In-Class Assignment

Fastcycles is a mid-sized multinational company that manufacturers high end bicycles for road racing and mountain biking. They have plants in Mexico, and in San Diego, which is where they are headquartered. The company purchases most of their tires from Italy and their gear shifts and derailleurs from Japan and their frames from Taiwan. They also source parts from Germany and Denmark. Normally they try to arrange to pay their suppliers in local currency within 60 days. Payments to suppliers in Denmark Italy and Germany are done using open account, payments in Japan and Taiwan are done under Letters of Credit. Annual sales exceeded $750 million last year, and growth continues to be strong low double digits.

Fastcycles aligns themselves to the various grand cycling tours around Europe and sponsors selected athletes that compete in those tours and Ironman competitions globally. You heard that recently there was a discussion in a C suite meeting regarding the idea of introducing an E-bike to appeal to a less athletic i.e. older demographic.

They sell their cycles through small to medium size specialty bike shops throughout North America and Europe and they ship the bikes directly to the shops from the closest factory. Typically, they sell on 90-day terms and in the currency of the country where the shop is located. Since the bikes wholesale for about $3,000 USD equivalent a typical order size is anywhere between $30,000 and $150,000.

Today you receive an e-mail from a large retail chain in France, Carrefour, making an order for 10,000 electric bikes of various sizes and colors. The order is worth 5 million USD. This is your first order from Carrefour and your European sales representative says that they favor open account, and they will pay you in Euros 90 days from the day of shipping.

This is an order that you are very interested in closing. However, you have several concerns:

1) what are they?

2) How will you mitigate them?

Your boss ask you about the purchases from suppliers in Taiwan and Japan, and the possibility to switch to open account. What information would you need to determine if this is a valid option?