Critically discuss the logistics risks that GEW can be exposed to when it locates in any of the provided options.
Critically discuss the logistics risks that GEW can be exposed to when it locates in any of the provided options.
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
Problem 1CE
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Question
Critically discuss the logistics risks that GEW can be exposed to when it locates in any of the provided
options. (use the attached)
![LOCATIONAL STRATEGY DILEMMA GEW is an electronics component manufacturer that has been
located in Bahamas since 1991, supplying original equipment manufacturers (OEMs) with quality
components. In the past several years, GEW has experienced increasing pressure from other
manufacturers located in other countries. In Bahamas, while labor remains quite inexpensive, there
has been a relatively steady increase in labor costs. In addition, utility costs most notably water and
energy costs have led the firm to contemplate moving operations elsewhere in Asia and Africa to
make the firm more competitive. GEW remains profitable, but margins have shrunk, and
management is interested in ensuring that the firm remains competitive against other component
manufacturers in the medium term to long term. A senior management team has formed a
committee to reach a decision regarding possible relocation. The committee has identified two
additional locations as possible candidates for relocation: Hong Kong (People's Republic of China
[PRC]) and Pietermaritzburg, South Africa. Hong Kong's main attractions stem from the fact that
since 1997, when its sovereignty was transferred back to the PRC, labor costs have decreased as
access to labor has increased. Hong Kong enjoys a large seaport and very good transportation
infrastructure, and this is important in moving raw materials and moving out finished components to
customers. Presently, the customers are geographically dispersed, making access to a seaport very
important in delivering products to customers. Senior management believes that an increasing
number of OEMs will move to the PRC in the next several years, as has been the ease in the past
decade. This will only increase the attractiveness of locating the manufacturing facility in Hong Kong.
Pietermaritzburg is located in the province of KwaZulu Natal, just 45 minutes away from Durban. It is
the capital of the province and home to a population of around 1,6 million. Several points make the
city attractive to the relocation committee. First, locating here would provide access to natural
resources and other production inputs. Second, the transportation infrastructure as it is connected
to other economic hubs in the country, and the city is close to the Durban seaport for moving raw
materials in and finished goods out. That said, the port is not as large or accessible as those of Hong
Kong but one of the biggest in Africa. The committee has contacted the national government of
Bahamas to elicit possible incentives to not relocate to another country. Bahamas is offering a 5-year
exemption on taxes for ACM if the plant remains in Bahamas. The government will also assist by
partially subsidizing labor, water, and energy costs for 5 years. Committee members realize that the
Bahamas plant, which has been operating for years, has already been amortized, and opening a new
plant would require additional capital costs. That said, opening a new factory would also provide an
opportunity to upgrade production equipment to more productive and energy efficient alternatives.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc2c8664d-e566-492b-b955-e9a2cbb36ccf%2F6af535f1-d133-4703-a176-01316a901095%2Fambp26k_processed.png&w=3840&q=75)
Transcribed Image Text:LOCATIONAL STRATEGY DILEMMA GEW is an electronics component manufacturer that has been
located in Bahamas since 1991, supplying original equipment manufacturers (OEMs) with quality
components. In the past several years, GEW has experienced increasing pressure from other
manufacturers located in other countries. In Bahamas, while labor remains quite inexpensive, there
has been a relatively steady increase in labor costs. In addition, utility costs most notably water and
energy costs have led the firm to contemplate moving operations elsewhere in Asia and Africa to
make the firm more competitive. GEW remains profitable, but margins have shrunk, and
management is interested in ensuring that the firm remains competitive against other component
manufacturers in the medium term to long term. A senior management team has formed a
committee to reach a decision regarding possible relocation. The committee has identified two
additional locations as possible candidates for relocation: Hong Kong (People's Republic of China
[PRC]) and Pietermaritzburg, South Africa. Hong Kong's main attractions stem from the fact that
since 1997, when its sovereignty was transferred back to the PRC, labor costs have decreased as
access to labor has increased. Hong Kong enjoys a large seaport and very good transportation
infrastructure, and this is important in moving raw materials and moving out finished components to
customers. Presently, the customers are geographically dispersed, making access to a seaport very
important in delivering products to customers. Senior management believes that an increasing
number of OEMs will move to the PRC in the next several years, as has been the ease in the past
decade. This will only increase the attractiveness of locating the manufacturing facility in Hong Kong.
Pietermaritzburg is located in the province of KwaZulu Natal, just 45 minutes away from Durban. It is
the capital of the province and home to a population of around 1,6 million. Several points make the
city attractive to the relocation committee. First, locating here would provide access to natural
resources and other production inputs. Second, the transportation infrastructure as it is connected
to other economic hubs in the country, and the city is close to the Durban seaport for moving raw
materials in and finished goods out. That said, the port is not as large or accessible as those of Hong
Kong but one of the biggest in Africa. The committee has contacted the national government of
Bahamas to elicit possible incentives to not relocate to another country. Bahamas is offering a 5-year
exemption on taxes for ACM if the plant remains in Bahamas. The government will also assist by
partially subsidizing labor, water, and energy costs for 5 years. Committee members realize that the
Bahamas plant, which has been operating for years, has already been amortized, and opening a new
plant would require additional capital costs. That said, opening a new factory would also provide an
opportunity to upgrade production equipment to more productive and energy efficient alternatives.
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