Jamila Humbatli Ayaz Aliyev Nadezda Aksin Seynabou Dieng Mine Yesilbas Oleg Ermuraki

ABC Mini Case by team 5

In this case ABC Company is considering to supply world market for microprocessors, and we should decide what the best strategy for the company is: to concentrate production in one location or decentralize it to locations in different countries. In our opinion, ABC Company should adopt concentrated manufacturing strategy and below are the reasons why it should do so: The cost of constructing a manufacturing plant is approximately $500 million. If the company decides on the concentrated strategy, then it will need to construct only one plant for manufacturing microprocessors and there will be no need for constructing and operating it in different locations. The total value of world market for this product over the next 10 years is estimated to be between $10 and $15 billion. It seems like its a huge number, but taking in consideration that the cost of plant is $500 million, ABC will not be able to generate profit if it decides to choose decentralized strategy, given the fact that $10-15 billion is world market and ABC will capture only some portion of it. The tariffs prevailing in this industry are currently low. It means that if the company goes with concentrated strategy, it will take advantage of low tariff rates, thus there will be low trade barriers and it will be easier to export the product to other countries. It will be much cheaper than constructing a manufacturing plant. The product the company is manufacturing is microprocessor which means that it has high value-to-weight ratio: they are expensive but dont weigh very much. Thus even if the product is shipped halfway around the world, its transportation cost will be negligible compared to the total costs. Now that we have decided which manufacturing strategy the company should adopt, we need to evaluate possible location options where it would be the best to construct a manufacturing plant. When deciding on location we should look at these things:

Jamila Humbatli Ayaz Aliyev Nadezda Aksin Seynabou Dieng Mine Yesilbas Oleg Ermuraki

The very first thing to consider is whether the country has highly skilled work force since ABC Company is producing microprocessors, they need highly skilled labor. What are the differences in political economy Whether that country is politically stable Foreign exchange rate fluctuations What are the factor costs Whether the country has location externalities What are the differences in culture What are the trade barriers

After answering these questions and analyzing potential country locations, we should choose a country which: Is politically stable, has highly skilled workforce, has low trade barriers, has relatively low factor costs, where political economy is in favorable condition, , and exchange rates are not volatile.