4. Did it make sense for Davila Bond to outsource some part of production to Mex

Question

4. Did it make sense for Davila Bond to outsource some part of production to Mexico?

6. Which of the three strategic perspectives in this chapter would you recommend for Davila Bond?

Chapter 14 Globel Strategy CASE 14.1 Davila-Bond and the Latin American Sweater by Professor Christopher Robertson , Charlie Davila-Bond was at yet another crossroads. As the general manager of a major sweater exporter, Davila & Bond, Inc., based out of Quito, Ecuador, he was facing a number of international strategic issues. ince 1999, his importer in Chile had lost interest in Davila & Bond products In the summer of 2003 there was a serious future risk of a continued sales decline in Chile. market. The economic crisis in Argentina had trickled over to Brazil, and t Chilean dilemma stemmed from stiff international competition in the Chilean devaluation of the Brazilian real to the U.S. dollar (now Ecuador's currency) had made the continuation of sales to Brazil unprofitable. Due to extremely high fixed costs (such as loan payments on new equipment and employce salanes) Davila-Bond's factory in Ecuador needed to operate at a high level of capacity to maintain profitability. A drop in sales would have a major impact on Davila & Bond's performance. To diversify his international sales portfolio, Davila-Bond's decided to place more emphasis on Mexico, a large and potentially lucrative market. Sales to Mexico instantly jumped to over 25,0o0 sweaters (about 12 percent of total sales), which was promising Yet as Davila-Bond looked at the numbers, he noticed that his firm's reli- ance on the Ecuadorian market was still extremely heavy. Over 50 percent of the s sales were coming from Ecuador. The climate in the Ecuadorian moun- ins was ideal for lightweight sweaters. However, the economic uncertainty of the country was, at times, mystifying. Ecuador was also corrupt and was experiencing political unrest. Would increased sales to Mexico help alleviate some of the uncertainty that Davila & Bond was experiencing? And were there underlying issues related to Ecuador's adoption of the U.S. dollar that could dampen the potential in the Mexican market? Davila-Bond knew that the time had come to redefine his in ternational strategy. For years, he and his family had dreamed of exporting to the U.S. Yet with limited plant capacity and intensely narrow margins, it seemed Perhaps Mexico could be a solid stepping stone toward the ultimate unrealistic. goal of entry into the U.S. market COMPANY HISTORY In 1974, Fernando Davila, a native of Ecuador, and his Scottish wife, Rosa- lind Bond, opened a factory in a valley just east of Quito, the national capital. They made high-quality yarn. Fernando had studied textile management at the University of Leicester, where he met Rosalind. They named the yarn manufac turing company Hilacril, which still exists today. Their idea was to take vari- ous sizes of high-quality imported acrylic yarn and spin it into a professionally woven product that could be used by other firms for clothing, upholstery, and car seat covers. By 1980, in order to increase sales, Hilacril began exporting to olombia. Although the margins were not very favorable, the company began turn a reasonable profit. ido and Rosalind decided to open a weaving department. The objective of would eventually be sold directly to consumers and retailers. The strategy and his wife created the retail firm Davila& Bond to take further advan- er struggling with tight margins for a number of years, in 1990, Fer epartment was to utilize Hilacril yarn to create finished products, erective, and in 1997 (now with their three sons home from] university) the ronger margins by getting closer to the consumer

Explanation / Answer

Ans 4- Yes. Shifting a part of company's production will be sensible action because the favourable conditions for investment, similar labour conditions and cultural assimilations along with an investor friendly climate will help the company to set its foot in a market that is rapidly growing and holds promising future. It will also make sense because the advantage of cheap labour is no longer there back home, and conditions of uncertainty in other Latin American countries leave few options for it. Further, an investment in production facility in Mexico can serve as a stepping stone to exploring new markets in the EU and the US on fructification of free trade policies of these nations with Mexico.

Ans 6 Best of three strategic perspective for growth.

1. Invest in the production and quality control facilities, both on domestic level and overseas to put the company's products at international benchmarks. It will open the door for establishment of international footprints for company. Focus on overseas market through decades old expertise of textile manufacturing by making productes suited to different tastes and needs.

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