The following feasibility report on JT Toy’s interest to manufacture overseas has thoroughly explored the positive and negative aspects of local production in comparison to moving its operations to China. Manufacturing methods, such as a wholly owned subsidiary; owning and controlling a factory in China, a strategic alliance and licensing agreements have been analysed in detail.
The evidence shows that moving part of the business to China as a wholly owned subsidiary, whilst keeping its headquarters in Melbourne would be the most beneficial long term option. Paying royalties and dividing profit with an overseas company outweighing the higher short-term construction costs and wait time disadvantages of a wholly owned subsidiary.
Alliances and licensing agreements with Chinese manufacturers another beneficial option, particularly in the short-term. Offering an initial low cost entry into the global market, while still gaining the benefits of low labour and production costs prevalent in China.
The information gathered on the socio-cultural, economic and industrial elements that need consideration in such a venture show no financial disadvantage, only opportunity. Social, cultural and lingual barriers as well as a different style of business practice must be overcome. With the necessary training, this transition can be carried out, providing a successful expansion for JT Toys into the global market.
This is a feasibility report on internationalisation of an Australian company. JT Toys is a successful and profitable business located in Melbourne. JT Toys has been producing quality educational toys for over 10 years; its well established reputation has seen demand for its products double over the last few years. JT Toys employs approximately 1000 workers, including 6 head toy technicians, responsible for its innovative and educational toy designs that have seen it bring in success.
Despite recent growth, the Director James sees low overseas labour costs, and cheap imports as a threat to the expansion of his business, and ultimately its viability. James has worked very hard to get JT Toys to its current position and being highly ambitious, manufacturing overseas to cut costs is now a great consideration of the business. China’s booming economy with GDP rising by 11.4%, as well as its large untapped consumer market, appeals to James, it’s currently seen as a land of opportunity. First all options must be explored to find the most beneficial strategic path, this report will strive to explore, in depth the pros and cons of manufacturing in both Australia and China.
Current Situation and Challenges, Manufacturing
With the option of JT Toys manufacturing overseas, the different types of manufacturing must first be investigated to find the most effective method. A wholly owned subsidiary is defined as an “operation on foreign soil totally owned and controlled by a company with headquarters outside the host country.” (Bartol, K, Tein, M, Matthews). This method would involve JT Toys purchasing land and constructing a factory in China, having complete ownership and control, whilst keeping its headquarters in Australia.
Australia’s superior currency (AUD$1 equal to 6.6 Yuan Renminbi/CNY) and sky-rocketing local land & construction costs in comparison to the relatively low costs in China; approximately AUD$32/sq mtr land cost and AUD$27/sq mtr building cost would make this a viable option. The downside being the long wait for procedures and licensing to be finalised, as seen in the table below:
Procedures and Time in Setting up Factories in China
|Starting Business: |License: all |Registering |Export:...