The critical issues that relate to the International Decorative Glass case are as follows:
i. IDG currently has two production facilities, one in Canada and one in China, both of which are operating at capacity. To keep up with increasing demand for their product in the US IDG needs to expand their capacity.
ii. IDG’s relies heavily on its foreign subsidiary Century Glass located in China. Because of its geographic location Century exposes IDG to considerable operational risk. The Chinese political environment is volatile and there are concerns that anything from an increase in tariffs to an outright ban on exports could occur. This would have a huge negative effect on IDG.
iii. In order to efficiently operate in China, IDG relies heavily on the political connections of Century’s owners. Currently, this allows IDG to bypass many of the bureaucratic and logistical issues that would otherwise greatly increase their lead time. However, it also gives Century vast supplier power over IDG, therefore, exposing IDG to significant risk.
iv. IDG is currently facing cash flow issues. With a cash balance of only $1,000 IDG will likely struggle to meet its current liabilities in the upcoming year and may become illiquid.
IDG has found itself in a position whereby it is turning customers away because it does not have the capacity to fulfill their needs. In addition, it is expected that the US market will continue to expand to the point that it is expected to more than double in the next five years. As such, it is vitally important that IDG expand its operations in order to meet this demand and ensure the company’s continued profitability in the long-run. Because of high tariffs on imports into the US from China IDG has been able to successfully leverage its proximity to the US border with its ability to produce at a low cost via production in China. IDG has decided to double its capacity and has investigated three...