Case Study 1-3 Answers

1.
Ranger Supply Company

-Large manufacturer and distributor of office supplies in US.
-Based in New York but sends supplies to firms throughout the United
States.
-Orders at the website or over the phone.
-Ships the supplies upon demand.
-Low employee turnover and high morale.
-Main competition in the United States comes from one U.S. firm and
one Canadian firm (Is another British firm, but is in disadvantage
because of its distance).
-Capture most of the U.S. market because its high efficiency enables it to
charge low prices to retail stores.
-It anticipates strong demand for office supplies in Canada and in Eastern
Europe over the next several years, and low of sales in US.
-Have begun to consider exporting.
a. Ranger plans to attempt penetrating either the Canadian market or
the Eastern European market through exporting.
What factors deserve to be considered in deciding which market is
more feasible?
Historically Canadian dollar has been very stable with us dollar.
Canada is very open market part of NAFTA, so easy to sell them more than
Europe.
In the short term, the company have to take into account the effect of the
possible changes in the currency between Canadian currency - U.S Dollar,
and US dollar and Euro.
A part from this, are other important factors to consider when they are going
to import/export: as tariffs and entrance barriers, how expensive are the
transportation costs, amount of competitors in the target countries doing
the same or selling the same products, potential market share, as well as
how developed its the area, the average income and the spending capacity of
the people or potential customers. In addition, its important to summarize
all this factors, to know which market has the most potential future growth.
In the long term, a part from the previous factors and issues, it is
important to analyze the possible economical - political issues than
could happen in the destiny countries, whether caused by by worldwide
issues (like last economical crisis) or local factors.
So in resume, CANADA might be better market to go, because more stable,
more convenient….
b. One financial manager has been responsible for developing a
contingency plan in case whichever market is chosen imposes trade
barriers over time. This manager proposes that Ranger establish a
subsidiary in the country of concern under such conditions. Is this a
reasonable strategy? Are there any obvious reasons why this strategy
could fail?
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The option of a Subsidiary, is an expensive option , however is less
expensive than the option of acquiring a current company that already have
a customer base and is operating. However have some advantages as Ranger
can implement his own way of operating, instead of adapting the acquired
company. The negative aspect, is th they will not take advantage of the local
knowledge as they will in the case of acquiring a company.
Are other options for DFI, as licensing or franchising, however are not
considered DFI, because are normally needed of less foreign investment and
also in this case will not apply as they cannot fit correctly the proposed case.
This strategy could fail, if the countries have rules that foreign companies
cannot settle there a subsidiary directly. This for example happened in
Europe territory, where only for example the US companies that had
previously years to EU creation settlements in the territory can operate. So
what they did was to acquire companies or create subsidiaries, in the
countries that weren't currently art of the EU, but where in the list of
possible countries joining the EU proximately, so they can took advantage
of that.
Chapter 6 Hull Importing Company

Effects of Intervention on Import expense
a) Hull expects the at Mexico’s central bank will increase interest rates
and that Mexico’s inflation will not be affected. Offer any interest on
how the peso’s value may change and how Hull’s profits would be
affected as a result.
Higher interest rates without an increase in inflation would adversely affect
Hull, because its expenses would increase, but it would not be able to pass
on the higher cost to its customers.
When Mexico’s central bank will increase the interest rates, the investors of
neighbor country want to invest in Mexico. The value of Peso’s will increase
due to increase demand of investors. This higher value also increases the
expense of Hull Company, and Hull profits would be affected due to its
higher cost of importing. As a result consumers would then switch to
different gift Item Company.
b) Hull used to closely monitor government intervention by the Bank of
England
(the British central bank) on the value of the pound. Assume that the
bank of England intervenes to strengthen the pound’s value with
respect to the dollar by 5 percent. Would this have a favorable or
unfavorable effect on Hull’s business?
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If the British pound’s value is increased, Hull’s expenses are increased,
causing an adverse effect.
This intervention create both positive and negative situation, 5% are not
small amount. If the value of pound will increase 5%, expense will also
increase which would be unfavorable effect for Hull business. Because of
importing company, Hull has been unable to pass on higher cost to its
customer. But it would be favorable for
Hull business, if expense is decrease due to decrease the value of pound by
the Brithish Central bank.
Chapter 19 Ryco Chemical Company

(Using countertrade )
a) Describe a counter trade strategy that could reduce Ryco’s
exposure to Brazilian inflation.
Ryco could attempt to work out a countertrade agreement. Ryco could
provide chemicals that Concellos needs in exchange for the chemicals that
Ryco normally purchases from Concellos. Ryco could benefit because its
cost of importing some chemicals would no longer be tied to Brazilian
inflation. Instead its cost would be tied to its own cost of producing the
chemicals it must exchange for the imports. If Concellos would agree to the
countertrade agreement, Ryco may be able to stabilize its cost of imports,
which could reduce the uncertainty surrounding cash flows and
profitability.
b) Would Concellos be willing to consider this strategy? Is there any
favorable effect on Concellos that may motivate it to accept the
strategy?
Concellos is exposed to the weak currency (called the real). If it purchases
the chemicals used in production from Ryco, its cost will not be affected by
the real’s exchange rate (as it could purchase the U.S. goods through a
countertrade agreement). Thus, it may be able to stabilize its cost of imports
in this matter.
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c) Assume that both parties agree on counter trade. Why would the
cost of obtaining imports still rise over time for concellos? Would
concellos earn lower profits as a result?
Concellos’ cost of obtaining imports is the cost of producing the chemicals it
uses for exchange (based on the countertrade agreement). Given high
inflation in Brazil, these production costs will rise. However, it may be able
to raise its prices on its final products by the inflation rate to cover its
higher costs of production. Overall, it will be able to offset these higher costs
easier than offsetting the higher costs that would result from exchange rate
effects. Since its competitors base their prices on local cost of production (as
they are not exposed to a weak exchange rate risk), Concellos would now
incur costs that are more similar to those of its competitors.
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1.

Ranger Supply Company

Chapter 6 Hull Importing Company

Chapter 19 Ryco Chemical Company

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