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Cost and Savings of Doing Business in China

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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

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Solution Summary

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

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 ...

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