The Electrosteel Castings case is about an Indian ductile iron pipe (DIP) and cast iron pipe (CIP) manufacturer’s decision to internationalize. The central issue is about the choice of where to go, and the choice of the type of investment the company will pursue. This paper will analyze the options available for the company and recommend the best solution.
As for the location, Electrosteel has two options: France and Vietnam. France is attractive because it could be used as a strategic base to access the entire European Union because a manufacturer located in any EU country is considered a local supplier for all other EU countries. The European market is large, stable and has common standards. Country risk is low with fewer political and bureaucratic problems compared to developing countries, and there are a variety of domestic project funding sources available. As for the customers, DIP was a well-established and accepted material however buyers preferred local suppliers due to government regulations and approval processes, resulting in a 12% premium over international prices. On the other hand there are potential risks. Firstly, high labor costs would result in higher operating costs. Secondly, there is a language barrier for the management. Third, it is difficult to predict how the strong local competitor, St. Gobain Group would react to Electrosteel.
In contrast, Vietnam has the potential of growth. Not only is it the second largest country in Southeast Asia, 80% of the country lacks sufficient water supply meaning that there is an enormous area of development. The country is offering a credit loan which is an incentive and becoming a local supplier is also beneficial in terms of premiums. On the other hand there is a large country risk.
In terms of investment, Electrosteel has three options: opening a branch sales office, build both a casting operation and a finishing line, build a finishing line. Opening a...
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