SAMPLE. Here comes the son

Transcription

1 BUSINESS Here comes the son Resources for Courses Teacher Instructions The purpose of this exercise is to get students to consider the quantitative and qualitative factors a business has to consider when choosing an international location. This can be used as a teaching exercise for Theme 4 Global Business. 1 Split the students into groups of 4 2 Give each group a copy of the scenario and a set of cards for both India and Malaysia 3 Encourage students to make calculations in order to provide numerical evidence for their decision Suggested answers india Lower break even $1m/$50 = 20,000 units compared to Malaysia: $2m/$47 = 42,554 Higher ARR: Total return = 9.5, annual return = 9.5/3 = 3.17 ARR = 3.17/10 x 100 = 31.67% compared to Malaysia: Total return = = 10.2, annual return = 10.2/3 = 3.4, ARR = 3.4/12 x 100 = 28.3% Slightly quicker payback: 1 year months compared to 1 year and months Higher GDP growth rate Higher unemployment, longer working week and lower average monthly wage Higher available government grant

2 HERE COMES THE SON Resources for Courses Malaysia Higher ranking for ease of doing business Lower ranking on the corruption index Lower inflation rate Higher % adult literacy Quicker delivery time Exchange rate against the dollar is falling whilst Indian rupee is rising, meaning that Malaysian exports will fall in price whilst Indian exports will rise Based on output, Malaysia has the highest profit: Malaysia Y1 = $5.05m Malaysia Y2 = $7.4m Malaysia Y3 = $9.75 India Y1 = $4m India Y2 = $6.5m India Y3 = $9m

3 Scenario Son footwear is a manufacturer of training shoes. Its customers include Nike, Adidas and Puma. Currently based in China, the majority of its products are exported to Europe and the USA. It also is now selling products to wealthier customers in China and other emerging markets. Production is labour intensive and due to the high quality of the footwear, most of the workforce are skilled. Due to rising labour costs, Son footwear s profit margins have fallen. As Son footwear s products are priced in dollars, the appreciation of the Chinese yuan against the dollar has made the company s products more expensive for overseas customers. As a result Son footwear are considering relocating their operations to either India or Malaysia. Your task Consider the information cards for both India and Malaysia. Using this information decide which country Son footwear should choose. You are advised to use calculations to support your decision.

4 GDP GROWTH RATE UNEMPLOYMENT RATE 7.3% 7.1% AVERAGE WORKING WEEK CORRUPTION PERCEPTION INDEX 66 hours (rank out of 177 countries, 1 = lowest corruption, 177 = highest) M PL E 94th EASE OF DOING BUSINESS RATE OF INFLATION (rank out of 177 countries, 1 = highest, 177 = lowest) 5.6% SA 132nd MONTHLY AVERAGE WAGE GOVERNMENT GRANT AVAILABLE (US dollars) $2m $295 COST AND PRICE DATA Initial cost Annual fixed costs Variable cost/unit Selling price/unit FORECAST NET CASH FLOW $10m $1m $5 $55 Years 1 to 3 Year 1 Year 2 Year 3 $4m $6.5m $9m

5 FORECAST OUTPUT Year 1 Year 2 Year 3 100,000 units 150,000 units 200,000 units UAVERAGE DELIVERY TIME TO EUROPE 10 days $ EXCHANGE RATE ADULT LITERACY Current: 100 rupees = $1 Forecast: 100 rupees = $1.5 (% of population that can read and write) M PL E 72% GDP GROWTH RATE UNEMPLOYMENT RATE 4.7% 2.7% SA AVERAGE WORKING WEEK CORRUPTION PERCEPTION INDEX 50 hours (rank out of 177 countries, 1 = lowest corruption, 177 = highest) 53RD EASE OF DOING BUSINESS RATE OF INFLATION (rank out of 177 countries, 1 = highest, 177 = lowest) 2% 70TH

6 MONTHLY AVERAGE WAGE (US dollars) $960 GOVERNMENT GRANT AVAILABLE $1m COST AND PRICE DATA Initial cost $12m Annual fixed costs $2m Variable cost/unit $8 Selling price/unit $55 FORECAST OUTPUT Year 1 150,000 units Year 2 200,000 units Year 3 250,000 units $ EXCHANGE RATE Current: 4 ringgit = $1 Forecast: 4 ringitt = $0.75 FORECAST NET CASH FLOW Years 1 to 3 Year 1 $5.05m Year 2 $7.4m Year 3 $9.75m UAVERAGE DELIVERY TIME TO EUROPE 7 days ADULT LITERACY (% of population that can read and write) 95%