Case Study: Montreal Maple Syrup's Expansion into Japan

After establishing successful export operations into the United Arab Emirates (UAE and the United States, Montreal Maple Syrup (MMS) is considering expanding Its export operation Into Japan.

As with many Canadian maple syrup producers, MMS has experienced great success in exporting, its products. See the article for more information:

https://www.edc.ca/en/blog/canadian-maple-syrup-exports.html

MMS's annual sales have grown to $8 million (CAD) annually, with exports accounting for half of their annual sales ($3 million into the US and $1 million into the UAE). They feel they have maximized the export potential in the UAE. The company continues to grow their market share in the US, but the growth is slow due to intense competition from other Canadian exporters. So, they are looking at other foreign markets. MMS has considered the larger markets in Europe, such as Germany and the UK, but management feels the competition is also too intense and have decided to focus on Japan. The maple syrup market in Japan is estimated to be over C$20 million annually. Japan is the 4^th largest importer of maple syrup in the world.

Patrick Roy, MMS's VP of International Operations, though his business contacts in the UAE has met key importers from Japan. He is confident MMS can sell a minimum of $C500,000 of product into Japan in the first year and the potential annual exports into Japan could value $C2,000,000 annually, within 3 years. Mr. Roy has a tentative deal with the Japan food importer, Shoku International Corp (SIC). There is an initial purchase order of 12,000 - 250ml bottles of maple syrup, which is the minimum order that both parties feel would be cost effective. If this order goes well (quality of product, smooth import experience, sell through, etc.), the buyer will commit to minimum annual purchases of 45,000,000 JPY.

SIC's purchase order:

	Shuko International Corp. Purchase Order Date October 5th,2022
	Purchase from: Montreal Maple Syrup
500	Cases 24 x 250 ml bottles Maple Syrup Shipping: Cost, Insurance & Freight (CFI) Port of Tokyo. Note Exporter will pay Japanese Import Duties. Delivery: On or before March 31, 2023. Late Deliveries will not be accepted. Terms: On open account. 60 days terms from date delivery to Port of Tokyo.	15,000 JPY
	Total Due	7,500,000 JPY

SIC would sell the syrup though it's wholesale division for 21,600 JPY per case of 24-250 ml bottles to Its retail customers (grocery stores and markets), who would sell the individual bottles to the end consumer for 1,200 JPY.

Shuko International Corp LS a well-established Japanese food Importer. They specialize in the import of specialty food products. The company is one of the largest Importer of food from North America. SIC has an extensive customer base and are known to excel in bringing new product to the Japanese market. They have a solid financial trade record, Including paying their suppliers on time.

MMS's Costs:

After some analysis, the following costs were determined:

Production:

$C2.75 per 250ml bottle, including bottle and label, packaged in case of 24, ready for export to Japan.

Shipping costs and other related costs (for 12,000 bottles, 500 cases):

Needed services to export to Japan. Costs are as follows:

Shipping from MMS to Port of Montreal: $C800 Shipping from MMS to Port of Tokyo: $C6,000 including all related costs (shipping, handling, freight, insurance, documentation, etc.), not including the 14.3% duty on syrup being imported into Japan (calculated on raw production costs done outside of Japan).

MMS's first year costs.

The company's first year costs including one-time market development costs (marketing, trade shows, label design, translation, administration, legal fees etc.) are estimated at $C250,000. Note. After the first year, MMS's ongoing SG&A expenses are estimated to be $C200,000 per year, if the company's export volume to Japan is 45,000,000 JPY and 100,000,000 JPY.

Current exchange rates:

1 CAD = 91.31 JPY

1 JPY = 0.011 CAD

1 CAD = 0.8037 USD

1 USD = 1.24 CAD

1 USD = 113.67 JPY

CAD - Canadian Dollar

JPY - Japanese Yen

USD - American Dollar

Questions:

1. Based on the 500-case order, what are MMS's cost per unit (case of 24) to produce the exported syrup (in both CAD and JPY)? Please show your calculations. 10 points.
2. Produce a simple income statement (in CAD) for MMS if they only sell the initial order and then cease exports to Japan. 10 points.
3. Produce a simple Income statement (In CAD) for MMS If they export 45,000,000 JPY of syrup to Japan in the first year. 10 points
4. Produce a simple income statement (in CAD) for MMS if they export 75,000,000 JPY of syrup to Japan in year 2. 10 points
5. MMS's revenue will be in Japanese Yen while their expenses are in Canadian Dollars. Discuss the Currency Risk for MMS. What happens It the value of the Yen Increases verses the Canadian dollar? What happens if the value of the Yen decreases? How could the company mitigate the risk? 10 points.
6. How do you feel about the buyer wanting 60-day terms? Is this reasonable? Is it too much risk? If you were to negotiate payment terms, what terms would you counteroffer? Explain your rational. 5 points.
7. Montreal Maple Syrup may want the incoterm used to be Free on Board (FOB) Port of Montreal, In MMs case where does the ownership and risk. transfer from the seller to the buyer? What are the advantages/disadvantages for MSS 5 points.