Here comesthe son

Resources for Courses

Teacher InstructionsThe 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 usedas 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 theirdecision

Suggested answers

india• Lower break even $1m/$50 = 20,000 units compared to Malaysia: $2m/$47 = 42,554

• Higher ARR: Total return 19.95 – 10 = 9.5, annual return = 9.5/3 = 3.17 ARR = 3.17/10x 100 = 31.67% compared to Malaysia: Total return = 22.2 – 12 = 10.2, annual return =10.2/3 = 3.4, ARR = 3.4/12 x 100 = 28.3%

• Slightly quicker payback: 1 year 11.07 months compared to 1 year and 11.27 months

• Higher GDP growth rate

• Higher unemployment, longer working weekand lower average monthly wage

• Higher available government grant

BUSINESS

SAM

PLE

Resources for CoursesHERE COMES THE SON

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 = $5.05mMalaysia Y2 = $7.4mMalaysia Y3 = $9.75

India Y1 = $4mIndia Y2 = $6.5mIndia Y3 = $9m

SAM

PLE

Son footwear is a manufacturer of trainingshoes. 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 islabour 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 taskConsider 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.

Scenario

SAM

PLE

GDP GROWTH RATE

7.3%UNEMPLOYMENT RATE

7.1%

AVERAGE WORKING WEEK

66 hoursCORRUPTION PERCEPTION INDEX(rank out of 177 countries, 1 = lowesTcorruption, 177 = highest)

94th

EASE OF DOING BUSINESS(rank out of 177 countries, 1 = highest,177 = lowest)

132nd

RATE OF INFLATION

5.6%

MONTHLY AVERAGE WAGE(US dollars)

$295

GOVERNMENT GRANT AVAILABLE

$2m

COST AND PRICE DATAInitial cost $10mAnnual fixed costs $1mVariable cost/unit $5 Selling price/unit $55

FORECAST NET CASH FLOWYears 1 to 3Year 1 $4mYear 2 $6.5mYear 3 $9m

SAM

PLE

MALAYSIAMALAYSIA

MALAYSIA MALAYSIA

FORECAST OUTPUTYear 1 100,000 unitsYear 2 150,000 unitsYear 3 200,000 units

UAVERAGE DELIVERY TIME TO EUROPE

10 days

$ EXCHANGE RATECurrent: 100 rupees = $1Forecast: 100 rupees = $1.5

ADULT LITERACY (% of population that can read andwrite)

72%

GDP GROWTH RATE

4.7%

AVERAGE WORKING WEEK

50 hoursCORRUPTION PERCEPTION INDEX(rank out of 177 countries, 1 = lowesTcorruption, 177 = highest)

53RD

EASE OF DOING BUSINESS(rank out of 177 countries, 1 = highest,177 = lowest)

70TH

RATE OF INFLATION

2%

MALAYSIA

MALAYSIA

MALAYSIAUNEMPLOYMENT RATE

2.7%

SAM

PLE

MALAYSIAMALAYSIA

MALAYSIA MALAYSIA

MONTHLY AVERAGE WAGE(US dollars)

$960

COST AND PRICE DATAInitial cost $12mAnnual fixed costs $2mVariable cost/unit $8 Selling price/unit $55

FORECAST NET CASH FLOWYears 1 to 3Year 1 $5.05mYear 2 $7.4mYear 3 $9.75m

FORECAST OUTPUTYear 1 150,000 unitsYear 2 200,000 unitsYear 3 250,000 units

UAVERAGE DELIVERY TIME TO EUROPE

7 days

MALAYSIAMALAYSIA$ EXCHANGE RATECurrent: 4 ringgit = $1Forecast: 4 ringitt = $0.75

ADULT LITERACY (% of population that can read andwrite)

95%

MALAYSIA

MALAYSIA

MALAYSIAGOVERNMENT GRANT AVAILABLE

$1m

SAM

PLE