China Dolls Essay

The case started with the dilemma approach by the protagonist, Jeffry Cheong when both of his major clients KiKi and Houida (European fashion houses) was writing to Jeffry to inform him that they may be looking former to mainland China as the prices are really competitive. Jeffry Cheong was managing director at Haute Couture Fashions Bhd (HCF). Loss of its major two clients (KiKi and Houida) would be catastrophic to HCF as now the financial state handst of HCF showed HCF has been experiencing falling margins and profit over the last hardly a(prenominal) years. HCF was established in 1974 by the bronze family with the first fully equipped manufactory in Penang Island. The forefather was Tan Boon Kheong with a skilled master attendant, trained by British master cutter in the 1950 in Penang. He started the HCF with a small but successful business tailoring mens clothing in Argyll Road, Penang until his retirement in 1980. Peter Tan, the eldest son of Tan Boon Kheong was left to Europe when he was 20 years old and returned to Malaysia with a wealth of catch of both men and womens fashion.During that time, there was a trend of European clothes manufacturers looking at Asia for outsourcing. By having that opportunity, Peter started his business venture, especially with the European fashion houses. Due to limited production capacity, the abet factory was opened in Butterworth in July 1980. HCFs sales continued to experience growth end-to-end the early 1980s to mid 1990s and number of customers had also increased. Thus, in 1990, HCF opened its third factory in Jitra, Kedah. In 1995, cod to non-stop increasing demand for its clothes, the fourth factory was opened in Chieng Mai, Thailand. However, in 1998, Peter Tan decided to shut belt down the Penang Island factory to cut operate costs due to loss suffered by the HCF during that year. After few years, its profitability increased progressively and HCF pulled itself out of the loss do situation.Issues1. Po ssibility of losing two major clientsCurrently, China is moving towards emerging market stinting which means its economic is changing dramatically. This country was once socialist states but have been largely transformed into capitalism-based system, partly by a process of privatization. China is the largest emerging market and its economy continues to grow at a funny rate as well as its role ininternational business. China has population of 1.3 billion, atomic number 53 fifth of the worlds total population. Due to that, China is offering menial labour cost. From that offer, operating expenses can be reduced and then the revenue will be increased. Therefore, many companies looking send to outsource from China as the prices are very competitive. When Jeffrey was informed that their two major clients was going to China to contract manufacture, it could contribute a major loss to the HCF as KiKi and Houida have generated a queen-size percentage of sales to HCF. At the same, HCF h as been experiencing falling margins and profits over the last few years.2. Moving trading operations to ChinaAs suggested by Elaine, the sales and marketing Director, HCF should consider to expand its manufacturing in China. By doing that, HCH could adapted to retain KiKi and Houida as its customers and supply the clothes at lower prices. However the issue is whether to set up HCF own factory in China or joint venture with a Chinese manufacturer. The dilate on these two possible ways of expanding into China are as follows-HCF own factory join ventureCostRM 15 millionRM 2.4 millionTime taken to be able to function the customers18 months6 monthsRiskLowerHigherDependencyIndependenceLoose its independence milling machinery capacitySimilar capacity as in MalaysiaOne and half times as in MalaysiaTable 1As showed in table 1, both ways have its own advantages and di pensivevantages to the HCF. Thus, it was very critical decision for the management to choose the best way of expanding op erations in China.3. Closed down current factories (resale, pulling down or board up) If HCF decided to move in China, then the factories in Malaysia and Thailand need to be restrictingd down. This is because, if they were choose to maintain the current factories while having the new one in China then a lot of costs need to be incurred. According to Financial Controller, Daniel Tan, the factories in Butterworth and Penang have a reasonable value as its equipment were only recently purchased in 2007. In addition, HCF would be able to sell the land for a significant profit as they were located in a fast developing area. The factories would be able to sell around RM 8.5 million. Unlike, factories in Jitra and Chieng Mai have very low resale value as it were located in rural areas. Since it was difficult to sell these two factories the only excerption would be to shut down the factories. To do so, the factories have to be pulled down that would cost HCF RM 1.2 Million. If not, the fac tory would cause a haven for drug addicts. In another way, HCF can choose to board up the factories for a cost of RM 200 000. Moreover, Daniel expects minimum redundancy payments around RM 3.0 million besides the above expenses. If HCF were to completely close down the Malaysian operations, a large number of employees will have to be retrenched and to be sad enough many of them have been with HCF for more than 10 years.