DempoChar

it
iesTr
ust
’s
S.
S.DEMPOCOLLEGEOFCOMMERCEANDECONOMI
CS
(
Reaccr
edi
tedbyNAACat‘
A’gr
adewi
thaCGPAof3.
30)

I
TA-
1

Subj
ectName–Pr
oduct
ionOper
ati
onManagement
Facul
tyName–Mr
.Amr
ishGhode

SYBBADi
v:
B
Gr
oup3
Chi
ragAwast
hiD-
21-
204
Samar
aDsouzaD-
21-
212
Sar
ahLoboD-
21-
220
Ar
yanNai
kD-
21-
227
JeetPur
ohi
tD-
21-
234
Tanv
iShankeD-
21-
242
Suhani
Vel
uskarD-
21-
249
Assi
gnment
:Casest
udyofThePl
antLocat
ionPuzzl
e

Q1)Whati
sthecompet
it
iveenv
ironmentf
aci
ngEDC?
I
-nt
ermsoft
hecompet
it
iveenv
ironmentf
aci
ngEDC,Annr
eal
i
zest
hatnotonl
yist
he
numberofcompet itor
si ncreasi
ng,butt
he nat
ure ofthe demand f
orbicycl
es i
s
changingaswell
.Compet i
ti
onbasedoncostcanbediff
icul
tunlesst
hefi
rm hassome
uniqueadvant
ageoverthecompet i
ti
on.
Competi
ti
onisfier
ce,aft
eral
lther
ecanbeonl
yonel
ow costpr
oducer
,whousual
l
y
est
abl
ishthesel
l
ingpri
ceint
hemarket
.
EDC’
scompetit
orsbi
ke(t
hegr owingyoungbikecompany )sel
ltheirpr
oduct
sata
hi
gherr
atewher
easEDCconcentr
atedi
tseff
ort
soninexpensi
vebicy
cles.
-TheU.S.massmar ketbicy
clesal esi
sexpect
edtogrow byonly2%ay ear
,whil
et he
Asianmarketforthosesamebi kesisnear
lydoubl
i
ngonay ear
lybasis.Thisgrowth
scenar
ioisl
ikel
ytoleadtothinnermargi
nsandalowerROIint
heU.S.forbicy
clesales.
-Copi
ngwithchangesi
ndemand.In1988thesalesvol
umef orMount
ainbi
keshadgone
upfrom 0%to50%&whent hedemandbegant odecrease,
EDChadbeenabletoadj
ust
i
tsproduct
ionrunwit
hmini
maldisrupt
ion.
-Addit
ionall
y,EDC’sforei
gnsalesper formancehasbeenf latthel asttwoy ears, l
ikelythe
resul
tofnotbei ng abl
et o compet eon pr i
cegiven theircur rentU. S.di stri
bution
channelsinpl ace.EDChashi gherwager at es,mat
er i
alcost s,anddi st
ributi
oncost s
thantheircompet it
orsinAsi
aandot herforeignmarkets.Bot hofAnn’ svice-presidents
agreet hatEDCmustmov equi cklytocapi tali
zeont hegr owi ngAsi anmar ketbef ore
othercompet i
torschangethemar ketlandscape.

Q2)Whatar
eEDC’
sst
rengt
hsi
nmanuf
act
uri
ng?
EDC has a numberofst r
engths i
nt hei
rmanuf acturi
ng divi
sion.Thei rf l
exibl
e
manufactur
ingoperat
ionseemsqui teadeptatmeeti
ngt hechangesi ntrendsandf ads
ofthei
rmar ket
.Thisoper at
ioniscit
edasakeyf actori nEDC’sabi l
it
yt omeetr apid
changeinthelocalmarket.Havi
ngtheirpl
antinBoulder,abicycl
ingMecca, hashelped
tokeepEDCont opoftrendsanddemandchangesi nt heU.S.market.Thei rengi
neers
seem tobeaheadofthecurv
eindesi
gningnewproduct
sandf eat
uresthatconsumer
’s
desi
re.Thi
sdesignknowl
edgeisal
sotheresul
toft
hecross-
functi
onalcooper
ati
on.

Q3)Shoul
dEDCest
abl
i
shadi
vi
sioni
nAsi
a?
DaleandSeanhav ether i
ghtidea.Wi thoutquest ion, EDCshoul dmov eaggr essivelyi nto
thelargeandgr owingAsi anmar ketsforrecreational bicycles.Thepr imar yfocusshoul d
beimpr ovingmar ketshar eandbr andv isi
bil
ity.Bot hoft hem seem t ounder standt hati f
thecompanycont inueswi thitsarms- l
engthappr oachofusi ngtradingcompani es,t here
i
snowayi twillbeabl etocompet eint heregionagai nsti tstwolargestcompet i
tor sin
ChinaandTai wan.Buti tisclearfrom theirconv ersat i
onswi t
hAnnt hatnei theroft hem
knowshowt oconst r
uctawi nningbusi nessst r
at egyf ort heAsianmar ket.Inmywor k
exami ni
ngnumer ouscompani es’plantlocationst rategi
es,I ’
vet alkedt oqui teaf ew
SeansandDal esf i
ll
edwi t
hr egretov erthewayt heymanagedt hei rfi
rstsi gnificant
for
ay sintoAsianmar kets.EDCwoul ddowel ltol earnt hreesimpl el essonsf rom t hese
compani es’mi stakes.Forst art
ers,wager atesshoul dnotdr ivet hemanuf act uring
l
ocat i
ondeci sion.Wagesmustbeputi nthecont extofl ocalproduct i
vi
ty,skilllev els,
i
nfrastruct
ure,gov ernment alpol i
cy,andmanagementt al
ent .
Second,af orei
gnsalesoperati
onormanuf acturi
ngoper at
iondoesnotdeterminea
company ’
s access t
ol ocalmar kets.Di st
ributi
on channelsint hose mar
kets ar
e
control
l
edthroughanetworkofestablishedbusi nessrel
ati
onshi
ps.EDCcouldsetupan
extensi
ve.Asianoperat
iononlytol earnthatmar ketaccessiscontrol
l
edbythev er
y
tr
adingcompaniesitwasworkingwi t
hbef oreitmadet hemov e.
For
geanall
i
ancewi
thanAsi
ancompany
,lear
naboutt
hemar
ket
,andt
henwor
ryabout
manuf
act
uri
ng.
Annmustdet
ermi
neal
ong-
ter
m st
rat
egyf
ort
heAsi
anmar
ket
.
Ann shoul
d open an of
fi
ce i
n Chi
na i
mmedi
atel
ybutputof
fanymanuf
act
uri
ng
deci
si
onsunti
lshelear
nsmoreaboutt
heAsi
anmarket
.

Q4)Whatpl
anofact
ionwoul
dyour
ecommendt
oAnnHear
don?
Ratherthanmakingaquickdeci
sion,Annshoul
dencouragehermanagementt
eam t
o
takethefol
lowi
ngfour
-pr
ongedappr oacht
obuil
dingcapabi
l
iti
esi
ntheChi
nesemar
ket.
Sheshould:

1.Est
abli
shasmal loff
iceinChina.EDC’simmediat
eneedi stobegintocol l
ect
i
nfor
mat i
onabouttheChi nesemarketandtodev el
opv i
tallocalr
elat
ionshi
ps.
The marketchanges daily
,so having a l
ocaloperati
on to coll
ectcur r
ent
i
nfor
mat i
onisessential
,especi
all
ysincepubli
shedst at
ist
icaldataareei t
her
 l
imit
ed or unrel
iabl
e. Chi
nese bureaucracy can also present formidabl
e
di
ff
icul
ti
es:t
helocalEDCoff
ice’
ssecondarygoal shoul
dbetoestabl
ishandbui l
d
up a l
ocalnetwork ofcontacts wi
th gov er
nmentagencies,suppl i
ers,and
pot
enti
alpar
tner
s.

2.Assesst hescal eoft heoppor tuni

ty.Oncet heEDCt eam inChi nahasbeeni n
placef oraf ew mont hsandhasaf ir
sthandper spect iveont heAsi anbusi ness
environment , t
hecompanycanbegi ntoassesst hetruescopeoft heoppor t
uni ty
.
Inpar ti
cular,EDCmustdeci dehow i mpor tantpr i
cei st oChineseconsumer s.It
maybepossi ble,forexampl e,tocov ersomeoft hehi gherU.S.manuf acturing
costt hroughapr i
cepr emi um basedont heWest ernbr andname,al thought he
team wi llneedt oassessl ocalcust omers’abi l
itytoaf f
ordthepr oduct sift hey
mustpayi nforeigncur r
ency .Annandhert eam wi l
lalsoneedt ounder standhow
quicklyt hebicyclei sevolvi
ngf r
om abasi cmodeoft ransportint
oar ecreational
productasChi neseconsumer sbecomemor eaf fl
uent .Topul li
tof f,EDCmust
i
dent if
yt he appr opriat
e pr oduct /marketst r
ategy;t he company mustal so
determi nehowmuchr egional customizationofitspr oductl i
neswi l
lber equired.

3.Identif
yandev aluateent ryopt i
ons.Next,thegr oupcanbegi nt oassessent ry
strategies.Pr
eser vi
ngf lexi
bil
ityshoul
dbet heov erri
dingcrit
erion,andagain,Ann
shoul dtakethet imet oexpl oretheprosandconsofeachopt i
on.Opportuni
t i
es
forforeigncompani est opar t
ici
pateintheChinesemar ketarechangi ngrapidly,
soanewopt i
onmayemer geinonlyaf ewmont hs.Forexampl e,st
ockowner ship
rulesinChi nahav er ecentlychanged,all
owingsomeov erseasi nvest
orstot ake
maj ori
tycontrolov erjointventureswithChinesepar t
ners.Somecompani est hat
actedt ooquicklylasty eararenowl ockedintounfavorablearrangement s.

I
ndev elopi
ngChinesemanuf actur
ingcapaci
ty,EDChassev
eralopti
ons,i
ncl
udingjoint
ventur
e,cont r
actpr oducti
on,and gr eenfi
eld—thati
s,buil
ding a compl
etely new
product
ionfaci
li
ty.Ofthose,greenfi
eldl
ooksthemostpromi
sing.
Ajoi
ntventur
ewithlocalf
actoriesistheleastl
ikelyt
obesuccessfulunl
essthepart
ners
arevery wellscreened.Existing Chinese companies var
y widelyinflexi
bil
i
ty of
oper
ati
ons,managementst yle,andl evelofmar ket
ingsophi
sti
cati
on.Fai
li
ngtof i
nda
goodmatchearl
ycanl eadtodisappoi nt
mentonbot hsidesl
ater
.
I
nt heshortt
erm,subcontr
act
ingpr oduct
ionisal
soprobabl
ynotagoodi
dea.Schwi
nn,
forexample,created t
wo maj orcompet i
tor
sinit
sown mar ketbysubcontr
act
ing
product
iontoChinesecompanies.
Wi
thgr
eenf
iel
d const
ruct
ion,EDC wi
l
lbeabl
etoi
nst
allst
ate-
of-
the-
artpr
oduct
ion
equipmentandr ecruitandt
rai
nemployeest
omeetitspr
eciserequi
rements.I
twil
lbe
essenti
al,however,forthecompanytosetupsuppl
i
ercapabi
li
tieswelli
nadvanceof
plantconstr
uct
ion.
Atthispoint
,Annmustal soconsiderlocat
ion.I
twouldbeeasi estbyfarforEDCtoset
up manufactur
ing i
naf ree-t
radezone,butsuchl ocati
onsar eint
ended asexport
plat
forms,nottoservetheChinesemar ket
.Abetterchoicemightbetolocateinoneof
thecoastalcit
ies,whichof f
erbetteraccesstot herestoft hemainlandaswel las
cert
aininv
estmentincenti
ves.

4.Planf ormar ketentryandexpansi on.OnceAnnhasassessedt hemar ket’

s
attr
activ
enessandEDC’ spotent
ialentrystrategi
es,she’llber eadytodeci de
whetherornott ogoahead.I ftheansweri sy es,Annandhert eam shouldpl an
expansiononar egi
on-by-
regi
onbasi s.Theyshouldt hi
nkofChi naasagr oupof
countri
es,notasahomogeneousent i
ty.Tastesandbusi nessr ul
eswi llvary
betweenr egi
ons,andt hepoorqual i
tyofthecount r
y’sinf
rastruct
urewillmakei t
verydiff
icul
ttodistr
ibutenati
onal
ly.Tryi
ngtogonat ionalal
l atoncewill
leadonl y
todisappoint
ment .