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1.0

1.0 IntrIntroducoductiontion

Haute Coutore Fashion was established

Haute Coutore Fashion was established in 1974 and started as a in 1974 and started as a small men’s clothing tailoringsmall men’s clothing tailoring  business

 business in in Penang. Penang. Over Over the the years years it it has has grown grown to to become become maor maor contract contract manu!acturingmanu!acturing com"any "roviding services to clients !rom #uro"e and $merica. %he com"any had achieved com"any "roviding services to clients !rom #uro"e and $merica. %he com"any had achieved over 1&& million o! sales revenue and has ' !actories in Penang( )itra and Chiang *ai( over 1&& million o! sales revenue and has ' !actories in Penang( )itra and Chiang *ai( %hailand. HCF em"loys 11&& labors can "roduce more than '

%hailand. HCF em"loys 11&& labors can "roduce more than ' million o! garments "er million o! garments "er year.year.

HCF two

HCF two maor clients are maor clients are considconsidering loo+ing !or another contract ering loo+ing !or another contract manu!manu!acturinacturing g com"ancom"anyy in China due to its low cost. %his news hit HCF un"re"ared and as its margin and "ro!its are in China due to its low cost. %his news hit HCF un"re"ared and as its margin and "ro!its are !alling. %he news e,"osed various issues surrounding the com"any which boils down to its !alling. %he news e,"osed various issues surrounding the com"any which boils down to its  business sustainability.

 business sustainability.

-n order to !ind solution( analysis have been conducted using various tools such as /O%( -n order to !ind solution( analysis have been conducted using various tools such as /O%( Porter’s 0 Forces and !inancial ratio. "on analysis( 2 alternatives are being !ormulated which Porter’s 0 Forces and !inancial ratio. "on analysis( 2 alternatives are being !ormulated which are to venture in China 3either by oint venture or F-5 and downsi6e *alaysian o"eration. are to venture in China 3either by oint venture or F-5 and downsi6e *alaysian o"eration. $!ter care!ul consideration( alternative o! F- in China and downsi6ing *alaysian o"eration $!ter care!ul consideration( alternative o! F- in China and downsi6ing *alaysian o"eration is choosen.

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2.0 Problem Statement 2.0 Problem Statement

%he main "roblem !or HCF at the moment o! writing this case study is their business %he main "roblem !or HCF at the moment o! writing this case study is their business sus

sustaitainabnabiliilityty. . %h%he e comcom"any "any !ace!aced d varvariouious s issuissues es thathat t coucould ld thrthreateeaten n thetheir ir sursurvivvivabiabilitylity.. igni!icant issues are highlighted below with e,"lanation on how it will a!!ect the com"any. igni!icant issues are highlighted below with e,"lanation on how it will a!!ect the com"any.

1.

1. PosPossibilisibility ty of of losinlosing 2 g 2 majomajor r custcustomeromerss

HCF might lose their 2 maor customers with combine 44.2 o! their total sales. hould HCF HCF might lose their 2 maor customers with combine 44.2 o! their total sales. hould HCF loses these 2

loses these 2 customcustomers( their bottom8liners( their bottom8line e will be signi!icantly a!!ewill be signi!icantly a!!ected as cted as the loss the loss o! 4& o! o! 4& o!  revenue will de!initely lead to loss in !inancial statement.

revenue will de!initely lead to loss in !inancial statement.

2.

2. ThThe Ee Ememergrgenence ce of of ChChininaa

HCF 2 biggest customers can get a better o!!er in China due to its low o"erating cost. %he cost HCF 2 biggest customers can get a better o!!er in China due to its low o"erating cost. %he cost is marginally lower than what HCF can o!!er. HCF need to be able to o!!er a better deal 3lower  is marginally lower than what HCF can o!!er. HCF need to be able to o!!er a better deal 3lower  cost5 in order to retain their maor customers. Can HCF do this and how will they do it

cost5 in order to retain their maor customers. Can HCF do this and how will they do it

3.

3. Poor Poor cccouncount !et !ecei"cei"able able TTururno"eno"err

$bout a :uarter o! HCF total revenue was not collected !or the year 2&&7 and 2&&;. %his $bout a :uarter o! HCF total revenue was not collected !or the year 2&&7 and 2&&;. %his !igure is huge and alarming.

!igure is huge and alarming.

#.

#. !e!elilianance tce to 2 Co 2 Cusustotomemersrs

HC

HCF F is is vevery ry dede"e"endndenent t to to ththeir eir <i<i<i <i anand d HoHouiuidada( ( hehencnce e whwhen en ththe e 2 2 cocom"m"ananieies s areare considering leaving( the news hit HCF hard leaving them contem"lating viable o"tions to considering leaving( the news hit HCF hard leaving them contem"lating viable o"tions to survive.

survive.

$.

$. %a%allinlling mg marargingins as and nd &r&rofofitsits

HCF recorded signi!icant decline in "ro!it based on their !inancial statements. HCF recorded signi!icant decline in "ro!it based on their !inancial statements.

$ll the issues above lead to one big "roblem= HCF sustainability. -n this re"ort( the >oard o!  $ll the issues above lead to one big "roblem= HCF sustainability. -n this re"ort( the >oard o!  irectors will be the decision ma+er as the have autonomy to use the com"any resources. irectors will be the decision ma+er as the have autonomy to use the com"any resources.

3.0 Situation nalysis 3.0 Situation nalysis

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-n order to derive to alter

-n order to derive to alternative( we will have to analnative( we will have to analy6e the wellbeing o! the com"any and they6e the wellbeing o! the com"any and the contract manu!acturing industry itsel!. /e will be using /O% analysis to evaluate the contract manu!acturing industry itsel!. /e will be using /O% analysis to evaluate the com"any and Porter’s 0 Forces to

com"any and Porter’s 0 Forces to evaluate the contract evaluate the contract manu!acturing industry.manu!acturing industry.

/O% analysis is used as it hel"s to match the com"any resources and ca"abilities to the /O% analysis is used as it hel"s to match the com"any resources and ca"abilities to the com

com"et"etitiitive ve envenviroironmenment nt in in whiwhich ch it it o"eo"eraterates. s. >es>esideides( s( it it is is im"im"eraterative ive to to ideidentinti!y !y thethe com"any own strengths and wea+nesses in order to !ormulate e!!ective and e!!icient strategies com"any own strengths and wea+nesses in order to !ormulate e!!ective and e!!icient strategies  based on

 based on what the what the com"any have. com"any have. O""ortunity and O""ortunity and threat threat identi!ied identi!ied will alswill also im"act o im"act strategystrategy !ormulation as these are elements that need to be avoided or e,"loited. $ sim"le analogy can !ormulation as these are elements that need to be avoided or e,"loited. $ sim"le analogy can  be

 be given given in in the the conte,t conte,t o! o! hi+ing. hi+ing. $ $ "erson "erson owns owns ca"ability ca"ability and and his his hi+ing hi+ing "ac+ "ac+ are are hishis strength and wea+nesses. On the other hand( o""ortunity and threat are the hurdles along the strength and wea+nesses. On the other hand( o""ortunity and threat are the hurdles along the ro

routute e to to arrarrivive e at at momoununtaitain n toto". $ ". $ hihi+e+er r neneededs s to to ususe e hihis s owown n ca"ca"ababiliilitities es anand d totoololss strategically in hi+ing by avoiding di!!icult hurdles and ma+ing use o! easy terrain.

strategically in hi+ing by avoiding di!!icult hurdles and ma+ing use o! easy terrain.

Porte

Porter’s 0 r’s 0 Forces is Forces is used to used to evaluevaluate contract ate contract manumanu!acturin!acturing g induindustrystry. un . un %6u in %6u in his classichis classic  boo+ %he $rt

 boo+ %he $rt o! /ar em"hasi6ed o! /ar em"hasi6ed on the on the im"ortance o! im"ortance o! understanding terrain understanding terrain be!ore be!ore going togoing to  battle.

 battle. -n -n !act( !act( one one cha"ter cha"ter in in the the boo+ boo+ was was dedicated dedicated to to terrain terrain itsel!. itsel!. -n -n this this case case studystudy an

analyalysissis( ( teterrarrain in can can be be lili+e+enened d to to ththe e cocontntracract t mamanunu!a!actucturinring g inindudustrstry y as as ththis is is is ththee ?battleground’ !or HCF. Porter’s 0 Forces will hel" to understand the industry structure based ?battleground’ !or HCF. Porter’s 0 Forces will hel" to understand the industry structure based on the 0 im"ortant !orces that sha"e the industry. %he insight derived !rom this analysis will on the 0 im"ortant !orces that sha"e the industry. %he insight derived !rom this analysis will hel

hel" " to to not not onlonly y !orm!ormulaulate te strastrategy that tegy that matcmatch h the the comcom"any ca"ab"any ca"abiliility ty and and its its e,te,ternernalal environment( but in ?bigger "icture’ it will also hel" to account im"ortant changes and outloo+  environment( but in ?bigger "icture’ it will also hel" to account im"ortant changes and outloo+  o! the industry to give a strategy that will be relevant to near and distant time hori6on.

o! the industry to give a strategy that will be relevant to near and distant time hori6on.

/O% $nalysis /O% $nalysis Strength Strength trong @e"utation trong @e"utation

Peter has an e,cellent re"utation in Haute Couture !ashion. Peter can leverage his trac+ record Peter has an e,cellent re"utation in Haute Couture !ashion. Peter can leverage his trac+ record and contacts to secure new customers. /hen he was still wor+ing in #uro"e( many !ashion and contacts to secure new customers. /hen he was still wor+ing in #uro"e( many !ashion houses were ha""y to have him as a "art o! their design team. Fashion houses are very houses were ha""y to have him as a "art o! their design team. Fashion houses are very  "articular

 "articular in :ualitin :uality( thus they y( thus they are are more remore reluctant luctant to do to do business with business with "eo"le +nown "eo"le +nown to them.to them. Here( element o! trust is very im"ortant. Peter’s re"utation com"lemented with #laine %an Here( element o! trust is very im"ortant. Peter’s re"utation com"lemented with #laine %an negotiation "rowess will hel" the com"any to secure more contracts in the !uture "rovided negotiation "rowess will hel" the com"any to secure more contracts in the !uture "rovided that they can o!!er what their customers want.

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$ccess to #uro"e and $merican *ar+et $ccess to #uro"e and $merican *ar+et

HCF managed to secure re"utable !ashion houses in #uro"e and $merica as their customers. HCF managed to secure re"utable !ashion houses in #uro"e and $merica as their customers. ue to

ue to their modern design and their modern design and high :uality !inishihigh :uality !inishing( HCF’s customng( HCF’s customers ers remainremained loyal ed loyal !or !or  the "ast '& years. 2 maor $merican !ashion houses were 0 years with them. %heir current the "ast '& years. 2 maor $merican !ashion houses were 0 years with them. %heir current customers s"ea+ a volume about their :uality services. HCF can leverage their #uro"ean and customers s"ea+ a volume about their :uality services. HCF can leverage their #uro"ean and $merican customer "ort!olio in securing new contract. $ccording to $dhi+ari and Aamamoto $merican customer "ort!olio in securing new contract. $ccording to $dhi+ari and Aamamoto 32&&75( #uro"ean and $merica are the home to world’s to" !ashion houses and HCF has a 32&&75( #uro"ean and $merica are the home to world’s to" !ashion houses and HCF has a small share in this mar+et. -t will be much easier !or the com"any to secure new customers in small share in this mar+et. -t will be much easier !or the com"any to secure new customers in that mar+et com"ared to starting !rom 6ero. -n !act( "enetrating the mar+et alone is not easy that mar+et com"ared to starting !rom 6ero. -n !act( "enetrating the mar+et alone is not easy and HCF is one ste" ahead in this sense.

and HCF is one ste" ahead in this sense.

+illed Babor  +illed Babor 

Peter had recruited several #uro"ean8trained *alaysian designers to oin his com"any. %he Peter had recruited several #uro"ean8trained *alaysian designers to oin his com"any. %he designers were so good that their in"uts were heard and considered by their customers. %heir  designers were so good that their in"uts were heard and considered by their customers. %heir  Chie! esigner( )ason ong is also talented and had wor+ed !or several to" couture com"any Chie! esigner( )ason ong is also talented and had wor+ed !or several to" couture com"any in #uro"e. $ grou" o! trained designer in HCF will ensure that the com"any maintains its in #uro"e. $ grou" o! trained designer in HCF will ensure that the com"any maintains its :uality and standard. %heir customers are very "articular in :uality and cost. %he "ro!essional :uality and standard. %heir customers are very "articular in :uality and cost. %he "ro!essional designer team in HCF will at least hel" to assure one o! the 2 concerns is well addressed. designer team in HCF will at least hel" to assure one o! the 2 concerns is well addressed. >esides( the creative team will give HCF an edge i! they are "lanning to start their own label. >esides( the creative team will give HCF an edge i! they are "lanning to start their own label.

Huge in!rastructure Huge in!rastructure

HCF has a considerably huge o"eration with ' !actories that em"loys over 11&& labour. %hey HCF has a considerably huge o"eration with ' !actories that em"loys over 11&& labour. %hey can "roduce more than ' million o! garments a year. %hey are o"erating at economy o! scale can "roduce more than ' million o! garments a year. %hey are o"erating at economy o! scale even though there are !irms who are doing better than them. till( it will be di!!icult !or  even though there are !irms who are doing better than them. till( it will be di!!icult !or  newcomers( es"ecially in *alaysia to com"ete with HCF es"ecially in terms o! "ricing. newcomers( es"ecially in *alaysia to com"ete with HCF es"ecially in terms o! "ricing. >esides( huge volumes o! garments can be :uic+ly "roduced i! there is a demand due to HCF >esides( huge volumes o! garments can be :uic+ly "roduced i! there is a demand due to HCF large ca"acity.

large ca"acity.

@elationshi" with >an+er  @elationshi" with >an+er 

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HCF !inancial controller( aniel %an has a good wor+ing relationshi" with HCF’s ban+ers HCF !inancial controller( aniel %an has a good wor+ing relationshi" with HCF’s ban+ers allowing the com"any to securerenegotiate loan as needed. HCF strong "ublic relation with allowing the com"any to securerenegotiate loan as needed. HCF strong "ublic relation with the ban+s will hel" them to !inance e,"ansion i! needed.

the ban+s will hel" them to !inance e,"ansion i! needed.

trong olvency D Bi:uidity trong olvency D Bi:uidity

Financial statement analysis conducted 3re!er a""endi, 15 revealed that the com"any has a Financial statement analysis conducted 3re!er a""endi, 15 revealed that the com"any has a sound !inancial health. >ased on the !avourable result o! leverage and li:uidity ratio( HCF sound !inancial health. >ased on the !avourable result o! leverage and li:uidity ratio( HCF will be able to meet its short term and long term debt obligation which will signi!icantly hel" will be able to meet its short term and long term debt obligation which will signi!icantly hel" the com"any in credit a""lication when needed.

the com"any in credit a""lication when needed.

'ea(nesses 'ea(nesses

High Cost tructure 3relative to the rest o! the world5 High Cost tructure 3relative to the rest o! the world5

%his is "erha"s the most im"ortant area that needs to be

%his is "erha"s the most im"ortant area that needs to be addreaddressed. -t is ssed. -t is evideevidence in the nce in the casecase that their 2 maor customers seem adamant to loo+ !or another manu!acturer in China i! HCF that their 2 maor customers seem adamant to loo+ !or another manu!acturer in China i! HCF cannot reduce their "rice. %hese 2 customers are willing to ris+ the "remium services "rovided cannot reduce their "rice. %hese 2 customers are willing to ris+ the "remium services "rovided  by

 by HCF HCF re!lecting re!lecting the the enormous enormous cost cost saving saving that that they they will will have have in in China. China. Bosing Bosing these these 22 customers will lead to other customers leaving HCF.

customers will lead to other customers leaving HCF.

e"endence to a !ew customers e"endence to a !ew customers

HCF had a n

HCF had a number o! customers( umber o! customers( but 2 o! their customers <i+i but 2 o! their customers <i+i D Houdia account !or 4D Houdia account !or 44.24.2 o! their total sales. %hese 2 customers are also considering to loo+ !or new manu!actures in o! their total sales. %hese 2 customers are also considering to loo+ !or new manu!actures in Chin

China due a due to the to the lower cost. Boss o! lower cost. Boss o! these 2 customers will signi!icanthese 2 customers will signi!icantly a!!ect the tly a!!ect the com"com"anyany and its going concern. -! this news is lea+ed( it will also a!!ect the share "rice which will ma+e and its going concern. -! this news is lea+ed( it will also a!!ect the share "rice which will ma+e the entire %an !amily unha""y.

the entire %an !amily unha""y.

Poor O"eration #!!iciency and Pro!it ustainability Poor O"eration #!!iciency and Pro!it ustainability

>ased on the !inancial statement analysis 3see a""endi, 15( HCF is not e!!icient in their  >ased on the !inancial statement analysis 3see a""endi, 15( HCF is not e!!icient in their  o"eration. %he area o! concern is the account receivable turnover. -n 2&&7( number o! times o"eration. %he area o! concern is the account receivable turnover. -n 2&&7( number o! times trade receivables turnover during the year was '.27 but in 2&&; it was 2.7'0. %urnover was trade receivables turnover during the year was '.27 but in 2&&; it was 2.7'0. %urnover was low re!lecting longer time between sales and collecting cash. %rade receivables was about 1' low re!lecting longer time between sales and collecting cash. %rade receivables was about 1' o! the com"any’s revenue in both year and this huge amount 3i! can be collected5 will add o! the com"any’s revenue in both year and this huge amount 3i! can be collected5 will add massive cash to the business. >esides( the "ro!it sustainability ratios are also un!avorable. massive cash to the business. >esides( the "ro!it sustainability ratios are also un!avorable.

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%his was due to HCF huge "lunge o! "ro!it !rom 9(191 million in 2&&7 to 2(442 million in %his was due to HCF huge "lunge o! "ro!it !rom 9(191 million in 2&&7 to 2(442 million in 2&&;.

2&&;.

 Eo com"etitive advantage  Eo com"etitive advantage

HCF 2 maor customers are considering !or another com"any and HCF has no say on this HCF 2 maor customers are considering !or another com"any and HCF has no say on this other than reducing its cost. HCF boasts their "remium design but in the eyes o! their  other than reducing its cost. HCF boasts their "remium design but in the eyes o! their  customers( their service is re"laceable by another com"any. -n this essence( HCF has no customers( their service is re"laceable by another com"any. -n this essence( HCF has no com"etitive advantage that ma+es them stand out.

com"etitive advantage that ma+es them stand out.

Babour redundancy Babour redundancy

HCF has over '&& labour redundancy which cost them ' million "er year. %his amount is even HCF has over '&& labour redundancy which cost them ' million "er year. %his amount is even more than their net "ro!it in 2&&;. %here is an ele"hant in the room and it needs to be more than their net "ro!it in 2&&;. %here is an ele"hant in the room and it needs to be addressed :uic+ly.

addressed :uic+ly.

Bow share "rice Bow share "rice

%he !loating "rice o! HCF share was @*2.0& but the current "rice is only @*1.;& re!lecting %he !loating "rice o! HCF share was @*2.0& but the current "rice is only @*1.;& re!lecting  "oor mar+et

 "oor mar+et sentiments sentiments to the to the com"any. $com"any. $ccording to ccording to -nvesto"edia.Com( decreasing -nvesto"edia.Com( decreasing in sharein share  "rice signals "oor

 "rice signals "oor e,"ectation o! investors e,"ectation o! investors to the com"any. %his sun+ in !igure is to the com"any. %his sun+ in !igure is observed byobserved by investors and closely monitored by creditors. rastic decrease in share "rice will de!initely investors and closely monitored by creditors. rastic decrease in share "rice will de!initely im"act !uture loan re:uest

im"act !uture loan re:uest by the com"any.by the com"any.

)&&ortunity )&&ortunity

%he rise o! e

%he rise o! emerging economymerging economy( lower cost( lower cost

%he rise o! China as number one te,tile manu!acturer can be loo+ as o""ortunity or threat. %he rise o! China as number one te,tile manu!acturer can be loo+ as o""ortunity or threat. $ccording to >iselli 32&&75( due to its low labour cost( low currency rate( intense !oreign $ccording to >iselli 32&&75( due to its low labour cost( low currency rate( intense !oreign direct investment 3F-5 due to "ositive government intervention( China had become the holy direct investment 3F-5 due to "ositive government intervention( China had become the holy grail o! outsourcing. For HCF( China can be an o""ortunity disguises as "roblem because the grail o! outsourcing. For HCF( China can be an o""ortunity disguises as "roblem because the co

coununtry try can can "r"rovovidide e alalterternanatitiveves s to to "r"rododucuce e at at a a chcheaea"er "er cocost st anand d bebetttter er serserveves s ththeieir r  customers.

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@ight %ime to $ddress the Babor e"endency Problem @ight %ime to $ddress the Babor e"endency Problem

Babor redundancy "roblem is huge in HCF as it cost the com"any ' million. ince the Babor redundancy "roblem is huge in HCF as it cost the com"any ' million. ince the com"any is in crisis( they will be more reasons to address this issue and it will be easier to com"any is in crisis( they will be more reasons to address this issue and it will be easier to convince their em"loyee that releasing them is vital !or HCF to survive.

convince their em"loyee that releasing them is vital !or HCF to survive.

Threat Threat

 Eew Com"etitors in China  Eew Com"etitors in China

 Eew

 Eew com"etitors com"etitors o!!ering o!!ering the the same same services services at at a a lower lower cost cost are are blooming blooming in in China. China. %he%he im"act is evidence in this case study as HCF are about to lose 2 o! their biggest customers to im"act is evidence in this case study as HCF are about to lose 2 o! their biggest customers to other com"anies o"erating in China.

other com"anies o"erating in China.

lobal Financial Crisis lobal Financial Crisis

2&&; global !inancial crisis brings massive im"act to business. >usinesses will have lower  2&&; global !inancial crisis brings massive im"act to business. >usinesses will have lower  cash !low due to lesser s"ending and di!!iculties in obtaining credit due to tighter regulations. cash !low due to lesser s"ending and di!!iculties in obtaining credit due to tighter regulations. >e

>esisidedes( s( bubusisinenesssses es neneed ed to to dodownwnsisi6e 6e by by rereleleasasining g emem"l"loyoyeeee( ( cacaususining g ththe e ririse se o! o!  une

unem"lm"loymoyment ent raterate. . -n -n retureturn( rn( whewhen n uneunem"lm"loymoyment ent rate rate is is highigh( h( tottotal al conconsumsum"ti"tion on wilwilll decline which will hurt almost all businesses e,ce"t !or those "roviding goods and services decline which will hurt almost all businesses e,ce"t !or those "roviding goods and services that have autonomous consum"tion. Creditors worldwide will be reluctant and more rigid in that have autonomous consum"tion. Creditors worldwide will be reluctant and more rigid in gr

granantiting ng loloan an dudue e to to hihigh gh riris+ s+ o! o! dede!au!ault lt anand d baban+n+ruru"t"tcycy. . %h%hese ese sitsituauatitionons s haha""""eneneded worldwide even though they were countries that are more a!!ected than the others. <i+i and worldwide even though they were countries that are more a!!ected than the others. <i+i and Hoiu

Hoiuda decision to da decision to move "roducmove "roduction to tion to China might be China might be becaubecause se o! these o! these reasonreason( hence ( hence HCFHCF should consider this in !ormulating their strategy as well.

should consider this in !ormulating their strategy as well.

E*ternal Porter+s $ %orces E*ternal Porter+s $ %orces

/e wil

/e will l be analy6ing te,tile contract manu!actube analy6ing te,tile contract manu!acturing industry !rom global conte,t as ring industry !rom global conte,t as HCF isHCF is involved in global o"eration.

involved in global o"eration.

 Eew *ar+et #ntrants  Eew *ar+et #ntrants

-n te,tile contract manu!acturing industry( the barriers to entry is high es"ecially to com"any -n te,tile contract manu!acturing industry( the barriers to entry is high es"ecially to com"any with small ca"ital. Eewcomers will have to com"ete with com"anies that are o"erating in with small ca"ital. Eewcomers will have to com"ete with com"anies that are o"erating in econo

economies o! scale. mies o! scale. /i/ith small ca"ital( it th small ca"ital( it is di!!icult !or newcomeis di!!icult !or newcomers to rs to endurendure in e in this mar+etthis mar+et as the com"etition is very intense and cut throat. >esides( it is also di!!icult to have customers as the com"etition is very intense and cut throat. >esides( it is also di!!icult to have customers i! the contract involves high end a""arel as renowned !ashion houses are very "articular in i! the contract involves high end a""arel as renowned !ashion houses are very "articular in

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:uality. %hese barriers will a!!ect all country in the world. #ven i! there are di!!erences in the :uality. %hese barriers will a!!ect all country in the world. #ven i! there are di!!erences in the regulation !or each country( the !act will remain the sameG economies o! scale will become regulation !or each country( the !act will remain the sameG economies o! scale will become  barriers to newcomers. ue to that( the threat o! new mar+et entrants is low.

 barriers to newcomers. ue to that( the threat o! new mar+et entrants is low.

u""lier Power  u""lier Power 

@aw materials in te,tile manu!acturing sector are standardi6ed in a sense that many su""liers @aw materials in te,tile manu!acturing sector are standardi6ed in a sense that many su""liers are com"eting o!!ering the same raw materials. >uyers 3contract manu!acturing com"any5 are com"eting o!!ering the same raw materials. >uyers 3contract manu!acturing com"any5 have "lenty o! alternatives to

have "lenty o! alternatives to choochoose se !rom giving them advantag!rom giving them advantage e over the over the su""su""liers. ue toliers. ue to that( su""lier "ower is wea+ in contract manu!acturing industry.

that( su""lier "ower is wea+ in contract manu!acturing industry.

>uyer Power  >uyer Power 

-n high end contract manu!acturing industry( buyers are very "articular in :uality and cost. -n high end contract manu!acturing industry( buyers are very "articular in :uality and cost. %here are small numbers o!

%here are small numbers o! !ashio!ashion houses as n houses as buyerbuyers com"ared to large numbers o! s com"ared to large numbers o! contracontractct manu!acturing com"any( hence giving them the u""er hand in choosing com"any that can manu!acturing com"any( hence giving them the u""er hand in choosing com"any that can o!!er services o! highest :uality at a lower cost. -n this sense( buyers bargaining "ower are o!!er services o! highest :uality at a lower cost. -n this sense( buyers bargaining "ower are high in this

high in this industry.industry.

%hreat o! ubstitutes %hreat o! ubstitutes

-n this industry( there were no signi!icant substitute to what contract manu!acturing services -n this industry( there were no signi!icant substitute to what contract manu!acturing services o!!eredG hence the threat o! substitute is very low.

o!!eredG hence the threat o! substitute is very low.

@ivalry @ivalry

Com"etition in this industry is very intense and aggressive. lobally( large numbers o! !irms Com"etition in this industry is very intense and aggressive. lobally( large numbers o! !irms are "roviding this service. >esides( switching cost is low !or customers as they can um" !rom are "roviding this service. >esides( switching cost is low !or customers as they can um" !rom com"

com"any to com"any to attain lowest cost. %hough it will not be any to com"any to attain lowest cost. %hough it will not be as easy as as easy as what being said(what being said( customers have lots o! alternatives and changing com"any is not a "roblem !or them i! it is customers have lots o! alternatives and changing com"any is not a "roblem !or them i! it is necessary. >arriers to e,it are also high causing the com"etition to become even more intense. necessary. >arriers to e,it are also high causing the com"etition to become even more intense. %e,tile manu!acturing com"any ac:uire s"eciali6ed assets which will be di!!icult to reali6e( %e,tile manu!acturing com"any ac:uire s"eciali6ed assets which will be di!!icult to reali6e( hence the com"any will run even i! it is un"ro!itable to avoid bigger loss.

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#.0 lternati"es #.0 lternati"es

>ased on the situation analysis conducted( a !ew alternatives were !ormulated= >ased on the situation analysis conducted( a !ew alternatives were !ormulated=

1.

1. FF- in Chi- in China anna and dowd downsinsi6e *al6e *alayaysian osian o"er"eratioationn 2.

2. )oint )oint ventuventure in re in China China and and downdownsi6e *si6e *alaysian alaysian o"erao"erationtion

>e

>e!o!ore re we we stastart rt to to e,e,"l"lain ain eaeach ch alalterternanatitiveve( ( a a !ew !ew "o"oinints ts neneed ed to to be be hihighghlilighghtedted. . -t -t isis im"erative !or HCF to venture in China not only because they need to secure their 2 maor  im"erative !or HCF to venture in China not only because they need to secure their 2 maor  customers but rather( this is a "art o! strategic decision to remain sustainable in this industry. customers but rather( this is a "art o! strategic decision to remain sustainable in this industry. /O% analysis revealed that there is an o""ortunity in !oreign mar+et to cut cost in order to /O% analysis revealed that there is an o""ortunity in !oreign mar+et to cut cost in order to retain their customers. Porters 0 Forces revealed that the buyers bargaining "ower is very high retain their customers. Porters 0 Forces revealed that the buyers bargaining "ower is very high in this industry es"ecially in terms o! cost and :uality( hence HCF need to ada"t to this threat in this industry es"ecially in terms o! cost and :uality( hence HCF need to ada"t to this threat in order to o!!er better deal to their customers.

in order to o!!er better deal to their customers.

China was chosen !or various reasons other than the !act that the country is HCF maor  China was chosen !or various reasons other than the !act that the country is HCF maor  customers’ "re!erence in loo+ing !or alternatives. First( China had the largest e,"ort o! te,tiles customers’ "re!erence in loo+ing !or alternatives. First( China had the largest e,"ort o! te,tiles and clothing "roducts in the world !ollowed by -ndia( >angladesh and Pa+istan in #uro"ean and clothing "roducts in the world !ollowed by -ndia( >angladesh and Pa+istan in #uro"ean mar+et as o! 2&& 3re!er a""endi, 25. >esides( China had the largest e,"ort in the $ mar+et as o! 2&& 3re!er a""endi, 25. >esides( China had the largest e,"ort in the $ !ollowed by -ndia( -ndonesia and Iietnam as o! 2&& 3re!er a""endi, '5. %hese !igures are the !ollowed by -ndia( -ndonesia and Iietnam as o! 2&& 3re!er a""endi, '5. %hese !igures are the tell8tale sign o! the world trend in te,tile and clothing "roducts where the #uro"ean and $ tell8tale sign o! the world trend in te,tile and clothing "roducts where the #uro"ean and $  "roduction

 "roduction are are shi!ted shi!ted to to China. China. %hese %hese were were the the current current trend trend at at the the moment moment and and HCF HCF as as aa relatively small com"any holding tiny mar+et share strategic move should be to !ollow the relatively small com"any holding tiny mar+et share strategic move should be to !ollow the trend. -n this situation( the old adage JK-! you canLt beat them( oin themK seems to ma+e trend. -n this situation( the old adage JK-! you canLt beat them( oin themK seems to ma+e sense.

sense.

>esides( according to an

>esides( according to an industry re"ort titled Jindustry re"ort titled Jtudy on China’s %tudy on China’s %e,tiles D Clothing -ndustrye,tiles D Clothing -ndustry and its *ar+etM "re"ared by #uro"ean Comission( China is more advanced in their basic and its *ar+etM "re"ared by #uro"ean Comission( China is more advanced in their basic in!rastructure as com"ared to -ndia( Pa+istan and >angladesh. F- and oin venture are both in!rastructure as com"ared to -ndia( Pa+istan and >angladesh. F- and oin venture are both massive "roects( hence the element o! scalability must be included in decision ma+ing. massive "roects( hence the element o! scalability must be included in decision ma+ing. -n!rastructure is one o! the most im"ortant as"ects that need to be considered as it involved -n!rastructure is one o! the most im"ortant as"ects that need to be considered as it involved mobi

mobili6atioli6ation n o! resources which consume cost. -n o! resources which consume cost. -n this sense( China is this sense( China is the better alternativesthe better alternatives than -ndia( Pa+istan and >angladesh. -n terms o! labour cost( China had higher labor cost than -ndia( Pa+istan and >angladesh. -n terms o! labour cost( China had higher labor cost com"ared to -ndia( Pa+istan and >angladesh based on study conducted by a consultant based com"ared to -ndia( Pa+istan and >angladesh based on study conducted by a consultant based in Eew Aor+( )assin8O’@our+e rou" 3re!er a""endi, 45. However( labor cost is not the only in Eew Aor+( )assin8O’@our+e rou" 3re!er a""endi, 45. However( labor cost is not the only cost that com"anies incur. @aw materials and distribution have large in!luence in total cost o!  cost that com"anies incur. @aw materials and distribution have large in!luence in total cost o!   "roduction.

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te,tile in the world( "roducing a huge range o! raw materials to buyers. %he com"etition is te,tile in the world( "roducing a huge range o! raw materials to buyers. %he com"etition is int

intensense e and and a a comcom"any can "any can e,"e,"ect ect momore re barbargaigaininning g "ow"ower er in in "ro"rocurcuring ing raw raw matmateriaerials.ls. >esides( with basic in!rastructure in "lace( distribution cost will be lesser in China.

>esides( with basic in!rastructure in "lace( distribution cost will be lesser in China.

HCF two maor customers !avor China as their alternative !or reasons. %hey had done their  HCF two maor customers !avor China as their alternative !or reasons. %hey had done their  mar+et research and !ound that China can o!!er them lower cost than HCF( but their research mar+et research and !ound that China can o!!er them lower cost than HCF( but their research will not only be about cost. $n in de"th analysis must be done !or them to use China as their  will not only be about cost. $n in de"th analysis must be done !or them to use China as their  trum" card in negotiation. For them( China has everything to re"lace HCF and the same line trum" card in negotiation. For them( China has everything to re"lace HCF and the same line o! thin+ing can be used by HCF which means that China has everything !or HCF to become a o! thin+ing can be used by HCF which means that China has everything !or HCF to become a  better com"any.

 better com"any.

/e d

/e do not consider maintaining o not consider maintaining status :uo and not venturing status :uo and not venturing to China. HCF maor to China. HCF maor "roblem is"roblem is sustainability( hence our strategy is very much long term oriented. %he com"any can survive sustainability( hence our strategy is very much long term oriented. %he com"any can survive one or two years o"erating in *alaysia with aggressive cost cutting but eventually it will not one or two years o"erating in *alaysia with aggressive cost cutting but eventually it will not  be

 be able able to to beat beat China China and and other other chea"er chea"er mar+et. mar+et. %here %here is is nothing nothing could could be be done done sincesince *alaysia are becoming economically better which will lead to the increase o! !actor o!  *alaysia are becoming economically better which will lead to the increase o! !actor o!   "roduction cost. %his is a sin+ or swim situation !or HCF and they need to venture to China in  "roduction cost. %his is a sin+ or swim situation !or HCF and they need to venture to China in order to survive and thrive. -! we can "roduce in China( the !actory ca"acity in *alaysia D order to survive and thrive. -! we can "roduce in China( the !actory ca"acity in *alaysia D %hailand will become idle and it comes with cost( hence the right business 3"utting everything %hailand will become idle and it comes with cost( hence the right business 3"utting everything else aside5 decision is to close down most o! the !actories

else aside5 decision is to close down most o! the !actories

 Eotice that we

 Eotice that we did not consider the did not consider the idea o! starting idea o! starting a new label. a new label. )im Collins in his )im Collins in his boo+ oodboo+ ood to reat= /hy ome Com"anies *a+e the Bea"... and Others onLt studied 11 com"anies to reat= /hy ome Com"anies *a+e the Bea"... and Others onLt studied 11 com"anies 3i

3illetlletes( /ees( /ells lls FarFargogo( ( <ro<roger ger D D $b$bbotbott t BabBaboraoratortories ies to to namname e a a !ew!ew5 5 thathat t manmanageaged d toto out"er!ormed their industries and com"etitors !rom 190 to 1999. -n the boo+ )im Collins out"er!ormed their industries and com"etitors !rom 190 to 1999. -n the boo+ )im Collins introduced ?Hedgehog Conce"t’ that re!ers to a "arable o! a hedgehog and a !o,( the !o, introduced ?Hedgehog Conce"t’ that re!ers to a "arable o! a hedgehog and a !o,( the !o, seems to +now many things( but the

seems to +now many things( but the hedgehog +nows only one big thing. He !ound that all thehedgehog +nows only one big thing. He !ound that all the 11 com"anies that managed to survive and thrive !rom 190 to 1999 had one thing in 11 com"anies that managed to survive and thrive !rom 190 to 1999 had one thing in common= they were very !ocus on one big im"ortant thing that give them big8win and ma+es common= they were very !ocus on one big im"ortant thing that give them big8win and ma+es their com"any great. %he !act can also be a""lied to HCF.

their com"any great. %he !act can also be a""lied to HCF.

/e were not sure o! the true direction o! HCF as the vision and mission statement are not /e were not sure o! the true direction o! HCF as the vision and mission statement are not given. till( contract manu!acturing

given. till( contract manu!acturing is the bread and is the bread and butter o! HCF. %butter o! HCF. %hey have been doing thishey have been doing this !rom the very beginning and this is what they are good at. -t will be more strategic to !ocus on !rom the very beginning and this is what they are good at. -t will be more strategic to !ocus on their strengths rather than trying something new and ma+e it wor+ !or them. -n the midst o!  their strengths rather than trying something new and ma+e it wor+ !or them. -n the midst o!  glo

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contractions. %he idea o! leaving the contract manu!acturing business and venturing to a new contractions. %he idea o! leaving the contract manu!acturing business and venturing to a new industry seems idealistic and ambitious. %he !orecasted sales revenue !igure !or new label industry seems idealistic and ambitious. %he !orecasted sales revenue !igure !or new label given in the case is also :uestionable. -n times o! !inancial crisis where s"ending are low( how given in the case is also :uestionable. -n times o! !inancial crisis where s"ending are low( how iis s iit t ""oossssiibblle e !!oor r tthhe e ccoomm""aanny y tto o ""rrooeecct t ssuucch h a a mmaassssiivve e rreevveennuuee.. #ven i! their niche mar+et is high end a""arel( what ma+es them thin+ that the can beat a #ven i! their niche mar+et is high end a""arel( what ma+es them thin+ that the can beat a mor

more e renrenownowned ed namname e sucsuch h as as uucci( cci( BoBouis uis IIututtonton( ( >ur>urberberry ry and and @al@al"h "h BauBauren ren whowhosese e,istence date bac+ to early 199&.

e,istence date bac+ to early 199&. -n a year or two( -n a year or two( how the com"any how the com"any will be able to secure awill be able to secure a massive distribution to all $#$E mar+ets $s !ar as this case is concerned( they do not have massive distribution to all $#$E mar+ets $s !ar as this case is concerned( they do not have contacts in $#$E mar+et with regard to direct distribution o! clothing "roducts. HCF may contacts in $#$E mar+et with regard to direct distribution o! clothing "roducts. HCF may have the e,"ertise in

have the e,"ertise in design but distribudesign but distribution and mar+eting are tion and mar+eting are com"lcom"letely new etely new !or them. -n!or them. -n turbulent times( ris+ing what they have !or something new will not be a wise move. ue to the turbulent times( ris+ing what they have !or something new will not be a wise move. ue to the above reasons( we believe that HCF is not ready to com"letely leave their e,isting business to above reasons( we believe that HCF is not ready to com"letely leave their e,isting business to start a new one.

start a new one.

>elow is the e,"lanation !or each alternative= >elow is the e,"lanation !or each alternative=

1.

1. FF- in Chi- in China anna and owd ownsinsi6e *al6e *alaysaysian O"ian O"eraeratiotionn

%he !irst alternative involves closing down most o! HCF e,isting !actories and building a %he !irst alternative involves closing down most o! HCF e,isting !actories and building a !actory in China. %he construction "rocess will ta+e 1 N years thus e,isting !actories must be !actory in China. %he construction "rocess will ta+e 1 N years thus e,isting !actories must be +e"t till the

+e"t till the new !actory o"eratesnew !actory o"erates. HCF . HCF needs to o!!er discount to their 2 needs to o!!er discount to their 2 maor custommaor customers iners in order to "ersuade them to stay with HCF. %he 2 customers must stay with HCF and HCF has order to "ersuade them to stay with HCF. %he 2 customers must stay with HCF and HCF has to o!!er everything that they have or else the whole strategy will crumble. -n order to cushion to o!!er everything that they have or else the whole strategy will crumble. -n order to cushion th

the e im"im"act act o! o! ththe e didiscscouountnt( ( ththe e 2 2 mamaor or cucustostomemers rs clclothothining g mamanunu!ac!actuturinring g shshouould ld bebe com"letely shi!ted to %hailand since it involves the lowest cost. *anu!acturing o! other  com"letely shi!ted to %hailand since it involves the lowest cost. *anu!acturing o! other  e,isting customers clothing should be shi!ted to *alaysia. "on construction com"letion( e,isting customers clothing should be shi!ted to *alaysia. "on construction com"letion( HC

HCF F wilwill l neeneed to d to cloclose their Penase their Penang and Chienng and Chieng g *ai !acto*ai !actoriesries. . )itr)itra a !act!actory will stay toory will stay to o"erate and will act as bu!!er to China !actories. %he reason !or closing down Penang !actory o"erate and will act as bu!!er to China !actories. %he reason !or closing down Penang !actory is due to its high resale value and its location in Penang where ob o""ortunity !or the same is due to its high resale value and its location in Penang where ob o""ortunity !or the same line o! wor+ is

line o! wor+ is relativrelatively high com"ared to )itra( so that ely high com"ared to )itra( so that HCF !ormer em"loyHCF !ormer em"loyees will ees will at leastat least have higher chances o! getting new ob. Factory in )itra is not closed because o! *alaysian have higher chances o! getting new ob. Factory in )itra is not closed because o! *alaysian sentiment 3and its low resale value5 and the one in Chieng *ai will be leased at very low rate sentiment 3and its low resale value5 and the one in Chieng *ai will be leased at very low rate to attract lessor. -! no lessor is

to attract lessor. -! no lessor is interested( the !actory will interested( the !actory will be board u". %he cost o! boarding u"be board u". %he cost o! boarding u" will be com"ensated with the !und recovered !rom redundancy "ayment. >oarding u" will will be com"ensated with the !und recovered !rom redundancy "ayment. >oarding u" will

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cost @* 2&&( &&& and we had a generous estimation that out o! the total @* ' million o!  cost @* 2&&( &&& and we had a generous estimation that out o! the total @* ' million o!  redundancy "ayments( @* 2&&(&&& can be s:uee6ed !ro

redundancy "ayments( @* 2&&(&&& can be s:uee6ed !ro m it.m it.

%o !inance this move( HCF will need to a""ly !or loan. /e will use 0 Cs o! credit to brie!ly %o !inance this move( HCF will need to a""ly !or loan. /e will use 0 Cs o! credit to brie!ly evaluate HCF chance o! receiving

evaluate HCF chance o! receiving credit. credit. HCF has outstanding HCF has outstanding character in a sense that theycharacter in a sense that they have a good relationshi" with ban+ers where there is no trust issue between the ban+s and the have a good relationshi" with ban+ers where there is no trust issue between the ban+s and the com"any. -n terms o! ca"ital( HCF !inance maor "art o! its o"eration through e:uity and this com"any. -n terms o! ca"ital( HCF !inance maor "art o! its o"eration through e:uity and this is "roven through a very high current and :uic+ ratio. HCF ca"acity to generate cash !low to is "roven through a very high current and :uic+ ratio. HCF ca"acity to generate cash !low to  "ay

 "ay loan loan seems seems not not encouraging. encouraging. till( till( i! i! HCF HCF can can maintain maintain their their 2 2 maor maor customers customers 3which3which they will5( they will be able to generate enough cash !low to "ay the loans. -n terms o!  they will5( they will be able to generate enough cash !low to "ay the loans. -n terms o!  condition( the ban+er will need to understand the shi!t o! the industry to China and how it condition( the ban+er will need to understand the shi!t o! the industry to China and how it a!!ects HCF. %his changes and other issues are addressed by HCF where the will be venturing a!!ects HCF. %his changes and other issues are addressed by HCF where the will be venturing in China. Finally( !or collateral( HCF has to o!!er )itra !actory "lus their own shares. )itra in China. Finally( !or collateral( HCF has to o!!er )itra !actory "lus their own shares. )itra !a

!actctory ory alalonone e is is nonot t enenouough gh to to cocovever r ththe e 10 10 mimillillion on loloanans. s. %h%he e :u:uestestioion n is is wewethther er ththee shareholders agree to collateri6e their share %hey have to do it in order to receive credit or  shareholders agree to collateri6e their share %hey have to do it in order to receive credit or  the other alternatives are to issue new share which will dilute their sta+es in the com"any. %he the other alternatives are to issue new share which will dilute their sta+es in the com"any. %he shareholders must choose between these 2 alternatives. $ brie! com"utation will show that shareholders must choose between these 2 alternatives. $ brie! com"utation will show that HCF will able to "ay their loan i! everything goes smoothly as their EPI  dis"osal o!  HCF will able to "ay their loan i! everything goes smoothly as their EPI  dis"osal o!  Penang Factory will be about 17.9 million 39.4 million  ;.0 million5 not accounting the Penang Factory will be about 17.9 million 39.4 million  ;.0 million5 not accounting the redundancy "ayment recovered by closing two !actories. econd alternative is to issue new redundancy "ayment recovered by closing two !actories. econd alternative is to issue new shares. -n order to arrive to 10 million( HCF need to issue ;.''' million shares which will shares. -n order to arrive to 10 million( HCF need to issue ;.''' million shares which will signi!icantly dilute the control o! the maor shareholders. @e!er to a""endi, 0 !or EPI signi!icantly dilute the control o! the maor shareholders. @e!er to a""endi, 0 !or EPI com"utation.

com"utation.

One o! the ris+s o! this alternative is the currency ris+. %here is nothing could be done to One o! the ris+s o! this alternative is the currency ris+. %here is nothing could be done to control currency ris+ but to mitigate its e!!ect( HCF needs to hedge in Chinese yuan. %he control currency ris+ but to mitigate its e!!ect( HCF needs to hedge in Chinese yuan. %he e,act hedging strategy will not be discussed in this re"ort since both alternatives will have to e,act hedging strategy will not be discussed in this re"ort since both alternatives will have to !ace with this ris+ and it ma+es no di!!erence to which alternative will be chosen. till( !ace with this ris+ and it ma+es no di!!erence to which alternative will be chosen. till( currency ris+s can ma+e a huge di!!erence to HCF bottom line and hedging is one way to currency ris+s can ma+e a huge di!!erence to HCF bottom line and hedging is one way to mitigate this ris+. %he second ris+ o! outsourcing is changes in China law and regulation. mitigate this ris+. %he second ris+ o! outsourcing is changes in China law and regulation. $gain there is nothing much can be done other that

$gain there is nothing much can be done other that continuous lobbying. %continuous lobbying. %he other ris+ is losshe other ris+ is loss o! business +nowledge to China labour and culture di!!erences. HCF business +nowledge will o! business +nowledge to China labour and culture di!!erences. HCF business +nowledge will  be

 be trans!erred trans!erred to to China China and and HCF HCF needs needs to to be be able able to to ada"t ada"t to to Chinese Chinese culture culture in in managingmanaging their o"eration in China.

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2.

2. )oint )oint IIeenture inture in Chin China and na and ownownsi6e *alsi6e *alaysian Oaysian O"eratio"erationn

%h

%he e secosecond nd altealternatrnative ive alsalso o invinvolvolves es cloclosinsing g dowdown n mosmost t o! o! HCF e,istiHCF e,isting ng !act!actoriories es butbut initiating a oint venture in China. %he "roect will only ta+e 1 N years thus e,isting !actories initiating a oint venture in China. %he "roect will only ta+e 1 N years thus e,isting !actories must be +e"t till "roduction ca"acity can run. HCF needs to o!!er discount to their 2 maor  must be +e"t till "roduction ca"acity can run. HCF needs to o!!er discount to their 2 maor  custo

customers in mers in order to "ersuade them to order to "ersuade them to stay with HCF. -n ordestay with HCF. -n order to r to cushiocushion the n the im"act o! theim"act o! the discount the same strategy a""lied( the 2 maor customers clothing manu!acturing should be discount the same strategy a""lied( the 2 maor customers clothing manu!acturing should be com"letely shi!ted to %hailand since it has a lower cost com"ared to *alaysia. *anu!acturing com"letely shi!ted to %hailand since it has a lower cost com"ared to *alaysia. *anu!acturing o! other e,isting customers clothing should be shi!ted to *alaysia. "on "roduction ca"acity o! other e,isting customers clothing should be shi!ted to *alaysia. "on "roduction ca"acity is ready(

is ready( HCF will need to HCF will need to close their Penang and Chieng close their Penang and Chieng *ai !actories. *ai !actories. )itra !actory will stay)itra !actory will stay to o"erate and will act as bu!!er to China !actories. %he reason !or closing down Penang to o"erate and will act as bu!!er to China !actories. %he reason !or closing down Penang !actory is due to its high resale value and its location in Penang where ob o""ortunity !or the !actory is due to its high resale value and its location in Penang where ob o""ortunity !or the same line o! wor+ is relatively high com"ared to )itra. Factory in )itra is not closed because o!  same line o! wor+ is relatively high com"ared to )itra. Factory in )itra is not closed because o!  *alaysian sentiments and the one in Chieng *ai will be leased at very low rate to attract *alaysian sentiments and the one in Chieng *ai will be leased at very low rate to attract leasor. -! no lessor is interested( the !actory will be board u". %he cost o! boarding u" will be leasor. -! no lessor is interested( the !actory will be board u". %he cost o! boarding u" will be com"ensate with the !und recovered !rom redundancy "ayment. >oarding u" will cost @* com"ensate with the !und recovered !rom redundancy "ayment. >oarding u" will cost @* 2&&( &&& and we had a generous estimation that out o! the total @* ' million o! redundancy 2&&( &&& and we had a generous estimation that out o! the total @* ' million o! redundancy  "ayments( @* 2&&(&&

 "ayments( @* 2&&(&&& can be s:uee6e !rom it. @e!er to a""endi, 0 !or EPI & can be s:uee6e !rom it. @e!er to a""endi, 0 !or EPI com"utation.com"utation.

%he cost !or this alternative can be !rom loan. %he 0 Cs analyses will be much the same as the %he cost !or this alternative can be !rom loan. %he 0 Cs analyses will be much the same as the !irst alternative. %he only di!!erence is that( the second alternative only needs 2.4 million( !irst alternative. %he only di!!erence is that( the second alternative only needs 2.4 million( hence the chances o! receiving loan is even higher.

hence the chances o! receiving loan is even higher.

%he ris+ will also be the same as discussed above. One additional ris+ is that HCF will not %he ris+ will also be the same as discussed above. One additional ris+ is that HCF will not have !ull control o! the o"eration in China( hence the :uality o! a""arel "roduced may be have !ull control o! the o"eration in China( hence the :uality o! a""arel "roduced may be a!!ected.

(14)

$.0 !ecommendations $.0 !ecommendations

/e will choose alternative 1 in this re"ort. %he main "roblem !or HCF is its sustainability. /e will choose alternative 1 in this re"ort. %he main "roblem !or HCF is its sustainability. $lternatives 1 give a long term solution while alternative 2 is only viable !or 08 years a!ter  $lternatives 1 give a long term solution while alternative 2 is only viable !or 08 years a!ter  which new negotiation will have to be made. $t that moment( "erha"s <i<i and Houida will which new negotiation will have to be made. $t that moment( "erha"s <i<i and Houida will choose HCF oin venture "artner over them. Boo+ing at the EPI 3re!er a""endi, 05( !or every choose HCF oin venture "artner over them. Boo+ing at the EPI 3re!er a""endi, 05( !or every dollar s"ent( oint venture give more return than F-. till( we are loo+ing at long term dollar s"ent( oint venture give more return than F-. till( we are loo+ing at long term solut

solution to HCF business sustainaion to HCF business sustainability and we !eel bility and we !eel that this is the that this is the lost that we lost that we are willing toare willing to ta+e in order to survive. %he action "lan is e,"lained in the alternatives.

References

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