Betocowo plc is a UK company, listed on the London Stock Exchange, producing children’s toys. It specialises in educational toys for children of all ages, from kindergarten to teenagers.

Betocowo produces one third of its toys at a factory in the UK at its Headquarters, Betocowo House, Vanwall Business Park, Vanwall Rd. Maidenhead SL6 4UB United Kingdom one third in Eastern Europe within the Euro area, and one third in China.

Betocowo’s biggest market is the EU – 80% of its sales are there, especially the UK (20%), France (20%), Germany (20%), Italy (10%) and Spain (10%). It also sells in the USA (10%), Canada (5%) and Australia (5%). These last three markets are growing fast.

Company objectives 

Betocowo’s Strategic 5 Year Plan involves two core objectives:

Part A: Puerto Rico  

Entrance into the North American market is planned by Betocowo plc in the interest of creating a ‘total’ value chain from supply to consumer in the North American toy market. The financial risks of setting up a factory in the Americas posed certain challenges to formulation of the best possible business scenario for the Company’s manufacturing operations. How Betocowo plc came to the decision that the industrial sector of Puerto Rico was the optimum target for the new factory is based on several core criteria to the organization’s strategic modeling of a ‘win-win’ enterprise. Investor contribution to the decision is outlined in relation to legal protections, and capitalization with the least risk.

Financial audit statement was provided to company investors during the feasibility study phase of the global strategic planning process. As a public company, Betocowo plc is directly affected by the Sarbanes-Oxley Act (SOX), and uses the AICPA’s Audit Committees Toolkit for public and private corporations in reporting. Before embarking on a change to organization, structural components also took place toward a more horizontal channel of decision making, so that international expansion would not adversely affect current Betocowo plc interests. Identified risks in the various labor market and trade regions of the Americas greatly impacted the decision to invest in Puerto Rico. High risk attributes affecting the other candidates to the decision making process, Brazil and Mexico, resulted in a range of concerns regarding crime and corruption in those settings. Although each region presented points of capitalization, the sustainability and safety of Betocowo plc and its employees narrowed the prospectus.    

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The global financial crisis

During the 2007 global financial crisis, the toy industry was shaken considerably. Betocowo plc survival strategy was multi-scale in streamlining costs in its home market in the EU, and the search for an alternative site for manufacturing that would cut out costs of international distribution shipping, tariffs and taxes incurred in overseas trade. Labour in the UK also set the tone for change management strategies toward mitigation of higher wages and benefits to employees than those seen in the North American and Asian markets. The North American economy of scale was particularly important to stabilization of Betocowo’s position in the international toy trade, and offers deep savings to the company not viable in accordance with UK and EU laws.

Other strategies employed during the 2007 to 2011 period correlated to bond investment within the portfolio for lack of better prospects. This stop-gap opportunity is also available to US based firms, and an important reminder that the diversification and protection of company investments is at the forefront of strategic priorities. To this end, the option to set up North American operations in Puerto Rico is a vital financial choice that will inevitably restore confidence and interest in investors looking for a growth opportunity with the least amount of risk.     

One year prior to the global fiscal crunch, the exponent units shipped to the North American markets accelerated by 300%. Betocowo plc was pressed for a new in-house distribution system with integrated network functions for up-to-the-minute accountability in inventories. The IT infrastructural implementation to the company network also meant that oversight in the UK did not engage in cost-cutting as it was thought to only increase errors once the new system went live. Every last bit of internal intelligence was used to mobilize the integrated operations network. Sustainability was the goal. Sales, then, needed to prevail to reduce cost per unit toward reduction of existing expenses.

What prompted the decision to move factory operations abroad were a number of issues that arose in response to inadequate control over distribution operations in North America during this period; avoidable errors made evident that the nascent concept of a ‘global factory’ value chain must involve regional distribution warehouses. Decentralized, on site operations would be significant in the North American market if the company was to continue to pursue such robust opportunity. The Company’s experiment with outsourcing was a failure. It was a difficult lesson learnt. Transport in the US market continues to be a strong factor in decision making, with reliable on time deliveries to retailers a critical measure.

Licensimg for Puerto Rico

Licensing was another key element that made Puerto Rico attractive to Betocowo’s investors. A major point of leverage for competitors in the North American market, capitalization on product and trademark licensing of toy identities and their character constituencies (i.e. film and sports figures), put those agreements at the top of the list in terms of projected performance. Competitive advantage was also found where main rival corporation, Mattel, Inc. sought retraction from monopolistic reliance on big retail customers — Wal-Mart, Toys “R” Us, and Target and advancement through catalog and Internet sales. This shift in competitor strategy opens a new segment of retail clients up to Betocowo’s toy offerings.

Due to the fact that the Mattel brand also left the State of Kentucky and consolidated two of its manufacturing facilities in Mexico in 2003, Betocowo plc is set to tackle operations in the North American market in the United States protectorate of Puerto Rico in a measure to capture more US and Canadian investment in the enterprise. The product and trademark licensure agreement core to the strategic growth model is also a measure against protectionist interests of the North American market where the UK firm is external to NAFTA, and particularly the US where the largest toy consumer segment is at present. This will encourage open doors where there might not be otherwise according to World Trade Organization (WTO) dispute precedent.

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As the United States is a common law country, where Brazil and Mexico are not, the decision was preempted by the legal interests of the proposal for expansion to the North American market. Translation of liability and insurance rules by Betocowo plc employees will be more readily ascertained as ‘business as usual’ as well as the interpretative aspects that might emerge in case of any litigation that may be pursued by North American parties. Moreover, regulatory compliance in manufacturing of toys according to US law are most parallel to UK and EU stipulations to environmental audit and testing of materials and packaging, and while the USD adds even more cost to production, the upfront estimation of full cost pricing is not an obstacle to the company at present as it is customarily more per unit, and per employee hour in the UK. In sum, clear legal statute, historically lower USD, and official bi-lingual competency make Puerto Rico the appropriate choice for Betocowo plc.    

Transition to the Puerto Rico location will require thorough attention to local challenges and change management demands. Audit of business risks and distinctions in the US accounting system will be priority action items in the determination of operational policy and procedure, and guidelines to related supply chain management and distribution decisions. Betocowo’s internal culture of decision to advance as a multinational corporation (MNCs) means that all details in ethical conduct must be confronted prior to initiation of working operations at the Puerto Rico site.

With concerns over abuse of market power and unfair and unethical business conduct prevalent in public-private dialogue on global operations and supply chain management, Betocowo wants to ensure that all activities conducted on site at its operations in other countries are socially responsible. In accordance with UK and EU laws on environmental, human and labor rights, the Company abides by a universal protocol of mitigation in regard those issues. Items covered within company policy involve worker exploitation in terms of unfairly low wages, excessive work hours, and unsafe work environment; pollution and contamination of air, ground water and land resources; and, undermining the ability of natural government to protect the well-being of their citizens.  

Entrance into the Asian markets

Market sales to Asia in the last three years have seen exponential growth. In cooperation with newly established retail partner, Target Corporation, Betocowo will commence its entrance into the Asian markets, in Southeast Asia, with the opening of its business development and sales division in Bangalore, India. Recent visit to Target’s headquarters in Bangalore convinced executive management, investors and other key stakeholders that India’s technology incubator region the most viable jumping off point for dual expansion of Betocowo’s own market opportunities, as well as value chain operations into Target’s near future expansion throughout Southeast Asia. Similar to the North American decision in expansion of factory operations, the legacy of common law and English as the official language bodes well for streamlined integration of distribution and sales opportunities in the sub-continent and surrounding region. Most profitable, is the large youth demographic comprising a large segment of India’s market is primed for Betocowo’s toy product lines.     

The Betocowo plc decision also follows a series of regional risks in manufacturing that the company might capitalize on as it attempts to extend its reach into the different national toy markets. In 2007, main competitor Mattel was forced to recall much of its Fisher-Price line business due to potential risks stemming from tortfeasor suits. Injuries caused to customers brought on dark days in the toy retail market again in 2010, in the latest recall of nearly $50 million in product returns and related expense in Chinese-made products deemed harmful. Image led to identity disaster, as control over those risks escalated and continued, rather than resolved in safe measure. Mattel’s critical losses resulting from the recall of a proximate 775,000 Chinese-made toys in their most popular product lines (i.e. Barbie) ended in agreement to lower acceptability of lead in toys, in reduction of total purchase by Mattel from its manufacturer supplies of 90 parts per million from 600 parts per million.

Due to nature of the client-product relationship, toy makers face an unusually complex set of risks. The business can learn valuable lessons from competitors in the region; points of leverage for coping with uncertainty in toy consumption. Lessons learned from the lead competitor are an advantage to Betocowo in preface to its entrance into the markets of Asia and Southeast Asia. Industry insight and reputational exposure of this sort means that all circulation of Betocowo products will be met with rigorous quality control. The high prevalence of copyright infringement in the Asian manufacturing sector, and particularly China, puts Betocowo at risk. The primary goal is to avoid Mattel’s legal liability mistakes in external markets, as well as in Asia. The investment in costly materials, product testing and labor indeed presents a challenge in competitive advantage. However, in the wake of Mattel’s disaster, and subsequent costs related to redesign and investment mean that our up front prudence in quality control within the value chain is not only to the benefit of the corporation but its small customers.         

“The toy industry faces relentless change and an unpredictable buying public, which creates immense challenges in anticipating best sellers and predicting volume”. Much like companies in the high-technology industry Betocowo suffers from many supply chain problems related to short product life, rapid product turnover, and seasonal demand. Coupled with extensive supply lines, Betocowo’s capacity to operate in Asia is also effected by ongoing political and economic turmoil in the region. Analysis of supply chain lessons is equally beneficial as financial performance record, in that reduction of risk is conjoint in axis.

The toy industry in the 21st century

Rapid transformations in global operations and flexible capitalization call for new approaches to measuring market metrics, and particularly at the R+D innovation node in channel product manufacturing. The most obvious mover aside from consumer preference is the impact of fiscal performance on shareholder investment and risk mitigation toward sustainable growth in revenues. Innovation in this area is an aspect of Modern Portfolio Theory (MPT), and is best served by way of application of measured metrics known to Six Sigma availability and capacity strategies; harnessing limited resources to the right market processes toward advancement of increased market share. Here resources are always understood to be limited in the actual sense, so that harnessing inputs to cause-and-effect can be observed through macro systems based analyses, including: benchmarking; charters; Pareto charts; process mapping; SWOT (Strengths, Weaknesses, Opportunities, Threats); and trend analysis (Edgeman, nd.) .

Shareholder value creation then is the silent force behind the circulation of brand identity in the market. Interpretation of certain risk constraints within cash-flow and its relation to production, operations, logistics and sales impacts the direction of how efficiently Betocowo’s PLC will strategize diversification of both product line and investment portfolio, and ultimately management of product channels illustrated in Figure 1.

Metrics providing interpretation of the relationship between segment sales and the internal expense of marketing on the product segment targeting a consumer segment will be determined by a mid-level analysis illustrated in box graph correlation in Figure 2. 

Micro or consumer segmentation analysis offers the depth level of analysis on preference related data needed to build knowledge about product demand toward better innovation of Betocowo’s products and their marketing potentials. Moskowitz and Gofman’s (2007) Selling Blue Elephants provides an overview of the most recent trend in market research: Rule Developing Experimentation (RDE) methodologies. Rather than mere consumer segmentation analysis, the new RDE offer research professionals systemic integration of The former R+D process with iterative design, testing, packaging, product innovation or modification, and alternative services.

Metric models that interface “hot button” response into survey target the discovery of consumer preferences; even where the consumer is unable to articulate specifications of demand, much less articulate value or solution. An example of RDE is found in the Conjoint Analysis Model Demonstration includes a market share simulator (dobney.com, 2010). While the Conjoint Analysis is well suited to integration into coding for Retail Operations Information (ROI) systems and tracking data used in Product Chain Management (PCM) and Value Chain Management (VCM), the analysis derived from implementation of such data contributes primarily to operations and logistics. 

Through the active management of both demand and supply variability, nodes along the axis inform business development direction of targeted locations for sales and marketing. Proposed activities include: product variety strategies based on product extensions; rolling mix strategies; leveraged licensing agreements; coordinated outsourcing strategies; and hedging against political and currency risk through diversification in the various national economies.

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