Kanzen Berhad case study analysis

Kanzen Berhad Case Study

Its attractiveness, durability, and low maintenance have made stainless steel fittings in high demand throughout the developed world and especially in the United States and Japan. Kanzen Tetsu Sdn. Bhd. (KTSB) became a major player in the international welded stainless steel industry in the early 1990s. A Malaysian firm, KTSB has capitalized on the high demand for welded stainless steel piping by focusing almost exclusively on an export market: a full 80% of KTSB's sales derive from exports to the United States, Canada, and Japan ("Kanzen Berhad" 1996, p. 2).

The imposition of duties on the stainless steel industries in competitor neighboring nations like Taiwan and Korea proved to be one of the primary reasons KTSB was able to enter the lucrative American market. Because the United States did not impose the restrictive duties on Malaysian stainless steel imports, KTSB was able to thrive within just a few years after diversifying into welded stainless steel from its previous specialization in spring mattresses and bedding products.

The low cost of KTSB's welded stainless steel products on the United States market has caused great concern among American industry organizations and firms. In March of 1992, the Senior Manager and Managing Director of KTSB, En Hong Chew, received a memo from the firm's lawyers in Washington. The memo warned KTSB of a potential petition being filed, requesting that antidumping duties be leveraged on the Malaysian market. The antidumping duties had curtailed the Taiwanese and Korean welded stainless steel export markets several years earlier and if imposed on Malaysia too would certainly injure KTSB's standings and profits.

Antidumping duties are imposed precisely to prevent "unfair competition from dumped imports," that is, imports sold at a cost significantly lower than that would be possible from domestic manufacturers ("Kanzen Berhad," 1996, p. 21). The United States Department of Commerce (DOC) and the International Trade Commission (ITC) handle antidumping petitions, which are usually filed by American manufacturers, labor unions, or trade associations within a given industry. In March of 1993, one year after En Hong Chew received the first memo from KTSB's attorneys, a petition to impose antidumping duties on Malaysian welded stainless steel had been officially filed.

Filers of the petition, including Avesta Sheffield Inc., Bristol Metals, Damascus Tubular Products, Crucible Materials Corporation, and the United Steelworkers of America, alleged that Malaysian welded stainless steel products were being sold below cost, undercutting domestic producers. With about 6% of the total market share in the United States, welded stainless steel imports were severely impinging on domestic firms and domestic labor. The petition to the United States government requests that antidumping duties be leveraged on the Malaysian market on the grounds that the imported merchandise is sold at "less than fair value" and that the exports are "causing 'material injury'" or threatening to cause material injury, to the domestic market ("Kanzen Berhad," 1996, p. 21). The DOC and the ITC are the main bodies responsible for investigating the claims made in the petition and advising the government on a just course of action.

Critical Issues

The critical issues at hand include the following. First, KTSB has depended on relatively free and unrestricted trade to secure their current market share and robust sales. An antidumping duty leveraged on Malaysian welded stainless steel would adversely affect KTSB and its profits. However, the lack of antidumping duties appears to be the primary reason why the firm has been able to boost sales so rapidly and effectively in such short time, undercutting other ASEAN producers as well as producers in the domestic American market.

Second, KTSB's overwhelming presence in the U.S. welded stainless steel market hurts domestic business and labor. The domestic stainless steel industry cannot possibly match the "extremely low-priced imports" from Malaysia, especially because KTSB's products have a good reputation for quality workmanship and customer service ("Kanzen Berhad," 1996, p. 7).

The KTSB case reveals a central conflict within the global business environment between unrestricted free trade and protectionism. Thus, finding a solution to the issues raised through the KTSB case requires a thorough weighted analysis of the relative benefits and costs of impeding KTSB's exports. On the one hand, curtailing KTSB's exports to the United States may hamper domestic business that depends on low-cost, high quality welded stainless steel products. For example, areas with a booming housing industry might suffer if the costs of welded stainless steel fittings suddenly rose. On the other hand, allowing the imports of welded stainless steel to undercut domestic manufacturers might spell economic crisis within the industry by forcing plant closures.

Possible Solutions

KTSB could elect to sue the filers of the petition on the grounds that their allegations hinder free trade and might inadvertently affect ancillary domestic markets such as construction, household goods manufacturing, and housing. The lawsuit might also call into question the petitioners' marketing research and the "certain assumptions" made ("Kanzen Berhad," 1996, p. 6). Moreover, En Hong Chew noted feeling surprised by the timing of the petition, signifying that it might have been filed prematurely ("Kanzen Berhad," 1996, p. 6). Such litigation is unlikely to yield long-term gains for KTSB, however. Not only would the suit be costly, it is unlikely to do more than postpone the implementation of the antidumping duties on Malaysian welded stainless steel exports.

Assuming that the DOC proves that the imported merchandise is sold at a "less than fair value" and that the exports cause or threaten to cause "material injury," KTSB may have no other choice but to work around the antidumping duties. Focusing on how the firm can combat the blows it might suffer as a result of the duties should be the primary concern of KTSB.

Recommended Solutions

The lack of antidumping duties on Malaysian welded stainless steel exports to the United States enabled firms like KTSB to secure a solid standing in the global market. Had the costly duties been imposed on Malaysia at the same time they were imposed on Taiwan and Korea, KTSB might never had successfully diversified and might never have enjoyed such remarkably fast growth.

However, KTSB has also bolstered its position in the global market by establishing a reputation for quality of product and of service by providing education and support to customers, by ensuring punctual deliveries, and by manufacturing a consistently high-quality product. KTSB can therefore continue to promote its strengths and could potentially maintain its dominance in the American market. Because their manufacturing costs will remain lower than the costs of manufacture of welded stainless steel by American firms, it is possible that KTSB's standing will not suffer inordinately by the imposition of the antidumping duties. A sound and aggressive marketing campaign, which KTSB has already begun to embark on as a part of its overall plan, will assist the firm in achieving its goals.

Furthermore, KTSB can improve its standing in third countries. The European Union remains a relatively untapped potential market for KTSB. Focusing on the EU and on other markets including Australia and China may offset some of the loss in sales from the United States market. Malaysia already enjoys Generalized System of Preference (GSP) status within the EU and needs only to invest in equipment upgrades in order to fully meet EU specifications for welded stainless steel ("Kanzen Berhad," 1996, p. 4). Although the ASEAN nations have suffered economically since the crisis in the late 1990s, the region may face a period of potential growth over the coming decades, which would enable KTSB to also focus more on the regional market.