Case Club League Round 1: Part 1 Analysis Based Over Geographical Locations & other policy factors Malaysia

ia 1. 2. 3. 4. 5. 6. Logistic Cost Rs.13/ltr. Mode of Production Vegetable Oil Cost of BD from raw materials Rs. 30/ltr Quality High Benefits High quality and Problems Very high logistics cost, Large inter-country distance, Custom Duty and High Manufacturing tax.

Madhya Pradesh 1. 2. 3. 4. 5. 6. Gujarat 1. 2. 3. 4. 5. 6. Logistic Cost Rs.4/ltr. Mode of Production Acid Oil Cost of BD from raw materials Rs. 37.50/ltr Quality Medium Benefits Industrial Boost, No taxation, No large distance dependence. Problems Land tax (4% around Rs. 1/Ltr), government proposal to reduce acid content. Logistic Cost Rs.2/ltr. Mode of Production Jatropha Seeds Cost of BD from raw materials Rs. 40/ltr Quality Medium to Low Benefits Very low logistics cost, abundance of contacts Problems Less support from governments, potential protests and agitations by social group, 2% tax to state government.

We feel that Green Oil should consider waiting for the upcoming elections in Gujarat before coming to any decision. In case the results are favorable i.e. either the incumbent government retains power or the new government formed is pro-industrialist, Green Oil should set up its plant in Gujarat at a place adjoining to Madhya Pradesh. (As both states share border, this will make the start up plant share the same logistic and contact benefit as the firm would have at its Madhya Pradesh Plant.) Also as Gujarat hosts Surat Vadodra industrial corridor railway link which caters to places not only in Gujarat, but in Madhya Pradesh and Maharashtra as well, this can help the firm to expand in more emerging markets along with retaining its traditional markets.

Present net Oil Cost in Gujarat is around Rs. 42-43 per Ltr. When compared to Madhya Pradesh or Malaysia, its fairly competitive where the mentioned have net costs of ~44 and ~ 45 respectively after including duties and logistics. Gujarat has an Industrial GDP of over 10 % and is one of the most industry friendly states in the world. We could also suggest Green Oil to use the residue Acid Oil by supplying it to a local firm. This would bring down the costs and make our product more competitive. Gujarat offers the maximum stability to the plant. Setting up a plant in Madhya Pradesh offers a sizable amount of risk as Jatropha Seed production on farmlands can result in mass agitation if the state or nation face food crisis. This could result in factory sealing as well as long legal procedures. (We should take care of the fact that setting up an industry involves a large amount of capital.) Gujarat has a great topographical, geographical and climatic advantage over the others. Its well connected by highways and ports. It has a large coastline which may be profitable to the company if it feels to ship its product in the near future. In case the election results are unfavorable and a populist government comes into power in Gujarat, we feel Green Oil should scrap the idea of setting up a BD plant in near future. The reasons for rejecting the options 1. Policies and relations are highly government specific. India and Malaysia have remained good friends, but this couldnt be extrapolated for the future. If the things deteriorate, the future of our plant could go in big danger if established in Malaysia. Also long distance transport costs and high custom taxations results in cutting profits, which could be avoided if production happens in India. 2. Madhya Pradesh would have been an idol contender in this case because of the cost factor, but the legal and social intricacies involving the issue, makes us to suggest Green Oil to refrain from setting up a plant there 3. For Gujarat, if the new form government is populist or socialist, we could be faced to see similar or worse scenes compared to Madhya Pradesh.