Post on 08-Apr-2015
transcript
Ellora Time’s Manufacturing Woes
“We will produce our goods in China and export them to India. It’s not
possible for us to run the industry in India.”
Agenda
Company’s Summary Products The china Story What lies Ahead Analysis Operations Suggestions and Conclusions
Company’s Summary
Ellora times Pvt. Ltd based in Morbid, Rajkot, Gujarat, India In 2001, it was the world’s largest manufacturer of clocks. It produces calculators, telephones, timepieces and
educational toys. Ajanta and Orpet (combined companies) had investment Rs.
2 billion in 2001. It had 70% market shares in timepiece and calculator business and 20% in telephone.
It exported its products to 60 countries It had 25000 dealers and 180 service stations. In early 2001, Ellora decided to shift its manufacturing
activities to China
Manufacturing base was 15,00,000 sq.ft and carpet area 10,00,000 sq.ft.
It had essential machineries such as Wafer saw machine, automatic coil winding machine, ultrasonic ware bonders, CNC plastic injection molding machines, a full fledge workshop for mould manufacturing.
In 2001, it produced 15,000 calculators, 20,000 time pieces and 8,000 telephones per day.
1800 workers, 45 trucks It gave prime importance to R&D and quality. ISO9002 company
It got many awards for excellence in Export Initially raw materials were imported from Japan, Korea and
Taiwan. From1998, it started import of raw materials from China In1999, Indian govt. removed restriction on import from
China. The same range of product from China was much cheaper. Demand of calculator increased from 20 million to 40 million
in mid 1990s but company was forced to reduced its production from 6-7million to 2-2.5million.
It market share came down from 70% to 5% as 90% calculator used in India were imported.
Under invoiced goods from China evaded the customs and excise duty and import through Nepal was at low tax.
Spare parts has duty 5% while raw material has duty 25%. Hence Ellora began to import parts from China A few years ago, Ellora has 15,000 workers, in 2001 it came
down to 5000. It leased 300,000 sq.ft. in Shenzhen and started shifting
machinery.
PRODUCTS
SWOT Analysis:-
Strength Weakness
Opportunities Threat
Good Brand Value Excellent marketing and distribution network Admirable Credit rating – No payment of interests to lenders.
Competition from Chinese markets (Cheap Labor, high Productivity & Govt subsidies).Discouraging policy framework (Poor Tax structure & lot of Govt approvals).Poor Infrastructure. (Erratic delivery Schedules)Higher Inventory holding Costs.Higher Corruption levels.Difficulty in arranging finance.
Constantly growing demand (20MM in mid 90’s to 40MM in early 2000)To diversify in other products since they have brand and distribution network. Enjoying huge market share in product line.
90% of goods used in India were imported(Smuggled Route-Under Invoiced).Indian Regulatory Setup (Duty of 5% on spares vs 25% on raw material).Illegal methods adopted by Chinese firms to capture markets. .
What Lies Ahead
• Growing Market in India for Other Product Lines : Diversify into home appliances business to be marketted under same brand.
• 2. Own Production Base in China : That would mean cheap labour/ higher productivity / Export related subsidies.
• 3. Competitive Advantage: Now being in China, they could produce with Japnese quality at Chinese prices. So now they could easily do away with new Chinese competition as they could get cheap & quality raw material and low cost of production.
• 4. Countrywide network of Dealers/ Service Stations: All products were marketted though a huge network of dealers. So definitely they enjoyed a better and deeper reach as compared to other Chinese goods.
• 5. Good brand Value: Given an option customers would defintely buy prodcuts of good branded image with chinese prices as compared to cheap chinese products. There was no competition for Ellora in branded products under same category
Plant LocationMajor factors that influence plant location decisions are:- Market proximity. Integration with other parts of the organization. Availability of labor and skills. Availability of amenities. Availability of transport. Availability of inputs. Availability of services. Suitability of land and climate. Regional regulations. Room for expansion. Safety requirements. Site Cost. Political, Cultural and Economic Situation. Regional taxes, special grants and import/export barriers.
Brown and Gibson Model for Site selection
Location
factors
critical
objective
subjective
COST:- Infrastructure.Subsidies for Export Productions.
Political, Cultural and Economic SituationAvailability of transport.Regional taxes, special grants and import/export barriers. Trade Unions.
Availability of labor and skills. Availability of amenities.Availability of inputs. Supply chain
• Ellora was forced to decide in favour of setting up a factory in China despite the fact that it had been doing rather well both in the domestic and export market
Difference Between Business environment and regulatory framework of India and China
Chinese policy framework encourages export promotion by subsidizing.
China has cheaper power, low labor costs, highly regimented labor poll, less no. of public holidays and low cost of finance.
Tax structure and infrastructure facilities are better in china. More availability of raw materials, spare parts and
components Zero inventory possible in china Corruption level is low in China.
Less legal hassles with customs, excise and sale tax Export subsidy in China is 19-27% and there are free trade
zones. Easy availability of finance at low interest arte of 5.5% in
comparison to 14-15% in India. Labour laws are not restrictive in China No minimum wages, no extra overtime No trade Union Reliable supply chain in comparison to India Fast clearance at customs and ports Low taxes Good infrastructure in china (good roads)
Comparison Chinese & Indian Manufacturing Environments
India China1. Labour Issues
Production allowed will 7 pm Need to Pay double wages for overtime Work based on no. Of hours Restrictive labour laws- not allowed to
dismiss worker if not productive easily Minimum wages has to be paid Trade unions: strikes/agitations
2. Cost Of Production- HIGH3. Need to stock Raw material4. In disciplined Supply chain5. Simple Import Procedure-Consignment cleared in
24 hrs6. No Govt Subsidy
Duty on raw material > duty on finished product Poor Infrastructure
a. Bad road condition leads to delaysb. Unreliable communication and high costc. High cost of power and frequent power
failure
1. Labour Issues 24 hours operation No such provision Work based on output target Unrestricted Labour laws: allowed to
dismiss worker if not productive No Such law No trade unions allowed
2. Cost of Production: Low3. Just In Time raw material4. Disciplined supply chain5. Complex Import Procedure-Long Clearance time.6. 19-27 % subsidy for Export
Duty free-Raw Material imports Friendly duty structure High Quality Infrastructure
a. Excellent Road conditions-Distance of 800 km covered in 10 hrs.
b. Reliable and Cheap power
Cheers