1. Yes , Natalia would not lose money on the investment; her company has fixed costs of $500,000 which is a fixed rate as they are not yet running at full capacity. Therefore the cost would look like this instead.
Cost Amount
Average fixed cost: 500,000/120,000
$4.17
Variable Cost $5.00
Cost per unit $9.17
*This means her margins would improve slightly
2. The following factors should be considered in this case:
a. Product – The branding on the product is currently framed as very European hence their price point, if this drops that branding could change
b. Price – This may also be the cost of entry to a latin market, and while the cost is lower it may help to develop a culture that desires this
c. Place – How the hand bags will be shipped and the international costs of shipping this as well as tariffs and other issues. (Logistics). Also where they will be distributed and the lack of control
d. Promotions – The cost to advertise there and the differences in culture want and needs. Also the additional cost of new market entry.
3. Because of so many factors in terms of barriers to entry I would recommend against entry. The unknown costs are simply too high to be determined without much more detail as well as the ordered of 20,000 units is too small to warrant a new market entry at that low a price. Even at maximum capacity (Approx 143,000 units) there is not a breakeven point for “Rocko”. There is no way for them to come close to the margins they are currently at, not to mention they still aren’t at capacity and should focus on current market segment growth to better improve their profitability.