Imran Merchant, chief financial officer (CFO) of Micro Tigers Inc., is in a bind. Micro Tigers is a producer of hand held pagers, designed for use in Hospitals, restaurants and other work environments where cellular devices cannot be used. Micro Tigers manufactures all of its products in Canada, and 92% of it sales are within Canada and North Eastern United States.

Imran has noticed that a worrying trend. The cost to produce pagers have increased substantially over the last few years, however last year in particular the increase has been over 15%. The primary driver of the increase has been the Canadian Labour Market. The Canadian Government is continuously introducing new minimum wage laws and other employee benefits which have made production cost increases hard to bear. Among the new legislation is an mandate of $16/hour minimum wage, as well mandatory overtime payment after 40 hours in a week (previously 48 hours).

Recently Imran had lunch with one of the Senior Financial Analysts within Micro Tigers John Locke. John had spent several years living and working in Bangladesh prior to joining Micro Tigers. John Locke presented Imran within an intriguing idea, move all production to Bangladesh. Under Johns proposal Micro Tigers would

• Establish a foreign Subsidiary/Cost Centre in Bangladesh where all product would be manufactured.
• Export all products into Canada and the United States (Lead times would increase considerably)

• The added bonus would be that it would allow Micro Tigers to target the Australian market. Micro Tigers has long wanted to expand to Australia, where domestic pagers are not manufactured. However, exporting product from Canada to Australia is difficult due to the distance and freight cost. Exporting product from Bangladesh to Australia however is a definite possibility. Australia has the potential to become a significant market for Micro Tigers (30% of Sales).

  While Imran thinks about these options he has a few questions that he has reached out to you with. He has asked for a presentation that he can put in front of the board and get the necessary approvals. He has the following questions

• How could a higher level of inflation in Bangladesh potentially affect Micro Tigers, if Canadian Inflation remains constant?
• How could competition from firms in Australia effect Micro Tigers (Assuming Micro Tigers expands to Australia?
• What political risks should Micro Tigers be concerned about, should it relocated its facilities to Bangladesh.
• What about happen if the Canadian Dollar depreciated against the Bangladesh Taka? What would happen if it appreciates? What about the Australian Dollar? What would Micro Tigers do about all the added currency risk?
• If Micro Tigers experience financial problems and is not able to fund its Bangladesh production facilities, are there any international agencies that the company could approach for loans or other financial assistance?
• What other concerns should Imran have?