to discuss this core strategic question. The company must decide between two options to fulfill its upcoming contracts: its new Ohio factory or its factory based out of Tianjin, China. Unlike the Ohio factory, the Chinese factory produces below the cost target, but it also incurs extensive shipping costs and requires a far greater amount of inventory holding.
She must decide where to fulfill upcoming contracts: In Fuyao’s new Ohio factory, where production rates are lower due to a newer employee base? Or their factory in Tianjin, China, which produces faster and cheaper but would incur shipping costs and require enormous inventory management? WILLY SHIH: The case is actually Wen Li, who is the protagonist, who is the global sales manager for Fuyao Glass and she is preparing for a meeting with the chairman. And the question is really, they have opened this new factory in Moraine, Ohio and they are a Chinese company. Most of their other factories are in China and they’ve made some ventures abroad. But this factory in Moraine was really their stake in the American market.
WILLY SHIH: Fuyao is an automotive glass maker and so they focus only on the automotive glass market. Automotive glasses are a little different than the type of glass that you have for windows. Window glass is normally are just flat sheets of glass, it’s made by a process called Float Glass, The Pilkington Float Glass Process. When you make automotive glass, usually what you have to do is you have to first cut it and shape it to match the style of the vehicle.
WILLY SHIH: Right. Labor is much more expensive in the U.S. so it’s easier for a manufacturer to justify more investments than automation.WILLY SHIH: Well, the case talks about it and the case talks about the labor rate differential being about 7:1. It’s down considerably from the early 2000s when a typical labor rate ratio would be 10:1 maybe even 20:1. That gap has certainly narrowed.
WILLY SHIH: Well, I think the key questions really revolve around the costs. If you look at the Moraine factory, it’s relatively new, it’s still in its ramp up phase. For this particular order that they want, that they are looking at, the cost to produce it in Moraine is roughly 50% higher than it would be to produce it in Tianjin for example. It’s considerably cheaper to produce it in Tianjin and ship it than it is to produce it in Moraine. But the Tianjin factory is quite mature.