The geographical transfer in the electronics making industry to Asia and other Pacific Rim countries has recommended that companies experienced to redesign their supply String Network. With customers moving to Asia, and new markets opening up, several K&S rivals have
already invested in new sites. By analyzing shape 2 (semiconductor equipment spending by geographic region), it is evident that the Asia-Pacific shelling out for Semiconductor equipment is increasing calendar year on yr, and outpaced Europe's spend marginally in the year 2000, and is expected to continue to grow over the next few years. For K&S to continue to carry its dominant position on the market it must research possible opportunities and ensure that their source string is agile enough to have the ability to meet customer requirements in this growing market.
Increased Competition/Pressure
In order to maintain their current market stronghold, it is important that K&S look at their current resource chain. With all the geographical shift on the market comes increased pressure from competition. Some Semiconductor organizations have already taken action and have relocated, with new plants being built-in Singapore, Taiwan, the Philippines and South Korea. This allows them to become more closely connected with their customers and increases the firms buying ability by taking advantage of cheap labour, reduced working costs, tax incentives and raw material costs thus gaining possible competitive advantage. Although K&S have a healthy market position, competition within their main market is extreme. Factors such as performance, quality, customer care, price and delivery all effect the nature of K&S's multicountry competitive connections.
Limited Flexibility and Agility
Currently, K&S's Israeli site, hold 50% of the worldwide market talk about of offering bonding tools. If the site has development problems, no competition can fill the space. There are positives to be taken from this point however there's also many negatives. The Yokneam plant in Israel happens to be working at maximum production capabilities. If the Asia-Pacific market is growing, the Yokneam site has not got the creation capabilities to meet demand of new appearing marketplaces. K&S need to focus on optimizing there source chain so that it is both agile enough to adapt to market change and productive enough to meet customer demand. By starting another site it'll reduce the resource risk associated with possessing the largest worldwide market talk about of wire bonding tools.
With competition increasing as K&S's close competitors move into rising Asian marketplaces, it is inescapable that K&S needed to possibly redesign there source string network or even change their strategy. Here we can easily see how some of Porters 5 pushes model of competitive position can be executed. Michael Porters five forces of competitive position model provide a firm with a simple perspective for assessing and analysing the competitive durability and position of a business.
Bargaining power of potential buyers/suppliers: with the Asian market booming, so that K&S hold a 50% market share of supplying bonding tools worldwide, this means that their already strong market position can be furthered by prospects of broadening current production to meet market requirements.
When considering other cost saving prospects it is noticeable that increasing/redesigning and optimizing their resource string they achieve higher customer satisfaction whilst achieving lower costs. Statistics 10 and 11 show how the cheap labour cost can deliver a higher come back from investment. This is evident when you compare the possible investment go back from China against Israel.
There are many factors that K&S need to take into consideration that will have an effect on their decisions when redesigning their resource chain. Factors in the macro-environment such as government laws, tax changes, trade obstacles and demographic change all will affect K&S's decisions. To greatly help analyse these factors, K&S may use a PESTEL Model to help categorise these factors.
Political factors
This identifies government coverage and what affect it is wearing the economy. It also influences on what goods and services they would like to provide. Such politics decisions might well have huge implications on many regions of the business from the labor force education to the quality of the infrastructure. It is important that K&S can recognise these possible implications and factor them in where necessary when making their decision. For instance although Jordan may have a comparatively cheap initial investment cost and be located close to the Israeli herb, it does have uncertain diplomatic romantic relationships and that can limit K&S's operations.
Economic Factors
These factors can include Economic development, taxation changes, inflation and exchange rates. K&S must be especially aware of factors such as inflation and economic expansion. With prospected areas of growth including China, K&S must meticulously screen these areas as it might affect the future investment. The Chinese government are taking a hands on way of how their market is growing and are welcoming foreign investment with offers including tax incentives which of course make it a stunning location for many firms. And although there are other actual factors that make China a stylish option, K&S must be aware of the numerous economical factors in each location that may potentially affect there enlargement.
Social Factors
This relates to the routine of behaviour, tastes and standards of living. By analysing the populace or by monitoring when there is a significant change in consumer behavior can give a much better feel for the future market situation. K&S need to set-up a better understanding of the communal dynamics of each area they are considering for extension. This will provide them with the data to better talk to local firms, access target markets, generate a labour force and successfully control operations.
Technological factors
The level of technological progression in a region can positively or negatively impact the opportunities available for a small business. If K&S can identify a region with a solid technological foundation, after that it enables these to streamline functions and eliminate bottlenecks. New technology create services and innovation; it can keep your charges down whilst improving the grade of the end product.
Environmental factors
Environmental factors are the weather, local climate change and ecological issues such as global warming. K&S must take into account these factors very carefully as their intend to expand in particular locations may be afflicted by weather conditions/local climate. For example, a rainy season or natural catastrophe make a difference whether transportation systems are lively, thus developing a chain reaction throughout the supply chain building a logistical nightmare as it pertains to circulation of both raw materials and completed goods to the consumer.
Legal Factors
Legal factors can differ between the area, city, status and countrywide levels. K&S should be aware of the complicated administrative, financial and regulatory procedures included when merging into new locations. However this really should not be problems as K&S already are a multinational organization, operating in different continents aside from countries. The actual fact that K&S already operate within Israel and Singapore is of a huge benefit when it comes to the legal procedures involved. This greatly simplifies the idea of possible expansion in these two sites.
K&S experienced a occurrence in Israel for over 30 years, and without comprehensive investigation it appeared as though expanding the current location in Yokneam made sense in a few regards. The investment needed to expand the existing place would be less than the create cost of a fresh plant in another country. The infrastructure is well developed and by functioning with only 1 large site would mean that they might have the flexibility to talk about overheads. By finding different facets of the business (e. g. R&D and making) on the same site, this means resources and other services can be distributed resulting in lower operating costs. Their local understanding of business, laws, dealer network and the reliability of the workforce are again factors that make Israel's plant a good option for K&S.
Although there are numerous positives to be taken from the option of widening current businesses in Israel, there are also factors that cannot be overlooked that can affect the permanent profitability of widening current operations. One of the primary detractors to be found in Israel is the tax burden. This exercised to be 43% of Gross Local Revenue (GDP) in the entire year 2000. Although initial set up costs are low, with Israel's high taxes, and with an average hourly wage of $10. 78 this might majorly affect permanent profitability.
Israel has a well-developed, sturdy infrastructure; however it is not guaranteed that site could logistically supply a worldwide market. Its proximity to market is sufficient to supply the Western european and US market in the future however in order to take benefit of the growing Asia-Pacific market, K&S need to grow operations in a location that will enable them to develop with the marketplace, find within close proximity to customers, suppliers also to stay competitive within the market place.
With these factors taken into account, K&S should you should think about the option of starting another herb. Low labour cost, duty incentives, proximity to market and permanent profitability all outweigh the positives that broadening the current Israeli site have to give you.
(A) By 1999 Kulicke & Soffa Sectors Inc. handled more than 50% of the line bonding equipment market show plus they were the major manufacturer of semiconductor equipment on the planet. Because of its size the company sought out ways to grow into new marketplaces while retaining their current positions. With large numbers of K&S competitor's establishing businesses in Asia to be able to meet the growing demand in the area it seems the best option for K&S is always to choose a location in Asia as the setting up because of their new functions. Besides holding an evergrowing market show in the semiconductor equipment industry Asia also organised advantages due to the low costs throughout the region on operating, materials, labour etc.
In 2000 less than 10% of world wide web sales were to customers within the United States, whereas areas like Taiwan presented 31% of online sales and Korea, China etc. was 22%. Because of the companies foothold in the market another source could verify very advantageous the only real problem was coming to a decision on the most effective location to set up in. "Our customer bottom was moving to Asia, " Torton said, "So we made a decision to look at China, Jordan, and Singapore. " Each location has several benefits and drawbacks:
Jordan
Jordan shares a huge boundary with Israel where K&S has already established a occurrence for over 30 years providing Jordan an instantaneous strategic advantage, and although not the first terminology, English is quite commonly recognized and spoken. Due to its close proximity to Israel setting up in Jordan would verify very affordable in addition goods produced between Israel and Jordan can be helped bring in to the US work free this was an attempt to encourage balance within the spot by the united states as they funded Trained Industrial Zones. High unemployment rates means you will see large numbers of opportunities and with an hourly wage of just one 1. 05 means low labour costs.
Disadvantages
The unstable character of the spot makes in an unattractive region pass away to the on again off again peace agreements and when any unrest were that occurs this would impact some Israeli employees capability to work there. Addititionally there is worries that Jordan does not have the Infrastructure necessary when running a business with such an in depth source chain.
Singapore
One of the primary benefits to setting up in Singapore is that K&S curently have a production facility therefore saved money and time as machines and a logistics centre had been in place. Its setting is also a good deal closer to the market then Israel.
Singapore has a free of charge market economy indicating it is a free of charge market with little if any government control allowing little interference by means of fees etc.
Disadvantages
A very high cost of living is one of the major disadvantages of is the high cost of living and the average wage of 9. 19 per hour.
Due to its close proximity to the market, large educated labor force, secure government and excellent workforce there is hardly any drawbacks to Singapore.
China
Multinational Corporations are encouraged to setup in China by being offered privileges and tax incentives and other attractive offers. A big occurrence of computer chip makers in China means a well-educated labor force is open to K&S. Low development costs and the lowest hourly wage from all the possible options makes China a very attractive area.
The two possible cities within China Suzhou and Wuxi are located closely to several of K&S well established customers. Both cities have well toned infrastructures and while Suzhou is located close to the international hub of Shanghai Wuxi has a cheaper cost of living and both locations have impressive infrastructures that can support the top supply chains of K&S.
Disadvantages
Although lately the government has given more duties to organisations within China they still are incredibly involved in the performing of business.
There is a higher preliminary investment in infrastructure if K&S intends on moving procedures to China.
To best choose a location for K&S we made a weighted average table to fully take a look at all the factors when relocating. The stand took into account Option of labour, Infrastructure, Costs, Balance of government and proximity to advertise making it a comprehensive view of the options.
As shown in shape 1. although all your options have positives Suzhou of China is the best choice for K&S new facilities as it is situated flawlessly within the growing market of Asia and near to the international city of Shanghai even though the other choices are near the market they don't have the same proximity as Suzhou. Tax incentives among other things are also wanted to encourage new investment in China indicating the cost of execution will be lower. We developed a weighted average desk based on costs which got into account different types of costs, this proven China to be a very low cost country from cost of living to hourly wage at an average of. 50 the total weighted average in cost gathered to 87 as seen in Figure 2, and even though the price of investment in metropolis of Wuxi is lower than in Suzhou, it is outweighed by the other factors. As stated in the event study you will see a steady move of labour in China as due to the industrialisation in China there is no shortage of processing employees. Therefore Suzhou is our advice, as shown in Body 1 although it does not have the best infrastructure or government it as a whole is the most secure option for K&S as it will work out the most cost effective while having very few shortcomings.
4. (C)
Possible implementation troubles that may arise from opening a fresh site are costs there is an estimated execution cost of 6. 5million to open up the new facilities in Suzhou, credited to beginning in new place unforeseen costs may arise if they are from infrastructure, labour, taxes etc. Cultural variations can lead to serious misunderstandings; in Suzhou Mandarin is the official and most common dialect. Communication barriers when working with new partners can reduce business performance. Political issues when joining new territories can be a large implementation problem in China as the neighborhood government have regulations taxations etc. made to protect local business the Chinese government is also known for having an extremely hands on strategy as it pertains to the performing of business. When business get into a new territory it must have extensive understanding of the area it is going into as if they do not anticipate customer behavior correctly they might overlook possible profits badly and furthermore a lack of knowledge about the area can lead to them acquiring overpriced, low quality suppliers etc. Because of the fact Suzhou Industrial Area is known as by some to be the "the new Silicon Valley" competition may be considered a problem for K&S credited to dense society of opponents within the area. K&S must be aware of economic factors within the near future for the Chinese economy ensuring the exchange change remains secure and there's no future sign of the monetary downturn. Therefore when entering Suzhou K&S must be aware of these possible obstacles and take the required precautions to prevent them.
4. (D)
In order to address these obstacles K&S must do all the necessary research before getting into the Chinese market to be able to fully understand the culture and business techniques in the area to ensure when they setup in China they could communicate efficiently in order to ensure good business performance. More research must be done to foresee the course of the country's market when there is evidence of a possible financial downturn they ought to take the steps needed and perhaps reconsider their decision. For K&S to open up a new service in Suzhou they have to raise $6. 5 million first capital, the company may have difficulty in trying to improve that sort of finance for a threat of setting up new facilities.
