Michelin is a tire company that was created by Edouard and Andre Michelin in 1888 in Clermond-Ferrand, France. The company created the removable tire; the train tire and the green tire that reduce fuel consumption. Today the company has become the biggest tire manufacturer in the world with 20% market shares and annual revenue of€17.89 in 2010. There headquarter are still based in Clermont-Ferrand but the company has become international. Its main factories are based in Europe and in the United States and its products are sold all around the world.
The problem is that it's becoming more difficult for the company to keep its place of leader on this constantly growing market.
The Michelin Company is starting to close factories and lay off employees in France because the factories are not enough competitive. Its production activity has always been principally based in France but today with the evolution of the market it is very difficult for the company to continue like that and stay competitive. A lot of new producers are appearing on the tire market and are basing their production in countries like China or India where labor and production costs are a lot lower than in France. If Michelin wants to stay competitive and keep its position of leader in the tire market it is imperative that it starts exporting its production activity in one of those countries.
[...] Therefore we decided to build our factory in or near the city of Shanghai, a city that has all those characteristics The need of Financing - To invest in implementation, infrastructures If offshoring is a need, more than an asset, it has a cost which even if it will soon help you asks a big cost of energy and money. Consultants are paid with big money to analyze the opportunities of such a big operation. Then you must pay others to set up a new the Enterprise Resource Planning for instance. [...]
[...] It's been decided that the company should build a factory in China. There are many reasons that influenced our decision to do it in this country. First China has very good infrastructures and a cheap labor. Building a factory in China is also way cheaper and faster than in European countries because there are fewer regulations to take into account. Another good reason for building it in China is because it is the new big market that we have to occupy with many of the other developing Asian countries. [...]
[...] Then you have all the cost bound to the construction, the cost of the buildings themselves all the other expenses. Then you also have to pay taxes to the government. You must finance the formation of your new workers. It's a loss of time during which one you have fixed cost but you don't produce, or slowly. Traveling cost will increase a lot as well. - To finance everyday operations When buildings and habits will be all set and your new facilities working, you won't be done with financing needs. Indeed, you will have to find new suppliers. [...]
[...] May not be enough to cross a threshold (minimum size) for profitability. May unnecessarily deprive facilities for growth and profits, especially if interest rates are low. - Indirect external financing (banks) Michelin can use traditional financing from a bank. Advantages: Flexible funding (adjusted to the needs of corporate finance) and can afford to take advantage of growth opportunities. Is not unhealthy, as it allows to generate more profit than cost of the debt. Disadvantages: it can be expensive Dependence with the bank The debt can end up worrying partners . [...]
[...] Michelin off-shoring in China 1. About Michelin Michelin is a tire company that was created by Edouard and André Michelin in 1888 in Clermond-Ferrand, France. The company created the removable tire; the train tire and the green tire that reduce fuel consumption. Today the company has become the biggest tire manufacturer in the world with 20% market shares and annual revenue of€ 17.89 in 2010. There headquarter are still based in Clermont-Ferrand but the company has become international. Its main factories are based in Europe and in the United States and its products are sold all around the world. [...]
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