Task 1. Taka Shimizu Cycles: an expanding business wants to begin production outside Japan. Read and complete Task 2.

Background

Taka Shimizu Cycles (TSC) is based in Nagoya, Japan. Its brand is well known in Japan and in the United States. The company sells four models of bicycle:

• road bicycles for the non-enthusiast, general user. Price: US100−300
• touring bicycles for serious cyclists who travel long distances. Price: US600−3,000
• racing bicycles for professional cyclists. Price: US$1,000 upwards
• mountain bicycles for energetic, adventurous, keep-fit cyclists. Price: US100−250

Note: The company is about to launch a new bicycle for children, which has great sales potential.

In the next 10 years, TSC plans to expand in Europe and South-East Asia so that it becomes a global company. To do this, it has decided to build its own factory in an overseas country. The factory will have approximately 2,000 workers, who will produce the frames for the cycles locally. Other components, such as saddles, gears, chains, tires, etc., will be imported.

Workers will be recruited locally and trained, if necessary, at a special school set up for that purpose. The company is considering four countries as a location for the factory. There is some information about each country. They are code­named A, B, C and D.

Sales revenue of cycle models as a percentage of turnover:

Country A (Europe)

Population 120-150 million (exact figure not available)

GOP per capita US$21,100

Geography A variety of physical features + climate changes

Economy • Growth rate (last year): 2%• Inflation rate: 7.2%

• Interest rate: 6.5%• Unemployment rate: 8.25%

Taxes • Business tax on annual profits: 22% • Import tax on cycle components: 8%

Transport• Good rail network, but poor roads (frequent traffic jams) • New international airport• Sea ports not very efficiently run

Labour • Unskilled labour available; a lot of training needed for cycle workers • Wage rates: rising in major cities

Comments• Political problems: people in some southern provinces want to become independent.

• The government will contribute 30% towards the cost of a new factory.

Country B (Europe)

Population 4.6 million

GOP per capita US$65,800

Geography No mountains, few hills; very flat land

Economy • Growth rate (last year): 1.9% • Inflation rate: 1.6% • Interest rate: 2.2% • Unemployment rate: 3%

Taxes • Business tax on annual profits: 12% • Import tax on cycle components: 18%

Transport • Has a fully integrated road and rail network

• International airport• Two modern seaports; high charges for handling goods

Labour

• Not much skilled labour available • Wage rates: high

Comments

• The country has a stable government. • There are strict new laws on pollution. • There are generous tax credits

for building new factories.

Country C (Asia)

Population 110 million

GOP per capita* US$3,800

Geography Several mountains in the north, flat in coastal areas

Economy • Growth rate (last year): 8.9% • Inflation rate: 7.25% • Interest rate: 7.8% • Unemployment rate: 6.9%

Taxes • Business tax on annual profits: 15% • Import tax on cycle components: 35%

Transport • Good transport around the main seaports •Small but well-managed airport • Road network needs a lot of investment

Labour • Plenty of skilled labour available • Wage rates: low but rising fast

Comments

• About 70% of the population in major cities are under the

age of 30.

• There is a strong protest movement against international companies.

Country D (Asia)

Population approximately 262 million

GOP per capita* US$3,580

Geography Mountains, hills and flatlands

Economy • Growth rate (last year): 4.6% • Inflation rate: 8.7% • Interest rate: 8%-12% • Unemployment rate: 7.1 %

Taxes • Business tax on annual profits: 28% • Import tax on cycle components: 5%

Transport • Several modern, well-run airports; low rates for

handling cargo • Road and rail network needs investment •Government has a five-year programme to improve transport system

Labour • large supply of unskilled workers who are used to

working long hours • Unions in cycle industry • Wage rates: average

Comments • A lot of paperwork is required for new businesses. • There are serious problems with air and water pollution. • Profits are tax free for the first three years after a factory has been built.

Task 2. You are a member of the planning committee. You must choose a location for the new factory. Work independently. Think over these questions. Explain why you have made such a choice.

1. What are the advantages and disadvantages of each location?
2. Rank the countries A, B, C, D in order of suitability as a location.
3. Which is the most suitable location for the new cycle factory?