Practice cases: Mainland China, Hong Kong, and Taiwan
Three full cases: a dim sum restaurant in Hong Kong, home chargers for electric cars in a large Mainland Chinese city, and a new e-bike line in Taiwan.
Key takeaways
- Worked case: Kowloon Lantern Teahouse: full at lunch, but profit fell.
- Worked case: Wenlan Charge: home chargers in a large Chinese city.
- Worked case: Chiaolin Cycles: should it build an e-bike line?
Three full cases: a dim sum restaurant in Hong Kong, home chargers for electric cars in a large Mainland Chinese city, and a new e-bike line in Taiwan.
Cover the solution and run each case out loud, ideally with a partner playing the interviewer. Ask your own clarifying questions, state a hypothesis, build a structure, and do the math on paper before you look. Then compare your synthesis with the one given, and read the strong and weak candidate notes. Each case is labeled Starter, Standard, or Stretch.
Case 1: Kowloon Lantern Teahouse: full at lunch, but profit fell
Worked case
Starter: Kowloon Lantern Teahouse: full at lunch, but profit fell
The prompt
Kowloon Lantern Teahouse runs a popular dim sum restaurant in Hong Kong. Its monthly profit has fallen by about 40 percent, even though it is still full at lunch. The exhibit shows the figures. Why did profit fall, and what should the owners do?
Difficulty: Starter. Format: interviewer-led, with an exhibit. Industry: Restaurants. Region: Hong Kong. Interview length: about 25 minutes. The company is fictional and all figures are illustrative.
Clarifying questions, with the interviewer's answers
- Is this one restaurant?Answer: Yes, the flagship restaurant. Figures are monthly averages.
- Which meals changed?Answer: Weekday lunches are as full as ever. Dinner and weekend meals fell. The owners believe more of their local diners now spend evenings and weekends across the boundary in Shenzhen; for this case, take that as the reason.
- Did prices or costs change?Answer: Menu prices did not change. Staff costs rose 5 percent after a pay rise. Rent is fixed until the lease ends next year.
A hypothesis to say out loud: The restaurant is full at lunch, so my hypothesis is that the fall comes from dinner and weekend meals, with the staff pay rise adding a little on top.
The structure
- Profit = covers x spend per cover x (1 - food cost share) - staff - rent
- Key: Covers (meals served) by time: lunch, dinner, weekends
- Spend per cover and food cost
- Fixed costs: staff and rent
The exhibit
| Measure | Last year | This year |
|---|---|---|
| Lunch covers a month | 8,000 | 8,000 |
| Dinner and weekend covers a month | 6,000 | 4,500 |
| Average spend per cover (HKD) | 160 | 160 |
| Food cost (% of sales) | 30 | 30 |
| Staff cost (HKD a month) | 600,000 | 630,000 |
| Rent (HKD a month) | 500,000 | 500,000 |
Working it through
1. Sales last year
14,000 covers a month at HKD 160.
Sales last year (HKD a month):(8,000 + 6,000) × 160 = 2,240,0002. Sales this year
12,500 covers a month at HKD 160.
Sales this year (HKD a month):(8,000 + 4,500) × 160 = 2,000,0003. Profit last year
Sales after 30 percent food cost, minus staff and rent.
Profit last year (HKD a month):(8,000 + 6,000) × 160 × (1 - 0.3) - 600,000 - 500,000 = 468,0004. Profit this year
The same, with fewer covers and higher staff cost. The fall is about 42 percent.
Profit this year (HKD a month):(8,000 + 4,500) × 160 × (1 - 0.3) - 630,000 - 500,000 = 270,0005. Effect of lost dinner and weekend covers
1,500 fewer covers, each worth HKD 112 after food cost. The staff pay rise explains the other HKD 30,000.
Effect of lost covers (HKD a month):(4,500 - 6,000) × 160 × (1 - 0.3) = -168,0006. Curveball: a set dinner, new diners
Interviewer: "The owners want a weekday set dinner at HKD 120. They expect 2,000 set dinners a month: 1,500 from new diners and 500 from current diners who would otherwise spend HKD 160. It needs HKD 20,000 more staff a month." Candidate: "The new diners add:"
Profit from new diners (HKD a month):1,500 × 120 × (1 - 0.3) = 126,0007. Trading down
Candidate: "The 500 current diners now spend HKD 40 less each."
Profit lost to trading down (HKD a month):500 × (120 - 160) × (1 - 0.3) = -14,0008. Net effect of the set dinner
New diners, minus trading down, minus extra staff.
Net gain (HKD a month):1,500 × 120 × 0.7 + 500 × (120 - 160) × 0.7 - 20,000 = 92,000
What the exhibit shows
Lunch did not change. Losing 1,500 dinner and weekend covers a month, plus a small pay rise, explains the whole fall.
The recommendation
Profit fell from about HKD 468,000 to HKD 270,000 a month because the restaurant lost dinner and weekend diners. First, 1,500 fewer dinner and weekend covers a month cost HKD 168,000 of profit. Second, the staff pay rise cost another HKD 30,000. Third, lunch is already full, so the room to grow is in the evenings and at weekends. Launch the HKD 120 set dinner: even after 500 current diners trade down and extra staff cost HKD 20,000, it adds about HKD 92,000 a month. Also test weekend family menus and dinner delivery, and use next year's lease renewal to negotiate the rent.
Risks: More current diners than expected may switch to the cheaper set dinner; Weekend travel patterns may change again.
Next steps: Run the set dinner for eight weeks on two weekdays first; Track covers by day and time, and the share of set-dinner guests who are new.
A strong candidate
Split covers by time of day, found the one line that moved, and tested the set dinner for trading down before recommending it.
A weak candidate
Suggested cutting prices across the whole menu, which would lower profit at the full lunch service too.
Case 2: Wenlan Charge: home chargers in a large Chinese city
Worked case
Standard: Wenlan Charge: home chargers in a large Chinese city
The prompt
First, estimate how many home chargers for electric cars are installed each year in one large Chinese city. Then: Wenlan Charge, a charger maker, has been offered a partnership with a group of car dealers. Should it accept?
Difficulty: Standard. Format: market-sizing opener, then a business question. Industry: Electric vehicles and equipment. Region: Mainland China. Interview length: about 30 minutes. The company is fictional and all figures are illustrative.
Clarifying questions, with the interviewer's answers
- Which city, and how many people?Answer: A large eastern Chinese city of about 20 million people, with about 2.5 people per household (rounded, illustrative).
- How many households own a car, and how often do they buy one?Answer: About 40 percent own a car and replace it about every 8 years.
- What share of new cars are new energy vehicles (battery electric and plug-in hybrid cars), and who can install a charger?Answer: Use about half of new cars (illustrative). About 60 percent of those buyers have a fixed parking space where a charger can be installed.
- For the business question, what are the numbers?Answer: A charger costs Wenlan CNY 1,400 including installation. It sells at CNY 2,500 and wins about 12 percent of installs today. A car-dealer group offers to recommend Wenlan to buyers for a commission of CNY 300 per charger, which Wenlan expects would raise its share to 20 percent.
A hypothesis to say out loud: Only new energy vehicle buyers with a parking space need a home charger. My hypothesis is that the market is around one hundred thousand chargers a year, and that the dealer deal pays if it raises share enough to cover the commission.
The structure
- Size the yearly market, then compare contribution with and without the deal
- Households x car owners x purchases a year x new energy share x parking space
- Contribution today: share x margin per charger
- Key: Contribution with the dealer deal, and the share it needs
- What car makers do next
Working it through
1. Households
20 million people at 2.5 people per household.
Households:20,000,000 ÷ 2.5 = 8,000,0002. Cars bought by households each year
40 percent own a car, replaced every 8 years.
Cars bought a year:20,000,000 ÷ 2.5 × 0.4 ÷ 8 = 400,0003. Home chargers a year
Half are new energy vehicles, and 60 percent of those buyers have a parking space.
Home chargers a year:20,000,000 ÷ 2.5 × 0.4 ÷ 8 × 0.5 × 0.6 = 120,0004. Contribution today
12 percent share and CNY 1,100 of margin per charger.
Contribution today (CNY a year):120,000 × 0.12 × (2,500 - 1,400) = 15,840,0005. Contribution with the dealer deal
20 percent share, with CNY 300 of commission off each charger.
Contribution with the deal (CNY a year):120,000 × 0.2 × (2,500 - 1,400 - 300) = 19,200,0006. Share the deal needs
Candidate: "The deal pays if contribution with the commission beats today's CNY 15.84 million."
Break-even share (%):120,000 × 0.12 × (2,500 - 1,400) ÷ (120,000 × (2,500 - 1,400 - 300)) × 100 = 16.57. Curveball: free chargers from car makers
Interviewer: "Some car makers now include a free home charger with half of new cars." Candidate: "The market Wenlan sells to halves. With the dealer deal:"
Contribution with the deal, half market (CNY a year):120,000 × 0.5 × 0.2 × (2,500 - 1,400 - 300) = 9,600,0008. Supplying the car makers
Interviewer: "One car maker asks Wenlan to supply its free chargers at CNY 1,700 each. Wenlan could win 30 percent of those in this city." Candidate: "Dealer channel plus supply deal:"
Total contribution (CNY a year):120,000 × 0.5 × 0.2 × (2,500 - 1,400 - 300) + 120,000 × 0.5 × 0.3 × (1,700 - 1,400) = 15,000,000
The recommendation
About 120,000 home chargers a year are installed in a city like this. Wenlan should accept the dealer deal. First, at a 20 percent share the deal lifts yearly contribution from about CNY 15.8 million to CNY 19.2 million. Second, it pays as long as share rises above 16.5 percent, which leaves a margin of safety against the expected 20 percent. Third, if car makers start including free chargers, the dealer channel alone would fall to about CNY 9.6 million, so Wenlan should also bid to supply car makers: at CNY 1,700 per charger and a 30 percent share, total contribution would recover to about CNY 15 million. Sign the dealer deal for one year and review the share it actually delivers.
Risks: Dealers may push rival chargers that pay a higher commission; Car makers may choose one national charger supplier.
Next steps: Agree a share target and review date with the dealer group; Meet the purchasing teams of the three largest car makers selling in the city.
A strong candidate
Built the sizing chain with clear assumptions, found the break-even share for the deal, and responded to the curveball with a new channel rather than only a smaller number.
A weak candidate
Sized the market from total population without asking who has a parking space, then accepted the deal because "more share is always better."
Case 3: Chiaolin Cycles: should it build an e-bike line?
Worked case
Stretch: Chiaolin Cycles: should it build an e-bike line?
The prompt
Written case: Chiaolin Cycles, a Taiwanese bicycle maker, is deciding whether to build a new e-bike assembly line. Using the data pack below, prepare three slides: should Chiaolin build the line, what are the main risks, and how should it reduce them? Money figures are in Taiwan dollars (TWD).
Difficulty: Stretch. Format: written case, with a data pack. Industry: Manufacturing. Region: Taiwan. Interview length: about 45 minutes. The company is fictional and all figures are illustrative. In a written case you usually get 30 to 60 minutes with a data pack, then present your slides and answer questions.
Clarifying questions, with the interviewer's answers
- What return does the company need?Answer: It uses an 8 percent discount rate and wants payback within five years.
- How long will the line last?Answer: About 8 years. At 8 percent, TWD 1 a year for 8 years is worth about TWD 5.75 today.
- Where would the e-bikes be sold?Answer: About 40 percent in one large export market, and the rest across Europe and Asia.
A hypothesis to say out loud: E-bike margins are thin because the motor and battery are expensive. My hypothesis is that the line pays off at planned volume, but that the result is sensitive to volume and to trade barriers in the largest market.
The structure
- Value of the line = yearly cash x 5.75 - investment
- Contribution per e-bike and yearly cash
- Key: Payback and NPV
- Break-even volume
- Risk: the largest export market
The exhibit
| Item | Value |
|---|---|
| Capacity of the new line (e-bikes a year) | 60,000 |
| Expected sales (e-bikes a year) | 50,000 |
| Price to distributors (TWD per e-bike) | 34,000 |
| Variable cost, about half of it motor and battery (TWD per e-bike) | 27,000 |
| Fixed running cost of the line (TWD million a year) | 150 |
| Investment (TWD million) | 600 |
| Life of the line (years) | 8 |
| Share of sales in the largest export market (%) | 40 |
Working it through
1. Contribution per e-bike
Price to distributors minus variable cost.
Contribution (TWD per e-bike):34,000 - 27,000 = 7,0002. Yearly cash
50,000 e-bikes at TWD 7,000, minus TWD 150 million of fixed running cost.
Yearly cash (TWD million):50,000 × (34,000 - 27,000) ÷ 1,000,000 - 150 = 2003. Payback
TWD 600 million divided by the yearly cash.
Payback (years):600 ÷ (50,000 × (34,000 - 27,000) ÷ 1,000,000 - 150) = 34. NPV over 8 years
Yearly cash times 5.75, minus the investment.
NPV (TWD million):(50,000 × (34,000 - 27,000) ÷ 1,000,000 - 150) × 5.75 - 600 = 5505. Break-even volume
The yearly cash that gives an NPV of zero is 600 divided by 5.75, plus the fixed cost, all divided by TWD 7,000 per e-bike.
Break-even volume (e-bikes a year):(600 ÷ 5.75 + 150) × 1,000,000 ÷ (34,000 - 27,000) = 36,3356. Curveball: a new import duty
The largest export market announces a 25 percent import duty on e-bikes. Distributors say Chiaolin must cut its price by TWD 4,000 on the 20,000 e-bikes sold there to keep them.
Yearly cash after the price cut (TWD million):(50,000 × 7,000 - 20,000 × 4,000) ÷ 1,000,000 - 150 = 1207. NPV after the price cut
The new yearly cash times 5.75, minus the investment. Payback becomes 5 years.
NPV with the price cut (TWD million):((50,000 × 7,000 - 20,000 × 4,000) ÷ 1,000,000 - 150) × 5.75 - 600 = 908. NPV if Chiaolin leaves that market
Selling only 30,000 e-bikes elsewhere at the full price.
NPV without that market (TWD million):(30,000 × 7,000 ÷ 1,000,000 - 150) × 5.75 - 600 = -255
What the exhibit shows
Each e-bike earns TWD 7,000, so the line needs high volume to cover TWD 150 million of fixed cost, and 40 percent of sales depend on one market.
The recommendation
Slide 1, the answer: Chiaolin should build the e-bike line, but in a way that limits its dependence on one export market. At the planned 50,000 e-bikes a year, each e-bike contributes TWD 7,000, so the line earns about TWD 200 million a year after TWD 150 million of fixed running cost. It pays back the TWD 600 million investment in 3 years and has an NPV of about TWD 550 million over its 8-year life. Slide 2, the main risks: first, volume, because NPV falls to zero at about 36,000 e-bikes a year, about 27 percent below plan; second, the largest export market, which takes 40 percent of sales, because a new import duty that forces a TWD 4,000 price cut on 20,000 e-bikes cuts yearly cash to TWD 120 million, cuts NPV to about TWD 90 million and stretches payback to 5 years; third, leaving that market would be worse, with an NPV of about minus TWD 255 million, so absorbing the price cut is the better fallback. Motor and battery costs, about half of variable cost, add a further swing. Slide 3, how to reduce them: sign volume agreements with the largest distributors before committing the investment, grow sales in other markets so that no single market is 40 percent of sales, and design the line so it can also assemble regular bicycles if e-bike demand is weak. As a next step, ask the three largest distributors for signed volume ranges and get quotes for a flexible line.
Risks: Motor and battery prices can swing, and they are about half of variable cost; Rivals may cut prices if the export market shrinks for everyone.
Next steps: Ask the three largest distributors for signed volume ranges; Get quotes for a line that can switch between e-bikes and regular bicycles.
A strong candidate
Led with the answer, showed NPV, payback, and break-even volume, and compared absorbing the duty with leaving the market.
A weak candidate
Listed the data pack line by line and concluded "e-bikes are a growing market, so build," with no view on volume or the duty.
Sources for this lesson (1)
- Recognized public explanations of case-interview concepts and frameworks
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