New Balance Shoe Inc.

(NBAS) International Manufacturing Analysis

A. Based on the data provided in the following table, and the country pages from the WEF Global
Competitiveness Report and Enhancing Trade Index Report (attached) please prepare a recommendation to
top management. Be sure to highlight major pros and cons of each country.

Median age

Brazil
190
million
29.3

China
1.3
billion
35.5

Vietnam
90
million
27.8

Literacy rate

91.60%

92%

94%

GDP per capita (PPP)

$11,600

$8,400

$3,300

Projected future GDP growth rate

2.80%

9%

6%

Manufacturing hourly labor cost

$9.00

$2.00

$1.00

Projected future inflation rate

6.90%

5.40%

18.90%

53.90%

41.50%

37.60%

Tariffs on athletic shoes imported into:

35%

24.50%

30%

US tariffs imposed on athletics shoes from:

15.75%

30.70%

29%

European Union tariffs imposed on athletic shoes

from:

16.90%

16.90%

16.90%

Population

Gini Coefficient
(a measure of income inequality)

Brazil:
Pros:
Very high literacy rate (although it is the lowest of the three), allows for more
effective training of employees and potentially skilled labor
Lowest tariff rate imposed by the United States presumably one of the
largest markets to import the product
Highest import tariff - shoes manufactured by competitors face a high import
tariff making products manufactured priced more competitively
Cons:
Highest Gini coefficient of the three income in this country is more widely
held by a few people. This could lead to an unstable political situation in the
future if this number continues to rise
China:
Pros:
Large population provides for a wide base to hire employees (there would a
very low risk of a labor shortage)
Very high literacy rate , allows for more effective training of employees and
potentially skilled labor
Low labor cost the manufacturing cost for the product would be low here
(assuming labor is the driving product cost)
Projected future inflation rate The relatively low inflation rate (lowest of the
three) could mean that production costs would increase slowly over a time,
making production less volatile from a cost point of view
Cons:

Lowest import tariff - shoes manufactured by competitors face a low import

tariff making products manufactured here priced less competitively
One of the highest US import tariffs the largest potential import market for
these products has a very high import tariff rate making these products more
expensive (compared to ones that are domestically produced or other
countries such as Brazil, but actually on par with Vietnam)

Vietnam:
Pros:
Lowest average population age this country has a larger population (by
percentage) that are younger these workers would be more productive
potentially than older workers (especially with regard to unskilled manual
labor)
Highest literacy rate of any of these countries allows for more effective
employee training and potentially skilled labor
Lowest labor cost the manufacturing cost for the product would be lowest
here (assuming labor is the driving product cost)
Lowest Gini coefficient of the three income is most even distributed in this
country (the risk of political turmoil would theoretically be lower here)
Cons:
Projected future inflation rate The extremely high inflation rate (highest of
the three) could mean that production costs would dramatically increase over
a very short period of time
One of the highest US import tariffs the largest potential import market for
these products has a very high import tariff rate making these products more
expensive (compared to ones that are domestically produced or other
countries such as Brazil, but actually on par with China)
Recommendation: China Has the best combination of low labor rates and inflation
(inflation rate is what prevented Vietnam from making the top of the list). China is
politically stable country with a large population of potential employees, where the
large majority is literate.

B. What additional information would you gather and what further analyses would make before delivering
your final recommendation to top management? That is, what other issues would you consider critical to
include in your final recommendation?

There are several other issues to consider:

Political Volatility: A stable government is imperative to the investment in a new
operation. If a country does not have a stable government or civil unrest exists
production could be halted or even stopped altogether. Even if a country has the
lowest potential manufacturing cost, a politically unstable environment could make
those benefits moot.
This argument extends past just government instability however, as currencies can
be manipulated or fluctuate wildly which could cause production costs to change
wildly when converting currencies. Recent currency fluctuations in Switzerland and
Russia demonstrate how this can be a significant issue.

Raw Material Sourcing: Access to raw materials for production is another

important topic. This ranges from everything to tariffs to import the materials into
the country (if no domestic supply exists) to the transportation cost to bring them
there. A low labor rate could be offset by the need to import materials for
production.
Specialization: One nation may have a specialization in one particular form of
manufacturing that could increase efficiencies and bring down costs. This could be
through an experienced population (labor) or local techniques and materials that
could bring down costs.