Electrosteel Casting Ltd. Essay

1151 Words Nov 8th, 2011 5 Pages
The Electrosteel Castings case is about an Indian ductile iron pipe (DIP) and cast iron pipe (CIP) manufacturer’s decision to internationalize. The central issue is about the choice of where to go, and the choice of the type of investment the company will pursue. This paper will analyze the options available for the company and recommend the best solution.

1. Electrosteel options
As for the location, Electrosteel has two options: France and Vietnam.
France is attractive because it could be used as a strategic base to access the entire European Union because a manufacturer located in any EU country is considered a local supplier for all other EU countries.
The European market is large, stable and has common standards. Country risk
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To build a casting operation and a finishing line it will cost about US$42 million. And to build a finishing line would cost about US$2 million. Also, building facilities involves higher risk.

Other options for Electrosteel are the ways of investment. It can choose between wholly owned subsidiary and a joint venture.

2. Analysis of the options:
There are several factors that have to be considered upon evaluating the options. First, the competitive advantage of the company. Unfortunately it is not clear to what extent Electrosteel has a cost advantage over its’ competitors. Judging from the information provided in Exhibit 4, labor costs amount to 10% of the total cost. One can assume that these labor costs would be lower than OECD countries which could be an advantage. However, the industry seems to be a capital intense industry rather than a labor intense industry therefore it is hard to judge the advantage.
In terms of knowledge or innovative products, Electrosteel has been investing in its facilities in India resulting in higher quality of the products however the products that are being made do not seem to be differentiated. One can assume through this experience Electrosteel has obtained some advantageous knowledge but it is not clear if this could be counted as an ownership advantage.
Overall it is difficult to judge that Eletrosteel has a unique advantage over European competitors. Therefore it is difficult to justify Electrosteel to

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