prul case study- final copy
TRANSCRIPT
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Group Members :Mukesh Agrawal 10FN-062
Pankaj Gaur 10IB-045
Prateek Shah 10FN-133
Prateek Jain 10FN-132
Nipun Gupta 10IB-043
Rajesh Dutta 10DM-119
Nishant Maheswari 10FN-072
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Established in Taiwan in 1983
started producing PVC bathtub covers 1988 for export toJapan
PRUL is SG Mark(1996) and ISO 9002(2000) certified.
Established its own R & D department in 2001
Lately PRUL forayed into plastic-wood like productscontributing to Global Environment Conservation effort.
Honoured with Europe Award in Paris in 2000 forproduct and service quality excellence..
Credited with Japans Rising Star Award for outstandingperformance in Japanese market by small and mediumsize importers in 2001
Globally recognized Company
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Strive for innovation in its product design and production
process in order to build customer satisfaction
Roadmap to success
Use the most advanced technology
Maintain very high standards of product quality
Understand customer needs
Create new ideas
Launch and promote new ideas
Build awareness among customers to attract them
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PRULs product line up consists of
Doors(folding, bi-fold, bypass and folding shower doors)
Bathtub covers
Louver panels
Vertical blinds
Wood like venetian blinds
Extruded plastic foam products
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Unique product manufactured especially for Japanesemarket
Reason- Product fits into Japanese lifestyle and theircommitment to save energy.
Market was very mature by 2001 & no significant growthwas expected.
Major players in market:o Murakami Industrial Co. Ltd.
o
Nakajima Industrial Co. Ltd.o Takahashi
o Nakai
o PRUL
Market Share MurakamiNakajima
Takahashi
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Business to Business Model
Focus only on distributors
Savings in advertising cost and sales effort
Consumer purchase habits influenced by advertising &
promotional program taken up by distributors
Manufacturers Distributors RetailersEnd
Consumers
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Distributors
Strong relationship between manufacturer and distributor
Distributors are eyes and ears of PRUL for market survey andnew trends
Retailers
Enjoys high profit margins Loyal to PRUL
Consumers
Nearly every Japanese
Purchases based on functionality and price
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Marketing activities focused on distributors.
Consistently high quality and innovative products.
Flexible pricing strategy according to market needs andcompetitors.
Focus on managing customer relations(distributors).
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Research started from a single product sample received from ABE.
R & D focused on bathtub covers.
Focus on improving production efficiency and reducing costs while
maintaining high quality standards.
Developed products registered with PRULs own brands and
patents.
Main focus for bathtub covers was to automate the production
process.
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Operators for production line and bath tub lines were
extensively trained in technical knowledge.
QC processes rigorously observed at all stages of production.
Of all the products bathtubs required most labor factor which
is high in Taiwan.
Quality inspection visits by distributors and retailers.
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Training sessions were conducted for all the employees twice
a month.
Based on historical experience PRUL had developed learning
curves for every production stage.
No plans to layoff any employee from taiwan factory even if it
expand in china too, thus putting great emphasis on employeemorale.
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ABE Industrial Co. Ltd.o Initially ABE had manufactured its own bath tub covers but over the
10 year relationship with PRUL had all share of its business now.
Takahashi Busan Co. Ltd.o 2nd largest customer after ABE, currently bought about 25% from
PRUL and the rest produce in-house. Over the course of time they
decided to invest in a new production facility utilizing PRULs core
competency of innovation with preferred location as china.
Nakai Industrial Co. Ltd.o 3rd largest customer after the above two, purchased bath tub covers
from PRUL as well as producing some inhouse.
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Distributors In HouseManufacturingfacility
%age share (inPRULs bathtubproduction)
TAKAHASHI YES 32.6 %
NAKAI YES 18 %
ABE YES (but notsignificant)
39.33 %
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High labor costo Chinese labor costs one-fifth
o Competitors have setup production facility in China
Not Automated process
o Higher Production cost
Improve production efficiency
Almost full capacity utilization
o Average cost of production rises
High quality expectation Market is stable
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Objective : To reach 30% market capitalization from
15%o Double up capacity in next 3 years
Strategy
o Increase business from its major customers
oAdd new distributor customers
o
Address B2B marketing challenges
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B2B marketing strategyoTo participate in international award winning activities
oDevelop credentials and attract more customersoRetailers: Products are selected on functionality first and
later by price.oConsumer: Availability on retail store and not brand
sensitive
Opportunity in ChinaoSave import duty of 3.9%oOverall differential saving:13.5%(Excluding Import duty)oWith this PRUL can provide better pricing or increase
margin.oTap growing Chinese urban market in future
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Reducing production costs of bathtub covers
Jointly establishing factory in China
Exclusive use for bathtub covers production
Exclusive distributor : Takahashi
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1. Whether to accept Takahashis proposal
2. Where to set up the factory in China
3. Whether to establish direct contacts with retailers or to go for
other distributors
4. Should they manufacture only bathtub covers or other
products as well
5. Pricing of its products in view of the potential cost savings
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1.PRUL would loose many cost conscious customers as clearly the
cost of producing in China in quite less compared to Taiwan.
2. Takahashi may venture up with some other manufacturer and
PRU may finally loose business with Takahashi also.
3. PRUL is looking for expansion and increasing its sales, theonly way to do that in the present scenario is to lower down the
costs and target competitors customers.
Hence Option 1 doesnt go well at all with the Strategy that
PRUL is looking forward to.
Cons associated with Option 1:-
PRUL decides to do nothing , foregoes this investmentopportunity and expands as needed in Taiwan on its own.
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Invest with Takahashi in building a new factory in China to
produce bath tub covers exclusively for Takahashi, and share
profit based on investment by each party.
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Takahashi would shift its entire bathtub cover production
(currently 15% of market) to this plant and hence PRUL
would gain the extra 15% without any marketing effort.
Investment in the JV51/49 with majority belonging to
PRULHence lesser risk involved.
This would strengthen its relationship with Takahashi.
PRUL would not be able to sell the bathtub covers produced in
China Plant to Takahashis competitors such as Nakai.
The opportunity to capture New Customers would be more
constrained in this case. PRUL would continue to use its Taiwan Plant for producing
bathtub covers for ABE, Nakai and other distributors.
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Hence we see that if PRUL goes ahead with JV:-
Total Investment TW$20 million with Plantproduction capacity 20% of total market
Year 1 (10,835,400)
Year 2 - (7,250,000)
Year 3 - (678,400)Hence a total of about TW$ (678,400)
After three years.
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PRUL establishes its factory with 100%
ownership in China
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New production facility
Customers Save 3.9% on import duty
Attract new distributors
Greater returns than sharing investment with Takahashi PRUL can sell bathtub covers at same prices thus
increasing profits
Political issues of owning factory by Taiwanese
company more as compared to that of Japanese company
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Hence we see that if PRUL goes ahead with its ownproduction facility:-Total Investment TW$25.8 million with PlantProduction Capacity 30% of total market
Cumulative Cash Flow:-Year 1 (10,484,400)
Year 2 - (1,270,800)
Year 3 - 11,155,800Hence a total of about TW$ 11,155,800
After 3 years
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Particulars Year 1 Year 2 Year 3Total Investment 7548000 1530000 1530000
Depreciation 601800 601800 601800
Gross Margin 5508000 8262000 11016000
Gross Margin % 27 27 27
Income AfterTaxes
1420146 2756754 4279716
Annual CashFlow
(5526054) 1828554 3351516
Cumulative CashFlow (5526054) (3697500) (345984)
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Particulars Year 1 Year 2 Year 3Total Investment 19800000 3000000 3000000
Depreciation 1680000 1680000 1680000
Gross Margins 23200000 29000000 34800000
Gross Margin % 29 29 29
Income AfterTaxes
7635600 10533600 13746600
Annual CashFlow
(10484400) 9213600 12426600
Cumulative CashFlow (10484400) (1270800) 11155800
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3 cities to consider :
a) Shanghai
b) Guangzhou
c) Shenzhen
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Feature Shanghai Guangzhou ShenzenSEZ Yes Yes Yes
TransportationInfrastructure
Yes No No
International
Trading Hub
Yes No No
Low Labor Costs Yes Yes Yes
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Bathtub market is already very mature and scope for further
growth is less
Future expansion plans in Shanghai or other markets require
them to look at newer products as bathtubs are not as popular
in every market as it is in Japan
Long-term interests
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Concentrating on distributors has enabled it to maintain
excellent relationships with distributors
Establishing direct contacts with retailers will lead to
additional expenses in the form of advertising costs and
marketing effort
Distributors are the strongest link in the supply chain
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Relationship Management
Marketing channel
Effect of demography
Strategic planningPositioning of product and its
sustainability through innovation and customer satisfaction.
International businessopportunities and challenges
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Thank You