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3 Pages

Administrative Studies
Course Code
ADMS 4900
Brian Dunn

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PALLISER FURNITURE LTD: THE CHINA QUESTION  Analysis first : - ’98, set up a leather furniture facility in Mexico (for Midwest/southern N.A market) - Chose ‘facility’ in Mexico over China back then, here’s why:  Lower distribution cost: Mexico being closer to Texas  China’s leather furniture sector was small/inexperienced. China only had leather cutting/sewing workers.  FDI in China were mainly Joint venture. DeFehr wants his own business  Mexico was considered due to closer to the U.S. market, and more meaningful comparison. - Problems w/ Mexico investment:  Mexican taxation practices & disagreement w/ the local taxation authorities ( what they allow and not allow weren’t clear)  Took longer to recover initial investment.  Other costs involved “mexico-u.s border” : trucks from Mex cannot cross the border; transferred only using U.S trucks (a.k.a “friction cost”)  Order allocation process favoured Canadian facility: orders given to Winni plants first -> balance then allocated to Mexico. Mexico plant fight with headquarters for orders -> a positive impact on the Mexican overhead recovery rate  Mexico facility: competitiveness resulting from NAFTA. Palliser had yet to focus on how to lower the costs through changes in its Mexican supply chain. - Furniture industry since ‘98  Gone tremendous change: due to rise of China (furniture exports grown @ ann. Rate of 30%) as well as the capcity  Rise of China -> more competition -> affect profit margins  Natuzzi’s (Italian firm) income dropped 70%, sales dropped 10% in the 2 quarter of 2002.  Contributing factors to china being strong: cheap labout and comparable product Q  and design (labour cost : 3/day (china), 32/day (mexico), 90/a day (Canada)  Chinese workers: work more than 10hrs a day, 6 days a week. No unions. No environmental problems in China. No tax paying concerns and no social costs and no benefits to ee.  Chinese currency being undervalued  Many us firms moved manu sites offshore  While many followed low-cost strategy, some Canadian followed to become active importers, FOCUS on specialized lines not being produced domestically. - Palliser’s strat since ’98:  Cost leadership: negotiated w/ Brazilian partners for supply chain for Mexico plant.  Quick delivery: purchasing from china (min. del. T 6-7 weeks); focused on custom manu strategy w/ delivery time of 3 weeks. This was premium biz . More comp? More offshoring (from other firms). The delivery time became less flexible. After 9/11, airlines became very epxnesive to ship. Palliser tries to work with brazil suppliers to seek solut
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