In the late 1960s, Hewlett-Packard was looking around Asia for low-cost location to produce electronic components that were to be manufactured using labor intensive processes. The company looked at several Asian locations and eventually settled on Singapore, opening its first factory there in 1970. Although Singapore did not have the lowest labor costs ini the region, costs were low relative to north America. Plus, the singapore location had several important benefits that could not be found at many other locations in Asia.
The educational level of the local workforce was high. English was widely spoken. The government of singapore seemed stable and commited to economic development, and the city state had one of the better developed infrastructures in the region, including good communication and transportation networks and a rapidly developing industrial and commercial base. HP also extracted favorable terms from the singapore goverment with regard to taxes, tariffs, and subsidies. To begin with, the plan manufactured only basic componets.
The combination of low labor costs and a favorable tax regime helped to make this plant profitable early. In 1973, HP transferred the manufacture of one of its basic handheld calculators from the united states to singapore. The objective was to reduce manufacturing costs, which the singapore factory was quickly able to do. Increasingly confident in the capability of the singapore factory to handle entire products, as opposed to just componets, HP’s management transferred other products to singapore over the next few years including keyboards, solid-state displays, and integrated circuits.
However, all these products were still designed, developed, and initially produced in the united states. The plant’s status shifted in the early 1980s when HP embarked on a worldwide campaign to boost product quality and reduce costs. HP transferred the production of its HP41C handheld calculator to singapore, the managers at the singapore plant were given the goal of substantially reducing manufacturing costs. They agued that this could be achieved only if they were allowed to redesign the product so it could be manufactured at a lower overall costs.
HP’s central management agreed, and 20 engineers from the singapore facility were transferred to the united states for one year to learn how to design application specific integrated circuits. They then brought this expertise back to singapore and set about redesigning the HP41C. The results were huge success. By redesigning the product, the singapore engineers reduced manufacturing costs for the HP41C by 50 percent. Using this newly acquired capability for product design, the singapore facility then set about redesigning other products it produced.
HP’s corporate managers were so impressed with the progress made at the factory, they transferred pproduction of the entire calculator line to singapore in 1983. This wa followed by the partial transfer of ink-jet production to singapore in 1984 and keyboard production in 1986. In all cases, the facility redesigned the products and often reduced unit manufacturing costs by more than 30 percent. The initial development and design of all these products, however, still occured in the united states. In the late 1980s and early 1990s, the singapore plant started to take on added responsibilities, particularly in the ink-jet printer business.
In 1990, the factory was given the job of redesigning an HP ink-jet printer for Japanese market. Although the initial product redesign was a market failure, the managers at singapore pushed to allowed to try again, and in 1991 they were given the job of redesigning HP’s DeskJet 505 printer for the japanese market. This time the redesigned product was a succes designs, garnering significant sales in Japan. Emboldened by this success, the plant has continued t take on additional design responsibilities.
Today, it is viewed as a “lead plant” within HP’s global network, with primary responsibility not just for manufacturing, but also for the development and design of a family of small ink-jet printers targeted at the Asia market. Main Issue Main issue in this case is about relocation / finding new place (in this case is Singapore) to lower the cost production,and that become huge success. Other issues : – Success in redesigning the failure product – Location of Activities, several production moving / shifted to Singapore from United States – success in reducing manufacturing costs by more than 30 percent.
– Changing from substitude factory, become Lead Plant Analysis Theory related with the case is : Globalization : the process of integrating economic activities, technology, industry, to exchange raw material or product between countries and effort to barriers international business. Exampe tax and quota. In here,HP company is doing Globalization. Globalization of markets and Globalization of Production. International Trade : exchange of raw materials, manufactured parts and components, and finished goods and services accross national borders. New Trade Theory (Krugman, 1980).
New trade theory suggest that throught its impact on economies of scale, trade can increase the variety of goods available to consumers and decrease the average costs of those goods. National Competitive Advantage (Porter’s Diamond) Determinant of national competitive advantage : 1. Factor endowment : land, labor, capital, infrastructure, natural created Singapore has them all. Compared with United Stated, their endowment factor is better. 2. Demand conditions – creates capabilities, creates sophisticated and demanding consumer – quality and motivation 3. Related and supporting.
Create clusters of supporting industry that are internationally competitive 4. Firm strategy, structure, rivalry 5. Government Policies that impact positively on each aspect of the diamond. Singapore government seemed stable and commited to economic development. HP also extracted favorable terms from the government with regard to taxes, tariffs, and subsidies. 6. Chance Singapore really have chance to become the next HP factory, beside lower labor cost, also English spoken widely here. Location of Activities ¦ International Most key activities in the home country, others in foreign countries (cf.global).
Multidomestic All activities in every country in which the firm operates ¦ Global Most key activities in one location, may or may not be Home country ¦ Transnational Value chain is finely split & each activity is carried out in the world’s most efficient location In this case,HP company combine all of them,like Global and Transnational, where production carried in the most efficient location,Singapore. Conclution HP success in moving their production to Singapore. From only produce several components into full authority to produce and redesign failure product with lower cost of production.
Starting from looking for new factory location with lower cost,then the new factory growing better, given the authority to produce more product, redesigning the failure product. At the end, become “The Lead Plant” within the company global network, with primary responsibility not just for manufacturing , but also for development and design of product targeted around the factory area. So HP company success in locating their production place. They gain huge success, even changing the failure product into something great!