Ellora Times Manufacturing Woes We will produce our goods in China and export them to India.

Its not possible for us to run the industry in India.

Agenda
      

Companys Summary Products The china Story What lies Ahead Analysis Operations Suggestions and Conclusions

Companys Summary
 Ellora times Pvt. Ltd based in Morbid, Rajkot, Gujarat, India  In 2001, it was the worlds largest manufacturer of clocks.  It produces calculators, telephones, timepieces and educational toys.  Ajanta and Orpet (combined companies) had investment Rs. 2 billion in 2001. It had 70% market shares in timepiece and calculator business and 20% in telephone.  It exported its products to 60 countries  It had 25000 dealers and 180 service stations.  In early 2001, Ellora decided to shift its manufacturing activities to China

 Manufacturing base was 15,00,000 sq.ft and carpet area 10,00,000 sq.ft.  It had essential machineries such as Wafer saw machine, automatic coil winding machine, ultrasonic ware bonders, CNC plastic injection molding machines, a full fledge workshop for mould manufacturing.  In 2001, it produced 15,000 calculators, 20,000 time pieces and 8,000 telephones per day.  1800 workers, 45 trucks  It gave prime importance to R&D and quality.  ISO9002 company

 It got many awards for excellence in Export  Initially raw materials were imported from Japan, Korea and Taiwan.  From1998, it started import of raw materials from China  In1999, Indian govt. removed restriction on import from China.  The same range of product from China was much cheaper.  Demand of calculator increased from 20 million to 40 million in mid 1990s but company was forced to reduced its production from 6-7million to 2-2.5million.  It market share came down from 70% to 5% as 90% calculator used in India were imported.

 Under invoiced goods from China evaded the customs and excise duty and import through Nepal was at low tax.  Spare parts has duty 5% while raw material has duty 25%.  Hence Ellora began to import parts from China  A few years ago, Ellora has 15,000 workers, in 2001 it came down to 5000.  It leased 300,000 sq.ft. in Shenzhen and started shifting machinery.

PRODUCTS

SWOT Analysis:Strength
 Good Brand Value  Excellent marketing and distribution network  Admirable Credit rating No payment of interests to lenders.

Weakness
 Competition from Chinese markets (Cheap Labor, high Productivity & Govt subsidies). Discouraging policy framework (Poor Tax structure & lot of Govt approvals). Poor Infrastructure. (Erratic delivery Schedules) Higher Inventory holding Costs. Higher Corruption levels. Difficulty in arranging finance.

Opportunities
 Constantly growing demand
(20MM in mid 90s to 40MM in early 2000) To diversify in other products since they have brand and distribution network.  Enjoying huge market share in product line.

Threat
90% of goods used in India were imported(Smuggled Route-Under Invoiced). Indian Regulatory Setup (Duty of 5% on spares vs 25% on raw material). Illegal methods adopted by Chinese firms to capture markets. .

What Lies Ahead

Growing Market in India for Other Product Lines : Diversify into home appliances business to be marketted under same brand. 2. Own Production Base in China : That would mean cheap labour/ higher productivity / Export related subsidies. 3. Competitive Advantage: Now being in China, they could produce with Japnese quality at Chinese prices. So now they could easily do away with new Chinese competition as they could get cheap & quality raw material and low cost of production. 4. Countrywide network of Dealers/ Service Stations: All products were marketted though a huge network of dealers. So definitely they enjoyed a better and deeper reach as compared to other Chinese goods. 5. Good brand Value: Given an option customers would defintely buy prodcuts of good branded image with chinese prices as compared to cheap chinese products. There was no competition for Ellora in branded products under same category

Plant Location
Major factors that influence plant location decisions are: Market proximity.  Integration with other parts of the organization.  Availability of labor and skills.  Availability of amenities.  Availability of transport.  Availability of inputs.  Availability of services.  Suitability of land and climate.  Regional regulations.  Room for expansion.  Safety requirements.  Site Cost.  Political, Cultural and Economic Situation.  Regional taxes, special grants and import/export barriers.

Brown and Gibson Model for Site selection

COST:Infrastructure. Subsidies for Export Productions.

critical Location factors objective

Availability of labor and skills.  Availability of amenities. Availability of inputs. Supply chain

subjective
Political, Cultural and Economic Situation Availability of transport. Regional taxes, special grants and import/export barriers. Trade Unions.

 Ellora was forced to decide in favour of setting up a factory in China despite the fact that it had been doing rather well both in the domestic and export market

Difference Between Business environment and regulatory framework of India and China

 Chinese policy framework encourages export promotion by subsidizing.  China has cheaper power, low labor costs, highly regimented labor poll, less no. of public holidays and low cost of finance.  Tax structure and infrastructure facilities are better in china.  More availability of raw materials, spare parts and components  Zero inventory possible in china  Corruption level is low in China.

 Less legal hassles with customs, excise and sale tax  Export subsidy in China is 19-27% and there are free trade zones.  Easy availability of finance at low interest arte of 5.5% in comparison to 14-15% in India.  Labour laws are not restrictive in China  No minimum wages, no extra overtime  No trade Union  Reliable supply chain in comparison to India  Fast clearance at customs and ports  Low taxes  Good infrastructure in china (good roads)

Comparison Chinese & Indian Manufacturing Environments

India 1. Labour Issues  Production allowed will 7 pm  Need to Pay double wages for overtime  Work based on no. Of hours  Restrictive labour laws- not allowed to dismiss worker if not productive easily  Minimum wages has to be paid  Trade unions: strikes/agitations Cost Of Production- HIGH Need to stock Raw material In disciplined Supply chain Simple Import Procedure-Consignment cleared in 24 hrs No Govt Subsidy Duty on raw material > duty on finished product Poor Infrastructure a. Bad road condition leads to delays b. Unreliable communication and high cost c. High cost of power and frequent power failure 1. China Labour Issues  24 hours operation  No such provision  Work based on output target  Unrestricted Labour laws: allowed to dismiss worker if not productive  No Such law  No trade unions allowed Cost of Production: Low Just In Time raw material Disciplined supply chain Complex Import Procedure-Long Clearance time. 19-27 % subsidy for Export Duty free-Raw Material imports Friendly duty structure High Quality Infrastructure a. Excellent Road conditions-Distance of 800 km covered in 10 hrs. b. Reliable and Cheap power

2. 3. 4. 5. 6.  

2. 3. 4. 5. 6.  

Cheers