Dissertation

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Topics: Factory, Profit
1. Background of HCF
HCF was established in year 1974. It started as a family-owned business and grew into a public listed company in early 2007. HCF is a contract manufacturer in clothing. It provides high quality clothes for mainly European and American fashion houses. HCF is not producing its own label. The clothes manufactured by HCF are all under clients’ own labels. To support its production, HCF owns three factories which are located at Butterworth, Jitra and Chieng Mai. The first factory at Penang was being shut downed due to financial crisis in 1998 but it was not sold. 2. Problems Confronted by HCF
Jeffrey Cheong, who is the managing director, has received a bad news that HCF’s two major clients might shift to China’s contract manufacturer as the prices there were very competitive. The loss of these two clients would make HCF’s current situation even worst. Over the last few years, HCF had been experiencing falling margins and profits whereas increase in COGS and overdraft as shown in table below. Increases in trade payable and bank overdraft by 92% and 86% respectively have resulting in overall increase of current liabilities by 45%. These are not healthy signs for a business. Table 1: Financial Analysis between year 2007 and 2008 | Increase | Decrease | Differences | Percentage | Revenue | | √ | RM 10 mil | 7.7% | COGS | √ | | RM 4.74 mil | 6.5% | Operating Profits for the period | | √ | RM 6.749 mil | 73% | Overdraft | √ | | RM 1.415 mil | 86% | Trade payable | √ | | RM 6.654 mil | 92% | Current liabilities | √ | | RM 5.528 mil | 45% |

3. Strategic Options Identified
To address the situation HCF was currently facing, the management team has identified three strategic options: i. Setting up its own factory in China or joint venture with a Chinese manufacturer ii. Closing down or remaining factories in Malaysia and Thailand iii. Manufacturing HCF’s own label for Malaysian and Asean market

4.

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