Section 2 – Background to Holden plc

Lesson objectives To be able to discuss the roles of each of the shareholders To be able to discuss the 2008 move to China and resulting redundancies in Bowton To be able to discuss the specialist workers roles To be able to identify the marketing methods that Holden plc currently uses To be able to define an import tariff and its purpose and relevance to the case To be able to answer quiz questions based on the case study

Starter Read page 2 lines of the case study What do you think redundancy means?

What does the term “redundancy” mean? There are two types of redundancy: Compulsory When a factory or business shuts and the jobs are no longer required, staff may be made redundant. This will involve a payout if they have been with the firm based on age, weekly pay and length of time with the company. Statutory redundancy pay is only paid out after you have been in the job for over 2 years. Voluntary This is when the business announces that it needs to cut jobs and staff decide they would like to leave and take the redundancy pay. Some may choose to do this to start a business of their own.

What does redundancy mean to Bowton? The case tell us: “In 2008 Tom decided to move production to China to take advantage of lower labour costs. The business had to make many of its employees in Bowton redundant.” What are the impacts of redundancy on the town of Bowton? Impacts: Economic deprivation Shops closing Unemployment Less wealth in an area Less attractive for people to move into so house prices suffer Small businesses forced to close

Since 1982 the business has grown and now operates as a plc What is a plc? Its is a public limited company (plc) and has floated its shares on the stock market. Who can buy shares? Anyone Why did they want Holden to become a plc? The most likely reason would be that the business needed money to expand What do shareholders expect from the business? They invest their money and expect a return on their investment in the form of a dividend. When the business makes a profit they have to give some of this to shareholders as dividends.

Holden plc uses batch production Batch production is where different varieties of the same product is made in batches. This may be due to a restriction such as oven size or because the business wants to make more than one product. Why do you think Holden plc manufactures their cushions in batches? Batch production is where different varieties of the same product is made in batches. This may be due to a restriction such as oven size or because the business wants to make more than one product. Why do you think Holden plc manufactures their cushions in batches?

Advantages and disadvantages of batch production Advantages Very good way of making a variety of similar products like cushions where the fabric needs to be changed Great for making trail runs of a product Very flexible manufacturing can make small or large quantities to order Very good way of making a variety of similar products like cushions where the fabric needs to be changed Great for making trail runs of a product Very flexible manufacturing can make small or large quantities to order Disadvantages Machinery has to be stopped while the product is changed over so there is no continuous flow Machine downtime is expensive because no products are being produced Machinery has to be stopped while the product is changed over so there is no continuous flow Machine downtime is expensive because no products are being produced

Holden plc employs different types of specialist worker What benefits and drawbacks would there be to having specialist workers in Holden plc? Cutter Maintenance Seamstress Packer Cleaner

Benefits and drawbacks of specialisation Specialisation is where the production process has been broken down into a number of specific tasks. For example cutting the fabric. Workers then specialise in this area. This means that training is very quick as they do not have be trained on a variety of jobs. Workers also become very efficient as they are carrying out the same task all day long The downside is work becomes very boring and the workers become demotivated. Watch this factory tour video 2 mins

Holden plc exhibits at cushion and bean bag trade exhibitions in Europe and the United States What are the advantages for Holden plc when trading with Europe rather than America?

Advantages of trading with Europe rather than America The UK is part of the EU trading bloc which means there are no barriers or restrictions on trade with the 28 member countries. Free trade within the EU – no tariffs or quotas on trade Free movement of goods – no delay at customs Access to a large market of 500 million + customers The UK is part of the EU trading bloc which means there are no barriers or restrictions on trade with the 28 member countries. Free trade within the EU – no tariffs or quotas on trade Free movement of goods – no delay at customs Access to a large market of 500 million + customers Watch this short video on trade with Europe

By manufacturing the cushions Holden plc adds value to the materials used Added value – difference between price paid for raw materials and the final price charged to the consumer Material and thread are purchased from supplier Material is cut, sewn into shape, packed with filling and sewn up Finished cushion is sold to department stores, home decoration stores and small retailers Value added here

The directors of Holden plc know that the quality of the cushions is important Why is quality important? – Holden plc charges premium prices for their cushions (page 2 line 24) – Customers who buy these cushions tend to shop around (Page 2 line 30) – Lots of competition from cheaper entrants to the market (page 2 line 32) – Repeat business from customers – they are selling to retailers who don’t want complaints from their customers about the cushions – Reputation of the business – if they were to produce a poor quality cushion then they would lose large customer orders as they sell in bulk Can you think of other reasons why quality is important?

Market has become competitive Over to you…… Read bottom of page 2 top of page 3 of the case study. 1.Why has the market for cushions and bean bags become competitive? 2.How does the UK market want to fight back? Get ready to discuss your answers

Define tariff a tariff is a tax placed on an import to increase its price and decrease its demand Tax can be imposed by governments to raise revenue and to restrict imports A tariff is likely to raise the final price to the consumer – therefore a fall in demand for the goods Consumers will switch consumption to domestic goods

Tariff A Tax on traded goods (imported or exported) by governments Could be to make imports unattractive to locals (so they buy British) so they buy domestic goods instead. – They could be a specific amount £1 per unit. – or they could be (10% of price) Tariffs are an important barrier to free trade. They are often imposed to protect domestic industry from cheap imports. However, it often leads to retaliation with other countries placing tariffs on their exports. Reduction in tariffs therefore creates trade

Advantages and disadvantages of imposing tariffs Advantage Home produced goods do not incur the tariff and so are likely to be cheaper Those that benefit are the home producers and their employees Tariff protection allows them to sell more because they gain a price advantage compared to imports Better job security Protect new businesses Raise revenue for government spending Protects domestic infant industries so they have a chance to flourish before being swamped by cheaper imports Disadvantage High import price won’t put many off Unfair competition Tariff may just increase prices for consumers Restricts the volume of trade Other countries may impose their tariffs in response to this on their imports

Quiz on section 2 1.What year was the business started? 2.Who is the marketing Director? 3.Why did Tom move production to China in 2008? 4.What nationality are the specialist workers? 5.How is the cushion market segmented? 6.What are the price ranges of the cushions?

Answers to section 2 quiz Agnes 3.To take advantage of lower labour costs 4.Mostly Chinese 5.By income of consumer (line 20 page 2) 6.£15 - £88