-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...