Solutia – Acrilan Division Harvard Case Solution & Analysis

Solutia – Acrilan Division Case Study Solution

The Nustart Project:

Nustart was a giant apparel complex in the Mexican State of Morelos. The facilities are owned by various garment manufacturers each having its own cut and sewing operation in the same building. Partner companies and the Mexican government invested in the complex to encourage manufacturers to participate. High-end brands execute their cut and sew operations at Nustart and many by impressed by the operations and the working conditions. #

Many textile owners and veterans were very impressed with the idea and thought that it’s a good idea for one to imitate. If a project like Nustart were to be started, there are several problems that need to be solved and solved questions that need to be answered:

  • What will be the location of the facility?
  • How to approach the Mexican government?
  • Would Solutia customers be willing to move?
  • For what incentives would they be willing to move?
  • How long will this take to happen?

 

There are four business models that could be used to replicate Nustart:

  • KC&S co-locate in a single industrial park location like Nustart.
  • Knitters move independently to small towns where they are important to the locality.
  • Knitters move to existing mixed use industrial parks built by developers.
  • Knitters retain design and sales in the US and contract knitting and cutting and sewing in Mexico, with the US partner providing training and quality control.

An operation like this obviously requires a substantial initial investment. It also requires that many of the knitters be moved to Mexico to provide enough capacity. It’s also important to develop the project in alliance with the Yard Spinning partners of the company. Glen Raven and National Spinning were two biggest yard spinners for Acrylic fiber and also their most significant customers. However their commitment to the market differed. For National, 70% of its business represented acrylic fiber, while for Glen it was less than 20%. Their inclination and partnership was vital. National showed a lot of interest in partnering whereas inclination of Glenn differed. With the help of Li & Fund, National and Solutia could set up their operations in Mexico.

Because of their proximity to the US market, Mexican and the Caribbean Basin represented important expansion opportunities for Li & Fund as well as other companies like Solutia and National and other similar manufacturing companies. Because of their availability of labour in cheap rates and quick turnaround issues, many firms in the United Stated of America were looking for manufacturing opportunities.

Li& Fung’s presence in the Mexican and CBI Region could prove to be either a threat or an opportunity for Solutia’s plans for the future of the company. It really depends on the way it is looked at and perceived. There is definitely an opportunity for partnership of Li & Fung and Solutia.

For the success of the project it is vital that all the involved companies pay the same wage rate and have incentives. This will also make sure that the turnover is low. (Chun, 2010)

Disadvantages:

  • While some brands have the size and financial means to set up a facility at Mexico, the businesses of others are could not afford the relocation to Mexico.
  • Solutia’s customers have businesses that are mostly located in New York and they wouldn’t be willing to relocate even if Solutia offers to finance the project.
  • Moving the sewers and cutters from the United States would be anything but easy.
  • This project would require a substantial initial investment.
  • It would also require alliances with the government of Mexico.

Advantages:

  • Some knitters would like to set up shop in Mexico but due to lack of knowledge about the formal process and procedures, they are unable to do so. Through this project, this could happen for the knitters.
  • There are already acrylic knitters that are present in Mexico. They could be used to produce acrylic.
  • This could open up the companies to a lot trade with different regions of the world.
  • Products would be duty free due to North American Free Trade Agreement (NAFTA) and CBI Parity.
  • It would be cheaper if fabrics are imported from Asia. Asian Fabric cost advantage can be taken and availed as well as the cheaper rates for the labour.

Conclusion:

In Mexico and Central America, Koreans are making huge investments. Much like the Americans, they need cut and sew services at the cheapest possible price. Indonesian and Chinese sourced products have the cost advantage that no one has. They are two of the few countries with the availability of labour at the cheapest rates.

The United States of America is definitely far away from this unless they decide to act quickly and get into an alliance with National and preferably with Glen Raven as well. They need to form a plan and execute it because if they don’t, their bottom lines would take a hit and they will quite surely lose more and more of their money.

The plan needs to be put into process before Asians beat the Americans to it............

 

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