PLANT LOCATION

PUZZLE
PRESENTED BY

ANKUR BHATT

DEEPANJAN DATTA

SAMRIDDHI KHATRI

SHREYA GUPTA

SHAMBHAWI SINHA
 INTRODUCTION (Facts about EDC)
• EDC is the leading cycle manufacturing company in USA with 30% market share.
• Ann Reardon - CEO of the EDC
• She led her organization to become the largest and most profitable bicycle maker in the U.S. market.
• Competitors - moving operations overseas because of lower labor costs,
• But Ann chose to keep EDC's plant on the same campus as corporate headquarters in Boulder, Colorado.
• Two of company’s major strengths –
1.Company culture
2.Common campus for all departments
Advantages - Faster communication and changes in the style, production plan and making responsive supply chain.
• EDC specializes in producing good quality bicycles at a cheaper price than other competitors in the market.
To enter into the Asian market, EDC now has to formulate the location of their new plant. The countries shortlisted by
EDC are:
• India
• Malaysia
• Vietnam
• Cambodia
• Indonesia
• China
• Taiwan
EDC is looking at Green Field Investment from a long term strategic perspective, it should go for this Investment
(Open up a new, adequately automated plant in Asia). The Company can use this manufacturing facility as a base
to export to other Asian countries. Also the domestic demand in each of the above mentioned Asian countries is
robust and healthy.
Green Field Investment Pros:
 Ability to scale and expand
 Lowest labour and manufacturing costs as the plant can be fully automated if required and have advantage of
low labour costs in Asia
 Full control over the plant and the quality of production
 Plant would be capable to implement and manufacture new designs
 Can achieve economies of scale
 EDC can reproduce the same culture and also use the technological know-how to produce quality products

Green Field Investment Cons:

 Very high initial investment
 Time taken for implementation would be much more compared to other strategies
 Could face hurdles related to licensing, patent protection, political backlashes etc.

Most importantly owning the whole plant will give more power to EDC to align the two plants and use plants in
different parts to their advantage.
 PROBLEM STATEMENT
The problems faced by Ann Reardon and her team are:

• The market in the U.S.A. is saturated, and is growing at mere 2% per year while the competition in U.S.A. is
increasing

• Eldora Co. is not present in Asia, where growth rates are in the double digits.Its two main competitors have already
setup manufacturing plants in China and Taiwan.

• EDC cannot compete in the Asian markets with its manufacturing based in the U.S.A. as the labour costs in China
and Taiwan are five to ten percent lower
 MAJOR FACTORS
• Proximity to Customers – ensure that customers’ needs are incorporated into products being developed and built.
This is a major advantage for EDC that it is present in Boulder, Colorado, which is considered to be a bicyclists’
hub point
• Total Cost - The objective is to select a site with the lowest total cost. Costs include regional costs, inbound
distribution costs, and outbound distribution costs.
• Suppliers - A high-quality and competitive supplier base makes a given location suitable.The proximity of
important suppliers’ plants also supports lean production methods.
• Government Rules and Regulations -Barriers to enter and locate in many countries are being removed today
through legislation. Government attitudes toward markets and freedoms and the efficiency of its operations are also
very important: excessive bureaucracy , overregulation, corruption, dishonesty in dealing with public
contracts, lack of transparency and trustworthiness, inability to provide appropriate services for the business
sector etc. slow the process of economic development.

• Market Size The size of the market affects productivity since large markets allow firms to exploit economies of
scale.
• Quality of Labor - The educational and skill levels of the labor pool must match the company’s needs. Even more
important are the willingness and ability to learn. For EDC to decide on a location to setup their new plant, the
availability of skilled labour will prove to vital.
• Infrastructure - Since EDC also manufactures bicycles for the high-end market, with its joint venture with the
Italian bicycle manufacturer Rinaldi, infrastructure will carry a lot of weightage in deciding the new plant
location. Adequate road, rail,air, and sea transportation are vital. Energy and telecommunications requirements
also must be met. The local government’s willingness to invest in upgrading infrastructure to the levels required
may be an incentive to select a specific location.
• Free Trade Zones: - A foreign trade zone or a free trade zone is typically a closed facility(under the supervision of
the customs department) into which foreign goods can be brought without being subject to the normal customs
requirements. The option of setting up a plant in a free trade zone will be a very lucrativeproposition for EDC, as a
major portion of the produce will be exported into various countries like U.S.A., in the continent of Europe and
Asia.
• Technology - measures the agility with which an economy adopts existing technologies to enhance the productivity
of its industries, with specific emphasis on its capacity to fully leverage information and communication
technologies (ICTs) in daily activities and production processes for increased efficiency and enabling innovation
for competitiveness.
 STRATEGIES
1.Source the components from the local market and assemble them in the Asian market. –
• Advantage: Reduce to cost as labor is cheap and also company will not have to pay excise duty on components.
• Risk: Company might not be able to produce a quality product (EDC’s primary competitive advantage).EDC might
not be able to produce sophisticated bicycles that require high technology.

2.Outsource whole business to some Asian company and sell the bikes with its brand name. 
• Advantage: Company can start manufacturing in a very short time and investment will be low. Lower cost of labor
and raw material.
• Risk: Less control over the flexibility and quality of the cycles. Outsourced company might become a competitor to
EDC after learning the know-how in cycles.
 STRATEGIES (contd..)
3.Form a Joint Venture (JV) with an existing company in Asia. 
• Advantage: Initial investment will be low and production can be started in a short time. Use the connections of the
local company and also the knowledge of the local market and local demands.
• Risk: Culture of EDC (which provided the company a strategic advantage over others) might be difficult to imbibe
in the other company. The company may lose flexibility and control over the production quality.
4.Open own plant in Asia. 
• Advantage: Full control over the plant and also the quality of production. Lower cost of labor and also raw material.
EDC can reproduce the same culture and also use the technological know-how to produce quality products.
• Risk: The disadvantage would be that initial investment will be high and company will have to build a plant from
scratch.
If Taiwan is selected, following are the factors considered.

Positive factors
 In order to lure investors, Taiwan has set up trade free zones for exports. This is an encouraging sign for EDC.
 Labour cost is low; productivity is very high.
 The Taiwan currency is also by and large undervalued. Thus, it helps exports into other developed economies.
 Large number of suppliers. Existence of large number of SME’s gives an opportunity for EDC to develop its
backend infrastructure by collaborating with these suppliers and increase efficiencies and reduce costs.
 Plant setup cost would be low. As the Taiwan currency is significantly undervalued compared to the USD, the
investment required would be comparatively lower.
 Having a manufacturing facility in Taiwan would give proximity to Indian and South-East Asian markets,
thereby reducing the freight costs.

Negative Factors
 Poor infrastructure development when compared to the US. Road connectivity is low and sophistication of
logistics industry as a whole is not satisfactory.
 Frequent power outages; uncertainty pertaining to utilities.
 Lack of skilled and innovative labour
 Language and cultural differences could be a barrier
 RECOMMENDATION
EDC should base all decisions in this regard, considering the move as a long- term strategic advantage.
 After considering factors ,EDC should open a plant in Taiwan. It should form a team of experts who would lead
the entire project and co-ordinate with the experts in the US.
 EDC should open a small office in Taiwan and hire few local employees. These people should have very good
knowledge of the local regulations, customs and culture and have high project management skills.
 Thorough research about Taiwanese culture, market and competition and government policies needs to be
conducted. Based on the research, marketing and operations strategies need to be devised.
 Finalize a location considering various parameters of road connectivity, air connectivity and cost while
keeping in mind the long term strategy.
 Invest in adequate production technology considering technical skills of local labour and low costs of labour.
 EDC should train employees to improve productivity before production starts.
THANK YOU