Escatsa is an average Spanish company founded by two twenty year olds. It deals with the production of steel sheets jobs for the automotive industry. It is well established locally but then it is faced with the decision to expand internationally to one of two places, Hungary and the UK. So as to make a decision on what location is more favorable for expansion, it needs the analysis of key competencies, the market base, risks expected, cost and financing of moving project. This analysis will assist the company in making the right decision for expansion. A risk analysis helps a business asses a new venture to determine what decision is more profitable and sustainable over a long period of time (Vose, 2008). This paper examines the Escatsa, UK and Hungary decision case and it identifies the key business challenges and options, assesses the risk levels that Escatsa faces create heat map and lastly propose a cause of action based on the heat maps.
In deciding on which contract to pick for expansion out of Spain, Escatsa evaluates the implications of expanding in either one of the locations. It is faced by various business challenges in its expansion proposal. If it were to decide on moving to the UK with Nissan, it was assured that it could get rental space and a Management team from the UK however the labour costs for UK are very high and this would be an expensive for the company. This challenge could be solved by choosing to go to Hungary where the labour costs are so low it is a guaranteed that the company would make profits. However although Hungary has a ready skilled and affordable labour force Escatsa was not positive it could find skilled managers for the company’s branch there. Another challenge with moving to Hungary is that the industrial sector was not well developed which meant that although there was a clear need for Escatsa there but they would be forced to buy land then build a factory, which would take a long time, as there were none to buy or lease. Yet another challenge is that UK being outside the Euro zone meant that it would be exposed to significant exchange rate fluctuation having come from Spain there was also a risk that the new contracts could not materialize leaving Escatsa’s investment to be unprofitable as the branch would only deal with automobile parts. The decision to take up HPs contract would place Escatsa at an uncertainty as the contract was not fixed unlike that of Nissan which had relegated Escatsa with the contract to manufacture for its almera design which would make the company a stable annual income of about 6.6 million Euros.
The company is faced by various levels of risks. Risk level 1 involves risk assessment based on qualitative expertise on the subject usually from text. An example is when the risk analysis cannot be done comprehensively because it lacks adequate data on the situation being evaluated therefore a comprehensive analysis cannot be completed. This risk analysis level affects the overall budget for the expansion, quality, scope and performance of the company. Level 2 risk level is also referred to as the semi-qualitative risk level. This level has more available data; however this data is not enough to complete a quantitative analysis. An example of this risk is the impact of investing in manufacturing automobile parts and inkjet in Hungary with its unknown economical status. The information that Escatsa has on the Hungarian economy only allows it to make superficial risk assessment without enough data they are not able to come up with strategies of handling the market. The third level is the quantitative analysis level. This level is characterized by adequate data for a complete risk analysis. An example would be Escatsa’s knowledge of the market in Spain. It can weigh out the advantages of not even expanding into the international market and the benefits of remaining in Spain.
If the heat maps for both the Automotive and ink jet projections are anything to go by, then the decision on whether to expand to UK or Hungary can be made easily. The heat map contains several risk agent threats, one, The certainty that after moving the contract will be awarded to Escatsa and whether or not profits are assured in the particular market. The UK looks better on the heat map as Nissan has assured the company of the contract to make designs for the Almera model whereas HP has no fixed contract. Another risk agent is labor costs and availability of market for both countries. The Hungarian economy assures cheap labour costs but then the market is not well studied to determine the market availability apart from HP however the country is still developing industrially. Should the company decide to not sign the contract with Nissan in the UK it still has an advantage as all other contracts will still be retained however it is feared that this might affect awarding of future contracts. The third risk agent on the heat map is the time factor (Sauvant, 2010). The duration of time by Nissan is one year; this is expected to cover construction, transportation and settling in the UK and should signal start of production of automotive parts for the company. HP do not give a deadline however seeing as settling into Hungary is quite involving it might take a longer time than projected. This increases the duration of time before ink jet production and this period the company receives no profits. Seeing as the contract with HP is not fixed it might be cancelled leading to great losses for Escatsa.
Judging from the risk assessment it would be more advisable for the company to expand to the UK as this is an assured market for its product with ready consumers. The contract with Nissan is more promising seeing as the returns are large. Also having semi qualitative risk data means that there will be minimal mishaps in the expansion (Moroan & Ucedavelez, 2015). The automotive manufacturing includes 82% of total company production with Nissan having 66% of orders therefore it is better option than HP in Hungary. Expanding to both countries is hindered by an insufficiency in funds. Taking on both projects would need extra financing and the interest rates could eat into the initial profits so it is not up for consideration. Escatsa can then continue supplying HP but only in Spain.
References
Moroan, M. M., & Ucedavelez, T. (2015). Risk Centric Threat Modeling: Process for Attack Simulation and Threat Analysis. john wiley and sons.
Sauvant, K. P. (2010). Foreign Direct Investments from Emerging Markets: The Challenges Ahead. palgrave macmillan.
Vose, D. (2008). Risk Analysis: A Quantitative Guide. John Wiley and son.
