Palisser

Palliser Furniture LTD: The China question

To answer the question if Palisser has to choose for FDI or contract based arrangements in either China, Mexico or other Asian countries we need to know the history from the nineties of both countries first. Mexico was then in the eyes of Defehr(owner) a better option then China because:

The Mexican location was close to the Texas border that would provide a low distribution cost structure for Palisser. At the time China leather furniture sector was very in experienced instead of Mexico where you find more skills. And very importantly Defehr wanted to own the business instead of contracting. İn China they operated more in joint venture structures that would nearly force him to give his ownership away. So this made it very easy for him to choose initially for a FDI when starting business in a foreign country(China or Mexico).

A last reason was that Mexico was closer to the U.S. market which made it better manageable.

So Palisser had three main strategies: Cost leadership, by the investment in Mexico. But China was cheaper then Mexico. So you could for that reason choose rather for China then for Mexico. Mexico had no delivery advantage anymore over China because airfares of shipping by air from Brasil to Mexico to Canada had risen.

How should Palisser expand their Motion business?

Motion products with better leathers and the growing popularity in the market place furniture companies made them more attractive. If making the product in China it would be a big saving. Their competitor DeCoro who was producing in China was able to provide the same product at a lower cost than Palliser offered. So Palliser can also do a cost based competition and on strategic criteria. Palisser need to take advantage that people in lower cost environments have. Chinese workers are very good at making leathers because of their large experience in the garment Industries. Despite the fact that Defehr felt that there was no level of...