Veltry's Risk Versus Reward Endeavour

Veltry Design and Manufacturing is a medium size Canadian company who specializes large automation equipment. They get involved in public sector as well as the private sector working with government tendering and small to large private firms. Their core business is design and manufacturing of equipment but have also been contracted to provide expertise in their field with companies in Germany and Italy.

The president at Veltry visited a trade convention in Mexico City to showcase his company's ability and

capacity to take on large projects. While there, a representative from the Mexican government approached the president about quoting on some large-scale automotive sector work in Saltillo. The automotive market in Mexico has become one of the most prosperous and growing markets in the world.The country is rather stable and though there is a high turnover in the work force, local companies never have an issue keeping a full crew of worker s in the plants.

The scale of machinery being tendered by the Mexican Government will contribute to a 25%-50% overall increase in production over the next 5 years which will equate to more interest from world wide automotive manufacturers to setup shop in Mexico.

This size of opportunity to meet the launch schedules being proposed would require Veltry to build a plant in the Saltillo area an occupy it for the next 4 years eventually becoming a 24-hour service center for their machine in the region.

Developing a company in Mexico has many challenges such as governmental regulations, qualified work force in terms of skilled trades, issues with gangs etc. But even with those risks apparent most of the time, many companies have been able to go to Mexico and become very prosperous over the years. Veltry is viewing this as a very good opportunity to not only be a consultant but to deign and produce their own equipment for the automotive industry there.

Veltry has had a good standing in the North American Auto Market and good relationships with IFI's in the United States and Canada. Many are recognizing Veltrys' expertise in their niche market and are representing Canada quite well as a manufacturing leader providing good paying jobs to 5,000 workers.

They have also achieved a reputation for taking on difficult projects in terms of design and delivery dates in Canada and the USA which include Commercial and Bank risk at times which never slowed their interest in winning project tenders.

After the trade show the president brough the potential opportunity back and presented it to the monthly Executive meeting in Toronto. Of the 16 executives who attend the meeting in person or by virtual, most expressed some interest in taking a closer look at the project. Their main concerns about n out in such a large endeavour included constructing or renting a new facility, staffing with qualified personnel and the overall risk versus rewards it would generate.

A handful of engineers and machine builders at Veltry have worked sparely in United States in a temporary as part of agroup consulting basis with other specialized companies, but none have worked in Mexico let alone stayed there for any extended period of timeThis would be a completely new move for Veltry as they would be on their own.

After further meeting the Veltry executive team gave the go ahead and eventually won the tender bid to proceed.

Like any major expansion, Veltry will face a long list of potential risks from a limited skilled workforce, to training, to financing and working in conjunction with the Mexican Government. Resources, under skilled staff and challenge of securing raw materials could cause significant scheduling issues which would equate to additional cost to make up time in labor. This would hurt Veltry's already stellar reputation in the industry of being a world class supplier who always make their delivery dates.

Though the Mexican Trade and Commerce has pledged to contribute a share of the start up costs in exchange for hiring local workers, Veltry's current assets specifically allotted for the new project be still be in question and a difficult time securing financing need for the entire scope of the awarded contract.

Securing financing could be a major stumbling block and delay the start up schedule which would affect everything else in the overall plans for the next 4 years. This would contribute to adding risk and cost

In order for Veltry to be successful in the launch of this program, it will be assembling and sending their most talented individuals who will be dedicated to this project for some time. The executive staff of company are putting their faith in the team to insure a successful and financially rewarding outcome. All of the executive group must ensure the most thorough risk assessment is conducted, and determine what financial tools will be at their disposal should they require them.

Case Study Questions

1.Will Veltry be in a position to use commonly used financial mitigation tools in a this very high-risk project. If so, what would they be?

2.As the project begins and progresses, what specific items will the executive board be looking from the team in Mexico that will provide confidence that the project is on time and within budget to plan.

3.With a large risk associate with an endeavour such as this, how will Veltry protect its own asset investment and guarantee repayment of any financing it will assume.

4.What key components will be part of Veltry's Risk Assessment strategy. What resources could they utilize to assist to provide financial mitigation consultation concerning financial mitigation tools.