The purpose of this report is to provide an evaluation and analysis of issues present in the operations management of Haute Couture Fashion Bhd (HCF), a family owed business in the clothing manufacturing industry. The methods used to analyze the problems include observations and information research. This project discovered that the Haute Couture Fashions Bhd need to adjust their business strategy, as China textile industry becoming a potential threat to it as its two major customers are now thinking of outsourcing to China for its lower operating cost. Thus, potential alternative decisions to be made by HCF management are: - 1) Expand operation to China (setting up its own factory or joint venture with a Chinese manufacturer), and maintain current factories operations. 2) Move all of HCF operations to China, and close down current operations. 3) Exit from contract manufacturing activity and create own brand name using existing factories and employees.
The management needs to decide whether to move its operation to China or exit from contract manufacturing activity and stand on its own new created brand. It is recommended for Haute Couture Fashions to create its own label and continue their current local operations, to secure its existing customers, and attract new potential customer in the long run. Although it might seems as a big investment in the short term, but in the long term period, Haute Couture Fashions would enjoy the profit made by this big investment of today.
Introduction to report
The purpose of this report is to provide an evaluation and analysis of issues present in the operations management of Haute Couture Fashion Bhd (HCF), a family owed business in the clothing manufacturing industry. This report provides information obtained through the China Dolls case study, regarding the current position of HCF, its financial reports, financial forecast and also its potential alternative decisions to be made by HCF management. This report will pay particular attention to the related decision criteria which are speed, resources, cost, capability, and employees’ retrenchment. Besides that, we are going to highlight major strengths and weaknesses, and its opportunities and threats (SWOT) while offering some explanation for observed changes. The report will comment on the prospects of the company and make recommendations that would improve HCF’s current issues. These observations do have limitations which will be noted.
Managers are constantly required to evaluate alternatives and make decisions regarding a wide range of matters. Decision making involves uncertainty and risk, and decision makers have varying degrees of risk aversion. Decision making also involves qualitative and quantitative analyses and some decision makers prefer one form of analysis over the other. Decision making can be affected not only by rational judgment, but also by non-rational factors such as the organizational situation, and others.
In the case of HCF, the alternatives that are still under deep consideration are whether they should completely pull-out from the activity of contract manufacturing and start manufacturing their own label or manufacture in China in a joint venture with a Chinese manufacturer. Based on the issues identified, there are few decision criteria that need to be paid attention in order to come up with the best solutions, such as the speed of the alternatives in a way whether or not they could provide efficient opportunity cost. Other than that, the employee retrenchment should also be considered as well since the company has hundreds of skilled and loyal workers that have been working for more than 10 years.
They would also need to take into consideration their resources and overall capabilities in order to proceed with their alternatives since being resourceful or not is what determine whether a certain alternatives can be implemented or otherwise. In addition to that, cost is also part of a useful resource where it is important to have enough budgets for example, to venture into new business, produce their own label, and market their products and so forth. According to the scenario of HCF their two major clients, Kiki and Houida may be looking for a new contract manufacturer in China as the prices there were very competitive. Hence, in regard to this situation, HCF has to speed up their decision making whether or not to proceed with either of the alternatives discussed because any delays would mean losing Kiki and Houida as their clients which are definitely going to be a great loss to HCF.
In fact, not only them, but HCF is looking into more losses since other clients may also pull-out from contract manufacturing to follow Kiki and Houida’s lead. They need to really consider alternatives that are easier and quicker to implement or achieve to minimize their losses. Speed of implementation is not about right or wrong, which means that they might implement a solution that doesn’t work, but the faster the speed of implementation, the quicker they will realize it doesn’t work and they can move onto another alternatives. This is why speed is an important aspect to be considered where it is quicker to throw the bad ideas away and concentrate on the idea that gained some traction. In fact, company or individual needs to provide speed of implementation as part of their decision criteria for all sorts of issues in order to accommodate current loss and ensure the current business efficiency while sorting out their issues.
Another decision criterion that needs to be taken into consideration is the employee retrenchment because it can be disruptive, expensive and affect team morale. They need to evaluate whether the idea of retaining or retrenching their employees are going to benefit their business in the long term and more importantly whether those criterion are relevant to their alternatives. For example, if they were to decide to proceed with retrenchment, the effects will be lower morale and productivity of the existing employees. It also might leave negative impression towards HCF as they are considering retrenching more than half of their skillful employees and not to forget it will cost the company an amount of money, and if this case then developing a strategy to reduce it is the key. In the case of China Doll, retrenching seems like the ultimate solutions to overcome their issues since it will reduce their labor cost. Hence, looking into this matter, retrenchment has both positive and negative impact towards the organizational performance respectively.
The positive aspect of it includes restructuring of jobs and departments, reducing of over-staffing, redundancy and overcrowding, improved performance, discipline, efficiency, training and salary enhancement whereas the major problem is decrease of human resource that results from cost cutting measures. This will give rise to loss of skills, energy, morale, commitment, physical and mental health degradation that result from employees withdrawing physically and emotionally. On top of that, decrementals also cause reduced co-operative attitudes, greater fear and distrust, poor communication, lowered performance goals, restriction of production and increased turnover.
With that being said, employee retrenchment is another crucial criterion that needs to be weighed together with other criterions. The third most important criterion that HCF needs to evaluate is their company’s capabilities as a whole in which whether that are able to meet with the objectives based on their employee capabilities, company’s performance and resources. For example, if they were to manufacture their own label, they have to evaluate the capability of their workers to meet those standards or do they have enough resources to proceed with such alternative. In addition, if joint venture were to be their option, HCF has to see whether they have the capability to cater the demand in China, for example. In regards to this matter, everyone in the company be it the top management and low management have to agree so that the predicted outcome could be achieved successfully.
Malaysian Ringgit ( MYR ) Chinese Renminbi A joint venture is a business arrangement between two businesses to produce a particular good, where these firms share expenditures, revenues, and assets. Hence, another point of decision making that is crucial for business is foreign exchange activity and since HCF is considering doing a joint venture in China, currency exchange is relevant to be a part of their decision criteria. They need to evaluate what are the risks and benefit that are associated with foreign exchange.
The term multinational firm refers to a wide range of domestic firms that are engaged in business with foreign countries in different ways. One point to remember is that, independent of the type of foreign involvement, all multinational businesses deal with exchange rates. Multinational companies have to buy or sell foreign currency as part of their daily business. Therefore, these companies face foreign exchange risk every day. A brief definition of foreign exchange risk is the possibility of losing money when you buy or sell currency because of unexpected changes in exchange rates. Since China began its foreign investment drive in 1978, among the major uncertainties encountered by potential investors have been the risks of doing business in an environment that formerly was hostile to the free enterprise system. The investment through a joint venture with a Chinese partner involves a long term commitment of capital and resources, both complex and broad-scaled.
Consequently, the risk exposure has made joint ventures the least popular of the principle methods of investing. The special economic areas designated by China to encourage foreign investment were described as governed by regulations and requirements which generally do not apply to the mainstream economy. In effect, these free enterprise areas have been identified as “abnormality” in the communist society and the investment risk parameters which accompany trade within these areas must be evaluated within the context of these special areas. In conclusion, among these mentioned decision criteria, HCF has to take in consideration of all the aspect and compare between them to derive the best alternatives in order to overcome their issues. At the end of the day, it has to come down to the most important criterion that distinguishes whether or not one alternative is better than the other.
If the organization is to make a direct investment in China, the duration of building and forming a factory in China takes 18 months to be built. Since there is no income or sales within 18 months, it will cause the organization continually to make a loss for the period. Besides, making a direct investment in China caused the organization to retrench all the employees in Malaysia’s factories. It is unethical to do so to retrench all the employees who have worked with HCF for years. On the other hand, joint venture in China with Celestial Clothes will only take 6 months to be done. It is much more effectively compare to invest in China. Compare to investing in China, the loss for joint venture in China only making 6 months of loses rather than investing in China it will make 18 months of loses.
If the organization is choosing joint venture in China, the organization might need to retrench part of the employees in Malaysia, the organization will only keep part of the employees who have highly skilled factory employees and have talents. Looking into manufacturing own label in Malaysia, the business can be started immediately due to the factories in Malaysia are all well prepared, therefore it will can be started immediately by manufacturing its own label. Moreover, starting to manufacture its own label needs employees, therefore no retrenchment should be performed by choosing this option. The organization should choose to manufacture its own label because of the organization can reduce the loss compare to another two options. Furthermore, the organization can start to develop its own label immediately with the resources the organization has. In the view of ethical, the organization need no retrenchment by choosing manufacturing its own label, therefore the organization can maintain the reputation of the company.
