Haute Couture Fashions Case Study - China

Table of Contents

1.0        CASE OVERVIEW        

2.0        SYMPTOMS AND MAJOR PROBLEM        

2.1        SYMPTOMS        

2.2 MAJOR PROBLEMS        

3.0        PESTEL ANALYSIS        

3.1 Politics factors        

3.2 Economy factors        

3.3 Social factors        

3.4 Technology factors        

3.5 Environment factors        

3.6 Legal factors        

4.0        FINANCIAL ANALYSIS        

4.1 Liquidity Ratio:        

4.2 Efficiency Ratio        

4.3 Leverage Ratios        

4.4 Profitability Ratios        

4.5 Net Present Value (NPV)        

4.0 ALTERNATIVES        

4.1 Alternative 1        

4.2 Alternative 2        

5.0        RECOMMENDATION        

5.1 Decision        

5.2 Joint venture        

5.3 Need for immediate action        

5.4 Save time and cost        

5.5 Profit and loss sharing        

5.6 Child labor issue        

5.7 Own label and maintain existing factories        

5.8 Future planning        

5.9 Action plan        

6.0 REFERENCES        

APPENDIX 1        

APPENDIX 2        

1. CASE OVERVIEW

Haute Couture Fashions was established in the 1974 by the Tan family. The principal business of Haute Couture Fashions is tailoring men’s clothing at Argyll Road, Penang. The business initiated by Tan Boon Kheong that trained by British master cutters in the 1950’s in Penang. During earlier of the establishment, Haute Couture Fashions have to major customer which are KiKi and Houida. Both KiKi and Houida, two European fashion houses. Haute Couture Fashions doing well in their business and expand the business to both men and women’s fashion. This expansion started in 1970 by Peter Tan. He gain the skill when he was study and be surround with European people. This open the opportunity to Haute Couture Fashions as the company engaged with European Fashion House. With the growing demand HCF have three factories that located at Butterworth, Jitra, Kedah and Chieng Mai, Thailand. The first factory at Penang had close due to cost reduction.

Haute Couture Fashions now facing dilemma when their two major customer are looking forward to engage with contract manufacturer at China due to price at there were very competitive. Haute Couture Fashions is afraid of lose this two clients, because if they lose two client, it will affect their profit. In addition, Haute Couture Fashions also see that many companies also shift to China because of low of labour cost and price competitive. Haute Couture Fashions is about to choose whether to set a factory at China and close down factory at Thailand, Butterworth and Kedah or to joint venture with China company’s. The top management are given their opinion towards this two modes of entry. There are pros and cons for the alternative but which give the best solution for Haute Couture Fashions.

1. SYMPTOMS AND MAJOR PROBLEM

1. SYMPTOMS

There are several issues lead to major problem which are the main client, Kiki and Houida looking forward for contract manufacturing in China, reduce in profit margin over 2 years ( 2007 -2008 ) and many European and American fashion houses are looking for importing clothes from China. Some of key personnel respond towards this issue of Kiki and Houida may looking to China to contract manufacture for gain advantage on price competitive. The suggestions is stated below:

Sales and marketing director suggest moving to China in order to retain this two major clients and shutdown all current factories. Factory operation director not interested to close the factories due to concern on employee that had been worked since the establishment of HCF. He suggest that expand to China for contract manufacturing and create own label in Malaysia. He also think that HCF just pull-out form contract manufacturing and develop own label by producing in Malaysia. Lastly, Managing director said clothes manufacture should not ignore China’s influence and HCF need to have strategy with China to retain current customers’ base.

Second symptom that lead HCF to think about choosing mode of entry to China due to fall of profit margin over 2 years (2007 to 2008). The company was face reduction of profit and if the company loss the two major clients, it leads to loss of revenue 44.2. Due to this problem, managing director is thinking to have strategy with China. Lastly, there are many of the European and American fashion houses are now looking at importing clothes from China at very low prices. For the company that operate with higher operating costs face difficulty to survive in textile industry. HCF now think to choose China because of low labor cost with quality clothes.