1.

Analyze the quantitative data comparing the Malaysian site with the expansion
of the existing German factory.

Offshoring to Malaysia costs $6m with the payback period of 4 years. The Annual
profit is forecasted to be $1.5m and output required to break even is 40%. On the
other hand, Continuing expansion in Germany costs $3m, payback period of 6 years.
Annual profit estimated to be $0.5m and output to break even is atleast 60%.

Firstly, offshoring capital cost is twice as much as continuing expanding in Germany.

However, it’s shorter payback period suggests that indicates the that the company
can recoup its investment faster than compared to the German expansion.

Secondly, The Malaysian site has a higher annual profit suggests that it will have
more financial attractiveness compared to the expansion. Furthermore, Offshoring to
malaysia shows that it has low break even percentage, indicates that the operation
will be efficient, requiring lower portions of productions to cover costs.

2. Advise the HiSonic managers whether the company should offshore some
production to Malaysia or expand its existing factory. Justify your answer.

The Malaysian site has a higher initial capital cost, but it offers a quicker payback period of 4
years compared to the German site expansion of 6 years, Meaning that Malaysia has a
faster recovery rate. Furthermore, the annual profit for the Malaysian site is significantly
higher than the German site expansion.

However, If HiSonic starts production in Malaysia, it’s possible that the product quality wont
be the same as the ones in Germany. Moreover, It will be difficult to find skilled works like the
ones that already work in Germany, resulting in a fall in quality. And to add more, since
Malaysia is a less developed country compared to germany, the customers opinion on the
product might be demolished.

Although HiSonic will lose some of its reputation, the benefits that Malaysia offers is too
great for the company to turn down, And they’ll be able to train workers in the future to
maintain high quality. So, Offshoring to Malaysia is the better long term option.