Prul Case Study- Final Copy

8/3/2019 Prul Case Study- Final Copy

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Group Members :Mukesh Agrawal 10FN-062

Pankaj Gaur 10IB-045

Prateek Shah 10FN-133

Prateek Jain 10FN-132

Nipun Gupta 10IB-043

Rajesh Dutta 10DM-119

Nishant Maheswari 10FN-072


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Established in Taiwan in 1983

started producing PVC bathtub covers 1988 for export toJapan

PRUL is SG Mark(1996) and ISO 9002(2000) certified.

Established its own R & D department in 2001

Lately PRUL forayed into plastic-wood like productscontributing to Global Environment Conservation effort.

Honoured with Europe Award in Paris in 2000 forproduct and service quality excellence..

Credited with Japans Rising Star Award for outstandingperformance in Japanese market by small and mediumsize importers in 2001

Globally recognized Company


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Strive for innovation in its product design and production

process in order to build customer satisfaction

Roadmap to success

Use the most advanced technology

Maintain very high standards of product quality

Understand customer needs

Create new ideas

Launch and promote new ideas

Build awareness among customers to attract them


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PRULs product line up consists of

Doors(folding, bi-fold, bypass and folding shower doors)

Bathtub covers

Louver panels

Vertical blinds

Wood like venetian blinds

Extruded plastic foam products


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Unique product manufactured especially for Japanesemarket

Reason- Product fits into Japanese lifestyle and theircommitment to save energy.

Market was very mature by 2001 & no significant growthwas expected.

Major players in market:o Murakami Industrial Co. Ltd.

o

Nakajima Industrial Co. Ltd.o Takahashi

o Nakai

o PRUL

Market Share MurakamiNakajima

Takahashi


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Business to Business Model

Focus only on distributors

Savings in advertising cost and sales effort

Consumer purchase habits influenced by advertising &

promotional program taken up by distributors

Manufacturers Distributors RetailersEnd

Consumers


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Distributors

Strong relationship between manufacturer and distributor

Distributors are eyes and ears of PRUL for market survey andnew trends

Retailers

Enjoys high profit margins Loyal to PRUL

Consumers

Nearly every Japanese

Purchases based on functionality and price


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Marketing activities focused on distributors.

Consistently high quality and innovative products.

Flexible pricing strategy according to market needs andcompetitors.

Focus on managing customer relations(distributors).


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Research started from a single product sample received from ABE.

R & D focused on bathtub covers.

Focus on improving production efficiency and reducing costs while

maintaining high quality standards.

Developed products registered with PRULs own brands and

patents.

Main focus for bathtub covers was to automate the production

process.


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Operators for production line and bath tub lines were

extensively trained in technical knowledge.

QC processes rigorously observed at all stages of production.

Of all the products bathtubs required most labor factor which

is high in Taiwan.

Quality inspection visits by distributors and retailers.


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Training sessions were conducted for all the employees twice

a month.

Based on historical experience PRUL had developed learning

curves for every production stage.

No plans to layoff any employee from taiwan factory even if it

expand in china too, thus putting great emphasis on employeemorale.


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ABE Industrial Co. Ltd.o Initially ABE had manufactured its own bath tub covers but over the

10 year relationship with PRUL had all share of its business now.

Takahashi Busan Co. Ltd.o 2nd largest customer after ABE, currently bought about 25% from

PRUL and the rest produce in-house. Over the course of time they

decided to invest in a new production facility utilizing PRULs core

competency of innovation with preferred location as china.

Nakai Industrial Co. Ltd.o 3rd largest customer after the above two, purchased bath tub covers

from PRUL as well as producing some inhouse.


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Distributors In HouseManufacturingfacility

%age share (inPRULs bathtubproduction)

TAKAHASHI YES 32.6 %

NAKAI YES 18 %

ABE YES (but notsignificant)

39.33 %


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High labor costo Chinese labor costs one-fifth

o Competitors have setup production facility in China

Not Automated process

o Higher Production cost

Improve production efficiency

Almost full capacity utilization

o Average cost of production rises

High quality expectation Market is stable


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Objective : To reach 30% market capitalization from

15%o Double up capacity in next 3 years

Strategy

o Increase business from its major customers

oAdd new distributor customers

o

Address B2B marketing challenges


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B2B marketing strategyoTo participate in international award winning activities

oDevelop credentials and attract more customersoRetailers: Products are selected on functionality first and

later by price.oConsumer: Availability on retail store and not brand

sensitive

Opportunity in ChinaoSave import duty of 3.9%oOverall differential saving:13.5%(Excluding Import duty)oWith this PRUL can provide better pricing or increase

margin.oTap growing Chinese urban market in future


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Reducing production costs of bathtub covers

Jointly establishing factory in China

Exclusive use for bathtub covers production

Exclusive distributor : Takahashi


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1. Whether to accept Takahashis proposal

2. Where to set up the factory in China

3. Whether to establish direct contacts with retailers or to go for

other distributors

4. Should they manufacture only bathtub covers or other

products as well

5. Pricing of its products in view of the potential cost savings


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1.PRUL would loose many cost conscious customers as clearly the

cost of producing in China in quite less compared to Taiwan.

2. Takahashi may venture up with some other manufacturer and

PRU may finally loose business with Takahashi also.

3. PRUL is looking for expansion and increasing its sales, theonly way to do that in the present scenario is to lower down the

costs and target competitors customers.

Hence Option 1 doesnt go well at all with the Strategy that

PRUL is looking forward to.

Cons associated with Option 1:-

PRUL decides to do nothing , foregoes this investmentopportunity and expands as needed in Taiwan on its own.


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Invest with Takahashi in building a new factory in China to

produce bath tub covers exclusively for Takahashi, and share

profit based on investment by each party.


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Takahashi would shift its entire bathtub cover production

(currently 15% of market) to this plant and hence PRUL

would gain the extra 15% without any marketing effort.

Investment in the JV51/49 with majority belonging to

PRULHence lesser risk involved.

This would strengthen its relationship with Takahashi.

PRUL would not be able to sell the bathtub covers produced in

China Plant to Takahashis competitors such as Nakai.

The opportunity to capture New Customers would be more

constrained in this case. PRUL would continue to use its Taiwan Plant for producing

bathtub covers for ABE, Nakai and other distributors.


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Hence we see that if PRUL goes ahead with JV:-

Total Investment TW$20 million with Plantproduction capacity 20% of total market

Year 1 (10,835,400)

Year 2 - (7,250,000)

Year 3 - (678,400)Hence a total of about TW$ (678,400)

After three years.


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PRUL establishes its factory with 100%

ownership in China


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New production facility

Customers Save 3.9% on import duty

Attract new distributors

Greater returns than sharing investment with Takahashi PRUL can sell bathtub covers at same prices thus

increasing profits

Political issues of owning factory by Taiwanese

company more as compared to that of Japanese company


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Hence we see that if PRUL goes ahead with its ownproduction facility:-Total Investment TW$25.8 million with PlantProduction Capacity 30% of total market

Cumulative Cash Flow:-Year 1 (10,484,400)

Year 2 - (1,270,800)

Year 3 - 11,155,800Hence a total of about TW$ 11,155,800

After 3 years


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Particulars Year 1 Year 2 Year 3Total Investment 7548000 1530000 1530000

Depreciation 601800 601800 601800

Gross Margin 5508000 8262000 11016000

Gross Margin % 27 27 27

Income AfterTaxes

1420146 2756754 4279716

Annual CashFlow

(5526054) 1828554 3351516

Cumulative CashFlow (5526054) (3697500) (345984)


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Particulars Year 1 Year 2 Year 3Total Investment 19800000 3000000 3000000

Depreciation 1680000 1680000 1680000

Gross Margins 23200000 29000000 34800000

Gross Margin % 29 29 29

Income AfterTaxes

7635600 10533600 13746600

Annual CashFlow

(10484400) 9213600 12426600

Cumulative CashFlow (10484400) (1270800) 11155800


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3 cities to consider :

a) Shanghai

b) Guangzhou

c) Shenzhen


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Feature Shanghai Guangzhou ShenzenSEZ Yes Yes Yes

TransportationInfrastructure

Yes No No

International

Trading Hub

Yes No No

Low Labor Costs Yes Yes Yes


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Bathtub market is already very mature and scope for further

growth is less

Future expansion plans in Shanghai or other markets require

them to look at newer products as bathtubs are not as popular

in every market as it is in Japan

Long-term interests


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Concentrating on distributors has enabled it to maintain

excellent relationships with distributors

Establishing direct contacts with retailers will lead to

additional expenses in the form of advertising costs and

marketing effort

Distributors are the strongest link in the supply chain


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Relationship Management

Marketing channel

Effect of demography

Strategic planningPositioning of product and its

sustainability through innovation and customer satisfaction.

International businessopportunities and challenges


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Thank You

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Prul Case Study- Final Copy

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