Case 1: Medico Co.

A recent survey revealed that 95% of Australians are aware of the high risk of skin cancer through prolonged exposure to the sun. The sun does not discriminate. Just about anyone engaged in outdoor activities is at risk and sun bathers run the highest risk. It was once believed that the danger lies in prolonged, continuous exposure to the harmful rays of the sun. However, it is now clear that brief but frequent exposure to the sun is just as bad. This would suggest the need for sun protection on a daily basis regardless of the nature of outdoor activities.

Medico [a fictitious company] is a major Australian-based and owned personal care company - but pales in comparison with the multinational companies which dominate the Australian personal care market. The company was founded in 1948 and is well known locally for its range of high-quality moisturisers sold under the Medico brand.

Moisturisersare simply lotions that restore and maintain the skin's natural moisture and are used mainly by women. Familiar brands include Vaseline Intensive Care, Johnson's Baby Lotion, Olay, Dove, and Nivea.

Sunscreensare mainly used in the hot summer months and often on the beach only. It has its share of mainstream brands including house brands, and specialty brands from the leading cosmetic houses. Multinational and national companies dominate the market with brands available in supermarkets, pharmacies, discount stores, and department stores.

The Breakthrough

Recently, Medico had successfully developed an innovative formulation, a 4-in-1 body lotion with the following properties:

• maximum (SPF 50+) sunscreen
• moisturising - best in its class
• insect repellent
• anti-perspirant

The lotion resembles, and feels like, a moisturiser in that it can be rubbed deep into the skin and is non-greasy. Its sunscreen property makes it better than a regular sunscreen since regular sunscreen should only be applied on the skin's surface, and not rubbed in.

Basically, it is a body lotion that gives a 10-hour protection against the 4 elements that are usually associated with being outdoors, i.e., the sun, skin dryness, insects, and perspiration!

For secrecy reason, this new formulation will not be patented as that would involve the recipe being disclosed. Instead, it will remain a trade secret.

Medico plans to market the new product as a 4-in-1 "wonder lotion". However, there is no such product category in Australia or even globally. The closest category includes 'moisturisers with sun protection'.

Medico is also seeking international marketing opportunities.

Question:

The body lotion is classified as a 'health & beauty' product. Identify andbriefly explainthe majortrade barriers(e.g., tariffs) that Medico could face when exporting the new body lotion to overseas markets.

Explain the difference betweenlicensingandcontract manufacturing. And say how they can overcome some of these trade barriers.

[Your answer must be specific to Medico's new body lotion]