SitEasy Furniture Company Goes international.(Instructor's Note)

CASE DESCRIPTION The primary subject matter of this case is the first introduction of a company's products into International Markets. Secondary issues include conducting secondary market research by small firms in foreign markets; international terms of trade; identifying relevant tariffs; market segmentation; exchange rates and exchange rate fluctuation. This case has a difficulty level of 4-5 and is targeted at business students in a first course in international business or international marketing. The case can be used either as an introductory course case, as it covers many of the problems typically encountered as a business expands into international business, or as a relatively straightforward functional case on pricing in the international environment. One hour of class time should be sufficient to handle the case discussion and students should budget 3-4 hours of time for case preparation. CASE SYNOPSIS The SitEasy Corporation is a small manufacturer of quality furniture located in Colorado Springs, Colorado, USA. Sales at the 12 year old company have grown steadily and the company expanded two years ago into a much larger factory capable of doubling their output, while maintaining their quality level. However, the housing market peaked shortly after their move in 2005 and in 2006 it started to soften. Current distribution is to exclusive stores on the west coast and the upper northeast in the U.S. The idea for foreign expansion was initiated in response to flat sales in current markets and a lot of excess capacity in the new factory. Past comments from two, large northeastern retailers that a large number of their customers were shipping the furniture directly to Canada led to the idea of exploring international markets. Following a discussion of the relative change in value of the US dollar and the Canadian dollar, the case fast forwards to the issue at hand, answering the inquiry from a potential Swedish distributor met at a German furniture trade show. Pricing must be established for a portion of their exclusive furniture line for the Swedish market, along with forecasts of expected sales and expected effect on plant capacity and firm profitability. This requires identification of accepted terms of trade, relevant tariffs on the type of goods being offered, consideration of exchange rates, and most importantly, the expected size of the market for SitEasy furniture in Sweden. INSTRUCTORS' NOTES Answers to Case Questions 1. Discuss the motivations behind the plant expansion and advantages and threats caused by this action. The expansion can be seen to be driven by multiple factors. First, there is a stated need to have more space for warehousing raw materials. Then there is the issue of having room for more machinery. It can also be assumed that the old facility may have been nearing the capacity, in which case they needed additional production space in order to meet forecast demand. Even with the slowdown, they are at 73% of capacity and have been growing at 8% per year. The threat to expansion is the situation they are currently facing--meeting the additional overhead cost of the larger facility necessitates additional sales. Otherwise they will lose profitability. It would be good if the class looked at the expansion in terms of sales, too. When the expansion took place, SitEasy sales must have been in the 60 million dollar range. That was quite ambitious to assume that the firm could sustain an increase in debt that would require a 25% increase in sales just to break even! 2. Should SitEasy expect that the decreases in material cost for its furniture will continue to decline in the future? Explain your answer. No. We should expect that the company would experience a one time reduction in cost as they increased their order size, which appears to have been the case in the 2nd half of 2004. 3. What type of forecasting does it appear that SitEasy is using for its demand forecast? …