Homeland Plastics
Order Description
Read the Homeland Plastics case and answer the following question: “How can Homeland Plastics maximize its financial returns (in this course, defined as “NOPAT in the
long run”) in light of the fines being imposed by the Finnish Ministry of the Environment?” The written response should be in a essay form two pages double-spaced,
using #11 Times New Roman font (with normal character spacing) and margins which are one-inch.
First, in answering the question, you should prepare a proposal statement, along the lines that I describe in the “Note on Making Winning Business Proposals.” In other
words, the proposal statement should be brief, clear, concrete, complete and comparative. It can be one or two sentences.
For example: “I propose that [the alternative I have crafted] rather than having Homeland Plastics relocate 60 kilometers east of Ramina to Vyborg, Russia.” Of course,
if your selected course of action is one of the alternatives in the footnote, then you should contrast those alternatives against each other.
Second, in answering the question, each student should also give a balanced and comparative statement of reasons. As indicated in the “Summary Chart on Making Winning
Business Proposals,” you can give a balanced and comparative statement of reasons by selecting one or two statements from each of the following columns:
(“Because”)
A. #1 offers more revenue than #2.
B. #1 offers more opportunity than #2
C. #1 results in less cost than #2.
D. #1 results less risk than #2.
(“Even though”)
A. #1 offers less revenue than #2.
B. #1 offers less opportunity than #2
C. #1 results in more cost than #2.
D. #1 results in more risk than #2.
Of course, the choices “A,” “B,” “C,” and “D” in each of the two columns are mutually exclusive (i.e., you cannot give “A” from the two columns as both the reasons in
favor of and against your proposal); and, it is important that the reasons in favor of the alternative you have crafted (i.e., the A, B, C and/or D under “because”)
outweigh the reasons in favor the alternatives you have rejected (i.e., the A, B, C and/or D under “even though”).
For example: “I make my proposal even though [the alternative I have crafted] results is more costs than relocating to Vyborg. I make it because [the alternative I
have crafted] offers more revenue than relocating to Vyborg; and, in this case, the difference in revenues is greater than the difference in costs.”
It is also important that you can explain (a) how the revenues, opportunities, costs and risks arise for all of the alternatives you have crafted and rejected, and
(b), on a comparative/approximate basis, how much the revenues, opportunities, costs and risks resulting from the alternative you have crafted differ from the
alternative(s) you have rejected. You may explain these matters in your paper or explain them in class upon request.
[1] For the purposes of being “comparative,” I would like you to contrast your proposed course of action with either or both of the alternatives expressly mentioned in
the case:
• relocating 60 kilometers east of Ramina to Vyborg, Russia, and
• scheduling Ramina’s heavy emissions work at night — so that during the day, when environmental inspectors took their readings, the emissions were within standards.
Homeland Plastics
What is best for Homeland Plastics?
In this assignment, you should imagine that you are Jan Andersen and that you are meeting with Mark Langland, your boss, who has traveled from Copenhagen to
Ramina, Finland, to discuss the facts set forth in this case. Mark would like you to outline briefly, clearly and completely for him the best course of action which
you have identified for Homeland Plastics to manage the issues raised by the facts of this case. In addition, Mark would like you to support your chosen alternative
with relevant facts which compare your selected alternative with other possible courses of action, giving balanced reasoning for and against the course of action you
have selected. Ideally, Mark will be able to take your proposal word-for-word back to senior management in Copenhagen and use your proposal to make a winning business
proposal. To this end, Mark has informed you that the proposal should focus on Homeland Plastics’ self-interest, which senior management has identified as maximizing
the company’s net operating profit in the long run. Through previous discussions with Mark, you know that maximizing long-run profit involves a balancing act of (1)
avoiding or managing costs and risks, while (2) maximizing current and potential revenues.
The Situation
Jan Anderson thought of himself as a bright young professional with lots of potential. “So why is this happening to me?” he thought. Four years earlier, Jan, with
his wife, Janice, and his two children, had moved to Ramina, Finland from Helsinki, Finland. He was now the manager of the Homeland Plastics plant in Ramina, a small
plant that manufactured plastic parts for small equipment. The plant employed several hundred workers. Homeland Plastics, headquartered in Denmark, had several other
small plants the size of Ramina’s, most located along the coast of the North Sea and the Baltic Sea. Anderson had a good relationship with his boss, Mark Langland,
who worked in Copenhagen, Denmark.
A key problem at Anderson’s plant was that the water emissions were consistently above the guidelines established by Finland’s Ministry of the Environment (MEF). Two
months ago, Anderson had received a call from Langland, stating that the MEF had contacted him about the problem and fines would be levied. Anderson admitted the
situation was a continual problem, but because headquarters would not invest in new scrubbers, he didn’t know what to do. Langland replied by saying that the margins
were at their limits and there was no money for new scrubbers. Besides, Langland commented, other plants – in Norway, Sweden, and Denmark – were in worse shape than
his and were passing environmental inspections.
Anderson ended the conversation by assuring Langland that he would look into the matter. He immediately started calling his contemporaries at other Homeland plants.
He found that some of them were scheduling their heavy emissions work at night so that during the day when environmental inspectors took their readings, they were
within standards. Anderson contemplated this option, but rejected it because it would result in increasing water contamination levels, technically a violation of
Finnish water pollution regulations even if it is less likely to be detected.
After six weeks, Anderson still had not found a solution. The phone rang; it was Langland. Langland expressed his displeasure with the new fines for the month and
reminded Anderson that there were very few jobs in the industry. He also said he had been speaking to the Russian government and had received assurances that no clean
water restrictions would be imposed on Homeland if they relocated 60 kilometers east of Ramina in Vyborg. However, Homeland must hire Russian workers. Langland
explained that the reason for relocating would be to eliminate the MEF problems. Langland told Anderson he had one week to decide whether to eliminate the fines by
correcting the current problems or by relocating. Anderson knew that relocating the plant to Russia would devastate the infrastructure of Ramina and would continue to
put contaminants into the Baltic Sea. When he mentioned the possibility to Janice, his wife, she reinforced other concerns. She did not want him to be responsible
for the loss of the jobs of their friends and extended families.
Background Information
Jan Anderson, 37, is a chemical engineer. He has been with Homeland for nine years. Prior to that he worked for a few years in research and development at the
Helsinki site of a British chemical company. He joined Homeland because he thought he was ready to move into a managerial position and because he wanted to work for a
Scandinavian company. When he took the position with Homeland, he was convinced that a Scandinavian chemical company would observe higher environmental standards than
a British or U.S. company, since the Scandinavian countries have better environmental reputations than the U.K. or the U.S. companies. Indeed, over the years Homeland
has consistently complied with all applicable government regulations concerning the environment.
Like many chemical companies, Homeland Plastics started as a family business and eventually expanded to become a diversified maker of industrial and commercial
plastics. Many of Homeland’s products are petroleum-based and increases in the price of crude oil have hit the company hard. For the past few years, Homeland has
been operating either just at the break-even point or at a small loss. Historically, Homeland has been notably aware of its environmental impacts and obligations,
often performing better than its competitors. However, recent economic difficulties have induced top management to turn a blind eye to irregularities such as night-
time emissions. The option of moving production facilities to Russia or the Baltic States (Estonia, Latvia, Lithuania) appears very attractive to many in top
management, including Mark Langland.
Mark Langland, 54, has spent his entire career with Homeland. He started on the factory floor and was eventually promoted to a supervisory level. When he was 32,
Homeland sent him to college, first for a degree in chemistry and then to the U.S. for an MBA from the University of Michigan. Among his superiors and subordinates,
Langland is seen as demanding, but reasonable. One of his most common comments is “Look at the numbers. They tell the story.”
Ramina is a two-industry town. Besides the Homeland plant, there are two other small petrochemical plants. The other business is fishing and fish-processing. While
most of the chemical industry workers are competent fishermen, the pay scales are much higher in industry than in fishery. Also, about half of the fishing business is
seasonal. The Homeland employees represent over 30% of the total workforce in Ramina. If the Homeland plant were to close, the town would inevitably suffer a
significant economic downturn.
Vyborg, Russia has an unemployment rate of 27%. Like Ramina, fishing is a key business. It also has a sizable campus of semi-autonomous chemical plants, but the
plants operate at much less than capacity, having received almost no investment since the break-up of the Soviet Union in 1991. The facility that would likely receive
the Homeland investment has been idle for six years.
The environmental standards of Denmark and Finland are among the most stringent in the world. Finland has been ranked as the most environmentally advanced of
industrialized countries for several years in a row and top directors at the Ministry of the Environment have been internationally recognized for their work at
improving the global environment. In contrast, Russia’s Ministry of Environmental Protection and Natural Resources is underfunded and its employees are overworked.
Although Russian environmental regulations are nearly identical to those of most of Europe, they are not well-enforced. Haphazard enforcement can be attributed both
to the workload of inspectors and to their propensity to accept bribes in exchange for overlooking violations.
In addition to differences in environmental regulations across the two countries, there are differences in the price of labor. Russian labor rates are much lower than
in Finland, especially when non-wage benefits are considered. Finland requires companies to provide a wide range of very costly social benefits, such as vacation
time, severance benefits, health insurance, and family leave. Russia has no such requirements.
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