Facility Location

Facility Location Dorothy M Young OPS/GM 571 December 22, 2011 Dr. Kamal L. Ranasingh Ph.D., D.B.A.

Facility Location Facility Location C & A Toys is this researcher's company; the company specializes in fun, educational toys for children. Approximately 50% of C & A Toys' are electronic, the remaining toys are plastic. C & A has recently became a global supplier of educational toys. C & A then began searching for a location in another country to create a better supply chain for the product. C & A has decided to build an independent company in Hong Kong, SAR, China. Supply Chain C & A's current supply chain will not work for global supply. C & A is currently located in San Diego, California. C & A has recently became a global supplier of educational toys and has decided to build an independent company in Hong Kong, SAR, China. With this new location operational, C & A will have many opportunities and new customers available to the company. The Hong Kong location will supply the surrounding areas of Asia, Africa, and Europe with the California location supplying Canada, Mexico, South America, and also Europe. C & A will check the orders from customers and compare the orders to costs from the different locations before determining where the order is filled. Orders will be placed on-line by the customers. Hong Kong Hong Kong exporters are known for producing high-quality toys, while a large share of industry revenues are derived from contract manufacturing for overseas manufacturers and license holders. (Hong Kong Trade Development Council, 2000-2011) Hong Kong produces many different types of toys including dolls, make-believe toys, electronic toys, and metal toys. By combining production skills learned in other industries, such as clothing and electronics, Hong Kong has increased their productivity, quality, reliability, and delivery. (Hong Kong Trade Development Council, 2000-2011)

Facility Location The World Bank's (2011) website states Hong Kong is ranked number two for ease of doing business. The website also shows that Hong Kong is number one for ease of obtaining construction permits with the process only taking 67 days. C & A will benefit from Hong Kong's investment freedom. Investment freedom is very high in Hong Kong. Hong Kong strongly encourages foreign investment and there are no limits on foreign ownership. (The Heritage Foundation & The Wall Street Journal, 2011) There are no controls or requirements on current transfers, access to foreign exchange, or repatriation of profits. (The Heritage Foundation & The Wall Street Journal, 2011) Flexible labor regulations, motivated work force, and non-salary law wages will decrease C & A's current labor expenses. (The Heritage Foundation & The Wall Street Journal, 2011) Once the Hong Kong location is opened and operating at full potential, less labor will be needed in the United States at C & A's current location. Risks Monetary Risks According to The Heritage Foundation & The Wall Street Journal, the overall environment is conducive to the formation and operation of start-up businesses in various sectors of the economy. (2011) Hong Kong only applies tariffs on liquors, tobacco, gasoline and methyl alcohol. (Foreign Affairs and International Trade Canada, 2011) This makes importing to and exporting products from Hong Kong less expensive than to and from the Untied States. Hong Kong also maintains a fixed exchange rate with the United States. This will reduce the monetary risk taken by C & A. This reduces the monetary risk because Hong Kong's interest rate and currency movements follow the United States trend. (The Heritage Foundation & The Wall Street Journal, 2011)

Facility Location Political Risks Hong Kong has a low risk profile as it is home to a stable government and relatively wealthy population. (A.M. Best Company, Inc., 2011) Although Hong Kong is a SAR of China, they have a low political risk. People's Republic of China has developed a hands-off approach unless it is an issue of national importance. Hong Kong is a low risk due to their open economy, flexible labor and efficient regulatory regime. Hong Kong is also a low political risk due to their currency alignment with the United States, this causes an issue when monetary policy is different from the mainland of China (A.M. Best Company, Inc., 2011). Technology The Innovation and Technology Commission (ITC) was set up on July 1, 2000 with the mission to spearhead Hong Kongs drive to become a world-class, knowledge-based economy. (Information Services Department, Hong Kong Special Administrative Region Government, 2011) In this researcher's opinion, Hong Kong will continue to grow technologically. As of the end of January 2011, 11% of $5.8 billion ITC funding was used for projects in manufacturing technology. The government is also attempting to strengthen cooperation between Hong Kong and the mainland to enhance the industries competitiveness in both places (Information Services Department, Hong Kong Special Administrative Region Government, 2011). Conclusion This researcher has decided to open an independent location for C & A toys in Hong Kong to improve their current supply chain by having closer proximity to global customers. The risks associated with starting a business in Hong Kong are minimal with low political and monetary risks. Hong Kong are major producers of the types of toys C & A currently produces in

Facility Location the United States. Also, by using the location in Hong Kong, C & A can reduce their current import and export costs as well as their current labor costs.

Facility Location References The Heritage Foundation & The Wall Street Journal. (2011). 2011 Index of Economic Freedom. Retrieved from http://www.heritage.org/Index/Country/Hong Kong Information Services Department, Hong Kong Special Administrative Region Government. (2011). Hong Kong: The Facts. Retrieved from http://www.gov.hk/en/about/abouthk/factsheets/docs/technology.pdf A.M. Best Company, Inc.. (2011). AMB Country Risk Report. Retrieved from http://www3.ambest.com/ratings/cr/reports/HongKong.pdf Hong Kong Trade Development Council. (2000-2011). Toy Industry in Hong Kong. Retrieved from http://www.hktdc.com/info/mi/a/hkip/en/1X001DGH/1/Hong-Kong-IndustryProfiles/Toy-Industry-In-Hong-Kong.htm Foreign Affairs and International Trade Canada. (2011). Tariff Information. Retrieved from http://www.international.gc.ca/trade-agreements-accords-commerciaux/goodsproduits/ac_link.aspx?lang=eng&view=d The World Bank. (2011). Ease of Doing Business in Hong Kong SAR, China. Retrieved from http://www.doingbusiness.org/data/exploreeconomies/hong-kong,-china#dealing-withconstruction-permits