Project-O-Phile

Elimination Round
Sourcing Dilemma Company X is one of the largest GPS system manufacturers in the world. Its global market share is 23%. Company X has 7 manufacturing units located in US, Europe and Asia (China & India). The following table gives the region wise capacity, capacity utilization and the export details of company X. Production Capacity Exports (% of Capacity Utilization (%) total Production) U.S.A 13,000,000 75% 0% Europe 12,000,000 80% 0% Asia - India 46,000,000 60% 35% Asia - China 29,000,000 75% 30% Table 1. Region wise capacity, capacity utilization and the export details of company X One of the critical components of their products is processing unit. This is made up of t-boc mineral which is not widely available across the world. Only a few countries have this mineral. Democratic republic of Congo controls 70% of this mineral supply. This country is well known for its political instability. But, this country shares similar political ideology with the Peoples Republic of China. The company X is currently importing this critical component from china to all of its manufacturing units because of the cost and technology reasons. Currently no supplier can match with these Chinese suppliers in terms of the quantity they produce, the quality of the product due to the availability of the advanced technology and the cost efficiency. China is supplying this type of products to 90% of the manufacturers in GPS market. India, where the company Xs largest manufacturing unit is located, has no supplier to supply this kind of units. Indian manufacturing plants also imports this component from china. In India, none of the investors or the suppliers is ready to invest in this components manufacturing, considering the political instability in raw material sourcing country and lack of technological know-how to produce the component. At the same time they cannot compete with their Chinese counterparts in cost advantage which they (Chinese Suppliers) have because of the economies of scale. India is also a home to many competitors of Company X. These competitors also have their largest manufacturing units in India. They believe that the industry is going to see its next big growth from this developing country and its rapidly emerging markets.
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Region

Project-O-Phile
Company X feels that having only one source for such a critical component might land them in serious trouble in the future given the fact that the suppliers bargaining power is increasing at the same time there is no other alternative source to procure the unit. The executives of company X strongly feel that they should have the supplier in India too.

Questions: 1. Does company X need a supplier for this critical component in India? Substantiate your stand with crisp and clear logical arguments. 2. Given this situation, suggest the ways to develop a vendor in India. If you have more than one suggestion, please state which of those is the best and why?

Instructions: You can make assumptions only if it is required. If so, clearly state the assumptions you make. The assumptions should not contradict the facts mentioned in the case. Page limit: Maximum 2 (excluding cover page); Font: Times New Roman; size: 12; 1.5 line spacing.

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Operations Society, IIM Bangalore