1st meeting Peter(Fyza) : good morning everyone. Thank you for attending this meeting.

Our company secretary already gives us notice of Board of Directors meeting and I think everyone already know what this meeting is all about. This is our first meeting and we are here to discuss on the issues in this company. So, I would like to let Mr.Jeffrey to explain. Jeffrey (ijah) : Good Morning everyone. So Ill just go straight to my point here. Ive just received letters from 2 of our major clients, KiKi and Houida last week, and Im telling you its not a good thing. Both KiKi and Houida want to inform us that they might be looking to China to contract manufacturer for them since the prices there were very competitive. And if this really happens, we will be losing our major clientseven worst, other clients might be following their step as well, which mean bigger losses for our company. We cant afford other losses this year since HCF had been experiencing falling margin & profits over the last few years. Mr.Daniel will explain about our financial condition. Daniel (Amy) : Base on the Income Statement for the previous year there was a reduction in revenue but increase in the cost of good sold. It has cause low profit to our company. Our main customer which is Kiki contributes 26.7% from our sales and Houida contributes 17.5% from our total sales. If both left it may cause major losses to our company.

Jeffrey (ijah) : so, I guess everyone in this room are very clear on our financial condition and how important KiKi and Houida to our company. As stated by Mr.Daniel, losing both KiKi and Houida will cause us a major loss and we cant let it happen. Peter (Fyza) : so Mr.Jeffrey, do you have any suggestion regarding this matter? Maybe you can explain to us. Jeffrey (ijah) : I was thinking on moving our operations to China, since that is the only way we can survive in this industry. By doing so, we might be able to retain both KiKi and Houida as our clients. Peter (Fyza) : I see but, why do you choose China? Dont you think Chinas label has poor quality? Everyone knows it. And thats why the price is cheap and easy to get.

Jeffrey (ijah) : I. know most people were labeling Chinas products as a product with low quality. But I would like to remind everyone in this room to not underestimate the Made in China labels anymore. Our management team has been doing their research and according to them, almost 30% of the European Fashion houses were selling Made in China labels at their store. Do you think that they will sell Made in Chinas clothes at their store if their qualities are bad? I doubt that. Many of the European and American Fashion houses were looking at important clothes from China at very low prices. And I believe its mainly due to its low operating costs since human power are very cheap in China. So, the bad perception of Made in China labels had changed as China now manufactured clothes that are of higher quality at lower operating costs. Thats why, if we were to continue retaining our major clients, we should consider moving our operations to China, where we can still maintain our quality but at much lower costs. Elaine(linn) : Then, why dont we just moving our manufacturing in China? So, we are able to still retain our foremost customer Kiki and Houida. While moving to China, we have to close down the factories in Butterworth, Jitra and also in Chieng Mai. Since Jitra and Chieng Mai had very small resale value as the factories were located in rural spots. Teoh(Shila) : No Elaine. We cant drastically shut down the Malaysian operations completely. Ok. I knew that we cant operate the way we used to and I agree to restructuring and expand manufacturing operation to China is seems like a good idea. But how many employees will lose their job. Most of them have been very loyal to this company and have been with us for more than ten years. We are like a family. We cant do that to them. Its terrible What if we retain the Malaysian operation and develop our own label for Malaysia and Asean market;

Or we can concentrate on developing our own label since we have talented designer.

Peter (fyza) : well, its look likes you have difference opinion on this matter. So, Danial, I assign you to make a research on the possibility of the expansion our manufacturing in China.hmm anyone have anything to say?..ok..since there is nothing else, I adjourn the meeting. Thank you Meeting adjourned.

2nd Meeting Peter (fyza) : good morning everyone. So today, we are going to continue our discussion on what we had in the previous meeting. So Danial, can you start now? Daniel (Amy) : I have conduct research on the possibility of expansion in China with help of these 2 consultants here, Miss Lynn, a Financial Expert and Miss Shahila, an Agricultural expert. Based on our research,we find out that there is possible ways to expand into China which is to set up our own factory in China and the second one is to Joint Venture with Chinese manufacture. The first option would require us to invest a large sum of money there, but we did not have sufficient funds to this. However new factory in China will able to manufacture a similar capacity of current operations in Butterworth, Jitra and Chiang Mai. : Compare to the first option, second option which is to Joint Venture. I have contacted several Chinese clothing manufactures and after evaluating all proposals, I short-listed Celestial Clothes as a possible partner. Celestial Clothes had established itself as a high quality clothes manufacturer. However this option had a higher risk than operating by our own.

: However in order to expand into China, we need to close down factories in Malaysia & Thailand if we want to move to China. The Butterworth and Penang factories would fetch a reasonable value as its equipment has just being renewed. It cloud be sell about RM8.5 million. The other 2 factories in Jitra and Chiang Mai would be closed but the selling prices have low value. If we just closed the factories and left it abandoned it might be a haven for drug addicts. Also the pulling down cost of the factories could take us about RM1.2 million. I also expected that there will be redundancy payments to cost around RM3 million at minimum. : Another suggestion is for us to set our own label in Malaysia and Asian market. However we need to work very hard to survive because it is a new area for us. If we terminate all contracts with the Fashion house, we only would depend on our own label to survive. Teoh (Shila) : no! I dont think closing our factory in Malaysia is a good idea. We have a large number of staffs. So, if we close the factory, how about them? Why dont we just do the operation as usual and at the same time we also can do the expansion in China. Both can give us profit right? Daniel(Amy): well, about that, Miss Linn will explain about it in details. Miss Linn?

Point 1: Reasons why we shouldnt open both factories in Malaysia and China. Con.1(Linn) : Thanks Mr.Daniel.Hello everyone, Im Miss Linn, pleasure to meet you guys today. So, I guess everyone does aware that operating both factories in China and Malaysia will incurred much higher cost rather than only running our operation in one country. Moving your operation to China will incurred those listed cost (slide). Second, running your operation in both countries, you might end up producing too much or unreasonable products. It is because, from what I understand the factory in China is expected to produce as much as the Malaysias factory can actually produce. There is no problem of products shortage, so why open more factories?. It will only cause redundant inventories, and at the end you need to bear the

storage cost and holding the excess units. So, this suggestion to open both factories in Malaysia and China is not a good idea. Third reason why you shouldnt open both factories in Malaysia and China is because you still incurred the operating cost for Malaysias Factories which is quite high. You still need to pay for the employees salary, rental cost and other cost related. Elaine (ijah): Hmm,how about the joint venture idea that you mention before? Can we have more details on its benefit to us? Point 2: Advantage of Joint Venture. Cont 1(Linn): Joint Venture is definitely a good idea but it is a bit risky since you do not have 100% control on the operation. However, if you need fast access to local expertise, labor, Chinese customers and distribution channels, joint venture with a local Chinese partner such as Celestial will be a better choice. it will save your time and expense needed to start your own operation from scratch. First advantage through JV is a strategic joint venture partnership can provide access to larger customer bases and geographical markets. Not only can your company gain access to larger and new markets, but also you can extend your marketing reach. A strategic joint venture can provide you with new marketing channels and geographic scopes. Additionally, a joint venture strategy may give your company more direct access to decision makers. Third advantage of JV is using the technology and resources already utilized by a joint venture partner; you could build business and raise revenues faster by sharing the profits. Last but not least, is you has the right joint venture partner with national recognition and reputation, and you can instantly raise the credibility of your business.

Peter(Fyza) : oh, how about the factory in Jitra? Selling it will be a bad choice since the price is not good enoughso what will we do with that factory then?

Linn:

that factory should not be left abandoned, instead you can think of operating a new business there.

Teoh(fyza): so you means that we need to stop our current operation on manufacturing clothes and then replace it with something new? But we dont have the skills and expert in other industry. How can you ensure that it is a good investment? Daniel(amy): Miss Shahila, care to explain to us about new business that we can consider of? Con.2 (Sheila): I already examine the location of your factory at Jitra. Jitra is suitable for agriculture business since it located at the Northern Penisular Malaysia and near the paddy field I think conducting either mushroom farm or swiftlet nest Mushroom farm y y y y y y Swiftlet y y y y Low cost because we already have a building, only renovation cost will incur to accommodate the swiftlet. Jitra is a good location for swiftlet industry since Northern Peninsular Malaysia have a large colony of swiftlet It does not require so many workers since the swiftlet does not need to be feed and care. RM4,500/per kilos There are several factors to be consider before conducting any of these two business Mushroom Farm Its required more attention and more cost compared to swiftlet house. economical start up cost High profit RM10-RM15/per kilos 1 kilo=20 bags 1 box=RM40/month Low risk because easy to handle and not easily infected It grow everyday

Swiftlet

There is possibilities of external factors might harm the swiftlet colony and result in the colony move to another place such as pollution. Daniel(Amy): I think diversifying our business activities is a good idea since we cannot solely depends on one type of business only. Furthermore, there is always demand for agriculture products even during economic recession compared to the demand for high quality clothes. Elaine(lin) : In my opinion, starting an agricultural business here in Malaysia is a good idea. The Joint Ventures proposal sounds promising since we dont have to invest a lot of money there and it doesnt take too much time to start our operation. And since Celestial Clothes are already established as a high quality clothes manufacturer, that will be an advantage for us because we dont have to start everything from zero. I think this is a good deal even though its a bit risky. Jeffrey : well, personally Id prefer setting up our own factory in China that was large enough to manufacture clothing for our existing clients since it is less risky and will benefited us in a long run. A large amount of money is needed to set up our own factory there, so since were going to sell our factories in Malaysia, funding will not be a problem. Peter(fyza): hmmm..oknow I understand about the option that we have just now. So, how about the possibility that we can manufacture our own label instead of using Chinas label?

Jeffrey(ijah): Ive been thinking about this idea for quite sometimes since the day Mr.Teoh suggest it. If were to manufacture our own label for the Malaysian and Asean market, theres a lot of thing thatll need to be considered especially the demand for our products. Our labels are completely unknown to Malaysian and Asean market since we had always manufacturing for the European and American fashion houses, then again under the fashion houses labels rather than our own labels. in order to attract customers we might need to price our products relatively low to penetrate the market. Furthermore, high advertising cost will be needed if we to produce our own labels. But, theres also positive impact if we produce our own labels where we did not need to retrench all of our employees. We can still operate the factories in Butterworth and Jitra while closing down the Chiang Mai factory. But even with this positive impact, Im afraid that we might not have sufficient demand to sustain our existence. Ive estimated the uncertainties in this

option and theres only 30% probability that this option will have high success which is not good enough. The total cost for this option will be very high where the Fixed cost were estimated to be RM 30 million for the Malaysian factories, advertising cost were estimated at RM 2.1 million per year. Retrenchment cost of shutting down the Chiang Mai factory was estimated at RM 1.8 million. Peter(fyza): so, which opinion that we should take? . Peter(fyza) : ok never mind I think we should take a break. And we are going to continue after lunch.alright? Thank you. 3rd Meeting Peter(fyza): since everyone are here, lets continue our discussion. So, Mr.Jeffrey, can you summaries all the option that we had? Then we will have vote session.

Jeffrey(ijah): 1st option is to expand our operation to China through joint venture, and closing our factories in Malaysia, and also investing in a new business. By doing this, we might be able to decrease our operating cost but it is more risky. 2nd option is to expand our operation to China by setting up our own factories, closing our Malaysias factories, and invest in new business. This option will offer us a lower risk but the cost in setting up the factories will be very high. 3rd option is to expand our operation to China and at the same time manufacturing our own labels for Malaysian and Asean Market. The costs of this option will be even much higher than other option. 4th option is to focus on manufacturing our own labels and pull-out completely from the activity of contract manufacturing. There were uncertainties in this option and it can be a little too risky. Peter(fyza): ok.since we already considered all of the options, theres anyone want to add anything on this matter?.....ok, .so now is the time for vote. 1st option? 2nd Option?

3rd option? 4th option? Since theres an equal number of votes for 1st and 2nd option and as chairman after considering all of the options I decided to combine these two options. At first we are going to expand our business to China through joint venture and later when we have enough capabilities we will operate our own factory in China. Anyone wants to say anything. Ok I think thats all of our meeting for today. Meeting adjourned.