Case Study Information

Food Master company has a solid reputation in Canada. Thomas does not intend to expand Food Master operations to global markets as he thinks the domestic market still has a lot of opportunity. However, a group of foreign investors proposes a partnership with Thomas whereby Food Master could export products to Costa Rica. Thomas is eager to know more and invites you and your advisory team to meet with the investors.

At the meeting, Thomas is amazed to learn of the opportunities that exist in Costa Rica. He learns about the state of the Costa Rica economy and future possibilities for Food Master corporation.

The Costa Rica economy is booming and double-digit profits are a real possibility, in contrast to profit margins that are realized in Canada. Costa Ricans prefer imported products; they believe that imported products have higher quality than domestic products, and they are willing to pay premium prices for these. This is also contradictory to the Canadian consumer who prefers to buy Canadian made products.

After discussing the potential market, the investors and Thomas started discussing possible partnership arrangements. The investors present two options for Thomas to consider.

Option A: The investors will buy products directly from Food Master company. Food Master agrees to export a fixed amount of goods to the foreign market on monthly basis. Under this arrangement, Food Master has minimal risk and as such lower profits margins are negotiated in the deal. Thomas is concerned about payment for the products he exports. The investors mentioned that they will provide Thomas with a Letter of Credit, also known as LC whereby Food Master receives payment for products shipped once certain conditions are met.

Option B: Food Master and the investors establish a joint venture in Costa Rica. Both parties engage in managing the company, and they share in the profits according to the terms of the agreement. The investors mention that they are willing to take less than 50% of profits if Food Master provides the capital. Option B exposes Food Master to a higher risk but this is compensated with potentially higher profits. Thomas worries the inherent risks associated with this option. He is also uncertain how the government of Costa Rica treats Foreign Direct Investment (FDI).

After the meeting, you and your team and Thomas continue to brainstorm around the idea of investing in foreign markets. You discuss different models, but since none of you is terribly familiar with Costa Rica, you are reluctant to rely on Canadian data to reach a decision regarding foreign business. You mention the possibility of employing the services of domestic and foreign governmental organizations that promote international trade. You hear that many countries will offer tax-breaks and other services to foreign investors bringing investment dollars into foreign markets.

You research various sources and decide to use the following organizations to help in your decision-making process:

Export Development Canada

Global Enterprise Registration

PROCOMER

Your task is to:

1. Explain why is it important to utilize domestic and foreign government programs, policies, and agencies when engaging in international trade?

Note: Assume any missing information and use any external sources to solve this case. Clearly state your assumptions in your submissions.