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Cost and Savings of Doing Business in China

Scenario

The firm manufactures a global positioning system (GPS) that sells for $1,000 with cost of goods sold (hardware and software) of 48% of sales. Compared to the United States, China offers a 6% cost reduction in electronics manufacturing hardware and a 50% reduction in software programming.

Please answer the following questions after researching the questions for China

1. What is China's Expected GDP Growth-

2. Based Forecasted Exchange Rates to the U.S. Dollar in 1 & 2 years, should the US$200 Million be paid immediately, hedged, or 50% per years 1 & 2? -

3. What is the projected savings for the firm? -

4. What is the new cost of goods sold percentage of sales for this country? -

5. How can the firm arrange the business to be most profitable? -

6. Please cite all references

Solution Preview

Let us take this into three different possibilities since attempts to find the cost structure of the GPS returned nothing. The three possibilities that I mention here are:

1. 25% of the cost is in hardware, 75% is in software
2. 50% of the cost is in hardware, 50% is in software
3. 75% of the cost is in hardware, 25% is in software

48% of price is cost if the product is made in the US. Thus for a product selling for $1000, the cost is $480.

Let us take each case one by one.

In the first case:
In the case where breakup is 25% hardware, and 75% software, out of the $480, the company spends $120 on hardware and $360 on software.
In case the product is made in China, they save 6% on hardware, and 50% on software. Thus the cost is $112.8 on hardware and $180 on software. The total cost therefore is $292.8.

In the second case:
In the case where breakup is 50% hardware, and 50% software, out of the $480, the company spends $240 on hardware and $240 on software.
In case the ...

Solution Summary

The Chinese GDP forecasts are highlighted case by case in 699 words.

$2.19