General Information Intro

The French company Sur Systems Software manufactures and sells software solutionscommonly referred to as CRM systems (customer relationship management systems)to corporations for managing customer databases and coordinating communications with them. Sur developed a successful niche strategy targeting corporate foundations. With success in their home market, Sur began to expand throughout the European Union, taking advantage of the free trade zone between the 27 member countries.

The next major market for Sur was the United States, which would provide a gateway into North America. Being unfamiliar with the US market, Sur developed a partnership with Epic Distribution, a US-based distribution company. Sur worked with Epic to train their sales force and customer service staff and to develop English language and culturally appropriate content marketing materials, such as brochures, print and social media advertising, and landing pages.

Epic was able to generate steady volume and revenue growth for the first five years of the partnership. However, sales growth has slowed and is significantly lower than what Sur has experienced in its European markets, where it operates its own marketing and sales subsidiaries. Management is considering ending the Epic Distribution partnership and investing in a US sales and service office.

Context

Epic purchases each unit from Sur in France for $10,000 and has a fully landed cost (including shipping, insurance, and other costs associated with the products getting from France to the U.S.) of $12,000 by the time the product ends up in the Epic US warehouse. After adding a 33.3% margin, Epic sells the Sur solution to corporate end-users for $17,991. Management believes $17,991 is the right price for the U.S. market.

Sur management estimates the cost of goods sold if they establish their own operations will be $12,000 This cost includes the software, customer training, and one-year service support costs. They approximate that Epic spent $500,000 annually on Sur-related selling, general, and administrative costs. As such, they expect their annual costs of operating their own U.S. subsidiary will be the same amount.

For your first post, create a new thread and respond to both questions below by latest 11:59pm on June 5^th. After you have made your original post, respond to at least two of your classmates.

1. What are the advantages of a company-owned and -operated marketing and sales subsidiary compared to working with a foreign distributor?

2. How many units will the US subsidiary have to sell each year for Sur Systems to justify the investment? (minimum break-even point)