QUESTION #1

You are the finance adviser to the CEO of a small textile firm in Faisalabad
that manufactures quality, premium priced, stylish bed wears. The CEO has
decided to see the opportunities for exporting and currently is in contact with
importer from Italy. However would be importer cannot get sufficient credit
from domestic sources to pay for the shipment of bed wear. In this situation
CEO has asked you to brief him about the basic steps the company should
take to affect this export to Italy?

ANSWER:

In light of the fact that CEO has indicated his intention as export the production we assume
that he would not be interested in branding and selling the product in local markets and also
that he is keen in exporting its product. As I have been asked for advice, so my first step
would be to tapping into some of the government information sources that are available
online that are free of charge, to check good international market for the company product. I
would take help of resources which can easily checked on internet, as it would help in
knowing about the foreign market potential of their products. Another approach would be
taking assistance from an export management company, and as it would be paid service so
would involve cost. Expertise services can even tell whether it is worthy or not to export, and
also help in providing details on initiating an export program. On the basis of collected
information I would advise the CEO.

QUESTION #2

A multinational automobile firm in USA must decide whether to make its

components in house or to contract it out to an independent supplier in
Philippines. If the US firm manufactures the parts in-house then it requires a
non-recoverable investment in specialized assets. If the outsourcing option is
used then the company needs to consider the advice of many foreign
exchange analysts who expect the Philippines currency to depreciate
substaintly over the 5 years period. What are the pros and cons of

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manufacturing the component in house or outsourcing manufacturing to an
independent supplier in Philippines? Which option would you recommend?
Why?

ANSWER:

Outsourcing is the business practice of hiring a party outside a company to perform services

and create goods that traditionally were performed in-house by the company's own
employees and staff. Outsourcing is a practice usually undertaken by companies as a cost-
cutting measure. As such, it can affect a wide range of jobs, ranging from customer support to
manufacturing to the back office.

Advantages of Outsourcing:

 Outsourcing non-core activities such as administration and back office

operations helps to put the focus back on the core functions of the business.
 One of the biggest advantages of outsourcing is cost savings. The lower cost of
operation and labor, and reduction in overhead costs makes it attractive to outsource.
 When certain functions of an organization become operationally uncontrollable,
outsourcing helps to overcome such difficulties.
 By increasing productivity and efficiency, a business can be more successful, better-
prepared for market challenges and have a streamlined cash flow.
 Outsourcing frees an organization from investments in technology, infrastructure and
people that make up the bulk of a back-end process' capital expenditure.
 Outsourcing gives businesses flexibility in staffing, manpower management, helps
you save costs and can also pick the best people to run your core functions.
 Offshore outsourcing gives businesses the ability to develop new competencies and
skill-sets that can be used as a competitive advantage.

Disadvantages of Outsourcing:

 One of the biggest disadvantages of outsourcing is the risk of losing sensitive data and
the loss of confidentiality. It is important, therefore, to have checks in place to avoid
data loss.

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  Losing management control of business functions mean that you may no longer be
able to control operations and deliverables of activities that you outsource.
 Problems with quality can arise if the outsourcing provider doesn't have proper
processes and/ or is inexperienced in working in an outsourcing relationship.
 Since the outsourcing provider may work with other customers, they might not give
100% time and attention to a single company. This may result in delays and
inaccuracies in the work output.
 Not understanding the culture of the outsourcing provider and the location where you
outsource to may lead to poor communication and lower productivity.
 If important functions are being outsourced, an organization is mightily dependent on
the outsourcing provider. Risks such as bankruptcy and financial loss cannot be
controlled.
 Hidden costs and legal problems may arise if the outsourcing terms and conditions are
not clearly defined.

In-house manufacturing is to assigning a project to a person or department within the

company instead of hiring an outside person or company. It utilizes developed resources
within the organization to perform tasks or to achieve a goal. For example, an organization
might insource technical support for a new product because the company already has existing
technical support for another product within the organization.

Advantages of In-house Manufacturing:

 With in-house manufacturing, a quality control is not an issue. You get to be in

control of the quality processes and the outcome of the final product.
 It can lower the price per product as it promotes the manufacturing of your own goods
which not only eliminates the shipping costs, delivery costs, and the trouble of getting
some products through customs. 
 It eliminates several logistics issues.
 Management considerations are greatly reduced.

Disadvantages of In-house Manufacturing:

 It requires sales to happen.

 There can be inventory complications.

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  Labor costs can be very high.
 Administrative duties may just switch.

Now in my opinion In-house Manufacturing is the best option due to several reasons as it
provides:

i. Flexibility:
In-house manufacturing gives you a lot of flexibility to change the product. If you
discover an outsourced product needs a last-minute change, it would take time and
trouble to implement it. You’d have to contact the manufacturing company and
negotiate, while they keep making the old product. With in-house manufacturing,
your research department only has to inform your manufacturing department of the
change and send them updated blueprints. This speed ensures that you can change
your product to fit a changing market without lost time and manpower.
ii. Improved Quality:
You can better control the quality of the product with in-house production. As you
may know, if is very important for businesses to practice quality control. Quality is a
major problem with outsourcing. The manufacturing company you outsource to will
have numerous clients producing multiple products. Unless you are ordering a large
quantity, they will not give your order a lot of attention. Working in-house, your team
can keep careful track of your product. They can follow stricter standards of quality
control since they are producing only your product. As a result, your product has
better quality control.
iii. Lower Management Costs:
Producing your product in-house can avoid a lot of management costs associated with
outsourcing. The only way to keep an eye on your outsourced production is to hire
managers to oversee the outsourcing company. In the case of foreign outsourcing,
these managers need to be in the foreign country, and speak the native language there.
These on-sight managers are essential to maintain quality control and solve problems.
If you produce the product in-house, you can do without this layer of management,
since you have direct control of production. As a result, it costs your company less in
overhead to build the product.

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 iv. Control of Production:
When you manufacture in-house, you have complete control over the product output.
Using resource planning, you can plan for production spikes by having enough labor
and equipment for meet demand. If you anticipate a large boost in order, buy a used
machinery to alleviate capacity constraints. When you have total control of
production, it is much easier to meet demand. 
v. Logistics:
In-house manufacturing can save you time and money logistically. Transporting
products can cost as much as producing them in the first place. If your products must
cross international borders to reach their market, this cost will increase in the form of
customs duties. On top of that, you also need to transport the raw materials to the
factory for production. In the digital manufacturing sector, there are several
components that are needed for the end product. If your company is closer to your
market then the outsourcer is, you can save a lot of money in transport costs.
vi. Public Relations:
In-house production lets you control issues with public relations. A lot of customers
try to avoid companies that outsource their manufacturing. Foreign outsourcing has
gained a negative image from many people for a variety of reasons. Bad press over
outsourcing could hurt your product sales, cutting into your profits. Many
times, outsourcing can become bad news for your company. Additionally, angry
customers might turn to their politicians to investigate or otherwise hinder your
business. In-house production for your product can avoid expensive entanglements
with angry customers and the press.

QUESTION #3

A Pakistani firm has developed safety equipment in the health sector such as
masks, disinfectants, Personal Protective Equipment’s (PPEs) and ventilators
using its unique biotechnology know how and currently it is trying to decide
how best to serve the Middle Eastern market during the COVID-19. Its
choices are given below. The cost of investment in manufacturing facilities
will be a major one for the Pakistani firm, but it is not outside its reach. If

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these are the firms only options, which one would you advise it to choose?
Why?

a) Manufacture the products at home and let foreign sales agents handle
marketing.
b) Manufacture the products at home and set up a wholly owned
subsidiary in Middle East to handle marketing.
c) Enter into an alliance with a large Middle Eastern pharmaceutical
firm. The products would be manufactured in Middle East by the 50/50
joint venture and marketed by the Middle Eastern firm.

ANSWER:

In my opinion option “c” is the best for this situation as there were no significant obstacles
and it seems overly risky and burdensome. The travel costs needed for shipping drugs are,
after all, low compared to the product’s value.

Options “b” and “c” both are risky and expose the company with the risk of failures i9n the
technical field, it may also enable the company to hold a tight control over the product quality
and cost.

Perhaps the only reason to support option “c” would be if an established pharmaceutical
company could also give it much greater market access and possibly access to its
technologies and products, and if that same company decided on a joint venture of 50/50
production, rather than having to agree to be a foreign sales representative.

The option “a” and “b” lies between an issues that what will be the most successful method
of entering into the market. If that international sales agent is well acquainted with the market
and have much know how about all the things and strategies and actively decides to sell the
products then he will gain a quick growth in its share of the market as compared to wholly-
owned marketing subsidiary. On the other side, the company will know a lot more about the
industry in the long-run and will potentially gain more money if it creates its own sales
representative team.

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QUESTION #4

Do you think China is pursuing an economic policy that can be characterized

as neo mercantilist? What should the United States and other countries do
about this?

ANSWER:

Neo-Mercantilism is a modern form of mercantilism focused on increasing the export of

goods and limiting imports. The objective is to increase capital of the nation through a trade
imbalance. Countries will be required to discourage imports through the use of tariffs or other
government limits on trade. These countries will allow for the import of raw materials needed
to provide finished materials but will attempt to limit the import of finished goods to compete
in local economies.

China’s rapid rise in economic power (it is now the world’s second largest economy) has
been built on export-led growth. The country takes raw material imports and, using its cheap
labor, converts them into products that it sells to developed nations. For years, the country’s
exports have been growing faster than its imports, leading some critics to claim that China is
pursuing a neo-mercantilist policy, trying to amass record trade surpluses and foreign
currency that will give it economic power over developed nations. This rhetoric reached new
heights in 2008 when China’s trade surplus hit a record $280 billion and its foreign exchange
reserves exceeded $1.95 trillion, some 70 percent of which are held in U.S. dollars. Observers
worry that if China ever decides to sell its holdings of U.S. currency, this could depress the
value of the dollar against other currencies and increase the price of imports into America.

Throughout 2005–2008, China’s exports grew much faster than its imports, leading some to
argue that China was limiting imports by pursuing an import substitution policy, encouraging
domestic investment in the production of products such as steel, aluminum, and paper, which
it had historically imported from other nations. The trade deficit with America has been a
particular cause for concern. In 2011, this reached a record $295 billion. At the same time,
China has long resisted attempts to let its currency float freely against the U.S. dollar. Many
claim that China’s currency is too cheap, and that this keeps the prices of China’s goods
artificially low, which fuels the country’s exports.

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Now this policy is affecting he various countries in the world and if we talk about the US,
this policy gave arise to trade deficit in US. To counter the negative impacts of this policy,
US start making changes in the market of China like applying anti-dumping duties to over 50
types of products. This technique helped them a lot and as a result US dollar becomes so
strong in the global market that makes the importing of US products a reliable and profitable
option for many businesses. So basically the policy makers can take two steps.

First is to identify the areas where some changing are required to be implemented either
domestically or through the global agreements like WTO. It will counter the issues of exports
and the various policies of the government regarding trade.

The second thing they can do is to collaborate with each other in order to gave arise to thje
new market with a heavy investment and innovation. It will decrease their competition in the
market and bought a new global market.