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Final investment decision

Final investment decision - MEMO Date August 2 2011 To...

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MEMO Date: August 2, 2011 To: Kristie K. Seawright From: Nguyen Bui Re: Location selection for building Airbus’s facility In a historic move, the company has decided to outsource the production of a few non- technological component parts for our airplanes. Our first products to be produced are airplane seats; they will be produced in a facility to be built and operated by a wholly-owned subsidiary of Airbus. This memo will discuss about two location possibilities which are Vietnam and Senegal and the recommendation of choosing one of those two for our future facility. In terms of material sourcing and tariffs on exported products, Vietnam and Senegal are shown to bring us substantial advantages. However, since only one country can be selected for the building of the facility, some other important criteria are considered. The first and most important criterion is the return on investment, specifically profit. In this case, since airplane seats are produced in that subsidiary of Airbus and then are shipped to Havre, France without being marketed and sold in foreign market, we have seen that the manufacturing cost would be one of the key factors to make the decision. The manufacturing cost includes labor supply and cost, worker productivity and education, resource availability, transportation and shipping cost. Since both two countries have abundant resources for this kind of production, resource availability would not contribute a big deal to make the decision. The other important criterion is economic environment, such as the growth and stability of the economy, economic freedom and ease of doing business. Political environment is also another important factor in decision making, including political risk ad score, regulatory system in foreign business and investment, corruption and crime. Those are some of the most important criteria we would need to consider in making our decision. 1. Vietnam a) Profit Table below compares the population of Vietnam and Senegal population Growth rate % age 15-64 Labor force Vietnam 90,549,390 (July 2011 est.) 1.077% 70%( est.) 46.21 mil Senegal 12,643,799 (July 2011 est.) 2.557% 53.9% 5.53 mil Table 1 population of Vietnam and Senegal Vietnam’s high number in population as well as the labor force has shown that it is a growing population country in which the amount of people at working ages are bigger than any other ages type. Labor cost in Vietnam would also be very inexpensive because the minimum pay ranges from VND 830,000 to VND 1.55 million/month (40.87363 $-73.86801$/month), depending on the location of the employees. How about the quality and productivity of this labor force? According to CIA’s website, 94% of population are literate with the school life expectancy is 8 years. Education really occupies 5.8% of GDP in 2009. The other requirement for the decision
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making is that we can hire and train some future managers to reduce personnel expatriate cost in the next few years. Thus, it is necessary for us to look at the education level of the labor
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Final investment decision - MEMO Date August 2 2011 To...

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