Harimann International
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Case 25: Harimann InternationalTable of ContentsTable of Contents 2Executive Summary 3Decision Problem 4Industry Analysis 4Decision Alternatives & Evaluation Three Possible Outcomes 5Risk Profile 6Risk Reduction and Alternatives 7Cost Considerations 8Expected Value 9Statistics and Data Analysis 10Conclusion and Recommendations 12References 14Executive Summary Entrepreneurs consistently challenge accepted norms and use unique ideas to move business forward. The entrepreneurial spirit is a God-given gift that provides jobs and opportunities for others to develop personally and professionally. Behind the prestige associated with owning a business are real-life risks – just ask Vikram Dhawan, President of Harimann International. Established in Delhi, India in the summer of 1990, Harimann International was a vehicle for Dhawan’s two primary goals: 1) obtain invaluable experience owning and operating a small business and 2) to fund his pursuit of an MBA degree in the United States. Since deciding to enter the textile business in 1990 as an exporter of finished goods, Harimann International has grown; employing more than 100 people across two facilities. Early on in the life of the company, business was slow and profits were low until a particular hand-embroidered table linen became popular and company sales increased. At that time, Dhawan was obligated to establish an in-house manufacturing facility to efficiently meet the demands of foreign buyers that overwhelmed the capacity of his previous supplier. The tax incentives offered by the Indian government aided early business development and the overall success experienced by Dhawan and his team. For example, orders greater than 150,000 INR (Indian Rupee) received the following benefits: tax exempt status (certain sales only), rebates for raw material duties (duty drawback program), cash compensatory support to encourage the overall competitiveness of Indian exports, and replenishment licenses used to acquire domestic raw materials for production. Pioneer Trading Company, managed by Mr. Fuji, the company president, was one of Harimann International’s first customers. Through the years, Fuji has been professional, balanced and fair in his dealings with Dhawan and other suppliers. Recently, Pioneer requested multiple garment samples for a possible order, and within a week, Harimann prepared and delivered them to their customer with respective pricing. Shortly after, Dhawan received a substantial order from Pioneer for all six styles, conditional on Harimann’s ability to make minor changes to three of the styles and to meet a shipping date of April 6. This order was an attractive opportunity for Dhawan because the Indian government was encouraging exports to Japan, and, as a result, the profits from the Pioneer contract would be tax-free. It would also strengthen the business relationship between the two companies. Accepting the order; however, would only allow Dhawan and his team 35 days to fulfill the order and prove to be a significant execution challenge with the facility’s limited production capacity. Conversely, placing the order would allow Harimann to make a large profit and continue to employ his workers during the “off-season”. Dhawan had to analyze the risk/reward of such an offer before entering into the contract. The following pages analyze and evaluate the options available to Harimann and provide possible, reasonable recommendations for the company.
Decision Problem Should Harimann International take the Pioneer order and accept risks associated with an aggressive delivery schedule, but potentially secure a significant profit, enhance partnership equity with the customer, and increase Harimann employee benefits, or should Dhawan reject the order to preserve his company’s reputation for timely service in the marketplace?Industry Analysis Textile production and trade is a leading industry in India. According to the India Brand Equity Foundation (ibef.org), the textile industry provides “14% of the industrial production, 5% of India’s GDP, and 11% of the nation’s export earnings.” The industry provides approximately 45 million employment opportunities directly to its citizens and more than 60 million indirectly, second only to the agricultural sector. The industry has experienced a significant growth spurt, and specifically from 2015-2016, India’s export of textiles reached US $40 billion. The Indian textiles industry, currently estimated at US $108 billion, is expected to continue to grow, reaching US $223 billion by 2021. With this kind of market growth potential in the coming years, Harimann International must carefully weigh present opportunities against potential risks so as not to miss a strategic window for growth and expansion. Evaluation of Alternatives: Three Possible Outcomes Three alternatives are available to Dhawan and Harimann International. The first option is to reject the offer and not deliver the desired product to Pioneer Trading Company. This decision could likely impact the relationship between the two companies, costing Harimann considerable future profits. Additionally, Harimann will incur a loss on the already purchased product should it decide to resell. The decision tree in Figure 1.1 shows a loss of 65% after selling the embroidered product with the unembroidered product at 90% with a loss of 45,202.50 INR. Dhawan’s second alternative is to accept the offer and face the possibility of two separate outcomes. The first outcome offers the best case scenario. In this instance, the order is completed and delivered on time. This outcome will generate a profit of 315,238 INR. Additionally, it will also increase the business relational equity between the two companies and allow for additional profits on future orders. The third possible outcome, should Dhawan accept the offer, involves certain probabilities and complexities he believes are likely to occur. Should the order not be delivered on time, the probability of 50% profit will occur 40% of the time. In this scenario, Harimann will suffer a financial loss of 72,081 INR. Alternatively, a probability of a 30% payment is about 40% which would net a loss of 311,380 INR. The final possibility is probable at 20% with 20% payment, netting a loss of 360,720 INR.