Question

Assuming today was 1" January 2019. You are the chief financial officer of a US-based company which manufactures and distributes office supplies. As the competition in local market was getting stiffer despite the company's strong customer base, the Board of Directors (the Board) is considering for the company to expand its international business by penetrating to either the Canadian market or Mexican market through exporting. The company anticipates strong demand for office supplies in these two markets. Required: a) What are factors to be considered in deciding which market is more feasible? (5 marks)

Answer 1

Factors in deciding which market to be feasible or not

1) Exchange rates- As the company wants to export their office supplies they need to llok into the exchange rates. The company must be looking for stable exchange rate movement. Volatile movements like devaluing/depreciation canadian dollars or mexican currency can have a strong impact on the profit margins.

2) Political stability- The company will export to those countries which has strong political stability. Political instability has a great influence on the laws relating to export & import and also on the exchange movements.

3) Strong economic growth- The company will also look for economic conditions of the country in terms of GDP, debt of the country where they want to export, per capital income of the people etc. High debt could result in default by the respective countries.

4) Understanding customers requiremts- Whether the office supplies will be suitable or compatible with the customers or some modification has to be done to attract customers suiting their demand

5) Presence of Competitors- In depth study of the competitors, their performance, market share, their products and how different is the product of US company when compared to the competitors based out in Canada/Mexico.

6) Understanding the outlook of the industry- This is the most important point. The comapny has to understand the sector outlook. If the sector outlook is bleak then there is no point in entering.

7) Presence of substitutes in thise market- If it is there and the substitutes are effecient then it would take away the market from the US comapny.