Barry McDonald, CFO for Recreational Products, Inc (RPl), is convinced it would be profitable for his firm to invest in a manufacturing operation in Singapore. RPI makes a variety of recreational products, including sporting goods, sportvvare, and camping equipment. RPI is known as a very high quality producer, with features and prices greater than most in the industry. One of the largest divisions in RPI is the boating division, which makes a variety of sailboats and fishing boats from 16 feet up to large sailboats of 40+ feet in length. These boats are now manufactured in two US plants. Barry's idea is to utilize the available low cost labor, materials resources and the favorable business climate in Singapore to build a manufacturing plant there for producing the larger sailboats. The finished boats would be sold to existing customers (boat dealers) in the United States and Canada, and a new effort would be made to sell some of the product in Asia and Australia. Barry forecasts sales of $50US million, cost of sales (manufacturing in the Singapore plant) of $34 million, and other expenses of approximately $10 million. The government of Singapore would provide a tax holiday for the project, but the return of profits to the United States would be taxed in the US at the US rate of 34%.

Barry's research showed that the cost of the plant in Singapore would be $20 million.

Funds for the investment could come from the firm's own resources at a cost of approximately 12%, or through a subsidized loan from the government of Singapore at a 5% rate. With these figures and other estimates, Barry figured the after-tax cash flow of the plant would be a positive $4 million per year for the next 15 years, the expected life of the plant.

Required:

1 What does RPI's competitive position appear to be for the entire firm, and for the boating division? What are some of the likely critical success factors for the boating division?

2. Does Barry's plan for the Singapore plant fit the strategic competitive position you developed in (1) above?

3. What do you think are some of the key international issues that are relevant for Barry's proposal?