OzWidget Company Analysis - Case Study Example

Contents List of figures 1 Abstract 2 Introduction 3 Background knowledge 3 Results and discussion 4 Data trends 4 Relocation 6 Regression interpretation 7 Staffing 10 Expansion 11 Conclusions 12 Recommendations 12 Limitations 13 List of figures Figure 1 Trends in Metalliferous ores and metal scrap 5 Figure 2 Trends in Petroleum products and related materials 6 Figure 3 Regression coefficients 8 Figure 4 R-square 8 Abstract Two sets of data were provided for eight states and two export categories. The researcher used the data to make statistical analysis using regression analysis aided by Microsoft Excel Spreadsheet. From the regression output, the report suggests that OzWidget Company be relocated to Western Australia to minimise costs to customers. In respect to this relocation, the firm should also seek to recruit from the UK. This is because there is ready labour supply in the UK. From raw data on world mineral deposits and production, China and Brazil are recommended to be the new foreign markets for OzWidget Company. They provide the best combination of mineral categories relevant to the operations of the OzWidget Company. However, such moves should be made after further analysis of the individual markets. Introduction OzWidget is an Australian manufacturer of mining equipments, under the same brand name - the OzWidget. OzWidget currently operates only in Australia, serving its Australian customers which include BHP Billiton, Rio Tinto, Woodside Petroleum and many others in the mining and exploration industry. Its office and manufacturing plant are in Launceston, Tasmania. The Chief Executive Officer (CEO) Mr Barry Cade has been terminated by the Board as he had resisted all efforts to expand the business. The Board has now appointed a new CEO, Ms Anna Prentice, to pursue opportunities for growth and decide on the need for relocation. This report will use data from national exports on products and total state exports to inform these decisions through regression analysis. Background knowledge The OzWidget is a success in the market and is poised for greater growth. Currently, clients using the OzWidget have reported an average of 25% increase in production per day compared to traditional extraction methods. Thus the OzWidget is in high demand in commercial mining and petroleum/gas extraction in Australia. The OzWidget weighs 173 tonnes and is delivered from the manufacturing plant in Launceston to Australian customers by a combination of sea, rail, and road transport. There is a proposed move to relocate the manufacturing plant closer to the market to minimize logistical costs. However, the OzWidget’s clients are distributed over different states in the country. Data on mineral exports at state level and merchandise from each state will be used to assess which is the best location. Regression analysis was chosen because it provides the best tool of examining the relationship between one set of independent data and another set of dependent data (Berk 2003). This enables businesses to understand how influencing one independent variable will affect the dependent variable. The Microsoft Excel spreadsheet data analysis tool enables and simplifies the calculations of regressions. For this report, the dependent variable (y-axis) is export category while the independent variable is the state exports (x axis). Results and discussion Scatter diagrams were plotted with export category on Y axis and state exports on the x axis. The regressions analysis were made using Microsoft excel as shown in appendix A and B. Data trends Figure 1 Trends in Metalliferous ores and metal scrap Growth in the production of Metalliferous ores and metal scrap is more promising. The trend is upward and steadier compared to the chart for Petroleum products and related materials as shown below. Figure 2 Trends in Petroleum products and related materials The production of Petroleum products and related materials is somehow volatile with production appearing to fall this year. Relocation Changing the location of any firm is an expensive and time consuming process for any business entity. The fact that OzWidget is considering relocating nearer to the customer is driven by the need to reduce the costs of transport for customers given that the products are bulky and heavy at 173 tonnes. This choice of location will be determined by proximity to the highest producing clients or to the state with the highest number of customers. Raw data would suggest that the company be located in the state with the highest exports in Metalliferous ores and metal scrap, and Petroleum products and related materials. Given that the only data available does not indicate the relevant products (Metalliferous ores and metal scrap, and Petroleum products and related materials) exports by states, the decision will be informed by the relationship existing between the national exports of Metalliferous ores and metal scrap and Petroleum products and related materials and total state exports. As such, scatter diagrams and regression analysis for the eight states and the two relevant categories of products were made for data starting from January 2000 to April 2012 on a monthly basis. Yearly averages for the exports in Metalliferous ores and metal scrap, and Petroleum products and related materials for that duration are as a represented in Fig 1 and 2 above. The production growth trends for Metalliferous ores and metal scrap seems to be more stable that the production growth trend for Petroleum products and related materials. Furthermore, the quantity of Metalliferous ores and metal scrap exported nationally is higher than that of Petroleum products and related materials. This means that any consideration on the relationships between national export and state exports should consider the weights of ach category of product. From the charts, Metalliferous ores and metal scrap has a higher weight. Regression interpretation In interpreting the output data from simple or multiple linear regression, the size and sign (positive or negative) of the R-square coefficient shows the magnitude and direction of the effect that independent variable (x-axis) is having on the dependent variable (y-axis). If the coefficient is positive, the effect on the dependent variable will be reported as an increase while if the coefficient is negative, the expected effect on the dependent variable will be recorded as a decrease. Specifically, the coefficient shows how much one unit change in the independent variable (total state exports) will affect the dependent variable (national exports in Metalliferous ores and metal scrap, and Petroleum products and related materials) holding other independent variables constant. From the regressions, the coefficients for the independent variables from each state are shown below. Figure 3 Regression coefficients Metalliferous ores and metal scrap Petroleum products and related materials NSW -3926.916786 246.8657933 Victoria 1234.834618 226.6903165 Queensland -1276.507334 483.6226827 Southern Australia -3771.112917 151.0596959 Western Australia -879.9248219 529.4681468 Tasmania -1543.647449 314.8058508 Northern Territory -717.70253 446.4997377 ACT 3103.447129 852.7650811 Figure 4 R-square Metalliferous ores and metal scrap Petroleum products and related materials NSW 0.816095866 0.493191789 Victoria 0.011857035 0.119670669 Queensland 0.758536904 0.458725955 Southern Australia 0.419350574 0.353977056 Western Australia 0.981183849 0.558192917 Tasmania 0.256317547 0.285994727 Northern Territory 0.506383772 0.488801032 ACT 0.012427344 0.00812151 The R-square statistic shows how much change of Y is attributable to variation in X. This value shows the level of importance that an independent variable has to a dependent variable. From the table above 0.98 of changes in metalliferous ores and metal scrap export is attributable to changes in state exports in Western Australia. As for Petroleum products and related materials, the greatest influence on the export explained by variations in state exports happened in Western Australia at 0.55. This shows that Western Australia is where the OzWidget Company should relocate to. It has the highest combination of fit for metalliferous ores and metal scrap and Petroleum products and related materials. This means that is the largest producer of Metalliferous ores and metal scrap, and Petroleum products and related materials in Australia. It is important to note that both the metalliferous ores and metal scrap and Petroleum products and related materials industries are very sensitive to the fluctuations in the global economy as shown by the drastic fall in exports during the 2008/09 global financial crisis. From the curves above (Fig 1 & 2), the Petroleum products and related materials is the most sensitive to the global economic trends. Data from the world mineral production reports shows that Australia’s exports in iron ore remained relatively stable during the global economic crisis. This is very important given that Australia is the second largest producer of iron ore after China by 2010 statistics. As for the Petroleum products and related materials industry, Australia is a minor player in the global market though the industry is most sensitive to global economic climate. Staffing The employment situation in the UK is dire. In June 2011, the unemployment rate in the UK was stood at 7.9%. The average total pay (including bonuses) in the private sector was £458 per week in June 2011. As of August 2012, the rate stood at 8% translating to 2.56 million unemployed people which is lower than a high of 8.3% recorded in the first quarter of 2012. This fall in unemployment was largely attributed to the holding of the Olympics games in London. On the other hand, the unemployment rate in Australia in the second quarter of 2012 averaged 5.1% which translates to 629,100 unemployed people (ABS 2012). This can be considered to be a decent rate as economists encourage a minimum 4% unemployment rate to cater for people moving from ob to another. This means that the OzWidget Company might find it difficult to attract 16 000 new employees when the relocation is effected. As such, the move for UK employees is highly recommended. Another issue worth consideration is the wage differences between Australia and the UK. According to the BBC report, the average weekly wages as of August 2012 stood at £462 (approximately AUD$ 722.5) including bonuses (Office for National Statistics 2012). As of May 2012, the average weekly wage rate in Australia increased by 3.5% from the previous year’s to stand at AUD$ 1047.2 (ABS). These are very positive figures for OzWidget Company because the higher wage rate in Australia alone will be attracting new employees from the UK. Expansion Any expansion plans for any business must be informed on precise market knowledge. As for OzWidget Company, there are plans to expand into new markets outside Australia. Given that the firm’s new strategy focuses more on proximity to clients, the firm might consider expanding into numerous markets to minimise the need of exporting their products. In this regard, the potential markets are countries large deposits of bauxite, iron ore, and crude petroleum where the OzWidget can be marketed. Data from the World Mineral Production 2006-2010 shows that China has the largest iron ore deposits in the world. This means that OzWidget Company can exploit this market subject to other business determinants such as the cost of doing business in China. The firm should also consider other countries with large irone ore deposits such as Brazil, India and South Africa. Countries with significant petroleum deposits as a fraction of the world’s total deposits include Saudi Arabia (19.1%), Libya (3.4%), Brazil, Russia (5.6%), Venezuela (15.3%), Iraq (8.3%), Iran (9.9%), Angola (1.0%), Nigeria (2.7%) and China (1.1%) among others. All these countries hold significant oil deposits which imply a potential market for OzWidget Company. Of the world’s total bauxite deposits, Australia holds the largest share at 31.2% followed by Brazil (14.1%), China (13.6%) and Indonesia (12.3%). As for iron ore, there are numerous countries that possess reserves in different quantities. Of the total China holds the largest share at 41.04%, followed by Australia (16.6%), Brazil (14.2%) and India (7%). Of all these countries, the ones that offer a wider potential market for OzWidget Company are those that possess significant deposits of bauxite, iron ore, and crude petroleum. It is important that OzWidget Company considers expanding into such countries in order to spread the risk and also increase market size. China and Brazil are the best suited destinations for OzWidget Company as they hold significant deposits of bauxite, iron ore, and crude petroleum. Conclusions The decision for relocation is timely as shown by the data presented above. The relationship between total state exports and merchandise exports for Metalliferous ores and metal scrap, and Petroleum products and related materials are different from one state to the other. The decision to relocate has thus been arrived at through statistical analysis using the data provided and showing relationship between the different data sets. The desire to expand into foreign markets is informed by business growth strategy and market dynamics. The data used in this case was raw and straightforward. As for employment, simple comparison of raw data between Australia and the UK shows that Australia has the potential to attract UK workers through provision of employment and better pay. Recommendations OzWidget Company should relocate to western Australia as it is the state with the closest relationship between product exports and state exports. This means that is the largest producer of Metalliferous ores and metal scrap, and Petroleum products and related materials in Australia. OzWidget Company should expand into countries with minimal political risk. Some countries with large mineral reserves especially in oil are frequented by political instability and faced with sanctions and trade embargos. If possible regression analysis should be made to compare total exports for such countries with their exports in relevant products. OzWidget Company should give China and Brazil a priority when expanding into the foreign markets because these two countries hold significant reserves of the key minerals namely iron, bauxite and oil. The research recommends that further analysis be conducted on the market suitability of China and Brazil for the operations of OzWidget Company. The business environment should be compared to that of Australia. Limitations The data provided is in metric tonnes and does not indicate the monetary value of the exports. As such, recommendations of this study have no reference to profitability. This study was limited to suing only one statistical analysis software, Microsoft Excel Spreadsheet. The accuracy of the results thus cannot be guaranteed by the researcher. References BP 2011, BP Statistical Review of World Energy June 2011. British Geology survey, World mineral production 2006-2010. Berk, R 2003, Regression Analysis: A Constructive Critique, London, Sage Fleisher, C & Bensoussan,B 2007, Business and Competitive Analysis: Effective Application of New and Classic Methods, London, FT Press Statistical bulletin 2011, Labour Market Statistics Statistical bulletin 2012, Labour Market Statistics, August 2012, http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/august-2012/statistical-bulletin.html ABS, 2012, State and Territory Statistical Indicators, http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/by%20Subject/1367.0~2012~Main%20Features~Average%20Weekly%20Earnings~5.8 Black, C 2003 Business Statistics: For Contemporary Decision Making, London, Wiley. Appendices Appendix A. Regression Metalliferrous Appendix B. Regression petroleum Read More