Coloplast: Organizational Challenges In Offshoring Case Solution

Question 1:

Coloplast is an international company involved in developing, manufacturing, and marketing medical devices and services that are related to ostomy, urology, continence, and wound care. Founded in 1957, it specializes in five major business areas that are ostomy, continence care, wound care, skin health and breast care. The target market are the people who have had an ostomy surgery rerouting their intestinal outlet through the abdominal wall, or who experiences problems controlling their bladder or bowel movements.

The wound care area produces a variety of dressings to treat difficult to heal wounds. The company’s skin health division produces antifungal lotions, cleansers and moisturizers to keep the skin healthy. Lastly under the Amoena brand it operates as one of the largest European suppliers of external breast forms for women who have had mastectomies. The company is located in Denmark, but 97 % of the revenue was generated from outside the country.

Coloplast’s medium- term objective stated that to achieve a turnover of DKK9 billion and a profit margin of 18% by the fiscal year 2008. To accomplish this goal, one of the strategies that the company followed was the relocation of volume production for mature product lines to Hungary.

The main factors that contributed to the choice of Hungary were as follows:

The production costs played a key role in choosing Hungary; they were 20% lower than Danish levels. Furthermore; even if the wage rate increases, then also producing in Hungary would be financially advantageous in the coming ten years.

Health care reforms played a role in the company going across borders. These reforms limited the revenue in Germany, and there were further discussions of the same reforms taking place in Italy, Spain, and France. This would hurt the company’s revenues to a great extent as Germany was the company’s biggest market. And Italy, Spain, and France were also among its major markets. Coloplast thought that they could neutralize the savings accrued from offshoring, which in turn could spur further cost containment initiatives.

The second reason for Coloplast was the availability of positive, skilled and well-qualified labor at all levels. The main reason for the labor’s standards was that many well-known international companies were operating in this region especially auto companies.

Therefore, the local employees had a close look at how good multinational companies work, what are the general norms and values of organizations. Huge sophisticated companies like Audi were also located in Hungary, which meant that the labor would have the best quality controls and operations techniques.

However; the possible employees needed some training regarding the company’s mission and work ethics. Another advantage of using this labor was that the sickness absence was less than 1% in Tatabanya, Hungary as compared to 10% in Denmark. This showed the determination of the employees and their hard working abilities.

The building costs were 50% lower in Hungary than in the native country. This allowed the company to have savings on depreciations. The production site for Coloplast was located in the western part of the country, which was known for higher wages and a far better infrastructure. Tatabanya was a location where many other western companies also operated including a Danish pump company, which was across the street and it played a psychological role in the location choice.

Due to the low costs Coloplast initiated production right away in rented facilities that were in the neighborhood of the new plant. This approach allowed the company to train the new employees beforehand, call for the machinery from Denmark and monitor the construction process closely. Therefore; when the first plant was completed, the workers did not need to start from scratch but could easily install machinery and carry on with the product lines.

Hungary proposed further benefits to Coloplast as volume production was the prime activity in the country…………………

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Coloplast: Organizational Challenges In Offshoring Case Solution
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