1. How did Gujarat Auto handle the risk that their assumptions about the sales of engines to TPK might be too optimistic?

2. Were Gujarat Auto's costs for the new factory in Table 2 derived from a top-down or bottom-up process?

3. What were the answers to Dilip Patel's questions?

4. What other factors are relevant to this issue?

5. How do the changes in assumptions mentioned by the other managers affect the proposal?

6. What recommendation should Pradip Mistry make to Dilip Patel? Why
 
 

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Pradip Mistry, Finance Director of Gujarat Auto, walked through the Arrivals Hall at Ahmedabad airport in India and turned his mobile phone back on after his flight from Bangalore. Among the 10 messages was one from his assistant to say that the TPK proposal was ready for him to review. He had set aside the whole day to do this, for he had to make a recommendation to Dilip Patel, the company's Executive Vice-President, about what course to take. The proposal had been put together by Saini Nehwal, a very promising young project manager, for whom this assignment was a very important chance to impress the executive team at Gujarat Auto. The TPK project was just the kind of opportunity that fitted Gujarat Auto's strategic ambitions, but it also carried a lot of risk. Before making his recommendation to Dilip Patel, Pradip Mistry wanted to understand every aspect of the proposal. it has done for 40 years) it would buy them in. In part, that decision was because the TPK design was out of date and the costs of developing a new engine would be much more than TPK was prepared to spend. Instead it had issued just such a request-not only to domestic Indian suppliers, but also to several of the major global diesel engine manufacturers for the exclusive supply of all its engines for five years, potentially encouraging foreign firms to set up new operations or joint ventures in India. This opportunity had presented Gujarat Auto with a dilemma. If they did not bid for this contract, they would be opening the door to competitors to take 100% of the engines bought by one of India's biggest customers-as well as forgoing the sizable and profitable aftermarket business. On the other hand, while a successful bid would involve the kind of high capital investment that would deter rivals and new entrants, the risks involved in bidding were very high. Pradip Mistry, Finance Director of Gujarat Auto, walked through the Arrivals Hall at Ahmedabad airport in India and turned his mobile phone back on after his flight from Bangalore. Among the 10 messages was one from his assistant to say that the TPK proposal was ready for him to review. He had set aside the whole day to do this, for he had to make a recommendation to Dilip Patel, the company's Executive Vice-President, about what course to take. The proposal had been put together by Saini Nehwal, a very promising young project manager, for whom this assignment was a very important chance to impress the executive team at Gujarat Auto. The TPK project was just the kind of opportunity that fitted Gujarat Auto's strategic ambitions, but it also carried a lot of risk. Before making his recommendation to Dilip Patel, Pradip Mistry wanted to understand every aspect of the proposal. it has done for 40 years) it would buy them in. In part, that decision was because the TPK design was out of date and the costs of developing a new engine would be much more than TPK was prepared to spend. Instead it had issued just such a request-not only to domestic Indian suppliers, but also to several of the major global diesel engine manufacturers for the exclusive supply of all its engines for five years, potentially encouraging foreign firms to set up new operations or joint ventures in India. This opportunity had presented Gujarat Auto with a dilemma. If they did not bid for this contract, they would be opening the door to competitors to take 100% of the engines bought by one of India's biggest customers-as well as forgoing the sizable and profitable aftermarket business. On the other hand, while a successful bid would involve the kind of high capital investment that would deter rivals and new entrants, the risks involved in bidding were very high.

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