International Marketing Incident C: Chile Earthquake On March 11, 2011, Japan was hit by a 9.0 magnitude earthquake, which subsequently produced a devastating tsunami. The effects of these events were numerous, including entire towns being washed away, nearly 500,000 people displaced, a nuclear power plant left in critical condition, and thousands of lives tragically lost. The earthquake was one of the largest in modern history, and though hard to estimate, could cost nearly $300 billion to clean up. Natural disasters such as earthquakes, hurricanes, tornados, tsunamis and the like can have devastating impacts on communities and on business operations. In 1960, one of the greatest earthquakes ever occurred in Chile. Your group currently has a plant in Chile. Imagine the destruction to the infrastructure if a serious earthquake occurred near your plant. Roads, trains, airports, electrical grids, buildings, all would be in need of serious repair. How would your business be affected? Your Chilean plant serves the Argentina and Chile markets. Currently production at your Chile plant is 100 million units per year. Demand for next year will be 50 million units in Argentina, and 50 million units in Chile. Manufacturing costs in Chile will increase 10% due to damaged infrastructure. Production is expected to decrease 25% in the next year due to this disaster (that is, your capacity next year will drop 25%). As a result, you will still be able to meet all of the Chile demand from the local plant. Argentina, however, will have to source products from both the Chile and home plants. How will this scenario affect your total landed cost (cost+freight + tariff in USD) for next year? Home Plant Previous Period 0.730 Chile Plant Previous Period 0.550 Average Unit COGS (S) Argentina Shipping COGS+Shipping Tariff % Tariffs Total Unit Landed Cost (COGS+Shipping+Tariff) 0.060 0.790 0.210 0.166 0.956 0.020 0.570 0.000 0.000 0.570 Chile Shipping COGS+Shipping Tariff % Tariffs Total Unit Landed Cost COGS+Shipping+Tariff) 0.060 0.790 0.00% 0.000 0.790 0.010 0.560 0.00% 0.000 0.560 B D E F G A Incident C - Chile Earthquake 1 2 Hone Previous Period 0.7 Chile Previous Period Chile Hert Period Plant Location Hiwage UW COAS (1) 3 4 5 6 7 Argentina Shipping COGS+Shipping Tariff Tariff $ Total Unit Landed Cost (COGS Shippi 0.060 0.790 0.210 0.166 0.956 0.020 0.570 0.000 0.000 0.570 9 10 11 12 13 14 15 16 17 18 19 20 21 Chile Shipping COGS+Shipping Tariff Tariff $ Total Unit Landed Cost (COGS+Shippi 0.060 0.790 0.00% 0.000 0.790 0.010 0.560 0.00% 0.000 0.560 Previous Period 22 23 Chile 24 Argentina 25 Total 26 27 Heit Period Units 50 50 100 Landed Cost 28.00 28.50 56.50 Units Chile Plant Units Home Plaat Cost fros Chile Cost from Hone Landed Cost (mill.) Total Uaits 50 50 100 28 29 Chile 30 Argentina 31 Total 32 33 34 Change in Total Landed Cost 35 36 Units in millions, other amounts shown in $ Hill Z International Marketing Incident C: Chile Earthquake On March 11, 2011, Japan was hit by a 9.0 magnitude earthquake, which subsequently produced a devastating tsunami. The effects of these events were numerous, including entire towns being washed away, nearly 500,000 people displaced, a nuclear power plant left in critical condition, and thousands of lives tragically lost. The earthquake was one of the largest in modern history, and though hard to estimate, could cost nearly $300 billion to clean up. Natural disasters such as earthquakes, hurricanes, tornados, tsunamis and the like can have devastating impacts on communities and on business operations. In 1960, one of the greatest earthquakes ever occurred in Chile. Your group currently has a plant in Chile. Imagine the destruction to the infrastructure if a serious earthquake occurred near your plant. Roads, trains, airports, electrical grids, buildings, all would be in need of serious repair. How would your business be affected? Your Chilean plant serves the Argentina and Chile markets. Currently production at your Chile plant is 100 million units per year. Demand for next year will be 50 million units in Argentina, and 50 million units in Chile. Manufacturing costs in Chile will increase 10% due to damaged infrastructure. Production is expected to decrease 25% in the next year due to this disaster (that is, your capacity next year will drop 25%). As a result, you will still be able to meet all of the Chile demand from the local plant. Argentina, however, will have to source products from both the Chile and home plants. How will this scenario affect your total landed cost (cost+freight + tariff in USD) for next year? Home Plant Previous Period 0.730 Chile Plant Previous Period 0.550 Average Unit COGS (S) Argentina Shipping COGS+Shipping Tariff % Tariffs Total Unit Landed Cost (COGS+Shipping+Tariff) 0.060 0.790 0.210 0.166 0.956 0.020 0.570 0.000 0.000 0.570 Chile Shipping COGS+Shipping Tariff % Tariffs Total Unit Landed Cost COGS+Shipping+Tariff) 0.060 0.790 0.00% 0.000 0.790 0.010 0.560 0.00% 0.000 0.560 B D E F G A Incident C - Chile Earthquake 1 2 Hone Previous Period 0.7 Chile Previous Period Chile Hert Period Plant Location Hiwage UW COAS (1) 3 4 5 6 7 Argentina Shipping COGS+Shipping Tariff Tariff $ Total Unit Landed Cost (COGS Shippi 0.060 0.790 0.210 0.166 0.956 0.020 0.570 0.000 0.000 0.570 9 10 11 12 13 14 15 16 17 18 19 20 21 Chile Shipping COGS+Shipping Tariff Tariff $ Total Unit Landed Cost (COGS+Shippi 0.060 0.790 0.00% 0.000 0.790 0.010 0.560 0.00% 0.000 0.560 Previous Period 22 23 Chile 24 Argentina 25 Total 26 27 Heit Period Units 50 50 100 Landed Cost 28.00 28.50 56.50 Units Chile Plant Units Home Plaat Cost fros Chile Cost from Hone Landed Cost (mill.) Total Uaits 50 50 100 28 29 Chile 30 Argentina 31 Total 32 33 34 Change in Total Landed Cost 35 36 Units in millions, other amounts shown in $ Hill Z