CASE#3:

Ah Kin and UFL were electrical bike manufacturers focused on the lower midrange market in suburb cities and rural areas. These two manufacturers specialized in bicycle products operated by battery. During these days, it became more popular in China's small cities and suburb towns where public transport facility was inadequate to support the whole regions. With the coming of powerful lithium battery, electrical bike was less heavy, energy lasting, and more quickly rechargeable. Electrical bike was so easy to control, inexpensive, and relatively safe that it became a popular vehicle for folks in these regions. However, electrical bike was not a legitimate vehicle on main roads and busy streets. It was nevertheless acceptable by local police with "an eye closed" because of its necessity in daily use.

Ah Kin and UFL bicycle companies were direct competitors producing similar products in the Guangdong Province of PRC. Both firms had a strong market presence in these suburb areas and also had good connections with a few influential national retail chain stores. Bicycle production was a large but scattered industry in China. No particular strong market leaders could dominate the bicycle industry, particularly in suburban areas. UFL had been a key player in the region. A recent failure in product launch had drained out a lot of cash. A battery accident further damaged its reputation. Contrarily, Ah Kin had a better battery design (licensed by a third party supplier), more reliable products, and faster battery recharge. Ah Kin estimated that the market was stable at about one million of annual sale. Given the weak market position of its rival and its spare production capacity, Ah Kin believed time had come to terminate the competitor. Ah Kin asked its sale director and business controller, together with an external management consultant, to work out a solution to the Management Board. The controller managed to obtain UFL's financial performance from its recent public announcement in GEM (stock exchange market for small companies). The following outlined some selected key financial information for UFL and Ah Kin. The relative strength represented a 3-year average between UFL and its own firm (discussed in Accounting for Competitive Position).

Table 1 2.1 5 Forecast demand quantity:r ln cartons (100 pieces per carton) Region South Region Central Region North Forecast sale volume 90.000 130.000 90.000 Table 12.16 Regional freight charge estimates Average Freight charges per carton [in if RMB) From Region South From Region Central To Region South 0.5 3.9 To Region Central 3.0 0.? To Region North 4.3 3.5 Table 12.10 Summary of key financial numbers & relative strength Year 2016 (USD) UFL Ah Kin (focal firm) Relative strength Sale value 15 M 19.2 M 0.8 Sale vol. (units) 100,000 120,000 0.8 Gross margin % 35% 40% 0.88 Opex % 27% 23% 1.3 Operating profit % 8% 17% 0.6 Plant & machinery 12 M 25 M 0.5 Cash flow from ops 1.5 M 6 M 3.5 Debt/equity ratio 0.6 Accum Depre./P&M 0.6 0.3