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Group Delta

Group Delta. Jeffrey Jau David Zoelle Peter Teerakijpong Erick Hamdja Ankur Mohindru. Introduction. Crosswell Background. Hospital Specialty Company Manufacturing investments Seek high quality products Introducing new product lines Leveraging strong customer relationships

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Group Delta

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  1. Group Delta Jeffrey Jau David Zoelle Peter Teerakijpong Erick Hamdja AnkurMohindru

  2. Introduction

  3. Crosswell Background • Hospital Specialty Company • Manufacturing investments • Seek high quality products • Introducing new product lines • Leveraging strong customer relationships • Precious Ultra Thin Baby Diapers

  4. Brazilian Market Qualities • New-found economic stability • Growing middle class • Price conscious consumers • Language barrier (Portuguese speaking) • High growth market, excess demand • Economic recovery plan • Drastically restructuring the economy • Personal care market booming

  5. Brazil’s Real Plan • Pronounced 'hay-ow' • Establishment of a new currency • Focus on reducing the inflation rate • dropped from 50% per month to 2% per month • Interest rates remain high • 3-4% per month

  6. Brazilian diaper market • Diapers first introduced in mid 1980’s by J&J • Growing competition • Many new companies manufacturing and distributing in Brazil • Prices range from R$0.30 to R$0.60 per diaper • Current diapers largely inferior in quality • Technological and capital constraints • Relevant only to domestically producing companies

  7. Brazilian diaper market Cont. • 4 groups of competition • Foreign multinational corporations • J&J sells highest quality diaper • Brazilian, domestic producing companies • Lower, quality and lower-price market segment • Argentinian companies • Low quality and low cost diapers • Foreign companies • Also high quality diapers with high pricing

  8. Immediate Issue Matrix

  9. Basic Issue Matrix

  10. Cause and Effect Exchange Commission Quality Rate Market Price Arbitrage Sousa’s Markup Retailer’s Margin Interest Rate

  11. Constraints and Opportunities • Constraints • Price conscious customers • Domestically producing competitors • Brand image • Lack of marketing budget

  12. Constraints and Opportunities (2) • Opportunities • Expanding Brazil diaper market • Increasing middle class • Current diapers’ quality are inferior to Precious line

  13. Common decision criteria Risk Ethics/Legality Market entry timing Cost Ease of implementation

  14. 1st Alternative – FCIA & US Ex-Im Bank Provide Loan guarantees Encourage and facilitate exports from the US Political and commercial insurance Viable for long run

  15. 1st Alternative – FCIA & US Ex-Im Bank • Advantages • Provides loan guarantees • Low financing cost • Disadvantages • Requires min. 3 month time to evaluate the loan • Constraints • Crosswell International-unfamiliar with loan guarantee programs

  16. 2nd Alternative – Uruguay Import goods through Uruguay Import tariffs about half as high as Brazilian Mercosur regional trade agreement

  17. 2nd Alternative – Uruguay • Advantages • Reduced product price • Low import tariffs • Disadvantages • Very time consuming- 2weeks delivery time • Offset on gains by other costs: • Higher financing costs • Inland transportation costs • Constraints • Finding importer or distributor in Uruguay • Invest capital to create Import/Export corporation

  18. 3rd Alternative – Under Invoicing • Obtain import license • Split payments – • 50% cash upfront • 50% on LC per under-invoice

  19. 3rd Alternative – Under Invoicing • Advantages • Low import tariffs – reduces product cost • Disadvantages • Unethical • Violate US-SEC Regulations

  20. 4th Alternative – 180-day Letter of Credit • Brazil’s high interest rate arbitrage • Extend payment terms to 180-day L/C • Advantage • Arbitrage opportunity • Interest gains lower product cost • Disadvantage • For short term only • High transaction cost • Constraints • Stability of Real/Dollar exchange rate

  21. Alternatives analysis matrix Criteria: 5 Best to 1 Worst

  22. Method of Action • Alternative # 4 • Easy to implement • Reduced cost at minimal risk • Determine pricing • Below target price • Distributor makes same profit

  23. Determine Actual Numbers

  24. Short Term Outcome Early market entry Interest rate arbitrage Product recognition Retain distributor’s profitability Adjust profit margin of Sousa Provide base for future product expansion

  25. Long Term Outcome Capture market share Establish brand image Distributor relationship Increase profit margin

  26. Implementation Timeline

  27. Contingency Plans • Adjust payment terms when necessary • Price mark-up to optimal profit point • High elasticity of demand • Less price flexibility • Pull out possibly if profits fall below break even point

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