Comparing Manufacturing Locations: England vs China

Background of Homeowners Club

Homeowners Club (HC) is a Canadian firm based out of Cambridge Ontario. It was founded in 1979 and specialized in tools, household goods and hardware for the homeowner.  In that time, the firm grew from a single store owned and operated by the founder to a large successful Canada-wide chain served by two distribution centers: one in Mississauga, Ontario serving central and eastern Canada and one in Vancouver, BC serving western Canada.

HC is particularly known for its own brand of power tools “Homeowner Select” that the company introduced in early 2002. The line was originally marketed as entry level tools for Do-It-Yourself (DIY) customer and included such staples as drills, wrenches and work benches.

These original products were made for HC under contract by various tool manufacturers across China, and South Korea.  In 2005 the company signed a new and exclusive supply agreement with a Chinese manufacturer of power tools with names that are well known to tradespeople and more experienced, more discriminating DIY customers.

This partnership allowed HC to improve the quality of their tools and expand their product lines by having the Chinese manufacturer make higher quality power tools with the HC name. That new product line helped to attract the more demanding tool user including those in the trades.

This success did not go unnoticed. Recently, the company was approached by several US retailers interested in selling “Homeowner Select” tools in their stores. If HC decides to export to US, the demand for their tools would increase dramatically. The Chinese supplier indicated that they would be able to support higher production volumes, however the increasing costs of labor and energy in China coupled with consumer demand for shorter lead times prompted the management at HC to rethink their supplier strategy.

One of the options HC is considering is manufacturing the tools in England. Due to the recently signed Canada-EU Trade Agreement, which removed tariffs on machinery and equipment, this option has become an economically feasible alternative. Management at HC believes that this option would result in a higher level of customer service and higher quality of tools.

You were hired to provide recommendations on the potential of manufacturing “Homeowner Select” tools in England versus China, specific to the following:

1.Describe how transportation costs, customer service levels, infrastructure, demographics and government initiatives will affect the company’s decision to import the tools from England or from China?

2.How might the availability of different transportation modes (air, road, rail and ocean) and relative supply and demand for each mode impact transportation pricing for each manufacturing option?

3.What economies of scale might be achieved by the transportation firms servicing Homeowners Club with the increased volumes? Could there be any related diseconomies of scale due to the increased volumes?

4.How might environmental initiatives within the transportation industry affect the firm’s decision?

5.How could existing trade relations with US and China and the political atmosphere in Europe influence the firm’s decision on the manufacturing location?

You must provide convincing responses to all of the questions using the case study format described on e-centennial.