Having done business in the United States for over fifty years, Blues Corporation has an established reputation. Most of Blues' business is in the United States. It has a subsidiary in the western section of Germany, which produces goods and exports them to other European countries. Blues Corporation produces many consumer goods that could possibly be produced or marketed in Eastern European countries. The following issues were raised at a recent executive meeting. Offer your comments about each issue.
a. Blues Corporation is considering shifting its European production facility from western Germany to eastern Germany. There are two key factors motivating this shift. First, the labor cost is lower in eastern Germany. Second, there is an existing facility (currently government owned) in the former East Germany that is for sale. Blues would like to transform the facility and use its technology to increase production efficiency. It estimates that it would need only one-fourth of the workers in that facility. What other factors deserve to be considered before the decision is made?
b. Blues Corporation believes that it could penetrate the Eastern European markets. It would need to invest considerable funds in promoting its consumer goods in Eastern Europe, since its goods are not well known in that area. Yet, it believes that this strategy could payoff in the long run because Blues could under-price the competition. At the current time, the main competition consists of businesses that are perceived to be inefficiently run. The lack of competitive pricing in this market is the primary reason for Blues Corporation to consider marketing its product in Eastern Europe. What other factors deserve to be considered before a decision is made?
Some of the other factors that would be considered are:
1) Total purchase consideration involved in the acquisition of the government owned facility as well as investment required to transform the facility. An extensive capital budgeting analysis using tools like NPV, IRR etc. need to be conducted to evaluate the attractiveness of the investment in the existing government owned ...
Blues Corporation: factors in moving a facility to Eastern Europe