GROUP 3

CHINA DOLLS:
HOUTE COUTURE FASHIONS
BHD (HCF)

 NUR NADIA SYASABILA BT NORDIN

 NUR MARDHIANA FILZA BT MAYUDIN
 NUR SHAFIZA BTE ZULKEFLEY
 NUR SURAINI BT MOHD ESA
 MUHAMMAD FARIS BIN MOHAMAD ROSLEE
 SUMMARY

• Suffering first losses • Peter tan retired,

• Tan Boon Kheong since inception take over by
retired and take • Opened 3rd factory • Had to close down Manager
over by his son, in Jitra,Kedah. the Penang factory Director, Jeffrey
Peter Tan
1974 July 1980 1995 2008 Present

1980 1990 1998 2009

• Have 9 • The
• Opened 4th regular company is
• Opened new considering
• Houte Couture factory in customers,
factory in expanding
Fashions Bhd (HCF) Chieng Mai, Kiki &
Butterworth to China
was established Thailand Houida was
• Founded by Tan their major
Boon Kheong customer
i) Why HCF so successful ? What was its basis of competitive advantage? -

STRENGTHS WEAKNESSES
1. Have skilled trained by British master cutters 1. Lack of production cost
2. A high quality manufacturing 2. Lack of management planning
3. Experience work with European country 3. Lack of raw material
4. High quality of design to wear
5. Aware about employee welfare

1. Attract more customer based from Europe 1. Price competition with China manufacturing
2. Expand more branch Kiki and Houida want move to China

OPPORTUNITY THREATS
 PESTLE ANALYSIS

POLITICAL FACTORS ECONOMIC FACTORS

 Malaysia can have two way
relationship o Unemployment will increase

 Malaysia have good politic o Facing financial crisis because of

relationship with Europe when HCF foreign change market volatility.

export their textile to Europe. o Government income will decrease

 Both Europe & Malaysia houses

import cloths from China because at
very low price because Malaysia
have strict trade barriers.
 PESTLE ANALYSIS

SOCIOLOGICAL FACTORS TECHNOLOGICAL FACTORS

 Employee able to have their own Increase new skill, knowledge,

share in business & able to gain a technology since they have a
returns. relationship with other country.
 Factory would become a heaven Exchange technology with China.
drug addict
 PESTLE ANALYSIS

LEGAL FACTORS ENVIRONMENTAL FACTORS

 Follow rules and regulation when  Environment effected with

want to expand business to China. pollution include water & air.
ii) What is HCF’s current position? How is it performing?

• review strategy quickly to maintain their existing business strategy

• manufacturers from European and American market are changing their contract
manufacturer to China
• might lose its two major clients, which made up 44.2% of their sales annually
• might incur losses and suffer even more, when all of their clients pull-out from HCF
 • Expand operation to
China by setting up
Option 1 own factory or joint
venture

• Move all of HCF

operations to China
Option 2 and close down
current operations

• Exit from contract

manufacturing
Option 3 activity and create
own brand name
iii) Ratio analysis to assess its current position.
Liquidity Ratio
Ratio 2007 (RM’000) 2008 (RM’000) Analysis
Current Ratio 61,729 72,661 The lower of current ratio mean HCF
2,292 17,820 losing more money and poor
= 5.0218 times = 4.0775 times collections of accounts receivable.
Quick Assets / Acid (61,729-21,634) (72,661-28,420) In year 2007 the performance is
Test Ratio 12,292 17,820 much better of quick Assets to meet
= 3.2619 times = 2.4827 times RM1 current liabilities compare to
2008
Debt to Asset Ratio (12,292 + 4,500) x100% (17,820 + 4,500) x100% The debt to asset ratio is lower in
85,812 88,254 2007 mean HCF have to pay out a
= 19.5% = 25% lower percentage of profits in
principle and interest payments
compare to 2008.
Debt to Equity Ratio (4,500 + 12,292) x100% (4,500 + 17,820) x100% The higher of debt to equity ratio
81,312 83,754 mean HCF has been aggressive in
= 20.65% = 26.6% financing its growth with debt.
Profitability Ratio
Ratio 2007 2008 Analysis
Return on Capital 12,590 ×100% 3,300 ×100% The ROCE in 2007 is higher mean
Employed (ROCE) 49,437 54,841 HCF more efficient use its capital
=25.47% =6% employed compare to 2008.
Profit Margin 9,191 ×100% 2,442 ×100% The higher of profit margin in
130,000 120,000 2007 because HCF incurred higher
=7.07% =2.04% revenue compare to 2008.
Return on Assets 9,191 ×100% 2,442 ×100% The higher return on assets in
61,729 72,661 2007 because HCF more efficient
=14.89% =3.36% managing its assets to produce
higher profit compare to 2008.
Return on Equity 9,191 ×100% 2,442 ×100% The return on equity in 2007 is
85,812 88,254 higher mean HCF more efficient
=10.71% =2.77% use the money shareholders to
generate profit compare to 2008.
 iv) How should HCF approach the issue of the imminent exit of two of its
major clients? Evaluate effect of potential pull out on financials.

• Proposal by Elaine – Sales and Marketing Director

i. Move HCF manufacturing in China.
ii. Shut down HFC existing plants in Butterworth, Jitra and Chieng
Mai.
• Proposal by Teoh Chin Teh – Factory Operation Director
i. Expand manufacturing operation to China and retaining
Malaysian operation to develop HFC own label.
ii. HCF will pull-out from the activity of “contract manufacturing”.
 HCF have to price
its product at
very low

HCF need a EFFECT Have potential

larger amount PULL OUT to incurred loss
of fund ON
FINANCIAL in few years

High advertising
cost
v) Evaluate the proposal of expanding to China and consider the options
available for the move – joint venture or setting up own factory.
Joint Venture Setting up own factory

Pros:
• Cheaper Pros:
• Takes lesser time to be operational (6month) • Long term profit
• Doesn’t need to find a new customer • Independent
• Risk sharing • Lower risk
• Longevity (1995)

Cons: Cons:
• Profit sharing • Higher cost
• Higher risk • Takes longer time to set up
vi) Evaluate the option of continue or shut down of Malaysia/Thailand
operations. Should HCF consider starting its own label?

CLOSE DOWN HCF’S FACTORIES

ANALYSIS BASED ON PLACE OF FACTORIES

JITRA, BUTTERWORTH CHIENG MAI,

MALAYSIA , MALAYSIA THAILAND
PROFIT RURAL AREA STRATEGIC RURAL AREA
LOCATION
COST FOR MEDIUM TO DEMAND LOW
WORKER HIGH
vi) Evaluate the option of continue or shut down of Malaysia/Thailand
operations. Should HCF consider starting its own label?
SHUTDOWN FACTORY
ADVANTAGES DISADVANTAGES
ABADON EASIEST WAY ETHIC
- LET GO THEN MOVE TO - WOULD BECOME HAVEN
CHINA FOR DRUG ADDICTS
DEMOLISH GOOD WAY TO LEAVE THE WASTEFUL
PLACE - COSTLY
- THE PEOPLE MAY
ATTRACT TO DO
SOMETHING NEW AT THE
LAND
SELL CAN GET MORE PROFIT MAY BE HARD TO FIND
- AVOID FROM LOSSES POTENTIAL BUYER
vi) Should HCF consider starting its own label?

When HCF Bhd getting more stable and start making profit,
R &D for own label should begin.

HCF SHOULD BEGIN WITH:

1. Spend time working for other designer for experience purposed.
2. Develop contract with industry.
3. Focus in creating product that people want to buy.
4. Build own portfolio design.
5. Organize business and start production.
6. Create a great marketing campaign.
7. Sell the product.
vii) What ethical effect would the shut down of its existing operations have
on the HCF’s image?

• BAD EFFECT FOR COMPANY REPUTATION

• HIGH COST OF PULLING DOWN
• JITRA & CHIENG MAI’S FACTORY WOULD COST HCF RM1,200,000
• REDUNDANCY PAYMENT, MINIMUM AT RM3,000,000
• LOSE HUMAN CAPITAL
• SPECIALIZED SKILL EMPLOYEES WILL FIND DIFFICULT TO FIND NEW
JOB
• GAIN PROFIT FROM THE SALE OF BUTTERWORTH & PENANG’S LAND
AND FACTORY
vii) What are your recommendations?

• CLOSE DOWN FACTORY IN CHIENG MAI & JITRA

• OUTSOURCING TO REDUCE COST
• FIND NEW CLIENT
• PRODUCE OWN LABEL
THANK
YOU