Globalization Case Study – University Board Games Goes Global Bob Moos has a child’s imagination coupled with killer business instincts. When the board-games company he created in 1985 sought through global expansion 2 years later, Moos faced the usual two options: export the product or manufacture it overseas for local distribution. Moos chose the latter. “we decided for a number of reasons to manufacture our board game, ’20 questions,’ in Holland for distribution throughout Europe,” said Moos, President of University games Corp.. Of Burlingame, CA. International sales make up 8 percent of University Games revenue.
Moos predicts that international sales will rise to 35 percent in the next 3 years because of new overseas ventures. This year, the company expanded into Australia. Unlike the European ventures, however, Moos decided that it was more economical to import its products into Australia from the US manufacturing facility. “Our anticipated initial sales in Australia Just did not warrant a manufacturing operation there at this juncture,” Moos said. “If sales pick up down the line, we may then examine local manufacturing. ” Moon’s dual strategy is not unique.
One of the toughest questions a many confronts when pondering an international sales strategy is: to export or not to export? While exporting is often the least risky method of selling overseas, it frequently involves significant transportation, logistics, and tax-related costs that may make it uneconomical when compared with foreign manufacturing. On the other hand, foreign manufacturing, while potentially more competitive way of entering an overseas market has its own bugaboos. Political instability, fluctuating market conditions, and the huge capital costs to set up overseas manufacturing operation re daunting challenges.
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Determining the best way to go often involves solving a perplexing conundrum. With exporting, a company must evaluate the various modes of transportation that would be involved in getting the goods there, and how this relates to the cycle time of putting the product in the marketplace. Some products are time sensitive others are less so. On the other had, if a company determines that an overseas manufacturing operation best meets its needs, it must examine the echo- political factors involved, such as tariff and duty drawbacks and international tax issues.
Tradeoffs and traps In addition to weighing these tradeoffs, there are other related factors affecting the decision to either export or locate a plant overseas. To compete in their market, for example, some countries require that some form of local infrastructure be in place. :sometimes you run into government contracts where the only way to contribute a product in that country is to have it made locally, in China, for instance, you pretty much have to build something there in order to enter that market” said Moos. Certain products also dictate the international sales strategy to be taken. A company makes drinking glasses, you will want to manufacture them in the country it wants to sell for drinking glasses generally speaking are pretty cheap to make and expensive to ship. Other factors include time, the distance to the market, and price. Certain products require short lead times and thus may best be delivered via locally maturated plant. “This is where you get into issues like transport rotation costs tariffs and duties, labor expenses and how much it costs to build a plant,” said Moos. Another factor is the skill of the labor force in the market being considered. Oh have to question whether or not the labor pool -no matter how low-cost-can be trained to do the things you need,” Moos added. Best laid plans Perhaps the best way for many companies to enter a foreign market is to first export there, but with an eye towards building overseas in the future. “Exporting will give you a feel for the product and its market potential,” Moos said. “Instead of Jumping in the lake head first, exporting allows you to get your toes wet. It may cost more, but you’re able to hedge your risks. Buying an overseas plant, as opposed to starting en De novo, is a high-stakes proposition for many companies. “The culture within the walls is critical with respect to the ongoing operation of the firm. ” Moos stated. Some companies may follow two roots in this regard:’ acquiring a going venture in one country but starting one from scratch is another. Mercer management, for example, built its overseas consultation business via both strategies. “In Europe, we concluded that there were sound opportunities to build by acquisition, while in Asia we felt the best way to proceed was by opening our won offices De novo. Moos said. Companies seeking an international presence often must choose between [their] own dedicated sales force versus third-party agents doing the work for them. Others, such as University games, follow an international sales strategy using third-party distributors. “We identify the foreign markets we want to penetrate, and then form a business venture with a local distributor that will give us a large degree of control,” Moos said. “In Australia, we expect to run a print of 5 000 board games. These we will manufacture in the US.
If we reach a run of 25 000 games, however, we would then establish a sub-contracting venture with a local manufacturer in Australia to print the games. ” Smack dab between exporting and overseas manufacturing is another alternative: foreign product assembly. “Sometimes this is a better option because the duties in a particular country may be low on components but high on finished goods,” Moos said. “In a market in which a company has a fairly good production and manufacturing costs by getting a local vendor to do the work for you. ” CAP International favors full-scale overseas manufacturing to either foreign product assembly or exporting.
CAP uses local personnel and managers almost exclusively when operating overseas, they look for people who understand the markets and can compete very effectively within them. “Local managers help you understand local government regulations, which can tricky. We also let our local managers do their own marketing, figuring they know their own markets and how to compete there better that any company does” said Moos. Local relationships give local distributors and buyers peace of mind that they’re dealing with a local company, he added. Muff want to make the local buyer in France think he is dealing with French Company,” Moos said.
They want to feel they’re dealing with the decision-maker, not some missionary from New York in another time zone. ” On the ground The litany of missteps by companies’ overeager to enter a foreign market makes entertaining reading. General motors, for example, still winces at its decision to sell its Chevy nova in Spain without pausing to consider that “nova” in Spanish translates into “doesn’t go. ” Moos said. “The strategy was not successful. There is a danger exporting too tar away trot a market without someone on the ground to guide you. While some elements making up an international sales strategy can be predicted tit a degree of certainty, others like currency exchange values are capricious at best. “At Mix, we planned twice to enter the Italian market, in both cases, one week before we were set to launch our clothing line there; the Italian Lira was devalued 20 percent -meaning our prices would increase by 20 percent. Both times we were forced to cancel our plans. ” Conman said. Another unpredictable element is regulation the host government may decide to change its tariffs without notice, such changes may render your products or services too cheap or too expensive.
Technology obsolescence and improvements in logistics play similar, unpredictable rules. A company may spend hundreds of thousands of dollars building a foreign facility weeks before a new automated manufacturing system renders its technology a buggy in an age of automobiles. Moreover, a new way of moving goods faster, more efficiently and less expensively may materialize, reversing the status quo and making exporting a more cost-effective meaner of reaching a marketplace. Thus ultimately, no matter which way a company chooses to enter a foreign market, it needs a pair of fleet feet.