Yushan bicycles sumaiya rahman 1721415 inb303 sec 1 PDF

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Warning: TT: undefined function: 32 Warning: TT: undefined function: 32Name: Sumaiya RahmanID: 1721415INB 303 : International ManagementSection: 01Submitted to: Mr. SM Yusuf Mallick SirYushan Bicycles: Learning to ride abroadSummary:This case study is based on Yushan Bicycles a Taiwanese cycle manuf...

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Nam Name: e: Sumaiya Rahman ID: 1721415 INB 303: International Management Sec Section tion tion:: 01 Su Submit bmit bmitted ted to to:: Mr. SM Yusuf Mallick Sir

Yushan Bicycles: Learning to ride abroad Su Summ mm mmary ary ary:: This case study is based on Yushan Bicycles a Taiwanese cycle manufacturing company founded by two semi-professional cyclists, Yan-Ting Hsieh and Zhiwen Tseng, in 1985. In this case we see how Yushan faces problems after its expansion to different areas of the world with different management culture and customer base. Yushan’s headquarter and manufacturing operations were located in Taichung. Yushan was ranked the 7th biggest bicycle manufacturer out of the 600 bicycle producers in Taiwan. Yushan bicycles could be recognized by its simple design and compact sizes and the company’s main target customer were the ones seeking basic bicycles at a reasonable price. In 2007 Yushan introduced its first E-cycle which would increase its profit margin. After serving the local demands and observing a contract in the growth of the domestic market, Hsieh and Tseng decided to go international and expand its operations. In 2006 it first setup its international operation unit in Singapore and Japan and then the Asian region. Yushan’s e-bikes achieved vast popularity among the Japanese woman and this success acted as key motivation for Yushan to expand its market to Europe, New Zealand, Indonesia and Australia followed. However, there were a multiple issues Yushan started to face after the expansion, in the Australian sector, reports of the last quarter of 2015 showed a shortage of budget. These losses occurred due to some technical and planning issues which includes Yushan’s transfer pricing policies and prices to the Australian subsidiary which increased quarterly due to increases in the manufacturing cost, Yushan could not delivery delays to Australia and also poor resource planning which occurred after the reporting stocks incorrectly. The Australian and other subsidiary managers felt Yushan’s prioritizes the profitability of Taiwan’s operations over the other subsidiaries operations, raising a concern stating lack of trust on the Australian management. Finally, the fluctuation in currency rates caused the value of losses between the different subsidiaries.

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Qu Questio estio estion n 1: What is the motivation behind Yushan’s expansion abroad? How effectively is it achieving its internationalization strategy? Answer: Yushan was motivated to expand its operations internationally in order to capture production scale economies and enhance their product mix. However, other reasons why Yushan bicycle was motivated to go International was because being a Taiwanese bicycle manufacturer, Yushan wanted to compete with China, the biggest bicycle manufacturer and distributer in the world, with Yushan’s mid-range to high-end products with greater quality. Since customers seeking basic bicycles at reasonable prices Yushan started to shift its focus on more experienced cyclists who are willing to pay more for additional features and modifications in performance, in order to capture a greater profit margin. For example: The Japanese market appreciated Yushan’s e-bike, as the product has been a popular one for the women in Japan for a very long time. Yushan’s internationalization strategies goal was to increase sales volume by obtaining a bigger market in the world and setting up centralized manufacturing operation units and profit centers however, achieving large market share required manager’s understanding of the difference in the regional demand and taking under consideration the customer’s differences in terms of culture. In order to reach the high volumes sales in Europe. Yushan had to learn and observe the customers buying and demand patterns. Secondly, understanding the customer’s perception is also very important in order to achieve larger market share, for say, Europeans are more environmentally concerned whereas, Australians are more health conscious. Yushan’s main inefficiency in its operations reflected from its lack of trust on manager and performance of other subsidiaries like Australian. The main priority was given to the performance and portability of the Taiwan based operations, which may turn into a big problem for the company in the long run, as it is now operating internationally, it must pay attention to the operations of every subsidiary individually. In order to achieve optimal performance of the overall organization, action needs to be taken to improve the performance of Yushan Australia and anywhere it is lacking an effort. Changes needs to be made according to the market condition and local market response. Therefore, it can be said that Yushan’s internationalization strategies are not being completely effective and needs to understand and work on the problem areas in order to achieve the overall goal.

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Qu Questio estio estion n 2: What do you think of James Hamilton’s objectives for Yushan Australia (YA)? How well do they fit Yushan’s internationalization strategy? Answer: James Hamilton became the general manager of Yushan Australia in 2013, even though, he did not have much knowledge on bicycle and sports products, he had extensive experience and knowledge on marketing and leading high-performance sales. His strategy of penetrating the market using tools such as lowering the price to help capture market share was a perfect objectives as Australian bicycle and the general sport market is very competitive, and after the Decathlon Sports, one of the world’s largest sporting-goods retailer, opens over 35 warehouse styled stores in Australia by 2020, Yushan Australia will face further problems and difficulties to even keep the market share they currently occupy. Therefore, Hamilton took initiatives by hiring more staffs and warehouse space and offices and worked on building stronger relationship with distributors, initially Hamilton decreased the prices of the bicycles because YA did not have enough skilled staff to penetrate the market, so he used pricing strategies to do so, this would eventually help YA build volume quickly. Once the sales threshold of 10000 units were met, Hamilton planned on increasing the prices and work on building the Yushan Bicycle brand in Australia. In order to compete against big companies like Decathlon, Yushan Australia needed a strong brand image in front of the customers. Therefore, Hamilton’s objectives were made in order to meet the final goal of the company and they fit perfectly with the Yushan Bicyle’s internationalization strategy.

Qu Questio estio estion n 3: What is the source of YA's financial shortfall and operating problems? Answer: There were multiple issues which resulted in the financial shortfall of YA and cause several operating problems. Firstly, the transfer price to the Australian subsidiary which included fixed costs, R&D costs, financial charges and many other costs which acted as a burden 3

for the Australian subsidiaries. Adding to this is the fluctuation in the currency rate, there has been a loss of 15% Australian dollar compared to the Taiwanese dollar. Secondly, there was a mishap in the pricing of a big order. As a result of the increase in cost derived after the increase in transfer prices, the prices of the products also increased however YA could not increase the price of an order placed and confirmed in May, which was the beginning of the second quarter of the year but has to be delivered in November. This issue caused YA to loose its margin of profit from this sale. On the other hand, there were multiple occasions where amount of stocks available were reported inaccurately due to the lack of skill of the employees operating the company’s enterprise resource planning system. Even the more time was wasted while recording orders. Lastly it can be said that Hamilton’s decision to recruit more staffs, office and warehouse space may have been a fit objective in terms of internationalization strategy but it had its take of causing serious financial nosedive as the consequences of poor forecast of the future of the market.

Qu Questio estio estion n 4: How should Zonghan and Hamilton resolve their differences? What actions should they take to improve YA's performance? Answer: Zonghan, an executive in charge of all the operations in Australian, Indonesian and New Zealand, and Hamilton, the manager appointed to oversee operations of YA were having issues regarding the lack of effort and in turn losses YA was facing. Zonghan who had a life time of experience in Taiwanese Bicycle sales did not give much attention to the difference in the culture of Australian customers. The differences between Hamilton and Zonghan could be resolved by acknowledging the difference between each other’s management styles and trusting each other with their work. Zonghan needs to pay more attention in how well other subsidiaries are performing and not just prioritizing the performance of Taiwan. Understanding that there is a difference in the preferences of customer of different regions, European customers want products which are environmentally friendly, Japanese customers prefers their e-bike because of its popularity among the female cyclists however, Australian customers are rather more health conscious and they prefer manual cycles and the e-bike are not at all a hype for them. Therefore, delivering and distribution of products according to their demand pattern is necessary. According to Yushan’s internationalization strategy, manufacturing operations were centralized therefore transfer prices are not the same everywhere. Going international means having to deliver goods everywhere in the world and efficiency is constricted if 4

operations are managed from just one particular area. Strategies used to penetrate market is different in different regions therefore Hamilton’s strategy was perfect of the YA operations.

So Solution lution and Re Recomm comm commend end endatio atio ations: ns: There are a number of recommendations that we can make to Hamilton, the general manager of Yushan Australia and Zonghan, the director of global sales operations of Yushan. They have many differences which is causing difficulties for Yushan Bicycle to reach its optimal efficiency. First of all, we make the recommendations for Hamilton and these are as follows: 1. Since, Hamilton was given sufficient autonomy from the beginning of his time, in the strategic and operational matter, it seems that some of the decisions made by him were not correct. For example, he should not have reduced the prices for similar quality bicycles to build the volume but should have focused on brand enhancement and marketing to achieve that by giving out gift vouchers, service discounts, and other offers which were not so common to attract more customer. Prices can be decreased for models that are not very popular among customer to attract sales. 2. The transfer price conflicts had occurred primarily because of the failure of Hamilton to account for a possible increase in transfer prices during negotiations. If currency fluctuations had also been a problem for higher costs of goods sold for YA, then Hamilton is recommended to hedge the currency exposure using different financial instruments. 3. Hamilton is recommended to train all of his staff members for operating and understanding the new resource planning system once all the issues are resolved by Zonghan. He needs to make sure reporting errors are controlled and fixed before including them the main report. 4. Hamilton needs to understand the rationale behind the corporate decision of supplying products to Japan in times of shortages. Hamilton needs to work on developing the accurate forecasts and operate to achieve a breakeven. 5. Hamilton had invested in the staff quickly and as he states that from 6000 to 10,000 units no other staff would be required, therefore, he could have delayed the hiring of additional staff members at YA. Therefore, Hamilton should consider laying off staff to reduce the fixed costs. 6. Finally, Hamilton is recommended to boost the market entry strategy for launching the E-bikes and YA should enter this market before the Chinese E-bike competitor. Hamilton is recommended to utilize the excess plant capacity to produce a high number of the ebikes.

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After this we make a set of recommendations to Zonghan to resolve the conflict and work in the best interest of Yushan and Yushan Australia. These recommendations are as follows: 1. Zonghan should recommend Hamilton to incorporate the possibility of transfer price increase during the next negotiations. 2. Zonghan is recommended to investigate the new enterprise resource planning system at YA and identify and correct all the issues related to documentation and issues with the system. 3. Zonghan should ensure that he has given sufficient autonomy to Hamilton despite recommending Hamilton on the product strategy for E-bikes in YA. 4. Zonghan should make efforts to train the staff of YA in terms of training them to operate the enterprise resource planning system, marketing the products, dealing with customer issues and negotiating with the clients.

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