Group Delta

1

• Group Delta

Jeffrey Jau David Zoelle Peter Teerakijpong E
rick Hamdja
Ankur Mohindru
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
Brazils 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 1980s by JJ
• Growing competition
• Many new companies manufacturing and distributing
  in Brazil
  
• Prices range from R0.30 to R0.60 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
• JJ 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
Sousas Markup Retailers 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

• Brazils 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 distributors 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