Hello, we will be presenting the RoboCanada Inc. case.
Looking at the map we can see the supplier areas circled in black while the existing customers of RoboCanada Inc. are circled in green. The prospective locations for a new hub facility are circled in red.
An analysis of the selected countries using Zurich’s Risk Room shows that the best options with the least risk are Malaysia, Thailand, and China although Russia is very close with China. However after putting these locations in the context of supply chains and logistics, we found that India is attractive and deserves further investigation because of its strategic location.
Beginning with an analysis of Malaysia, that has the least risk of all the selected countries, we can see that geographically it is at a disadvantage because of the need to double back products.
Referring to the graph based on information gathered from the Risk Room, we can see that Malaysia is by far the least risky location and has consistently been decreasing in risk.
This pyramid model demonstrates the risk of Malaysia with the current home countries of Canada and The UK. Based on the Risk Room data, the top of the pyramid represents the proportion of aspects that have lower risk than the home countries such as inflation and government regulation. The dark blue section shows the proportion of risks that are in the same risk quartile as the home countries. The Yellowish section shows that Political Violence and expropriation are higher than the hoe country and the orange sections represents aspects that are significantly higher than the home country, by one quartile or more.
India on the other hand is strategically located close to suppliers, and is close to 2 of the 3 customers as well as being on the way to the third, South Korea. Additionally, it can support further expansion into Asia.
However, with the information gathered from the Zurich Risk Room we can see that it is not the best option in regard to risk. There has been an increase in business risk in regard to trade barriers and inflation starting from 2007. However, there has been stable political risk that jumped in 2011 because of bombing in Bumbai that have since decreased to previous levels.
Looking at the Risk comparison with UK and Canada, we can see that there are no values aspects that have lower risk than the home countries. Additionally, there is higher risk and significantly higher risks in most risk categories.
Our third country is China, which is far from the current factories in Europe and Africa, but is relatively close to existing customers, especially South Korea. This can reduce service and customer response time significantly.
From the Risk room we notice that China’s risks are balanced at 0.4. We can see that Physical risk rose in 2008 due to the Sichuan earthquake which has increased the seismic disaster risk drastically.
Comparing to home countries, the potential risks associated with macroeconomic and financial stability in China are either lower or similar levels. This is because China has had the fastest growing economy for the last few decades. However due to its different political system, risks related to regulations and governance are higher in China.
By being specific about which location we use, mitigation of some of the largest risks become possible.
Looking at the map of China we notice that the coastal area is the least prone to earthquakes and is far more developed than the rest of the country. Building a factory there would reduce physical risks and government regulations because of the special economic zones and the highly rated air and sea transportation infrastructures.
The data for Hong Kong SAR provides a good reference point when modifying some risks in the risk room. Doing so we notice that China moves from the center of the risk graph to join countries like Thailand in the better quarter of the graph.
As for India, the biggest risks we identiﬁed were infrastructure related, especially electricity which is critical for operation and the information infrastructure which is key for management. As we can see on the left map. Both of these risks can be mitigated by placing the hub around Mumbai or Chennai. But In order to also reduce the risk of ﬂooding, going to the West coast, for instance Mumbai, is an even better solution. This also provides easy access to the biggest port and airports of the country. Adjusting the risks levels to reﬂect these changes signiﬁcantly decreases the physical risk ranking of India but not much in the business area.
Finally, Malaysia already enjoys a very positive ranking and as a company there are no plausible actions we can take that we can conﬁdently say will lower risk further.
The risk room gives us a very good view on the risk of each country, but before making any decision one has to take into consideration extra risks regarding relationships between all countries involved and a range of other factors.
Differential cost for example is an important factor to consider and a big part of it is related to labor cost, especially with a company like RoboCanada which already has 60.000 employees. All three countries are much cheaper than UK or Canada, with minimum wage ranging from 100 to 300 USD a month. But this advantage can be short lived. China, for sample as seen its minimum wage double between 2006 and
An extra risk to consider is the political and trade relationships between all concerned countries. Taking only the current markets into account we see that Malaysia has the advantage of already having approved FTA with Pakistan and South Korea, as well as a pending FTA with Kazakhstan. Interestingly, proximity to Pakistan was one of the reasons we chose India but looking more thoroughly we can see that no trade can happen between these two countries because of political struggles. However, India is still the closest of all options by passing through Dubai.
Cultural differences always need to be considered when expanding and forethought will increase the success of the channel. For example the cultural risk for a Canadian company entering China will be different than a Japanese company entering China. In addition, countries sharing a similar official language have healthier communication channels.
Not only geographical proximity, but also safety and convenience of the transportation routes have to be evaluated. We can see here the risky zones to consider in our sea routes. Setting up in India would reduce the risk both for components shipments and customer delivery since routes to the Pacific pass by high risk zones.
That concludes our presentation. Thank you
Major earthquakes in China in the last 2000 years: : http://www.air-worldwide.com/Publications/AIR-Currents/2013/A-Multi-Peril-View-of-Catastrophe-Risk-in-China/
Technical Development and special economical zones in China: http://catalog.flatworldknowledge.com/bookhub/2657?e=berglee_1.0-ch10_s02
Electricity Availability in India: http://www.mapsofindia.com/maps/india/electricitygenerated.htm
Climatic disasters in India: http://www.mapsofindia.com/maps/india/climaticregions.htm
China-Pakistan FTA: http://fta.mofcom.gov.cn/topic/enpakistan.shtml
Malaysia Kazakhstan Agreements: http://sputniknews.com/world/20130907/183245550.html
China – South Korea FTA pending: http://www.scmp.com/business/china-business/article/1738486/chinas-south-korea-investment-soars-ahead-free-trade-pact
Kazakhstan-Malaysia FTA pending: http://www.kazembassy.org.my/bilateral_relations.htm
India Pakistan trade situation: http://www.dawn.com/news/1080655
India Kazakhstan trade agreements: http://aric.adb.org/fta/india-customs_union_of_russia__belarus__and_kazakhstan_fta
India Korea trade agreements: http://aric.adb.org/fta/india-korea-comprehensive-economic-partnership-agreement
Risk of Piracy: http://c-level.us.com/page.htm