Black Rock®is a recently formed American company that has entered the electronic goods industry, and is looking to establish a global foothold, and subsequently become a household name worldwide. The company currently specializes in high-end television sets, more specifically, cutting edge 3D-Televisions, which allow consumers to experience their favorite movies and programs in the most visually pleasing way possible.
With eyes set on expanding operations, Black Rock®has explored the possibility of establishing a base in the heart of Europe, Hungary, where it will be possible for them to reach a new market, as well as provide an opportunity to expand to other neighboring countries in the future. This move would be quite a significant investment, requiring a fairly large sum of capital, which would have to be funded from outside the company. Therefore, Black Rock® wishes to pique the interest of investors in this project, and with this report, provide venture capitalists with solid findings on how the operations of this expansion will be handled, so as to prove the feasibility of the undertaking, as well its profitability.
On the 20th of March 2010 a thorough research concerning the operations side of the proposed expansion was initiated, which was commissioned by the CEO of Black Rock®, Magnus Hanso himself. Information was gathered by an ad hoc team of operations specialists on the different possibilities of supplying Hungary with the product, and methods of which the distribution of said products can be handled.
The first question that was addressed was the method with which the televisions could be supplied to the Hungarian market. In this case, there were two main methods identified, which were analyzed from a cost and effectiveness perspective.
The first scenario would entail simply shipping the finished product from the existing Black Rock manufacturing plant in Santa Clara, CA to Budapest, Hungary. In our assessment however, we found this technique to be too costly and inconvenient. First of all, the plant in Santa Clara is already working to full capacity, and therefore we wouldn't be able to properly saturate the Hungarian market with our product without significant spendings on expanding the capacity of our plant. Furthermore, the time it would take to ship the product would be too lengthy. It would take 26 days to ship the TV's to Germany, and then another day to transport the goods by truck to Budapest. Not only would this be expensive, but it would also limit the responsiveness of the company to the demand of the Hungarian market.
The second scenario proposed setting up a new TV manufacturing plant within Hungary. This would mean building the required facilities, furnishing them with the required technology, and hiring local labor to operate it. This would mean a higher upstart cost than the previous scenario. However, according to our calculations, in the long run this method would be more cost efficient, and the savings would more than payback for the initial investment. No longer would there be high transportation costs, tariffs, and associated administrative costs that would be incurred from the long transportation route. Additionally, the production levels could be more easily matched to the demand needs of the Hungarian market with the short transit time. Last but not least, this strategy would also allow for more opportunities to expand in the European market. With the Hungarian plant up and running we will have to possibility to export the product to neighboring countries, and this is made significantly easier by Hungary's EU membership, which allows for the free movement of goods within the EU's borders.
The next major issue addressed was that of the distribution of the 3D televisions once they had arrived in Hungary. This question encompasses the issue of how many warehouses there should be for our product and through what channel(s) they should actually reach our customers.
The latter issue, that of the channel by which products would reach customers was addressed first, and then accordingly, the number of warehouses necessary was calculated. There were two possible channels considered, that of using an already existing Hungarian channel, our building out our own. Hungary already has several consumer electronics store chains, such as Media Markt and Saturn, both of which have well developed networks and are also highly frequented. Therefore, either one would be a good candidate for retailing our 3D-TV's, due to the low costs it would result for us, and the amount of customers that would potentially exposed to our product.
On the other hand, the marketing experts included in our expert panel pointed out that our product's image doesn't quite fit into the image the above mentioned chains. While MediaMarkt and Saturn have an emphasis on low prices, we ourselves want to build a brand image of a high-end luxury item, which will have the associated higher markup price. Having a chain sell our product would highly limit our influence on the product's pricing, as well as the way in which they are presented. Since our target market is set out to be the high income segment of the population, our marketers pointed out that it would be worthwhile to establish our own showroom for our TV's. A stylish showroom would better deliver our brand's image, and emphasize its uniqueness and exclusivity. Based on our assessment of the number of visitors we would have to cater to, we would only require a single showroom, which would strategically be placed in Budapest.
For the matter of warehouses, a scenario analysis was done on how many would be necessary to supply the proposed showroom. Since we previously established that we would only require a single showroom, our analysis of the necessary warehouses clearly favored using a single warehouse, which would be positioned next to the factory, and thus would be simple to organize and track.
In conclusion, it can be said that based on weighing the pros and cons of the supply and distribution issues the following steps should be taken. To handle the matter of Black Rock® should open a factory in Hungary to supply the market, as it is the cheapest and most efficient option. As for the distribution, the company should operate a single warehouse, that would be used to stock a company operated showroom, which is necessary to establish the 3D-TV's as luxury products.
Based on the above findings, the operations department strongly recommends the creation of a brand new production facility in Hungary, as even though there would be a higher initial cost, the investment will more than make up for itself in the long run. Additionally, it would provide the company with an excellent vantage point for expansion into further European countries. Since this would be quite a lengthy procedure, we can recommend the possibility of first shipping our product to Hungary, so establish our presence in Hungary as soon as possible. With the showroom that we would operate, we would receive a head start in acquainting the market with our product.
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