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Commercial and Operational Assessment of Chinese Manufacturing Plant

Key Takeaway:
U.S. Manufacturing Facility needed a turnaround approach after profits began declining in 3Q 2008 as a result of the financial crisis and the Chinese government's tax rebate reductions.

China operation initially met internal sales goals until 2010 but had declined steadily for 4 consecutive years. Their customers were Western companies with China-based operations. They had not been able to generate sales to domestic Chinese companies. The U.S. Manufacturer was also concerned about losing their Intellectual Property (IP). Company's IP was its product knowledge and manufacturing expertise. They were not able to successfully execute a technology transfer to the China plant. Equally, U.S. executives were not getting clear information from its China team on the China market, Asian competitors, product pricing, standard raw material, manufacturing and labor costs, distribution channels and procurement strategies. Company's sales to Western clients were declining and they had not been able to increase sales to Chinese customers. Due to poor performance, the Company wanted to explore a variety of options including:
  • Establishing a Joint Venture with a Western or local Asian company
  • Closing or selling their China plant
  • Turning around the operation
Company's Board of Directors had a defined timetable of 4 months to identify available options and execute a defined strategy.

Conduct an Operational and Manufacturing assessment of the China operation and make recommendations on whether the plant could be turned around or to pursue other options.

East West Associates (EWA) performed a detailed assessment designed to gather information on the facility and make recommendations concerning viability of the China operation. The first step included a plant tour and meetings senior executives of each division. The Operational and Manufacturing Assessment focused on:
  • Manufacturing and Production process
  • Technical capabilities
  • Production cost structures
  • Logistics
  • Sales and Marketing
  • Procurement and Supply Chain
  • QA and Lab Services
  • Customer Service
  • Product range and strategy
  • Research and Development
  • Organizational structure
  • IP strategy
  • Senior executive capabilities and HR
  • Chinese regulations
  • Customer segmentation
EWA also performed a Market Study of the industry to determine how the Company compared with its competitors in China.

Company implemented the EWA recommendations and was able to reduce its cost structure by 23% and increase sales into their traditional markets by 19%, thus enabling the China plant to reach breakeven within one quarter after EWA’s Assessment. The Company also began expansion into a new sector and has decided not to sell or close its Chinese facility but work toward reaching profitability by 2013.

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