Harvard Case - Kanzen Berhad: The United States and Antidumping Duties
"Kanzen Berhad: The United States and Antidumping Duties" Harvard business case study is written by Donald J. Lecraw, Boon Lim. It deals with the challenges in the field of Business & Government Relations. The case study is 24 page(s) long and it was first published on : Sep 5, 1996
At Fern Fort University, we recommend that Kanzen Berhad proactively engage in a multi-pronged strategy to navigate the complexities of the United States antidumping duty landscape. This strategy involves a combination of business and government relations, legal expertise, and strategic adjustments to minimize the impact of potential duties and ensure long-term sustainability in the US market.
2. Background
Kanzen Berhad, a Malaysian company, is facing the potential imposition of antidumping duties by the United States government on its exports of steel pipes. This situation arises from a complaint filed by US steel pipe manufacturers alleging that Kanzen is selling its products in the US market at unfairly low prices, thereby harming domestic producers. The case highlights the complexities of international trade and the potential for government policy and regulation to significantly impact businesses operating in global markets.The main protagonists in this case are Kanzen Berhad, the US steel pipe manufacturers, and the US government, represented by the Department of Commerce and the International Trade Commission.
3. Analysis of the Case Study
To analyze this situation effectively, we can utilize the Porter's Five Forces Framework:
- Threat of New Entrants: The steel pipe industry has relatively high barriers to entry due to capital-intensive production, technology requirements, and established supply chains. This limits the threat of new entrants.
- Bargaining Power of Buyers: US buyers of steel pipes have moderate bargaining power as they have several suppliers to choose from, but the product is essential for various industries.
- Bargaining Power of Suppliers: Kanzen's suppliers, primarily Malaysian steel mills, have moderate bargaining power as they are crucial for Kanzen's production but are not the sole suppliers.
- Threat of Substitutes: Steel pipes have substitutes like plastic and concrete pipes, but these may not always be suitable for all applications, limiting the threat of substitutes.
- Competitive Rivalry: The steel pipe industry is characterized by intense competition among established players like US manufacturers and foreign exporters like Kanzen. This rivalry is further exacerbated by the cyclical nature of the industry and the potential for trade policies to significantly impact market dynamics.
The potential imposition of antidumping duties represents a significant threat to Kanzen's competitive position in the US market. It could lead to increased costs, loss of market share, and potential damage to the company's reputation.
4. Recommendations
Engage in Proactive Lobbying and Advocacy: Kanzen should engage in business and government relations by building strong relationships with US policymakers, industry associations, and relevant government agencies. This includes:
- Lobbying strategies to influence policy decisions and advocate for fair trade practices.
- Corporate political activity to engage in constructive dialogue with lawmakers and government officials.
- Developing a strong understanding of US trade laws and regulations to ensure compliance and minimize the risk of future disputes.
Seek Legal Counsel and Explore Legal Options: Kanzen should engage experienced legal counsel specializing in international trade and business law. This will allow them to:
- Challenge the antidumping allegations through legal proceedings, presenting evidence to refute the claims of unfair pricing.
- Explore potential legal avenues to mitigate the impact of duties, such as negotiating a settlement agreement or seeking exemptions based on specific circumstances.
Strategic Adjustments to Mitigate Risk: Kanzen should consider strategic adjustments to its operations to mitigate the impact of potential duties:
- Diversifying its export markets to reduce reliance on the US market and explore new growth opportunities in other emerging markets.
- Adjusting its pricing strategy to remain competitive while ensuring profitability, potentially by increasing prices slightly to offset potential duties.
- Exploring alternative sourcing strategies to reduce dependence on Malaysian suppliers and potentially source materials from other countries with favorable trade relations with the US.
Enhance Transparency and Corporate Social Responsibility: Kanzen should proactively address concerns about its pricing practices and demonstrate its commitment to fair trade practices. This includes:
- Improving transparency in its pricing and cost structure, providing detailed information to US authorities and stakeholders.
- Strengthening its corporate social responsibility (CSR) initiatives to demonstrate its commitment to ethical business practices and sustainable development.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: Kanzen's core competencies lie in steel pipe manufacturing and its mission is to provide high-quality products at competitive prices. The recommended strategies align with these core competencies and the mission by ensuring the company's long-term sustainability and competitiveness.
- External customers and internal clients: The recommendations aim to satisfy both external customers (US buyers) and internal clients (employees and shareholders) by ensuring continued access to the US market, maintaining profitability, and protecting the company's reputation.
- Competitors: The recommendations acknowledge the intense competition in the steel pipe industry and aim to position Kanzen favorably by leveraging its strengths, mitigating risks, and adapting to changing market dynamics.
- Attractiveness ' quantitative measures if applicable (e.g., NPV, ROI, break-even, payback): While specific quantitative measures are not readily available in the case, the recommendations are expected to generate positive returns on investment by mitigating potential losses, securing market share, and enabling long-term growth.
6. Conclusion
Kanzen Berhad faces a challenging situation with the potential imposition of antidumping duties in the US market. However, by proactively engaging in business and government relations, leveraging legal expertise, and strategically adapting its operations, Kanzen can navigate this complex landscape and secure its long-term success in the US market.
7. Discussion
Alternative options not selected include:
- Ignoring the issue: This would be a risky strategy, potentially leading to significant financial losses and reputational damage.
- Exiting the US market: This would be a drastic measure, potentially sacrificing a significant portion of Kanzen's revenue and market share.
Risks and key assumptions:
- The effectiveness of lobbying efforts is dependent on the political climate and the strength of the opposition from US steel pipe manufacturers.
- Legal challenges can be expensive and time-consuming, with no guarantee of success.
- Strategic adjustments may require significant investments and could impact short-term profitability.
8. Next Steps
- Immediate action: Engage legal counsel and initiate discussions with relevant government agencies.
- Short-term: Develop a comprehensive lobbying strategy and implement strategic adjustments to mitigate risks.
- Long-term: Build long-term relationships with US stakeholders, diversify export markets, and continuously monitor the evolving trade landscape.
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Case Description
In early 1992, Mr. Eu, managing director of Kanzen Tetsu Sdn. Bhd. (KTSB), a new Malaysian producer of stainless steel tubing, received a letter from KTSB's attorney in Washington, DC, informing him that the U.S. Specialty Tube Group had written to the U.S. president concerning stainless steel tubing imported into the United States from Korea, Taiwan, Thailand, and Malaysia at dumped prices that was causing injury to the U.S. industry. For the next year, Mr. Eu considered how he should respond to this threat, while at the same time increasing KTSB's exports to the United States so that KTSB could meet its sales and profit goals. In March 1993, Mr. Eu was informed that a formal antidumping action had been taken against imports of stainless steel tubing from Malaysia (and other countries). Mr. Eu is considering what he should do now, both to preserve KTSB's market in the United States and maintain alternative markets in other countries.
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