Paragraphs highlighted in green indicate diagrams or tables that can be shared in the “Information to share” section.
Paragraphs highlighted in blue can be verbally communicated to the interviewee.
Suggested case structure:
1. Which parameters would you consider for the decision?
- Export restrictions (between US, UK and Canada):
Are there are restrictions to export or import machines from/to the countries?
- Financial analysis of plant operation:
(VC, FC) / Revenues / Profits
Spare parts / Raw materials
How to get the product to the customer?
Availability of skilled labour
2. Where would you build the plant?
Information that can be shared if inquired by the interviewee:
- One of the plants in the US has space for an additional assembly line, for the costs of $500 m.
- The assembly line could produce up to 250 helicopters annually.
- The plants abroad can produce up to 350 helicopters per year.
- The helicopters are sold for $100 m a piece.
- If a new plant is built abroad, the local Departement of Defense (DoD) is willing to spend 50% of its annual budget on the helicopters.
- The UK and CA do NOT import from other countries
- If they are imported to the US they have to be certified for an additional cost of $10 m per helicopter.
Share Table 1 with an overview of the cost and Table 2 with the market size of each location on the interviewee’s request.
Total revenues for 5 years:
Total revenue (US) = 5 * 25% * $100 B = $125 B
Revenue only UK = 5 * 50% * $20 B = $50 B
Total revenue (UK) = $125 B + $50 B = $175 B
Revenue only CA = 5 * 50% * $15 = $37.5 B
TR (CA) = $125 B + $37.5 B = $162.5 B
Total costs for 5 years:
Total number of helicopters sold in 5 years:
Costs are composed of:
- Initial setup costs
- Fixed costs
- Variable costs
- Certification costs for imports to US
Compared to the UK, in Canada costs are higher and revenues are lower. Consequently, the plant should either be situated in the US or UK.
To check the attractiveness of these two countries the profit for each has to be calculated.
Total profit for 5 years
Plant in US:
Profit = TR - TC = $125 B - $13.5 B = $111.5 B
Plant in UK:
Profit = TR - TC = $175 B - $40.75 B = $134.25 B
Building the plant in the UK will give us profits that are $22.75 B higher than in the case of having it in the US.
3. What is your recommendation to BS Systems regarding their choice of location?
- Based on the financial outcome, the UK seems to be the more attractive location due to:
- Profits over 5 years will be $22.75 B higher
- Our client will not completely depend on a single customer
- The plant in the UK would be fully utilized (350 of 350)
- There are other points that should be taken into consideration:
- Potential of selling helicopters to other countries worldwide
- Labour reaction in US plants if a new plant is built in the UK
- Stability of political relations between US and UK