Case Study #4: Global Supply Chain Management and Suppliers Jason Khasow, Tom Kiela, Rafi Mohammed

and Tom Wrixon BINT 1009 Michael Barnhart Friday March 29, 2012

1. Using the information provided in the case study, perform a brief PEST analysis for Helius when considering Chinese suppliers and manufacturers? A very effective method of reviewing and evaluating the impact of external environment is to perform a PEST analysis. PEST analysis helps to analyze the Political, Economical, Social, and Technological aspects of any case. In this case, it helps Helius provide with rationale of considering Chinese suppliers and manufacturers. Political aspects: China has a stable political environment domestically Discretionary copying of the proprietary information because of weak Intellectual Property (IP) protection laws China is opening up for foreign investments by maintaining good relationships with other nations The development of the industry is not planned by the government but it is based on the market demand Free competition and development with in the industry is encouraged by the government Economic aspects: Chinas economy is growing at a rapid pace China has become one of the highest GDP producing nations in the world Low cost labor is one of the key factors for its economic development Surging buying power of Chinas growing middle class Increasing income levels and growing living standards Growing product demand

Fierce competitive rivalry in the industry

Social aspects: Chinese affinity towards American products The young population is very much aware of the technology driven products Growing education levels of the young population Increasing health and environmental consciousness

Technological aspects: Technologically advancing nation Development in the logistics and transportation systems with the help of technology Growing interests of industry in technology innovation and R&D

2. What are the key considerations Helius will need to formulate in their Chinese sourcing strategy? The key considerations Helius will need to formulate in their Chinese sourcing strategy are competitive advantage of suppliers, production capabilities of the suppliers, lead times, legal issues, language and cultural issues, cost effective supplier, choosing a sourcing model. Knowing the competitive advantage of the supplier gives an edge to source a particular product to the supplier. The core competencies of the Chinese suppliers will help Helius to meet their set objectives of venturing into the mid-ranged market. Helius should look for the suppliers who can promise quality and suppliers with similar business objectives.

Production capabilities of the suppliers or manufacturers should be determined by the Helius in order to meet the demands. Knowing the production capacities of the suppliers or manufacturers will help to avoid running out of stock. It is crucial for Helius to look for the suppliers having enough raw materials to manufacture sufficient product to meet demand, and that supplies are obtained at the right price, right place and right time. Knowing the lead times of the suppliers is very crucial because the growing customer demands have to be met in order to gain the market share. Due to the fierce competition in Chinese industry there is a possibility of loss of sales if the customer demands are not met on time. One of the key consideration Helius should look for are the legal issues. As Helius is venturing into the Chinese markets and a due diligence of the legal issues should be made before entering. The legal aspects of manufacturing and distributing domestically by a foreign player should be considered. These legal issues can raise some serious concerns such as loss of profit margins, penalties, trade embargoes for violations and even closing down the business if ignored or neglected. Language and cultural issues are the concerns which cannot be ignored. As Helius is venturing into the Chinese industry for the first time, it has to consider the language issues for communication because any misunderstandings and miscommunications may lead to serious business problems. China is a culture sensitive nation and any foreign firm venturing into China should consider the cultural issues for better relationship. Helius has to build good relationships with the suppliers in China to achieve their long term goals and to succeed in Chinese markets.

Cost effective supplier will help Helius to provide low cost cameras to the Chinese customers thus fulfilling their demands. Cost effective supplier with uncompromising quality will help to increase its profit margins and to increase its market share in the midranged product segment. Transportation is one of the key considerations that Helius should look for as transportation costs are less in China and the ease of logistics through domestic and international airport, sea port and rail system access will provide reduced transportation times. Negotiating terms can be a key consideration for Helius to look for. Price is obviously a vital area of the deal to negotiate. There are a few other areas of negotiations like volumes, logistic costs, payment terms, modes of payment, insurances and IP protecting agreement etc., Choosing a relevant and apt sourcing model will help Helius to perform well in the Chinese markets. Helius may choose factor-input strategy or the market access strategy. The above key considerations will help Helius to choose the right strategy to enter into the Chinese markets. 3. Is Helius investigating a factor input strategy or a market access strategy, in regards to their plans to source design and manufacturing in China? Explain. There are a number of competitive forces that have pushed companies towards global sourcing. One is the factor-input strategy, which aims to give companies a competitive advantage by using the lowest priced or highest-quality components available anywhere in the world. Another competitive force driving global sourcing is called the

market-access strategy. The aim of this strategy is for the company to obtain a local presence in markets in which they want to conduct business. Helius is investigating into the factor-input strategy for their plans to source design and manufacture in China. Because the factor input strategy will help them to produce low cost products with good quality thus helping them to increase their profit margins. As China has a low wage workforce and thus manufacturing in China will lead to reduction in costs involved with capital assets, construction and support services. With these benefits it helps to manufacture products at lower costs than Sajin Corp. Sajin Corps new strategic plan offered a great deal for Helius. As part of Sajins strategic plan for expansion and growth, they are going to source their materials from China, which create cost saving for both the companies. This offer has made Helius to rethink about its sourcing plans. Helius should be ready to tackle and overcome the sourcing crises in the future by conducting a thorough sourcing process and to identify the potential suppliers or manufacturers which better suit their factor input strategy who can offer a mix of cost quality product. Heliuss primary objective should be to offer low cost quality products to capture the mid-ranged market and the demand for American products in China. 4. What risk factors will Helius need to consider when planning a sourcing strategy for a move into China? There are several risks associated with sourcing internationally. Companies should ensure that they use due diligence processes when investigating for potential suppliers or outsourcers to minimize the levels of risk. Due diligence will help to identify potential

source markets and suppliers. It also helps to know about the business practices of potential suppliers and identify possible problems. The risk factors which Helius need to consider while planning a sourcing strategy for a move into China are 1. Intellectual Property (IP) issue is one of the key factors to be considered because of the weaker IP protection laws in China. Counterfeit products can make Helius to lose market share thus loosing profits. 2. Quality compromise is one of the risk factors of outsourcing because Helius is not aware of the quality standards of the suppliers in China. Helius cannot compromise on quality as it is known for its quality products and may lose its brand if good quality products are not delivered. 3. Ethical consideration risks, there are possible ethical concerns such as child labor, excess pollution and poor wages can seriously damage Heliuss reputation and leading to consumer protests and boycotts. 4. Supplier reliability can be a risk factor because its the first time that Helius is dealing with these Chinese suppliers and to establish and build a relationship will take some time for it. If reliable partner or supplier is not chosen then it may cause serious business problems. 5. Fierce competition from the domestic players can pose a significant threat. The domestic companies in China can produce low cost goods because of the less tax regulations and will create a tough competition for Helius.

6. Risk of loss of company control may be there. It can lose the flexibility to control business activities and product development. 7. Risk of differences in the business objectives and goals between Helius and the suppliers can be a potential risk causing serious damages to the companys profits and reputation. 8. New entrant: there is also a potential risk from the new entrants who can enter into Chinese markets. As Sajin is planning to expand, it may eye on its neighboring nation as China is a growing potential market. 9. Political risks may also be involved, as change of governments can make new regulations thus affecting the foreign business in China. Any new regulations or additional tariffs on foreign firms may pose serious threat to the operations of Helius in China. 10. Currency fluctuations and inflation may also be possible risks involved. If currency fluctuates compared to the US currency then Helius may lose a margin of its profits. Inflation may also affect the business because during inflation times the labor and raw material prices soar high thus increasing the variable costs of the business which decreases the profit margins.