The Case

Victoria Medical Suppliers Ltd (VMSL) - International Expansion

You have been appointed as an advisor to VMSL, a leading medical supplier in Australia. As a reputed company in the medical supplies industry, the company has greater demand for its products due to the ongoing pandemic. However, the fluctuating foreign exchange rate is also a greater issue which the company needs to address. The company management approaches you and seeks your advice on adjusting its international business and financing activities to face the current global market trends.

The company currently engages in export and import activities using a well-linked international network of agents. The company distributes its product in Europe, Japan and China using its own subsidiaries and in other countries in South-East Asia by using their nominated agents.

However, the on-going global health crisis has a significant effect on both the firm's operations and the cash flow positions. In particular, high volatility of the local currency value in the foreign exchange market have undermined the firms ability to manage its cash flow positions. On this background, the company has decided to revamp its international trade and finance strategy.

At present, the company uses AUD as their international trading currency. VMSL allows three months to settle with their foreign customers. The company's suppliers allow the company to settle their suppliers invoices in six months. However, the fluctuation of other currency values against the AUD has forced the company to re-think its invoicing policy. Since most of its foreign suppliers are invoicing their products in the United State's dollar (USD), the management of the company expects invoicing its exports in USD or the currencies used in trading partners' countries. The company management believe this change will help them to minimise the adverse effect of foreign currency value changes. To retain its current customer base, the company is considering to extend invoice settlement time up to six months.

VMSL expects to expand its operations in South-east Asia. As a first step, they plan to establish an assembling facility in Thailand. A feasibility study conducted last year revealed that locating an assembling plant in India would bring a huge cost advantage on both labour and materials. This new plant will be used to satisfy the growing demand from Asian countries .

VMSL require its subsidiaries to review their cash flow situation in every three months and remit any excess cash balances to the head office in Australia. Currently, excess cash are transferred any time whenever the subsidiary cash balance exceed the allowed limit.

In light of the above background information, you are required to develop a management advisory report addressing the following issues.

Introduction - 20 points

1. Identify the possible objectives of VMSL (the main and internationalisation),

2. Apply internationalisation theories (comparative advantage, product life cycle and imperfect market) to illustrate the possible motives for having foreign operations.

3. Explain the possible advantages and disadvantages of VMSLs current international trading strategy.

4. Why do you think establishing a foreign subsidiary is more appropriate than the other available modes of internationalisation? Explain possible advantages VMSL can enjoy through a foreign subsidiary.