Is there a significant cost savings associated with a Malaysian based manufacturing plant?

Opening a factory in Malaysia offers significant cost savings in many different areas.

1.Corporate tax rates 7% savings over Mexico’s
2.Teleleader will enjoy a tax vacation period of 3-5 years beginning immediately upon opening
3.Due to agreements made with the Malaysian government Teleleader will enjoy cost savings of 9-14% on European exports, this converts into a
   3-8% overall cost savings.
4.Direct labor costs are on average 34% less than those in Mexico.

1.Global coverage: Locating the second manufacturing plant in Malaysia offers a greater coverage of the global market it serves.

2.European tariff savings: Due to the special tax treaty that Malaysia negotiated with the EEC rather than pay the 15%-20% that Teleleader is currently    paying it would be cut down to 6%. There is a catch to this process; the goods could not be shipped back to the US to be inspected for quality    control. A separate quality control division would need to be established somewhere within the EEC. This is necessary to avoid the higher tariffs    charged for exporting from the US to the EEC. The initial expense incurred to setup this extra center would soon be recovered by the ability to price    competitively within Europe to regain slipping European market share; in addition to the market share recapture the new quality control facility would    increase Teleleader’s production capacity.
3.Diversification: By building the manufacturing facility in Malaysia rather than a second built in Mexico creates a natural economic risk diversification.

The Malaysia Mexico mix dilutes the risk involved with inflation and foreign exchange rates. For example, if manufacturing becomes too expensive in Mexico because the rate of inflation far exceeds the rate of foreign exchange, making the dollar coasts associated with production too expensive, Teleleader would still have the production facility in Malaysia to fall back on.

Inflation & Foreign Exchange rate risk: Inherently when dealing with other countries you deal the risk of inflation and fluctuating foreign exchange rates. Within in the financial market there are instruments that have been developed to deal with these inherent risks; however; it is important to note that Teleleader is no in the business of investing and playing the financial market. Teleleader’s primary focus is their advanced technology and their consistently high quality products. Therefore, a Malaysian manufacturing facility is ideal for Teleleader based on the past inflation and foreign exchange rates. Malaysia’s exchange & inflation rates experienced only small fluctuations in their rates maintaining a fairly constant value relationship with the dollar. Unfortunately the same cannot be said for the Mexican Paso. A graphical representation of the change in the purchasing power of the US Dollar relative to the Mexican Paso and the Malaysian Ringgit.

1.Build second manufacturing facility in Mexico: Teleleader could build a second manufacturing plant in Mexico taking advantage of their knowledge of    the area and business creating an easy entry into another facility. Building just across the boarder in Mexico allows for Engineers from the corporate    office in California to respond to any major problem in three hours. This creates a major cost savings relative to other facilities where it may take    engineers a day or more to get to. During that time facilities may be out of commission and losing money by the minute. A Malaysian based facility    may require an on sight engineer brought in to avoid the complication of that very situation, especially in the city of Khota Bharu located in a small    town that serves as an ocean port, but lacks an international airport.
2.Outsource manufacturing to Japanese Electronics Manufacturer: Teleleader could search out a price competitive Japanese Electronics Manufacturer    to source its products form. They have sourced products from Japanese firms in the past because they were able to produce the good at a lower    price than it would cost Teleleader to acquire the raw materials for its Mexico facility. Teleleader feels as the leader in the industry they should be    able to produce pagers even more efficiently than their competitors given the same low-cost economy that their facilities are operating in.