Question

You are the production manager for a global business with assembly facilities around the world. The business has tended to manufacture in the home country, a developed one, with the assembly of the products taking place in a strategically located country in each of the major groupings of markets. You have been asked to look at relocating some of the production of the older product lines in some of these assembly facilities and using them as production plants. Traditionally production has worked closely with research and development in the home country. Your changes need to reflect the fact that sales have fallen in the home market with increased competition. At the same time, key markets around the world are booming. “Home or abroad?” is the question and the potential future of the business is in your hands.

•      With demand low in the home country, why might it make sense to relocate production to a developing nation?

•      How would you consider the manufacture of maturing products? Would you consider moving production elsewhere?

•      What are the advantages and disadvantages for the domestic production facilities of moving production abroad?

Answer 1

Answer:

With demand low in the home country, why might it make sense to relocate production to a developing nation?

The demand for the older product lines have been diminishing in the home country and since the manufacturing plant of the company is located in the developed country where the competition is high; the company has to come up with a new product line or the modification in the existing product line. Sometimes, customer in the developed nation wants a new product with the more technological features rather than the older products offered with the few or limited modification since competitors introduce new and more developed products. Under such circumstances, it is a strategically wise decision to move the production process of the older product line to the developing country where the competition is low and customers are still using the older products and are not aware about the high technological developments.

Relocating the production to the developing nation makes sense as the older product line has been in the decline phase of the product life cycle in the home country where the sales of the product is declining and the customer are no more interested in the older products. The competitors are providing them with the new products which are technologically more advanced than the older product line. Any further modification in the older product line will not attract the customer. Further manufacturing of the older product line in the developed country will result into the accumulation of inventory of the finished goods of older product in the warehouses which would not sell and the company will incur losses.

Hence, it becomes necessary for the company to find the other foreign market where the older product line has scope of selling.

How would you consider the manufacture of maturing products? Would you consider moving production elsewhere?

Manufacturing of the maturing product in the market where it has reached the maturity will result into the losses of the company. Company should stop the manufacturing of the product which has reached the maturity stage of the product life cycle since the competitors are providing the customers with more exciting products to which the customers are getting shifted. Adding modification in the maturing product may increase the sales but it will be for a shorter duration of time and customer will ultimately move to the products of the competitors where they find the products with the new features and this will cause the company to incur huge losses of research and development and the manufacturing of the product.

The company should identify the markets where the product is in introduction or growth phase of the product life cycle and should move its facility of production into that country. This will help the company to focus on the new product line in its home country and at the same time the company will be able to generate profits from the old product lines by selling it into the markets where these products are having the demand.

What are the advantages and disadvantages for the domestic production facilities of moving production abroad?

Advantages for the domestic production facilities of moving production abroad:

1. Company gets the new market for its already existing product where it can generate higher profits as the initial demand for the product is high in the foreign markets.

2. The competition in the foreign markets is initially low for the company and its product. Since the company already knows the processes of manufacturing the product, the cost of manufacturing will be lower and the company can meet the demand of the customer in the much faster manner than its competitors.

3. The cost of setting up the production facility in the foreign country is usually lower as the foreign countries provide subsidies to the companies entering their market in the various processes being carried out by the company.

4. Moving the production facility abroad helps the company in building the brand recognition throughout the world.

Disadvantages for the domestic production facilities of moving production abroad:

1. The process of quality control and maintaining the quality of the product will be difficult in the foreign country. The company would be required to select the local quality managers in large numbers to whom the quality training would be required to be provided. This would bring down the savings of the company.

2. The markets of the foreign countries provides barrier to entry which would be an hindrance for the easy entry of the company into the foreign markets.

3. The shipping culture of the foreign countries is different. While shipping the raw material and the finished goods from one market to the other may call for various taxes and customs thus increasing the cost of production.

4. The company has to hire the new facility or will be required to expand its assembly facility which will add up to the higher cost of production thus increasing the price of the product.