Laos Tire

A high-level approach can be shared with the candidate:

• Understand the current cost structure of Laos Tire and foreign competitors.
• Calculate the impact of import tariff reduction over the next ten years.
• Recommend steps Laos Tire can take to safeguard its position.

The candidate should come up with a fitting approach to solve the case:

1. Cost structure
2. Competitive position
3. Impact of tariff reduction

The candidate should note that labor costs are very high in Laos compared to foreign manufacturers.

• This is caused by a lot of manual labor and a lack of sophisticated machinery to reduce the impact of labor on its unit cost.
• This means that Laos still has some technological development to implement to be able to compete with foreign producers without import tariffs.

• The candidate should now calculate the effects of the import tariff reduction to see when producers would decide to enter the market.
• The candidate should calculate the unit cost of the foreign producer based on the lower tariff each year to see the effects.

If we calculate the unit cost for each year, we get the following table:

The candidate should note that client has only 3 years before foreign players can enter the market with a competitive price.

• Laos Tire needs to quickly implement new technologies to reduce its unit cost and operate at the same level as foreign players.
• Labor costs should go down to 25% similar to foreign producers.
• Laos Tire should think about marketing initiatives to retain customers and ensure customer loyalty.