The rest comes
from other customers. ABE contributes the highest in the revenue that is nearly $23800.
PRUL can have the access to Chinese market and it can expand in there if it wants to in
other products as well, but if they do joint venture they can only produce bathtubs and
exclusively just for Takahashi.

The import duties from Taiwan to Japan for all the customers will b saved to 3.9% and all
the customers will be satisfied. The target of achieving market share of 30% is still
achievable under this option. Even the risks are high still the returns are high and risks
can be overcome b intelligent policies. There will be no restriction in the growth of
company and management. It will have control of its all management and production and

If we look facts and figures the returns are highest in this option. Revenue under this
option will be $80, $100 and $120 million respectively in next three years. While in joint
venture option this will be $40, $60 and $80 million respectively for next three years. So
the revenues are higher in this option. Similarly if we have a look on cash flows and
income after taxes they are highest for this option.

This means that we have the opportunity to capture those market areas, which are cost
conscious without losing profits. PRUL has trust of many end-consumers and if quality is
retained with lower prices the sales will grow aggressively. The revenues can be used to
spend more on marketing the bathtub covers to end-consumers. Because this will help
them to increase their sales even more and help them to easily utilize their heavy/mass

The profits from this option can be used to expand in other products market in Taiwan.

Post implementation strategy involves the strategy to implement above option.

 Relationship with Takahashi will be maintained by giving them some offers,

concessions, meetings to make them important.

 There could be meetings or presentation to Takashi that why PRUL has rejected
their proposal and how there production can still facilitate Takahashi and they are
still valued customers.

 Initial investment is higher rather if PRUL select joint venture. The difference is
of but the returns are quite high and this investment is for just one time. And it
will be recovered through returns and revenues and the further expansion.

 When the initial cost is covered PRUL can expand in other products as well by
using the profit margins and manufacturing of other products can also be managed
in china. The revenues can be spent on the marketing to the end-consumers.

 Political risks from China are reduced because China is now adopting the
capitalism rules of the market. So China’s chances to interference in the business
may be less.

 After establishing the business there, PRUL can gain access to Chinese market
and have information of what kind of products can be sold there and expand
market there as well.