johnson turnaround case study

Topics: Costs, Variable cost, Chiang Mai Pages: 5 (728 words) Published: October 26, 2013
Case Analysis China Dolls

Issues : the company is about to lose two major customers due to “cheaper” price, namely China.

Alternatives:
1. Move to China
Closing down partially Malaysian and Chieng Mai operations

2. Expand to China
Retain Malaysian operations
Joint venture

3. Develop own label for Malaysian and ASEAN market.

Costs :
i. Set-up costs (investment)
ii. Operation costs (labor cost)
iii. Sunk costs
iv. Opportunity costs
v. Human ‘cost’

Explanations
Cost
Benefit
Other issue

Expand to China

1) Wholly owned
1) Cost of building factory(fully equipment) – RM15 million 2) NPV(over 5 years) – RM6.3
3) Cost of capital used – 8% p.a
1) Capacity of new factory similar with current three factories 2) Ready in 18 month

1) Did not have sufficient funds to fund this expansion.

2) Joint Venture
1) Total cost expansion – RM8 million
2) HCF’s investment – RM2.4 million
1) Almost one and half times of HCF’s current manufacturing 2) Ready in 6 month

1) Joint venture proposed 70/30 % (70% partner)
2) Separate with partner company

Move to China
1) Consider moving its manufacturing in China
2) Imposed to shut down in Butterworth, Jitra and Chiang Mai.

1) Pulling down factories at both sites, Jitra and Chiang Mai – RM1.2 million 2) Board up factories for a cost – RM200, 000
3) Redundancy payment cost – RM3 million(min)
1) Selling Penang and Butterworth factories – RM8.5 million 2) Profit selling will cover up the cost for manufacturing in China.

Develop own label for Malaysian and ASEAN market.
1) HCF were terminate all its contracts with the fashion houses 2) They will closed down Chiang Mai factory
1) Fixed cost Malaysian factories – RM30 million
2) Advertising costs – RM2.1 million per annum
3) Shutting down costs Chiang Mai – RM1.8 million.
1) Good potential in pursuing into this direction
2) HCF did not retrenched all its employees

1) Uphill task, creating a brand of its own
2) High advertising costs as created its own brand

Porter’s five forces model

Evaluation of Porter’s five forces model

• Threat of new competition
HCF do not have sufficient funds to fund its own factory cause of increasing in creditors

• Threat of substitute products or services
HCF should consider time, money, personal preference and convenience in the industry

• Bargaining power of customers (buyers)
Customers possess the power to buy seller or rival. If customer is so large that it may choose backward integrate, the HCF loses influence.

• Bargaining power of suppliers
HCF may reduce the profits of the buyer through more advantageous pricing and limiting quality of the product/services.

• Intensity of competitive rivalry
Fixed costs high: - Encourages competitors to cut prices below their average costs to recoup some of their fixed costs.

PREPARE TO SUCCESS IN MALAYSIA

WHY ?
i. Low risk and uncertainty.
ii. Ethical issue
iii. Avoid wasteful of opportunity and skill workers.

HOW ?
i. Close down factory in Chieng Mai and Jitra for costs saving purposed. ii. Outsourcing to China
iii. Find new customers
iv. R&D for new label and launched it in short period of time.

GLOBAL OUTSOURCING

WHY?
i. Low manufacturing cost
ii. Cost of labour.
iii. Cost of shipping.
iv. Reduce cost for consumer.
v. Minimize cease of workers in Malaysia.

HOW ?
i. PROCEDURE OUTSOURCING IN CHINA
ii. FINDING MANUFACTURER IN CHINA
RISK/ISSUE ?
i. INTELECTUAL PROPERTIES OWNERSHIP

FIND NEW CUSTOMERS

Kiki and Houida might consider to continue business with HCF Bhd if HCF managed to implement the outsourcing. However, if HCF need to find new customers, HCF can :-
a.i. Repositioning the 4P’s marketing strategies.
a.ii. Used all client database in your record in order to pull back your old clients. a.iii. Relevant marketing budget...
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