YUSHAN AUSTRALIA CASE STUDY

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Problem Analysis & Strategic Decision-Making: The Yushan Australia Case Study

Introduction

Yushan Australia (YA), the Australian subsidiary of the Taiwan-based Yushan bicycles, entered the Australian bicycle market in 2013 after identifying tremendous business growth opportunities in Oceania. Although YA’s unit sales reached close to 6000 by the end of 2015, the estimated 10,000-unit sales target for the same period was not achieved as YA was unable to penetrate the highly competitive and complex Australian market that comprises of a mix of 1,000 bicycle retail shops and mass merchandizers (Bartlett and Myers, 2017). A net operating income loss of 4.2 million New Taiwan Dollar (NT$) in 2015 was recorded. In this regard, the purpose of this report is to identify and appraise the issues faced by YA that led to this financial bleeding in light of underlying theoretical concepts; specify and evaluate the proposed and other potential alternatives, and recommend the best course of action to increase the volume sales for attaining a profitable net operating income.          

Issues

One of the major issues faced by YA was the relatively high preference given to the profitability of the business operations based in Taiwan than to its offshore subsidiaries. As a result, the factory costs could not be controlled, and overheads were often not considered while negotiating the transfer prices, which ultimately burdened other subsidiaries. Increases in manufacturing costs in the factory in Taiwan resulted in unanticipated variations in the transfer prices that compromised the profit margins in sales across Australia. YA’s transfer pricing problems negate the classical and new paradigms of the Internalization Theory establishes that link the internalization of the markets for intermediate goods and setting up governance mechanisms with the economizing of business operations and enhanced profitability (Verbeke and Greidanus, 2012; Buckley and Strange, 2011). Moreover, an unrealistic resource and information planning system has also led to failure in committing to delivery deadlines, and customers have been forced to cancel their orders rather than accepting the delay. Lack of staff training also caused substantial delays in recording orders. These delays have also been due to the late arrival of stock shipped for Australia that raises question marks over the company’s commitments towards Australia. It also points out the gap in mutual adaptation between the parent firm and its Australian subsidiary. According to the Institutionalization Theory, this gap represents a flaw in Yushan’s international strategy for YA, as the subsidiary is unable to cope up with the isomorphic pressures in an attempt to institutionalize with the Australian market context (Kostova and Roth, 2002; Kano and Verbeke, 2019). Also, there were inaccuracies in sales forecasting which shifted the sales priority to Japan, where the forecasts were relatively accurate and offered better profit margins.

YA’s sales forecasting discrepancies and currency losses highlight the postulate of Contingency Theory, which establishes that a strategic fit for offshore subsidiaries lies in the firm’s adaptation to the dynamic environments in which they are operating (Kano and Verbeke, 2019). Also, the Agency Theory accurately defines the ‘agency’ problem faced by YA, where the subsidiary management’s decisions are not in line with the interests of the Taiwan-based headquarters (O’Donnell, 2000). YA also had to bear additional costs due to the weakening of the Australian dollar currency as transfer prices were given in NT$. This was reflected as an increase in product costs.

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