RoboCanada Inc. - A Strategic Analysis of the Supply Chain of a Multi-national Industrial Robots Engineering Company

RoboCanada Inc. - A Strategic Analysis of the Supply Chain of a Multi-national Industrial Robots Engineering Company

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Welcome! RoboCanada is an industrial robot manufacturing company that is looking to shorten its supply chain in order to reduce service time and increase margins due to slowing growth in Home markets. It intends moving its logistics hubs to one of the following prospective countries in Asia.

The three countries where RoboCanda must open their logistics hubs are Malaysia, China and India.

Let’s have a quick look at each country. Risks have been divided into 3 heads- strategy, operations and safety risks.

Malaysia is relatively risk-free in all the categories of risk for the past 7 years and closest to Nirvana. It stands out most in important risks such as trading across borders, corruption, credit availability and technical risks. Malaysia is an extremely safe country as it has low risk of political violence, diseases and natural disasters. It also ranks 18 in the aggregate ranking on the ease of doing business.

For China, past trends in the ZRR indicate reduction of both business and political risks to a medium level. China remains below the world median for most of the risks in 2014. Along with strong infrastructure and easy credit availability, international corporations see it as a positive destination due to the cheap labor and potential economies of scale.  Its proximity to established markets in Asia make it easier and cheaper for transportation

India is one of the fastest growing economies and slated to grow at 8% by 2017. Even though it lies above the halfway mark on the risk room floor, the recent positive trends and declining values of certain risks makes it more investor friendly. India is rich in cheap labor and boasts of all types of resources. Its strategic location and new government initiatives makes it an advantageous hub.

CAGE analysis helps to understand the aggregate of India, China and Malaysia against Canada and Britain.

From a cultural standpoint, all these countries have a decent number of English-speaking population, though the majority in China speak Mandarin.

Administratively, the governments of these are countries follow either factor or innovation driven growth. There are good ties between the prospective nations and current nations.

Geographically, the distance between the markets in Asia and Canada and UK is a lot more than that between them and the prospective hubs in the same continent.

Economically, FDI shows how prospective countries are seen as investor friendly, notwithstanding their much higher GDP growth rates.

AAA framework shows how RoboCanda’s strategy will be focussed in these new countries.

In Canada, where labor costs are high, the arbitrage strategy merits focus. Opening hubs in new countries requires R&D. Hence the company needs to focus on the aggregation strategy too. While aggregation is constant for this industry, a considerable amount of arbitrage is carried out, reducing the labor costs to sales ratio on both a country basis and for the aggregate.

The Risk Assessment matrix shows the risks involved with adopting aggregation-arbitrage.

Reliable electricity is vital at an operational level. China and Malaysia fall well below the world median. India ranks 103 on efficiency of electricity supply. RoboCanada can opt for a small captive plant run on local oil. Mitigating this would mean a steady stream of electricity keeping processes efficiently running.

China and Malaysia have low information infrastructure risks and a high percentage of the population who use Internet as compared to India. However, India ranks number 3 in world internet users and it constitutes the second largest market in the world for top websites. If mitigated, it will be good for the coding part of the supply chain as well as help manage distribution well.

All three countries have made efforts to reduce burden of government in terms of time and money. China and Malaysia both have low risk values, but India has a slightly higher risk. However, its absolute value is still at the median and also, the new government has passed several new ordinances that favour the entry of companies. This will help companies begin operations quicker when they relocate.

Human rights is an extremely pressing issue in the corporate world. Chinese laborers are one of the worst off in the world. This can be mitigated is by ensuring good working hours, decent payment above minimum wage and a good working environment. Not only will a company save money in litigation but will also have a happy and more productive work force.

Quality of labour is particularly important for a company and in all three countries, the risk falls around the world median. While the overall quality of labor might be average, the labor needed for this industry is more skilled and more in absolute value. If mitigated, better quality means more productive work.

Prevalence of trade barriers is important as shipments may get caught up in tariff procedures. While Malaysia doesn’t have a high level of this risk, China falls just above the world median and India is a top outlier. It is of notable interest that India recently passed the Goods and Services Tax Act which makes tax rates uniform across the country. If mitigated, once again movement of good through the country and outside will be easier.

When we step outside the risk room, we start by looking at some of the export and import trends in the industrial robotics industry.

China produces over 20% of the total world supply and that number will only grow. Malaysia and India have seen growth in their supply, though their contribution to the world total is still considerably small. However, the purposes for which industrial robots have been produced in the past in these countries match the requirements of clients in existing markets such as Korea.

There are several other extraneous risk factors to consider for due diligence which have been analysed through a PESTLE test.

Political relations between two countries are important to business. This is the case for all countries except Russia, who recently had sanctions imposed on them by Canada for the Crimean annexation.

All these countries have favourable economic factors such as price of labor, existing distribution of supply of robots except for Russia.

Socially, the availability of labor tells us about the education level of population. All three countries don’t have a high percentage of relevantly educated population but in absolute numbers, it’s enough for a new company to tap into.

Technologically, transport costs play a huge role. All the countries are exceptionally close to the markets and have well developed transportation infrastructure.

Legally, it helps companies if the laws of the land favour their arrival. Countries like Malaysia are a dream for any company with almost little legal problems arising during the process.

Countries like India and China are rich with natural resources and environmentally. It is synergetic if raw materials needed to run the hub are easily available.

In conclusion, based on risks given in the Zurich risk room as well as due diligence outside of it, China, India and Malaysia are the three prospective countries where RoboCanda must set up its logistics hubs to reduce the supply chain, improve efficiency and increase margins. 

References: 

Citations

Slide 10

World Bank. 2014. Doing Business 2015: Going Beyond Efficiency. Washington, DC: World Bank Group. DOI: 10.1596/978-1-4648-0351-2. License: Creative Commons Attribution CC BY 3.0 IGO

Slide 13

World Bank. 2014. Doing Business 2015: Going Beyond Efficiency. Washington, DC: World Bank Group. DOI: 10.1596/978-1-4648-0351-2. License: Creative Commons Attribution CC BY 3.0 IGO

Slide 15

World Economic Forum. 2015: The Global Competitiveness Report 2014-15.

Slide 16

World Bank. 2014. Doing Business 2015: Going Beyond Efficiency. Washington, DC: World Bank Group. DOI: 10.1596/978-1-4648-0351-2. License: Creative Commons Attribution CC BY 3.0 IGO

Slide 17

World Economic Forum. 2015: The Global Competitiveness Report 2014-15.

OCED. 2015: FDI in Figures

Slide 18-26

Pankaj Ghemawat. 2007: Managing Differences – The Central Challenge of Global Strategy.

ABB. 2015: ABB Group Annual Report 2014.

Internet. 2015: www.tradingeconomics.com

Slide 33-35

International Federation of Robotics. 2015: Executive Summary: World Robotics 2014 Industrial Robots and World Robotics 2014 Service Robots.

 

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