Seagram Greater China Office Relocation In Hong Kong Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

INTRODUCTION

Seagram Company Limited is highly specialized in the production and distribution of the liquor and wine. There are also other beverages also includes Tropicana and it is a market leader in the fresh pure fruit juices. Seagram was able to expand in the global entertainment industry with the help of its Universal studio units. Despite this, the sales revenue in the year 1995 was $6.3 billion. In addition, Seagram was able to expand its business in several regions in order to increase its customer base and to bring an increase in its revenues.

The countries that it is serving include Hong Kong, China and Taiwan respectively. This group was further divided into different areas like finance, operations and also human resources. Furthermore, the market reacted to the real estate in Hong Kong is experiencing a recession and it is also not known that for how long this situation will remain. But on the other hand the demand was higher across the globe and that’s why the pricing related to the office premium was quite high.

Despite this, the sales prices and the prices based on the rentals have shown a decreasing trend since last few months. The variation in the prices took place because of the value of an area and as well as its nearness to the services and the businesses. The management of Seagram was considering to take into account three situations which include the acquisition of the new building, providing a new building for rent or renovate the existing building.

Besides, the offices of Seagram have been spread into two areas, respectively. The division of Hong Kong was having a location on the eighth floor of Kowloon center.

PROBLEM STATEMENT

This case is about choosing an option between three alternatives which includes the purchase, the sale of new building and as well as the refurbishment of current business by performing restructuring. Therefore, there is a need that the vice president of the finance has to take account of these choices that are concerned with the proposed relocation of the office.

The analysis mainly includes the financial impact by finding out the value based on the NPV based on these three alternatives. The office space location and the decision that is related to buy and rent options is having a great significance and therefore it is required that the managers of Seagram evaluate these options effectively.

It should be noticed that traditionally the acquisition of the property was having greater efficiency and the reason behind this was the increase in the value of the properties. But it may a demerit because there is a possibility that the management of Seagram may not focus on its core area of competences. As a result, Seagram will tie up much of its capital in the non-producing assets specially. Despite this, the case also includes information about the capital asset pool and also the law related to taxation in Hong Kong.

ANALYSIS

PURCHASE OPTION

A location in the Miramar tower on Nathan road identified for the new office. The location is ideal for employees as well as for the company. The size of the new location is about 18500 square feet and is expected to consolidate all the departments in one office.

Currently Seagram office is situated at two different floors in Kowloon Centre therefore at some shared services are also expected to be used by Seagram. However the presence of offices in two different places could also affect the efficiency of operations with respect to time.

Total monthly rents and management cost of the offices is expected to be $157,192 and are expected to increase because of the high demand of offices in that area. High demand and low supply is the reason behind the increase in the amount of rent. Regular increase in the amount of rent could prove very expensive to Seagram.

Condition of the Kowloon center is becoming poorer and in the need of massive renovation if Seagram wants to continue its operation from that place. There are few windows present to provide natural light so workers are forced to work under harsh fluorescent lights. Installation of new air conditioning units results in lower of ceiling to seven feet, therefore two is three million dollars further required in order to upgrade the facilities of the headquarter.

There are the reasons that forced Seagram to relocate its head office to the new location. The new location is expected to cover all the problems that Seagram faces in current scenario. Offer prices of 90 million for the purchase of the property are looking appropriate as compared to the prices of properties of similar sizes in that area................................

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