August 30, 2012

Ernesto Jr Paguiligan S37 PriMan

SHUI FABRICS A CASE STUDY

BACKGROUND

Shui Fabrics is a joint venture business between an American Company, Rocky River Industries and Shanghai Fabric Ltd. from China. The partnership began 10 years ago

with the goal of producing dye and coat fabric to sell to China and international sportswear manufacturers. In China, the general manager was pleased with the companys progress in terms of production, affecting the local economy and the right amount of profit. Conversely, the American side of the venture wasnt as pleased The American leadership

recognizing a 5 percent annual return on investment (ROI).

believed a higher ROI should be realized after acknowledging some of the challenges that are involved operating in China. The American bosses informed their American

counterpart in China that they are considering ending the venture on Shui fabrics unless some options can be presented to increase the annual ROI by operating differently. PROBLEM

Low Return on Investment (ROI) is the main problem of Shui Fabrics. They have been into business for 10 years in China and the ROI remained at 5% level for the past three years. Though the said rate is acceptable in China, it is far below than the US standard, which is 20%. OBJECTIVE + +

To understand the factors that affects the low Return of Investment (ROI) of the company.

ANALYSIS OF RELEVANT FACTS

Shui Fabrics is a fabric company based in China. The company is a 50-50 joint venture between Shanghai Fabric Ltd., Chinese company and Rocky River Industries, U.S. Textile manufacturer.

Engaging in strategic alliances and partnerships is currently the most popular type of direct investment like a joint venture. The venture is to produce, dye and coat fabric for sale to both Chinese and international sportswear manufacturer.

The American displays performance orientation whereby it places high emphasis on performance and rewards people for performance improvements and excellence. The American wants to see a better economic performance and expects higher profits, more than 20% ROI and not contented with 5% ROI. One option taken was thinking of pulling the plug on Shui Fabrics if no improvement in the performance.

On the other hand, the Chinese exhibits humane orientation. They are more concern about job creation. Three hundred jobs made pose a real contribution to the local

company. The Chinese does not want to cut jobs. ALTERNATIVE COURSES OF ACTION +

Increase the sales in the Chinese market and internationally.

However, this

option is incontrollable and depends on the marketing strategy that Ray will provide and it will incur additional costs to the company. + Decrease the cost. Focusing on this strategy will only adapt to the option of Rays boss, to decrease the labor force, which in turn will provide a serious problem to the management. However, only fixed costs are controllable and can be decreased. + Decrease workforce by incorporating the more advanced technology. However, this strategy will lessen the fixed cost, which is labor costs, but will need additional investment for the advancement of technology. Making the technology improved means that additional investment is required and in turn additional to

the non-current assets. In results, it will have a negative impact on the Return on Asset (ROA). Low ROA connotes los ROI. RECOMMENDATION

With the entire alternative stated above, it is best for the company to consider the options that will be best beneficial to both company and its labor force.

First, they need to utilize their strong labor force that is present in the organization by improving the efficiency of the people by providing the necessary trainings. Workers will then be effective and proficient enough in performing their specified tasks.

Second, enhance the technical skills of those in the Support groups to improve the productivity of the production line. Maximize the available resources of the organization.

Lastly, the company must improve the hiring system. This means putting or hiring the right person with the appropriate technical skills. With this, delegation of workloads will be efficient and effective.