(This case study is derived from one written by Frank would approach a level sufficiently high to justify entering. C. Burinsky and Michael A. McGinnis, Shippensburg these smaller markets. After reviewing the consultant's Univorsity. The company name, product and recommendations, Smith decided that Jaguar Electroncomponent names, overseas locations for selling the ics should target two of the higher-income countries in protect the actual company name and reflect changes Latin America, Country 1 and Country 2. These nations, in trade agreements and shipping practicos.) because of the income levels in particular cities, had the potential to be lucrative markets for Airflow. The conJaguar Electronics, Inc, is a specialized electronics firm sultant estimated the potential demand for Airflow to be locared in Charleston, South Carolina in the United States. 20,000 units per year in Country 1, and 40,000 units per The company was founded in 1965 and has enjoyed suc-_ year in Country 2. cess and modest growth as a supplier of components to The consultant had also recommended four options large manufacturers of specialty electronic-mechanical available to Jaguar Electronics as to how the widgets devices. Recently the company's management has decided could be produced and distributed to these markets: to begin manufacturing and marketing a product called the 'Airflow.' The Airflow is manufactured by assembling 1. Assemble the widgets in Charleston and distribute two component parts: (1) mechanical assemblies (MA), them from that point. which are purchased from a company in Belgium and (2) 2. Assemble them in a free trade zone in Country 1 , and electronic assemblies (EC) manufactured by Jaguar Elec-__ distribute them from that point. tronics at its Charleston facility. 3. Assemble them in Country 2 (which had no free trade Jaguar Electronics has manufactured and supplied the electronic assemblies to several national manufacturersofproductssimilartotheAirflowforseveralyears.MostoftheconsumerdemandforthefinalproductsCountry3,whichhadnosignificantpotentialdticmarketforAirflow,butalowerlaborcost. 4. Assemble them in a free trade zone in another country, comes from areas enjoying a relatively warm climate Smith held a meeting to brief his production manager, throughout the year. Accordingly, the manufacturers Daphne R. Feldblum, and his distribution manager, Karl of those products have sold their goods with great suc- Q. Winklepleck, on the proposed Airflow venture and the cess throughout the southern and southwestern United consultant's recommendations. Both had been with the States. The population and economic growth in these company for several years. areas have contributed greatly to the success of this type After briefing the two managers, Smith asked: 'What of consumer product. course of action would you recommend?' Feldblum The man largely responsible for Jaguar Electronics' pro- replied: 'We should probably assemble them where the posed move into manufacturing and marketing Airflow is labor cost would be lowest.' Winklepleck commented: 'We the company president, Mr Smith. He has spent his entire should also consider transportation rates, insurance rates, career in the electronics industry and was with Jaguar import duties, and free trade zones.' Smith decided that Electronics for several years before becoming its president. Feldblum and Winklepleck should work together to comHis reign as president has been very successful. However, pile the information necessary for making the best possihe has viewed the impressive sales growth of EC units with ble decision. mixed feelings. As a supplier of EC components, Jaguar Two weeks later the information shown in Tables 14.3 Electronics has prospered from the growth in sales of prod- and 14.4 had been compiled. ucts such as Airflow. However, Smith has always felt that With the data available, Smith had a meeting with his company was not reaping all of the benefits available in Feldblum, Winklepleck, and a member of the corporate sales to the consumers. At the same time he felt that Jaguar legal staff to discuss what should be done. The meeting Electronics did not have the resources to compete success-_ went poorly. Feldblum still believed that the company fully with the large firms that dominate the US market. should locate assembly in the place with the lowest Smith employed a consultant to determine where labor cost. Winklepleck realized that he should have increasing consumer demand for Airflow-type products provided a spreadsheet indicating total costs associated Chapter 14 Supply chain management and handling export orders with each approach. In order to avoid having the meeting end in confusion, he decided to show on the conference room whiteboard how the calculations should be made. He gave the following figures for assembly in Charleston and shipping to Country 1 : $25.000.99CostofMATrans,+Ins.,MAtoCharleston(1.65$/cwt0.60cwt=$0.99) 1.25 Duty ( 5% of $25. Check to see if US government will rebate when finished goods are exported) 30.005.002.506.22CostofECAssemblyTrans.+Ins.,UStoCountry1(2.50$/cwt1.0cwt=$2.50)DutyinCountry1:10%$(25.99+30.00+5.00+1.25) (excluding transportation and insurance costs from \$70.96 Total landed cost in Country 1 port of embarkation to port of entry) The corresponding figures for assembly in Country 3 and shipping to Country 1 : $25.002.25CostofMATrans.+Ins.,MAtoCountry3(3.75$/cwt0.6cwt=$2.25) Table 14.4 Combined rates for transportation - No duty in free zone on goods to be exported and insurance between respective points 1.0=$2.00) 6.4210% duty on all costs to Country 3 and Assembly in Country 3 $70.62 Total landed cost in Country 1 Winklepleck hoped that his quick calculations did not contain any errors. The total-cost figures for assembling in Charleston and Country 3 appeared to be very close. If it was possible to obtain some type of free trade area in Charleston, or if the US government could refund duty on the component MA when the finished product was exported, Charleston would actually be less expensive. In any event, figures for all of the combinations should be Footnote by Winklepleck: Ocean freight shipments from carefully calculated. Belglum to Country 3 are very infrequent. Case study 14.2 Winklepleck also had some questions in his mind Questions that he wondered if he should raise. They seemed to be important, but the president might not be pleased to have them brought up. If assembly were to be done overseas, 1. Calculate the costs if the Airflow is assembled in how would quality be controlled? Should the company _ Country 1 and if it is assembled in Country 2 . Note consider making a product for export that it thought it does not. Note also that calculations should be done couldn't market successfully in the United States? Did the for total sales to the two countries rather than on a company have the resources needed and was it prepared per-unit basis since the costs will differ depending to make the effort required to begin marketing interna-__ upon destination as well as assembly point. tionally: establishing marketing channels, product pro- 2. Is Jaguar Electronics likely to be able to compete motion, etc. How long would it take to reach the projected overseas with a new product that it feels will not be sales overseas, and what would be needed to promote the competitive in its home market? Why or why not? product? How sure could they be that they could ever sell 3. Should Winklepleck bring up the questions that the expected number of units in each of the two overseas are bothering him? If so, when? markets? 4. What do you recommend