GEW is an electronics component manufacturer that has been located in Bahamas since 1991, supplying original equipment manufacturers (OEMs) with quality components. In the past several years, GEW has experienced increasing pressure from other manufacturers located in other countries. In Bahamas, 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 and Africa to make the firm more competitive. GEW remains profitable, but margins have shrunk, and management is interested in ensuring that the firm remains competitive against other component manufacturers in the medium term to long term. A senior management team 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 Pietermaritzburg, South Africa. 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 raw materials and moving out finished components to customers. Presently, the customers are geographically dispersed, making access to a seaport very important in delivering products 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 ease in the past decade. This will only increase the attractiveness of locating the manufacturing facility in Hong Kong. Pietermaritzburg is located in the province of KwaZulu Natal, just 45 minutes away from Durban. It is the capital of the province and home to a population of around 1,6 million. Several points make the city attractive to the relocation committee. First, locating here would provide access to natural resources and other production inputs. Second, the transportation infrastructure as it is connected to other economic hubs in the country, and the city is close to the Durban seaport for moving raw materials in and finished goods out. That said, the port is not as large or accessible as those of Hong Kong but one of the biggest in Africa. The committee has contacted the national government of Bahamas to elicit possible incentives to not relocate to another country. Bahamas is offering a 5-year exemption on taxes for ACM if the plant remains in Bahamas. The government will also assist by partially subsidizing labor, water, and energy costs for 5 years. Committee members realize that the Bahamas 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. Extracted from (Heizer and Render, 2020) Critically discuss the logistics risks that GEW can be exposed to when it locates in any of the provided options.
GEW is an electronics component manufacturer that has been located in Bahamas since 1991, supplying original
equipment manufacturers (OEMs) with quality components. In the past several years, GEW has experienced increasing
pressure from other manufacturers located in other countries. In Bahamas, 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 and Africa to make the firm more competitive. GEW remains
profitable, but margins have shrunk, and management is interested in ensuring that the firm remains competitive against
other component manufacturers in the medium term to long term.
A senior management team 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
Pietermaritzburg, South Africa. 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 raw materials and moving out finished
components to customers. Presently, the customers are geographically dispersed, making access to a seaport very
important in delivering products 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 ease in the past decade. This will only increase the attractiveness of
locating the manufacturing facility in Hong Kong.
Pietermaritzburg is located in the province of KwaZulu Natal, just 45 minutes away from Durban. It is the capital of the
province and home to a population of around 1,6 million. Several points make the city attractive to the relocation committee.
First, locating here would provide access to natural resources and other production inputs. Second, the transportation
infrastructure as it is connected to other economic hubs in the country, and the city is close to the Durban seaport for
moving raw materials in and finished goods out. That said, the port is not as large or accessible as those of Hong Kong but
one of the biggest in Africa. The committee has contacted the national government of Bahamas to elicit possible incentives
to not relocate to another country. Bahamas is offering a 5-year exemption on taxes for ACM if the plant remains in
Bahamas. The government will also assist by partially subsidizing labor, water, and energy costs for 5 years. Committee
members realize that the Bahamas 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.
Extracted from (Heizer and Render, 2020)
Critically discuss the logistics risks that GEW can be exposed to when it locates in any of the provided
options.
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