(This case study is derived from one written by Frank C. Burinsky and Michael A. McGinnis, Shippensburg University. The company name, product and component names, overseas locations for selling the products, and shipping costs have been changed to protect the actual company name and reflect changes in trade agreements and shipping practices.) JaguarElectronics,Inc.is a specialized electronics firm located in Charleston, South Carolina in the United States. The company was founded in 1965 and has enjoyed success and modest growth as a supplier of components to large manufacturers of specialty electronic-mechanical devices. Recently the company's management has decided to begin manufacturing and marketing a product called the 'Airflow'. The Airflow is manufactured by assembling two component parts: (1) mechanical assemblies (MA), which are purchased from a company in Belgium; and (2) electronic assemblies (EC) manufactured by Jaguar Electronics at its Charleston facility. Jaguar Electronics has manufactured and supplied the electronic assemblies to several national manufacturers of products similar to the Airflow for several years. Most of the consumer demand for the final products comesfrom areas enjoying a relatively warm climate throughout the year. Accordingly, the manufacturers of those products have sold their goods with great success throughout the southern and southwest- ern United States. The population and economic growth in these areas have contributed greatly to the success of this type of consumer product. Theman largely responsible forJaguar Electronics' proposedmove intomanufacturingand marketingAir- flow isthe company president, Mr Smith. He hasspent his entire career in the electronics industry and was withJaguarElectronics for severalyears before becoming its president. His reign as president has been very successful. However, he has viewed the impressive sales growth of EC units with mixed feelings. As a supplier of EC components, Jaguar Electronics has prospered from the growth in sales of products such as Airflow. However, Smith has always felt that his company was not reaping all of the benefits available in sales to the consumers. At the same time he felt that Jaguar Electronics did not have the resources to compete success- fullywith the large firmsthat dominate theUSmarket. Smith employed a consultant to determine where increasing consumer demand for Airflow-type products would approach a levelsufficiently high to justify entering these smaller markets. After reviewing the consultant's recommendations, Smith decided that Jaguar Electronics should target two of the higherincome countries in Latin America, Country 1 and Country 2. These nations, because of the income levels in particular cities, had the potential to be lucrative markets for Airflow. The consultant estimated the potential demand for Airflow to be 20,000 units per year in Country 1, and 40,000 units per year in Country 2. The consultant had also recommended four options available to Jaguar Electronics as to how the widgets could be produced and distributed to these markets: 1. Assemble the widgets in Charleston and distribute them from that point. 2. Assemble them in a free trade zone in Country 1, and distribute them from that point. 3. Assemble them in Country 2 (does not have free trade zone), and distribute from that point. 4. Assemble them in a free trade zone in another coun try, Country 3, which had no significant potential domesticmarketfor Airflow, but a lower labor cost, distribute from that point. Smith held a meeting to brief his production manager, Daphne R. Feldblum, and his distribution manager, Karl Q. Winklepleck, on the proposed Airflow venture and the consultant's recommendations. Both had been with the company for several years. After briefing the two managers, Smith asked: 'What course of action would you recommend?' Feldblum replied: 'We should probably assemble them where the labor cost would be lowest.' Winklepleck commented: 'We should also consider transportation rates, insurance rates, import duties, and free trade zones.' Smith decided that Feldblum and Winklepleck should work together to compile the information necessary for making the best possible decision. Twoweeks later the information shown in Tables 13.2 and 13.3 had been compiled. With the data available, Smith had a meeting with Feldblum, Winklepleck, and a member of the corporate legal staff to discuss what should be done. The meeting went poorly. Feldblum still believed that the company should locate assembly in the place with the lowest labor cost. Winklepleck realized that he should have provided a spreadsheet indicating total costs associated with each approach. The total cost figures for assembling in Charleston and Country 3 appeared to be very close. If it was possible to obtain some type of free trade area in Charleston, or if the US government could refund duty on the component MA when the finished product was exported, Charleston would actually be less expensive. In any event, figures for all of the combinations should be carefully calculated. Winklepleck also had some questions in his mind that he wondered if he should raise.They seemed to be important, but the president might not be pleased to have them brought up. If assembly were to be done overseas, how would quality be controlled? Should the company consider making a product for export that it thought it couldn't market successfully in the United Jaguar Electronics Case - MKTG475 - Fall 2020 1 of 3 States? Did the company have the resources needed and was it prepared to make the effort required to begin marketing internationally: establishing marketing channels, product promotion, etc.? How Jong would it take to reach the projected sales overseas, and what would be needed to promote the product? How sure could they be that they could ever sell the expected number of units in each of the two overseas markets? Questions 1. Calculate the total costs if the Airflow is assembled in Country 1 vs. Country 2, vs. Country 3. Note that calculations should be done for total sales to supply the two countries 2. Which country should they select to assemble the Airflow to maximize profit? 3. If the duty rate for Country 2 increases to 20%, how would this change your answer in question #2? Jaguar Electronics Case - MKTG475 - Fall 2020 2 of 3 Cost,demand,weight, and tariffdata Annual demand in Country 1 20,000units Annualdemand in Country 2 40,000units Labor costs for assembly in Charleston $5.00/unit in Country 1 $4.50/unit in Country 2 free trade zone $4.00/unit in Country 3 free trade zone $3.75/unit Cost of components MA,FOBBrussels {Belgium) $25.00/unit EC,FOB Charleston $30.00/unit Product weight MA 60lb/ unit EC 40 lb/ unit Airflow 100 lb/ unit Import duties as a percentage of price paid) United States 5% Country 1 10% Country 2 10% Country 3 25% Table 13.3 Combined rates for transportation and insurance between respective points (Note:Projected salesvolumeswouldjustifyshippingby container load.Thoughshippingrateswouldactuallybe chargedpercontainer load,foreaseofcalculation therates belowareshownasdollar costsperhundred pounds($/cwt). If productswereshippedin less than-container loads, rateswouldbemuchhigher.) Footnote by Winklepleck: Ocean freight shipments from Belgium to Country 3 are very infrequent From To Rate, $/cwt Belgium us 1.65 Belgium Country 1 3.50 Belgium Country 2 3.00 Belgium Country 3 3.75 us Country 1 2.50 us Country 2 2.25 us Country 3 3.00 Country 1 Country 2 1.25 Country 2 Country 1 1.25 Country 3 Country 1 or 2 2.00