Mr.Rishi Aneja has recently taken up a new assignment as Head of Marketing at MNZ Gmbh.

MNZ is a Germany based engineering firm manufacturing and selling industrial engineering products. The firm manufactures rubber steel gaskets, metal expansion joints, PTFE expansion joints, camprofile gaskets, etc. The firm has just taken note of the Indian market and, wants to set up operations in India.

MNZ India- An overview

MNZ India, operates from Mumbai. The marketing operations are centralized in Mumbai and manufacturing may commence depending on the progress of the business in India. MNZ specializes in piping gaskets which are normally used in Chemicals, Fluids (ie. Water, petroleum products etc.) and Air. Gasket industry in India, specific to the applications described above, is dominated by

“sheet” gaskets. These are simple rubber, PTFE or chemically bonded sheets of different thicknesses which are cut and used for the required application. Rubber steel gaskets are typically used in applications that require exposure to high temperatures. But rubber gaskets are the “low end” in engineering products and are not critical components in the value chain. When rubber steel gaskets are used, it adjusts to surface imperfections in Flanges, thereby lending itself to specialized applications. Such gaskets also are reusable unlike the “sheet” gaskets.

Rishi is just back after meeting his boss in Germany. When he visited the manufacturing plant at Germany, he realized that quality was the single watchword and no effort would be spared to produce gaskets of the highest quality.

His boss had indicated during the deliberations, that emphasis on quality made low cost of production impossible. Rishi, however, is aware of the single biggest problem in India-the local competition. Local manufacturers could offer rubber gaskets which were cheap, had a reasonable life and the existing users had no cause to look for an alternative. He is trying to put together a cost analysis and a strategy that would work best in the Indian markets. The following is the cost structure of some of the “low end”, rubber steel gaskets products produced by MNZ.

Particulars	Material Rs	Labour Rs	Manufacturing overheads Rs	Marketing overheads Rs
Rubber Steel Gaskets (15mm)	5	3	4	3
Rubber Steel Gaskets (20mm)	6	4	4	3
Rubber Steel Gaskets (25mm)	8	4	4	3

A sample of one of the “high end” metal expansion joint is as follows:

Particulars	Material Rs	Labour Rs	Manufacturing overheads Rs	Marketing overheads Rs
200 mm	6000	3000	4500	6500
150 mm	4000	4000	4000	4000

Exhibit 1

Balance Sheet of MNZ Gmbh (Extract of piping division)

Liabilities	In Rs	Assets	In Rs
Share Capital	500000	Fixed Assets	390000
Long term loans	300000	Accounts receivable	250000
Short term loans	200000	Inventory	340000
		Cash	20000
Total	1000000	Total	1000000

What Strategy would work for Indian Market based on cost strategy?