Hello Giovanni,
The answer to your question is clearly stated in the text:
All other value creation steps require a higher share of expensive labor cost in Switzerland and/or additional re-tooling investments
The reason is that producing in Switzerland is more expensive because of the labor costs and of the re-tooling investments needed. Anyway, you have to consider thefollowing assumption:
In the discussion of your findings with the client’s management, the Head of Sales notes that the state-owned Swiss rail operator will require a share of local value creation (= share of work to be done in Switzerland) of at least 20% in the contract
In order to have the minimum cost of production, your objective is to have the minimum value of the sum of re-tooling investments + Increase in labor cost. Let's compare the choice that you were mentioning:
- Do the "Module production" in Switzerland:
- Labor cost increase = Cost of labor in Switzerland - Cost of labor in Italy = 20% (117.1 M€ - 58.6 M€) = 11.7 M€
- Re-tooling investment = 6.0 M€
- Total= 17.7 M€
- Do the "Interior fitting" in Switzerland:
- Labor cost increase = Cost of labor in Switzerland - Cost of labor in Italy = 25% (117.1 M€ - 58.6 M€) = 14.7 M€
- Re-tooling investment = 0 M€
- Total= 14.7 M€
Does it make sense?
Best,
Luca