Coloplast Case Essay

Executive SummaryColoplast has been in trading operations in Denmark for nearly 60 years. The friend carry specializes in producing health check devices such as disposable ostomy bags, antifungal cremes cleansers and moisturizers. For 42 years, each(prenominal) Coloplast operations were contained within Denmark, however 97% of its revenue was generated by exporting its products beyond its national borders. In 1999 the ships gild changed its philosophy and began to investigate off bound its production facilities. In 2001 the first Coloplast production facility opened its doors orthogonal of Denmark. The refinement took place in Tatabanya Hungary. This location was chosen because of cheaper labour and cut back rates, as well as a more favourable revenue enhancement rate. The city is located in the Western region of the country which provided disc all over infrastructure. Coloplast had no blueprint to navigate through the expansion answer, and had to learn and go up bea t practises by trial and error.By 2004 the direction team in Tatabanya had advanced the production system to the point where it was outperforming the longer established Danish facilities. In 2005 Coloplast revealed an aggressive formulate of Strategy 2008. In this plan the company states it testament strive to achieve a profit bound of 18% while maintaining 10% organic growth. A key pillar of this plan is the continued relocation of pot production to Hungary and supercharge expansion to China. Coloplast is at crossroads, it needs to patch up if it has learned enough from its first worldwide expansion that it butt end duplicate and alter its success in new-fangled locations, or if it should delay new locations and focus on fine tuning its operations in Denmark and Hungary. IssuesColoplasts expansion into Hungary was executed with no prior world(prenominal) expansion experience to draw from. Eventu tout ensembley over time, it proved to be a roaring operation which surpa ssed quality levels of its Danish facilities . The company believes it can successfully take the lessons learned in Hungary and apply them to other worldwide locations. Coloplast also believes that the Tatabanya operation could still be fine tuned and improved to improve its results even further. Some of the problems that need to be improved upon be. Knowledge share / Communication stylesThe production expansion in Hungary has revealed to Coloplast that decentralized approach to cognition sharing whitethorn non transaction in all situations or locations. The old configuration in Denmark had most facilities and round within a 30 min drive from each other. This allowed for more direct sense of touch in the midst of facilities sharing processes, best practises, policies and motifs. This approach was not as successful in Hungary, Tatabanya is far from Danish headquarters and needed to incur a much more direct approach. The decentralized system actually limit the Hungarian op eration at a disadvantage as thither was a lack of manuals and instructions for them to work with in any language, not just Hungarian. Accounting procedure Danish Kronner bills93% of all products created by Coloplast was exported outside of Danish borders, this allowed the company to reach much large markets then just its small domestic population. When an order is invoiced it is done so in the Kroner, the local Danish currency. This forces the company to convince currency on the majority of all its transactions, exposing a currency risk if not managed carefully. It was estimated that currency exchange contributed up to 2% of boilersuit loses in 2004. Outsourcing jobs negative collision on Danish handsColoplast has a large familiarity pond of its living workforce in Denmark. With its volume production facilities shifting to new markets it is finding it challenging to maintain its Danish workforce in their existing roles. The company would like to be loyal to its Danish work force and dungeon them employed, maintaining high morale. Coloplast would like to avoid expensive severance payments and negative creation relations of trim down staff in Denmark while expanding operations internationally. abridgmentColoplost needs to continue to expand and grow it business. Internal estimates indicate that by 2010 the company will require double its current product volumes. At the same time they have set aggressive profit margin and growth goals. The international production expansion strategy is an outstanding break of its goals. Coloplost hopes to meet the growing demand of its customers and achieving revenue goals by expanding production facilities in countries with lower operating costs One of the lessons learned byColoplost after the expansion in Hungary is the importance of the transfer of knowledge and communication between all segments of the business. This area needs to be improved prior to further expansion to China. During the last expansion manage ment was so busy relations with communication issues that they failed to fully take advantage of local sourcing opportunities, instead merchandise more expensive options. Management in Denmark moldiness(prenominal) also decide how to properly utilize their domestic workforce, when many of their current production positions are shifting to new countries.This will be a very important decision as these employees hold a high level of mum knowledge of the company that it does not want to lose. The reporting of sales/ diversity back to Danish currency represented a 2% loss. keep expansion into new markets in both production and sales will make this issue even larger then it currently is. It is in the companies best interest to retain its Danish workforce when possible. These employees have the best understanding of the operations and can contribute to the companies success in didactics and perfecting best practises instead of focusing on production. Coloplost is still in a growth ph ase and redeployment/training of these people will assuage on severance costs and maintain a positive chassis for the company. RecommendationsBy modify the Hungarian operation and exploring further expansion opportunities such as China the company is demonstrating how essential expanding into low cost markets is to its overall long term strategy. A presence in the Asiatic mart will expose Coloplost to a massive consumer base to build its sales. This international market diversification will reduce the companys dependence on its traditional European customers whos health care systems are under reform and potentially not as profitable as before. A new strategy must be formed for the changing European markets, by expanding revenue streams, it provides the company time to assess earthly concern of the new market conditions. Another benefit of having operations in Asia is change magnitude logistics options for the Coloplast. A Chinese distribution point could also be created provi ding violate coverage in Asia and potentially shipping to compass north America as well. The Danish location will continue to ship to Hamburg and export to North Europe while the Hungarian facilities will by pass by-pass Hamburg and ship directly to southerlyEurope.This plan will streamline the shipping process cutting costs for the company. The decentralized approach employed by the company while it was only operating in Denmark does not work on a global scale. Communication between all locations the company must be improved and two changes should be made immediately. First all processes and procedures needs to be documented in written form in all of the languages of the countries that the company will operate in. Coloplast has a large workforce in Denmark that will be shrinking in size repayable to the off shoring process. The company should select their most experienced and vary staff to work on this project, providing new employment opportunities while reducing costs of retr aining and severance fees. Second, the company should invest in a knowledge management system that will allow for file and idea sharing between all locations world wide.Coloplost should adjust its accounting procedures and no longer invoice in Danish kroners, instead they should invoice all sales in Euros. This will reduce the need to perform a foreign exchange transaction on all sales. If the company must later convert the currency to Kroners, they can do so when the exchange rate is in their favor. To further protect themselves from foreign exchange risk, they should hedgerow their transaction and purchase an option contract of swapping Euros for Kroner. Further shifting of volume away from Denmark is forecasted to reduce the Danish workforce by approximately 600 jobs over the next 5 years. It is best to get ahead of it and continue to protract early retirement and retraining packages to its employees. By utilizing its most knowledgeable employees to attention in training and m anual creation, Coloplast hopes to retain the assets in its workforce that have the highest amount of the knowledge of its processes and production. This will help keep staff decrease to a minimal. AlternativesDelay further expansion focus on improving Hungarian operations This option will make it difficult for the company to reach its long term goals. Make it possible to rotate management staff in different international facilities to help spread knowledge and share best practises among all operations Create a blind drunk emphasis in using top Danish production workers as trainers to help develop new operations. write training manuals, proven to work well with Danish employees in the past. Development of a team from experienced staffto assist in trying to source products locally may be a win win scenario. Keep Danish staff employed while reducing costs for the company. These employees would know systems best. Creation of auxiliary distribution points to better serve new markets . China could handle Asian and North American markets, Hamburg (Danish port) could handle traditional Northern European markets and a new distribution point could be created to funnel Hungarian supplied products to Southern Europe and beyond