Teleleader Business Case Study

Essay by milltayCollege, UndergraduateA-, December 2006

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Problem Identification:

-Should Teleleader build a new manufacturing plant in Malaysia or Mexico?

-Will the factory provide for the 10% decrease in cost of the pager that can be transferred to a 10% price reduction to maintain their competitive pricing and regain/maintain their pager market share?

-Is Malaysia actually a cost savings?

-What about risks involved with inflation and foreign exchange rates?


Teleleader should build their second manufacturing plant in Malaysia creating a cost savings greater than would be created by constructing an additional facility in Mexico. More specifically the facility should be located in the Penang/Selangor area.

Analysis of Hypothesis

-Is there a significant cost savings associated with a Malaysian based manufacturing plant?

Opening a factory in Malaysia offers significant cost savings in many different areas.

1. Corporate tax rates 7% savings over Mexico's

2. Teleleader will enjoy a tax vacation period of 3-5 years beginning immediately upon opening

3. Due to agreements made with the Malaysian government Teleleader will enjoy cost savings of 9-14% on European exports, this converts into a 3-8% overall cost savings.

4. Direct labor costs are on average 34% less than those in Mexico.

What are the advantages of locating in Malaysia?

Global coverage: Locating the second manufacturing plant in Malaysia offers a greater coverage of the global market it serves.

European tariff savings: Due to the special tax treaty that Malaysia negotiated with the EEC rather than pay the 15%-20% that Teleleader is currently paying it would be cut down to 6%. There is a catch to this process; the goods could not be shipped back to the US to be inspected for quality control. A separate quality control division would need to be established somewhere within the EEC. This is necessary to avoid the higher tariffs charged...