prashantbacchewar wrote:
Panda Corporation is a large American manufacurer of children's clothing that has recently undertaken sharp measures to remain competitive in todays global market. In response to offshore pricing pressures, Panda Corporation laid off over 500 employees, reducing operational expenses by 18%. Since clothing manufacturers realize a one percentage point increase in sales margins for every five percentage point decrease in operational expenses, the Board of directors is satisfied that these measures will ensure Panda Corporation's long-term sustainability.
Based on the passage, which of the following, if true, would most weaken Board's stance?
A. Panda corporations main competitor is also an American manufacturer.
B. Panda corporations main competitor is based in China.
C. The largest manufacturer of children's clothes in China has just reduced its operational expenses by 15%
D. US consumers do not want to buy clothes manufactured offshore.
E. A large US manufacturer of childeren's clothes plans to relocate its operations to China.
Sorry but I think this is a strong GMAT question.
The OA is C under the reason that if the largest manufacturer in China also uses the same strategy than Panda will not be competitive.
So 15% expense reduction will translate into 5% increase in sales margin, compared to 6% increase by Panda.
The question is : How can this become a threat for Panda competitiveness?
We do not know the sales margin of Panda and the China corporation before the cut.
Hence, we cannot conclude whether the operational expense cut by China corporation will kick Panda out of competition.
Please advise if you have different opinion.