Jaguar Electronics, Inc. is a specialized electronics firm located in Charleston, South Carolina in the United States. The company was founded in 1965 and has enjoyed success and modest growth as a supplier of components to large manufacturers of specialty electronic-mechanical devices. Recently the company’s management has decided to begin manufacturing and marketing a product called the ‘Airflow.’ The Airflow is manufactured by assembling two component parts:

(1) mechanical assemblies (MA), which are purchased from a company in Belgium 

(2) electronic assemblies (EC) manufactured by Jaguar Electronics at its Charleston facility.

Jaguar Electronics has manufactured and supplied the electronic assemblies to several national manufacturers of products similar to the Airflow for several years.

Most of the consumer demand for the final products comes from areas enjoying a relatively warm climate throughout the year. Accordingly, the manufacturers of those products have sold their goods with great success throughout the southern and southwestern United States. The population and economic growth in these areas have contributed greatly to the success of this type of consumer product.

With the data available, Smith had a meeting with Feldblum, Winklepleck, and a member of the corporate legal staff to discuss what should be done. The meeting went poorly. Feldblum still believed that the company should locate assembly in the place with the lowest labor cost. Winklepleck realized that he should have provided a spreadsheet indicating total costs associated

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:

The corresponding figures for assembly in Country 3 and shipping to Country 1:

Winklepleck hoped that his quick calculations did not contain any errors......... 

Questions

1. Calculate the costs if the Airflow is assembled in Country 1 and if it is assembled in Country 2. Note that Country 1 has a free trade zone and Country 2 does not. Note also that calculations should be done for total sales to the two countries rather than on a per-unit basis since the costs will differ depending upon destination as well as assembly point.
2. Is Jaguar Electronics likely to be able to compete overseas with a new product that it feels will not be competitive in its home market? Why or why not?
3. Should Winklepleck bring up the questions that are bothering him? If so, when?
4. What do you recommend?

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Table 14.3 Cost, demand, weight, and tariff data Annual demand in Country 1 20,000 units Annual demand in Country 2 40,000 units Labor costs for assembly in Charleston in Country 1 free trade zone in Country 2 in Country 3 free trade zone Cost of components MA, FOB Brussels (Belgium) EC, FOB Charleston Product weight EC Airflow $5.00/unit $4.50/unit $4.00/unit $3.75/unit $25.00/unit $30.00/unit 60 lb/unit 40 lb/unit 100 lb/unit Import duties as a percentage of price paid (excluding transportation and insurance costs from port of embarkation to port of entry) United States Country 1 Country 2 Country 3 5% 10% 10% 25%