China Dolls Essay

The case started with the plight faced by the protagonist, Jeffry Cheong when both of his major(ip) clients KiKi and Houida (European fashion houses) was writing to Jeffry to asseve measure him that they may be sounding forward to mainland China as the prices be very competitive. Jeffry Cheong was managing director at Haute Couture Fashions Bhd (HCF). Loss of its major devil clients (KiKi and Houida) would be catastrophic to HCF as now the financial statement of HCF showed HCF has been experiencing falling margins and make over the proceed few long time. HCF was established in 1974 by the common topaz family with the first fully equipped pulverization in Penang Island. The founder was burn mark Boon Kheong with a skilled master cutter, trained by British master cutter in the 1950 in Penang. He started the HCF with a low-down but successful business tailoring mens clothes in Argyll Road, Penang until his retirement in 1980. Peter burn mark, the eldest news of Tan Boon Kh eong was left to Europe when he was 20 years old and returned to Malaysia with a wealth of experience 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. collect to limited production capacity, the second factory was exposed in Butterworth in July 1980. HCFs gross revenue continued to experience growth throughout the azoic 1980s to mid 1990s and number of customers had also increase. Thus, in 1990, HCF opened its third factory in Jitra, Kedah. In 1995, due to non-stop increasing crave for its clothes, the fourth factory was opened in Chieng Mai, Thailand. However, in 1998, Peter Tan decided to shut down the Penang Island factory to cut operating be due to loss suffered by the HCF during that year. After few years, its profitability increased progressively and HCF pulled itself out of the lo ss making situation.Issues1. Possibility of losing twain major clientsCurrently, China is moving towards rising market frugal which means its economic is changing dramatically. This country was once socialist states but put on been mostly transformed into capitalism-based system, partly through a process of privatization. China is the largest emerging market and its economy continues to grow at a remark adapted rate as well as its role ininternational business. China has population of 1.3 billion, star fifth of the worlds total population. receivable to that, China is offering low labour cost. From that offer, operating expenses can be reduced and then the revenue will be increased. Therefore, many companies looking forward to outsource from China as the prices are very competitive. When Jeffrey was assured that their two major clients was going to China to contract manufacture, it could go a major loss to the HCF as KiKi and Houida have generated a super percentage of sal es to HCF. At the same, HCF has been experiencing falling margins and profits over the last few years.2. Moving 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 able to conduct KiKi and Houida as its customers and supply the clothes at lower prices. However the cut off is whether to set up HCF own factory in China or joint venture with a Chinese manufacturer. The details on these two possible ways of expanding into China are as follows-HCF own factoryJoint ventureCostRM 15 millionRM 2.4 million clipping taken to be able to serve the customers18 months6 months stakeLowerHigherDependencyIndependenceLoose its independence factory capacitySimilar capacity as in MalaysiaOne and half(prenominal) times as in MalaysiaTable 1As showed in table 1, both ways have its own advantages and di sorryvantages to the HCF. Thus, it was very slender decision for the management to choose th e best way of expanding operations in China.3. Closed down current factories (resale, pulling down or senesce up) If HCF decided to move in China, then the factories in Malaysia and Thailand necessity to be closed 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 cherish 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 option 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 factory would become 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.