Do You Believe Chocolatier Should Move to Poland?

Do you believe Chocolatier should move to Poland? Justify your answer. (24 marks)

Chocolatiers main objective is to increase their market share of the luxury market significantly.  An objective is specific and more detailed outcome which is then completed to help achieve the overall aim of the business in this case, Chocolatier’s aim is for the business to become one of the market leaders in the UK luxury chocolate market.

Chocolatier can achieve their objective by selling its products in supermarkets however this means that Chocolatier would have to double its existing production capacity.  The York factory currently produces 35 million units and has little spare capacity meaning there is little room for expansion.  York currently has a capacity of 40 million units and with Chocolatiers objective of selling to supermarkets and doubling their production the business would have to make 70 million units which is much higher than York’s capacity. However, if the business was to move to Poland they would have a maximum capacity of 200 million units meaning Chocolatier would be able to reach the demands of the supermarkets, and have lots of spare capacity, as they would only be using 37.5% of Poland’s capacity.

There are many benefits to Chocolatier if they move to Poland, as the variable costs would be much lower and this means that the selling price can decrease which may lead to an increase in customers as they will be paying lower prices for the same luxury product. There is also the benefit of investing in capital intensive production as this will benefits the economies of scale of the business as the technology will be more efficient and long lasting and more productive compared to the labor intensive production in York. The greater their economies of scale, the more the unit costs will fall which is highly beneficial to the business as this means they could lower their selling price even more. Chocolatier’s objective is to increase market share and one way of doing that is by lowering their prices so that they are the most dominant over their competitors. Chocolatiers biggest competitor in the luxury chocolate market is Kraft Foods who have a market share of 30%.  The technology that Chocolatier will invest in, in Poland, will improve the operational efficiency meaning the business can stay profitable when the supermarkets demand large price discounts. Although the fixed costs is forecast to increase in Poland it will benefit the business in a long term profit.  The main benefit of moving to Poland would be the major increased in productivity and the spare capacity which will enable Chocolatier to double their productivity and reach the demands of the supermarkets.

The problems that will arise with moving the business to Poland is that the employees who currently work at the York factory will lose their jobs, and from the human resource data it shows that there is a low number of temporary staff compared to the industry average and there is a lower percentage of labor turnover showing that many of the workers in the factory have worked there for a while as full time staff. This means that Chocolatier would have to pay a lot of redundancy fees which will be expensive for the business therefore moving to Poland will become more expensive .Also, 80% of chocolatier’s workforce belong to an employee group meaning that if York was to shut down, the employees may go on strike which will cause a bad reputation to the business. Being a luxury product business, Chocolatier cannot afford to create bad publicity for themselves. This will give their brand a bad reputation and customers may stop buying their products. A benefit of staying in York is that the business could expand their factory in York so that they can create more capacity if the business was to sell to supermarkets. The labor productivity of Chocolatier in York is very high and very close to the industry average, the York factory also have a lower percentage of defective products compared to the forecast percentage of Poland. This shows that the employees are very efficient in York.