Holger Company

Group No 8, Section C
Submitted to: Dr. R Jagadeesh
Date of Submission: 25/11/2014

Submitted by:
Anshul Goel (14020)
George Joy (14056)
Kaushik Bandopadhyay (14068)
Nitesh Anand (14093)
Sameep Suriya (14135)
Simoni Parmar (14153)
Executive Summary
Case let1:

A European Company is planning to start a new textile production facility.

They have identified 5 possible international locations namely China,
England, France, India, Mexico. The numerical value for each factor is
given along with the weights which represents the strategic importance of
that factor to the company. Best Location is to be found out.
Case let2

Holger company was started in late 1800s, it started making small

machine tools but later ventured into larger machines and automobile
components for Volkswagen and Mercedes. During the world war Allies
bombed the production facility which left them in ruins. Thanks to capital
infusion by a British group, it was allowed to continue. Later the company
grew impressively with revenues from Asia, Europe and Northern America.
In the late 1980s market was very competitive thus the company found it
difficult to control its manufacturing costs. Thus it decided to relocate its
production facility. It had two locations in consideration. One at New Castle
in England and other at Incheon in South Korea. Both locations had its own
set of difficulties like relocating the key personnel, proximity to its
suppliers, proximity to its customers, setting up new manufacturing
facilities, productivity of the labour, the construction charges, the labour
charges of each nations, the trade unions. The management has to weigh

all the factors to decide upon which location to shift their production to.
Statement of the Problem
Case let 1:
A European based company is considering developing a new textile facility
principally for ladies and children clothing. The management has
identified 5 international locations to set up their plant. The countries are
China, England, France, India and Mexico. The management has identified
5 critical factors upon which the location strategy has to be implemented.
The 5 factors are Productivity of the work force, the construction cost,
labour cost, Proximity to its clients and proximity to its suppliers. The
strategic importance of each of these factors to the company has also
been identified by calculating the weight factor for each. Each factor has
different numerical values associated with each nation. The higher the
numerical value, more favourable the site is. The management has to do a
weighted factor analysis to find out which site is the most favourable one
to set up the plant.
Short term problems facing the management are

Finding the optimal location considering the 5 critical factors

Finding the key personnel for the manufacturing facility
Whether to build the plant ground up or acquire an existing facility

Long term problems are

Capacity planning for the new plant

Demand forecasting for the new plant
Adjusting to the culture of the new country and its work force

Case let 2:
Holger Company which started out its production by manufacturing small
machine tools later shifted to large machines and automobile parts. The
company suffered a mishap during the Second World War when its
manufacturing facilities were bombed. But it recovered and achieved
impressive growth until the 1980s. By the late 1980s competition was
high and Holger Co was struggling to control its manufacturing costs. It
now wanted to shift its production base from Germany. The company
identified 2 locations based upon different factors. One was at New Castle
in England and the other at Incheon in South Korea. By the late 1980s
Germany had become the hub of machine and automobile manufacturers.
The heightened competition forced Holger to control its manufacturing
cost to stay competitive in the market. As the demand for its raw

materials has gone up, the prices also would have shot up in Germany
which has probably forced Holger Co to shift it manufacturing facility.
Short term problems facing the management are

Choosing the optimal location between England and South Korea

Relocating the key personnel from Germany to the new plant
Handling the existing work force, termination of workers
Construction costs of the new location

Long term problems facing them are

The
The
The
The
The

productivity of the new work force

labour cost
ease of reaching its customers
ease of accessing the supplies
cultural difference between Germany and the chosen nation

Causes of the Problem

Case let1
The case study doesnt mention any problems as such. But various
issues regarding setting up a new production facility was mentioned
earlier.
Case let2:
Holger Company could be shifting its production base from Germany
primarily because of

The rising manufacturing cost in Germany

Heightened competition
High labour costs
Proximity to markets in Asia, other European nations and Northern
America
Cheaper access to supplies

Decision Criteria and Alternative Solutions

Case let1:
The European based firm has to choose between China, England, France,
India and Mexico for its new location. The criteria on which the new textile
facility has to be chosen is based on productivity, construction cost, labour
cost, proximity to clients and proximity to suppliers. The weighting factor
for each has been given. The highest weight has been given to
productivity and labour cost with 3.00. Next important factor considered is

construction cost with weight 2.00. Proximity to clients and proximity to

suppliers has been given weights 1.50 and 0.5 respectively. Here since
weights and the ratings of each factor for respective countries have been
given, we can do the factor rating method to find the optimal location for
the new facility. The advantage of using factor rating method is that
variety of factors of factors called critical success factors can be
objectively included to come to the right conclusion. If the management
has access to the results of other quantitative approaches, it can also be
considered.
When a decision is sensitive to minor changes, further analysis of the
weighting and the points assigned may be appropriate. Alternatively,
management may conclude that these intangible factors are not the
proper criteria on which to base the decision.
Case let 2:
The management of Holger Co. are considering two locations to shift the
production facility to, they are New Castle in England and Incheon in
South Korea. Management has to consider several factors before deciding
upon the new location.
Pros and Cons of New Castle
Pros

Its a port city, so is accessible through land, sea and air.

Heavily dependent on coal mining and ship building for which
Holger supplies machineries and parts.
Holger can relocate 90 key personnel from its current facility
Situated in Europe where Holger derives its maximum revenues
(70%).
Culturally much more in alignment with Germany than South
Korea.
Politically stable country
Stable law and order
Lesser influence of trade unions from the beginning of 1980s
Highly developed infrastructure and high standard of living

Cons

Situated in Europe, so has higher wage costs than South Korea.

Coal mining and ship building industries are showing decline
Lesser scope of market growth relative to South Korea.

Pros and Cons of Incheon

Pros

It is also a coastal town. So accessible through land, sea and air.

Close to the Asian market which has high growth potential.
Cheaper wage costs as compared to England.
Politically stable country
Fast developing infrastructure

Cons

Holger can relocate only 50 of its people from Germany, so must

recruit new personnel for key jobs
Culturally much different from Germany so adaptation will be a
problem.
Stronger presence of trade unions.
Much more volatile market than England.

Recommended Solution, Implementation and Justification

The solution, its implementation and justification has been taken up Endof-case questions given in the case study.

End of Case Questions

Case let 1:
1. Based on data, provided, determine the preferred location for the
facility.
Based on the factor rating method, the calculations are given below.

Criteria
Productivity
Construction Cost
Labour Cost
Proximity to
Customers
Proximity to
Suppliers

Weighted Score

Weighing
Factor
3
2
3

China
70
55
90

Englan
d
85
35
55

India
65
60
75

Mexic
o
70
60
80

France
80
25
45

1.5

50

90

60

50

100

0.5

50

30

55

45

60

640

657.
5

667.5

605

10

690

Based on the given facts, China is the most preferred location for the new
manufacturing facility for the textile facility. Mexico comes second in
terms of the most favoured location for the facility.

Labour
Cost
45
50
55
60
65
70
75
80
85
90
95
100

Weighted
Score
605
620
635
650
665
680
695
710
725
740
755
770

Justification:
China has been textile
hub for long mainly
because of its cheaper
labour cost and its
productivity.
Because
most
other
textile
majors have also set up
their
facilities
in
China, the resources like
information and talent
are
high
in
China
compared to other
nations.
Companies
always like to locate
near their competitors
leading
to
Clustering.
This
clustering
will
eventually lead to information spill overs, which is beneficial for the
industry.
2. Illustrate the sensitivity of the weighted score for France according
to the numerical value of the labour cost by a graph for the
numerical values of the labour cost from 45 to 100 in increments of
5. Assume the weighted score of other sites remain constant. What
would have to be the numerical values for France in order that it
breaks even, that is its weighted score is same as other sites?
The factor rating for France as Labour Cost changes from 45 to 100 has
been represented in the table given at the side.
The scatter plot formed from the table, has been given below.

Weighted Score
900
800
700

f(x) = 3x + 470

600
500
400
300
200
100
0
40

50

60

70

80

90

100

110

The equation y = 3x+ 470 is formed from various factors of France. y

representing the total rating for each country and x representing the
labour costs ranging from 45 to 100 so that France has same factor rating
as other countries.
Equating the equation 3x+470 to the factor rating of each country and
solving gives the following results,
China
73.33

Engla
nd
56.67

India
62.50

Mexic
o
65.83

So at these values of labour costs will equalise France with other sites.

Questions of Case let 2:

1. Discuss what might have been some of the reasons for the high
costs of manufacturing operation in Germany?
The reasons for the high manufacturing costs in Germany might have
been

High labour cost

Competitive pressure
Rising cost of raw materials

2. What would be the impact in Germany if the company relocated its

facility out of Germany?
If Holger relocates its facility out of Germany, it would be impacted on
several fronts. They are

Loss of jobs of almost 850 people

Loss of tax paid by Holger
Current Account Deficit of Germany will take a hit, since Holger
was importing to European, Asian and American countries
Ties with long term suppliers will be affected
The reputation of Germany as a manufacturing company would
be questioned

3. What are the advantages to the firm in relocating to England? What

do you believe could have been the inducements?
The advantages of moving to England are,

England is highly accessible through land, sea and air.

New Castle in which company planned to start its manufacturing
was heavily dependent on coal mining and ship building for
which Holger could supply machineries and parts.
Holger can relocate 90 key personnel from its current facility as
compared to 50 in S. Korea
Situated in Europe where Holger derives its maximum revenues
(70%).
Culturally much more in sync with Germany than South Korea.
Politically stable country
Stable law and order
Lesser influence of trade unions from the beginning of 1980s
Highly developed infrastructure and high standard of living

The inducements offered could have been

Subsidized land rates for the construction of new facility

Subsidized electricity and power charges

Tax benefits for the firm

4. What are some of the disadvantages in relocating to England?

Situated in Europe, so has higher wage costs than South Korea.
Coal mining and ship building industries are showing decline
Lesser scope of market growth relative to South Korea.
5. What are the advantages of shifting to South Korea?
Highly accessible through land, sea and air.
Close to the Asian market which has high growth potential.
Cheaper wage costs as compared to England.
Politically stable country
Fast developing infrastructure
6. What are the disadvantages of relocating to Korea?

Holger can relocate only 50 of its people from Germany, so must

recruit new personnel for key jobs
Culturally much different from Germany so adaptation will be a
problem.
Stronger presence of trade unions.
Much more volatile market than England.