MT220 Unit 10 Expansion Plan Example

Twenty-Seven Machines to Earn Back $335,000: A Unit 10 Expansion Plan for a Tacoma Roaster Maker in Colombia

[Student Name]

Purdue University Global

MT220: Global Business

Unit 10 Expansion Plan

[Instructor Name]

[Date]

Cascade Drum Works, its partners, staff and every figure are composite and illustrative; bracketed figures stand where quotes and projections would supply the numbers; the sources cited are real.

Executive Summary

Cascade Drum Works should enter Colombia through an exclusive distributor in the coffee axis, supported by a Colombian technical manager and a consignment stock of spare parts in Pereira. The firm will invest about [$335,000] over three years. At a margin of about [$12,300] per machine, it recovers that investment after about twenty-seven sales, planned as six in year one, nine in year two and twelve in year three. If fewer than four machines sell in the first year, the firm will pause and review before committing year two funds.

Market and Country

Colombia, chosen over Peru and Chile in Unit 2, combines a large coffee industry with more and more farms selling coffee they have roasted themselves. Those farms, concentrated in Caldas, Risaralda and Quindio, are the primary buyers, and they sent most of the firm's [40] unsolicited inquiries last year. The consequence for the plan is that sales and service must center on the coffee axis, not on Bogota.

Customs and Buyers

Unit 3 found that growers buy through relationships, decide with family and expect visits and patience. The consequence is a longer sales cycle, about two visits per sale, and a need for a Spanish-speaking person who stays with each buyer after the sale. The plan's year-one target of six machines reflects that slower pace.

Trade Access

Unit 4 found the roaster should enter duty-free under the 2012 trade agreement if its origin is documented, while buyers pay 19 percent value-added tax at the border. The consequence is that every quote must state landed cost clearly, and the firm must keep origin records for each machine and use a broker on every shipment.

Entry Mode and Partner

Unit 5 chose a distributor over licensing and a subsidiary, scoring it best on investment, speed and service while protecting the design. The plan signs a two-year exclusive agreement in the coffee axis with a firm that already sells drying and hulling equipment to farms, with minimum sales of six machines a year. Johanson and Vahlne (1977) argued that firms gain market knowledge through experience and commit more as they learn, and the distributor is the first, reversible step.

Currency and Pricing

Unit 6 showed that a ten percent move in the peso changes the margin on a peso-invoiced machine by about thirty percent. The consequence is a pricing rule: invoice the distributor in pesos to help it sell, hedge each confirmed order with a ninety-day forward contract and review peso prices every quarter. The plan's margin assumption of [$12,300] per machine already includes the small cost of hedging.

Operations

Unit 7 kept the drum, burner and controls in Tacoma, moved the cooling tray and chaff collector to a sheet-metal shop in Pereira, set the Pacific route through Buenaventura as the default with a Caribbean fallback, and created a consignment stock of spare parts with a twenty-four-hour harvest response. The consequence is a smaller crate, lower freight and service that protects growers during harvest.

People

Unit 8 hired a Colombian mechanical engineer from Manizales as technical manager on a Colombian contract, with six weeks of training in Tacoma. Unit 9 added a clause to the distribution agreement: the distributor's roaster technicians must hold proper Colombian employment contracts, and Cascade may ask to see that they do.

Choices Left Out on Purpose

Three moves are deliberately absent. It does not open a Cascade office in Colombia, which Unit 5 found too costly before sales are proven. It does not license the design to a local fabricator, which would put the firm's main asset at risk. And it does not sell outside the coffee axis in the first two years, even to cafes in Bogota and Medellin that may ask, because the service network would not reach them in a day. Each of these could change after year two if the stop rules are passed and sales exceed plan, but leaving them out keeps the first commitment small enough that the firm could withdraw without serious damage.

Investment

The three-year investment of about [$335,000] covers the technical manager's salary and employer charges, about [$144,000]; a demonstration machine on consignment, [$28,700] at cost; the spare parts stock, [$6,000]; training, travel and visits from Tacoma, [$45,000]; trade fairs and marketing with the distributor, [$60,000]; customs broker, legal and registration costs, [$18,000]; and a contingency of about [$33,300].

Payback

Each machine sold contributes about [$12,300] to Cascade. Twenty-seven sales over three years bring in about [$332,000], roughly recovering the investment by the end of year three, provided the margin holds near its planned level. Selling twelve machines a year from year three onward would add about [$148,000] a year in contribution against continuing costs of about [$70,000] a year for the technical manager, parts and visits.

Every machine short of twenty-seven pushes the payback past the three years the owner can wait.

Phases and Stop Rules

Year one: sign the distributor, place the demonstration machine, hire and train the technical manager, attend the national coffee fair and sell six machines. Year two: sell nine machines, review the distributor against its minimum, and test interest from growers in Ecuador through the same distributor. Year three: sell twelve machines and decide whether volume justifies a Cascade service office.

Two stop rules protect the firm. If fewer than four machines sell in year one, Cascade will pause marketing spending and review the distributor and pricing before committing year-two funds. If service response during harvest falls below the twenty-four-hour promise for two seasons, Cascade will look for a different partner even if sales targets are met, because failures in the field would damage its reputation in a market where growers talk to each other.

Risks

The main risks are a sharp fall in coffee prices that cuts growers' ability to buy, a weaker peso that raises the machine's local price, and the distributor's performance. Ghemawat (2001) warned that firms underestimate the distance between markets, and this plan answers that by moving slowly, keeping the first commitments reversible and measuring progress against clear stop rules. Hill and Hult (2019) note that small firms succeed abroad when they match their commitments to what they have learned, and the plan's phases are built on that idea.

References

Ghemawat, P. (2001). Distance still matters: The hard reality of global expansion. Harvard Business Review, 79(8), 137-147.

Hill, C. W. L., & Hult, G. T. M. (2019). International business: Competing in the global marketplace (12th ed.). McGraw-Hill.

Johanson, J., & Vahlne, J.-E. (1977). The internationalization process of the firm: A model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8(1), 23-32. https://doi.org/10.1057/palgrave.jibs.8490676