Finding a Location for Electronics Component Manufacturing in Asia (case study)

ACM is an electronics component manufacturer that has been located in Singapore since 1991, supplying original equipment manufacturers (OEMs) with quality components. In the past several years, ACM has experienced increasing pressure from other manufacturers located in other countries. In Singapore, while labor remains quite inexpensive, there has been a relatively steady increase in labor costs. In addition, utility costs – most notably water and energy costs – have led the firm to contemplate moving operations elsewhere in Asia in an attempt to make the firm more competitive. ACM remains profitable, but margins have shrunk, and management is interested in ensuring that the firm remains competitive in the medium term to long term against other component manufacturers. A team of senior management has formed a committee to reach a decision regarding possible relocation. The committee has identified two additional locations as possible candidates for relocation: Hong Kong (People’s Republic of China [PRC]) and Kuching (Malaysia). Hong Kong’s main attractions stem from the fact that since 1997, when its sovereignty was transferred back to the PRC, labor costs have decreased as access to labor has increased. Hong Kong enjoys a large seaport and very good transportation infrastructure, and this is important in moving in raw materials and moving out finished components to customers. Senior management believes that an increasing number of OEMs will move to the PRC in the next several years, as has been the case in the past decade. Twill only increases the attractiveness of locating the manufacturing facility in Hong Kong. Kuching is located in the Malaysian province of Sarawak, on the island of Borneo. It is the fourth largest city in Malaysia and home to a population of around 650,000. Several points make Kuching attractive to the relocation committee. First, locating here would give access to natural resources and other production inputs. Second, the transportation infrastructure is good, and the city hosts a deep sea port for moving raw materials in and finished good out. That said, the port is not as large or accessible as those of Hong Kong or Singapore, and several committee members have expressed concern about the frequency of ship visits to Kuching. If the port does not receive regular service from container ships, transportation costs to ship components to OEMs will doubtlessly stable and inexpensive in Malaysia. The committee has contracted the government of Singapore to elicit possible incentives to not relocate to another country. Singapore is offering a five­year exemption on taxes for ACM if the plant remains in Singapore. The government will also assist by partially subsidizing labor, water, and energy costs for five years. Committee members realize that the Singapore plant, which has been operating for years, has already been amortized, and opening a new plant would require additional capital costs. That said, opening a new factory would also provide an opportunity to upgrade production equipment to more productive and energy efficient alternatives.

If you are appointed as a new manager for that company, what will you do?

If I was the manager at ACM, the first I would make advantages and disadvantages of each location has to offer. For example:

Singapore

• Advantages: relatively cheap labor, good transport infrastructure and incentives Offered to stay 
• Disadvantages: increasing labor costs and increasing utility costs.

Hong Kong

• Advantages: labor consistently cheap and good transport infrastructure.
• Disadvantages: no specific disadvantage has been -identified in the case but students should attempt to discuss this further.

Malaysia

• Advantages: access to raw materials and natural resources inexpensive labor.
• Disadvantages: Concern with the frequency of ship visits.

After that I would look for other factors that have not been described in this case, which may influence in choosing the location has to offer. For example, labor costs, utility costs, raw material costs , transport costs , exchange rates and political stability will impact the profitability .

In this case I prefer Hong Kong as a place suitable for the relocation of the ACM, because Hong Kong has a good transport infrastructure and cheap labor. While Singapore has labor and utility costs are high, and Malaysia have a little visit.