group delta
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Group Delta. Jeffrey Jau David Zoelle Peter Teerakijpong Erick Hamdja Ankur Mohindru. Introduction. Crosswell Background. Hospital Specialty Company Manufacturing investments Seek high quality products Introducing new product lines Leveraging strong customer relationships - PowerPoint PPT PresentationTRANSCRIPT
Group DeltaJeffrey Jau
David ZoellePeter Teerakijpong
Erick HamdjaAnkur Mohindru
Introduction
Crosswell Background
• Hospital Specialty Company
• Manufacturing investments
• Seek high quality products
• Introducing new product lines
• Leveraging strong customer relationships
• Precious Ultra Thin Baby Diapers
Brazilian Market Qualities• New-found economic stability
– Growing middle class
• Price conscious consumers
• Language barrier (Portuguese speaking)
• High growth market, excess demand
• Economic recovery plan– Drastically restructuring the economy
• Personal care market booming
Brazil’s Real Plan
• Pronounced 'hay-ow'• Establishment of a new currency• Focus on reducing the inflation rate
– dropped from 50% per month to 2% per month
• Interest rates remain high– 3-4% per month
Brazilian diaper market
• Diapers first introduced in mid 1980’s by J&J• Growing competition• Many new companies manufacturing and
distributing in Brazil• Prices range from R$0.30 to R$0.60 per diaper• Current diapers largely inferior in quality
– Technological and capital constraints– Relevant only to domestically producing companies
Brazilian diaper market Cont.• 4 groups of competition
– Foreign multinational corporations• J&J sells highest quality diaper
– Brazilian, domestic producing companies• Lower, quality and lower-price market segment
– Argentinian companies• Low quality and low cost diapers
– Foreign companies• Also high quality diapers with high pricing
Immediate Issue Matrix
Importance
UrgencyLow High
Low -Payment Terms
High Distributors Relationship Market Entry Pricing Market Entry Timing
Basic Issue Matrix
Importance
UrgencyLow High
Low Product Differentiation Exchange Rate
High Market Share Interest Rate
Cause and Effect
Exchange Commission Quality Rate
Market Price
Arbitrage Sousa’s Markup Retailer’s MarginInterest Rate
Constraints and Opportunities
• Constraints– Price conscious customers– Domestically producing competitors– Brand image– Lack of marketing budget
Constraints and Opportunities (2)
• Opportunities– Expanding Brazil diaper market– Increasing middle class– Current diapers’ quality are inferior to Precious line
Common decision criteria
• Risk• Ethics/Legality• Market entry timing• Cost• Ease of implementation
1st Alternative – FCIA & US Ex-Im Bank
• Provide Loan guarantees• Encourage and facilitate exports from the US• Political and commercial insurance• Viable for long run
1st Alternative – FCIA & US Ex-Im Bank
• Advantages– Provides loan guarantees– Low financing cost
• Disadvantages– Requires min. 3 month time to evaluate the loan
• Constraints– Crosswell International-unfamiliar with loan
guarantee programs
2nd Alternative – Uruguay
Import goods through Uruguay• Import tariffs about half as high as Brazilian• Mercosur regional trade agreement
• Advantages– Reduced product price– Low import tariffs
• Disadvantages– Very time consuming- 2weeks delivery time– Offset on gains by other costs:
• Higher financing costs• Inland transportation costs
• Constraints– Finding importer or distributor in Uruguay– Invest capital to create Import/Export corporation
2nd Alternative – Uruguay
3rd Alternative – Under Invoicing
• Obtain import license• Split payments –
– 50% cash upfront– 50% on LC per under-invoice
• Advantages– Low import tariffs – reduces product cost
• Disadvantages– Unethical– Violate US-SEC Regulations
3rd Alternative – Under Invoicing
4th Alternative – 180-day Letter of Credit
• Brazil’s high interest rate arbitrage• Extend payment terms to 180-day L/C
• Advantage– Arbitrage opportunity – Interest gains lower product cost
• Disadvantage– For short term only– High transaction cost
• Constraints– Stability of Real/Dollar exchange rate
Alternatives analysis matrixAlternative Risk Ethics/
LegalityMarket Entry Timing
Cost Ease of Implementation
Total
FCIA & US Ex-Im Bank
3 5 1 4 2 15
Import through Uruguay
2 1 2 4 1 14
Under Invoicing 1 1 4 5 4 15
180-day Letter of Credit
5 5 4 3 5 22
Criteria: 5 Best to 1 Worst
Method of Action
• Alternative # 4• Easy to implement• Reduced cost at minimal risk• Determine pricing
– Below target price– Distributor makes same profit
Determine Actual NumbersMethods
Original20% DM
Cash in Advance(Lower Commission)
20% DM
Letter of Credit(Lower Commission)
8% DM
Letter of Credit8% DM
Price/case to Mathieux (US$) 32.57 32.07 32.07 32.57Commission (Mathieux) 1.50 1.00 1.00 1.50FOB price per case (US$) 34.07 33.07 33.07 34.07
Freight, loading, & documentation 4.32 4.32 4.32 4.32CFR price 38.39 37.39 37.39 38.39Export insurance 0.86 0.84 0.84 0.86CIF/ case to distributor (US$) 39.25 38.23 38.23 39.25
Exchange rate (R$/US$) 0.935 0.935 0.935 0.935
CIF price/ case to distributor (R$) 36.70 35.74 35.74 36.70Total Import Fees 3.74 3.67 3.67 3.74Total cost to distributor (R$) 40.44 39.41 39.41 40.44
Possible Discount Fee Added 0.00 0.00 1.69 1.74Adjusted Total cost to distributor (R$) 40.44 39.41 41.11 42.18
Storage cost 0.55 0.54 0.54 0.55Cost of financing diaper inventory 2.57 2.50 0.00 0.00Distributor's margin 8.71 8.49 3.33 3.42Price to retailer (R$) 52.27 50.94 44.98 46.15
Estimated Interest Arbitrage Gain @ 3%/mon 5.40 5.54Total Distributor's Profit 8.71 8.49 8.73 8.96
Total price increase after distribution 39.94 38.93 34.37 35.26Price per case to consumer (R$) 92.21 89.87 79.34 81.41
Short Term Outcome
• Early market entry• Interest rate arbitrage• Product recognition• Retain distributor’s profitability• Adjust profit margin of Sousa• Provide base for future product expansion
Long Term Outcome
• Capture market share• Establish brand image• Distributor relationship• Increase profit margin
Implementation Timeline
Contingency Plans
• Adjust payment terms when necessary• Price mark-up to optimal profit point• High elasticity of demand
– Less price flexibility– Pull out possibly if profits fall below break even
point