JTC and Gumpbell - Case Study Example

The case of JTC and Gumpbell The Japanese Trading Company, Ltd (JTC) and Gumpbell Soup Company, Inc (Gumpbell) are companies willing to go for international trade. Remarkably, they are quite careful in doing the actual transactions due to the associated costs or risks with it. However, despite this reality, they are still looking forward to a profitable business activity, especially in the international context. In order to optimize their earnings and employ a sustainable business process, it is necessary to understand the step by step phase of the actual transaction. The first phase is the manufacture and sale of the product which includes the basic of product specification, quantity and purchase orders. Specifically, Gumpbell is known to be a conservative company that does not buy into long-term supply agreements with its customers. The long-term supply agreements may involve the uncertainties of the future economic circumstances, which based on the point of view of Gumpbell for instance, is a great risk on its part. In other words, Gumpbell is favourable to the idea of initiating only a short-term agreement of sale with JTC. Gumpbell is substantially afraid of the risks linked to the variable production costs such as raw materials, energy, labor, packaging, labelling and transportation. However, it is clear the Gumpbell would be willing to be flexible as to the length of the term of an agreement with JTC, but another primary fear of Gumpbell is the economic exchange rate and the probable future increase in cost of production and the pricing provisions with JTC. With high regard to the foreign exchange rate’s volatility, purchase price and operating costs are substantially affected, which in return may substantially create an impact on product specification, quantity and purchase orders in the long run. This pushes Gumpbell to go for short-term supply arrangements limit with JTC. However, this probably will limit JTC’s ability to secure good and profitable markets for itself, which is a great risk on the part of JTC to secure an investment with Gumpbell for long-term contract. Based on the case, JTC’s supply requirements may substantially fall under the range of 200,000 to 450,000 cases for each supply a year within the period of supply agreement. However, it is also clear that JTC has no substantial capacity to predict the quantity of product that it will require and even the time of the year that it will demand for shipments. However, it is obvious that JTC avoids making contractual commitments or minimum purchases. On the other hand, canning and packaging of the product are important considerations for JTC. The company opposes the partial cardboard carton covered which the Gumpbell practices as opposed to the shrink-wrap, which JTC considers a reliable packaging that could provide optimum protection for leakage. Now, it is clear that either one or both of the firms should try to initiate an innovative approach in dealing with the entire business. It is remarkably clear that based on the first phase alone of the probable future transaction, JTC and Gumpbell must meet half way. Gumpbell and JTC remarkably need to go for innovation in international markets. Based on a certain study concerning the insights coming from senior executives on the issue of innovation applied in the context of international business, the country-based structures of most companies provides difficulty to cross-subsidize new products across countries (Golder 326). Based on the study, it was found that in Japan there is a well-recognized business hierarchy that attempts to help the firms to introduce new products and improve their market share goals. Obviously, JTC may still find it convenient to go for the offer of Slick Willie, as the next alternative option to Gumpbell. This is due to the ability of JTC to differentiate its entire business activity, as an influence of the prevailing business culture in Japan. At this point in time, Gumpbell should begin to undertake the path of innovating possibilities, especially in the age of globalization, by which tough competition allows every firm to go for powerful innovation and adhere to sustainable competitive advantage. As already stated, Gumpbell is a conservative company, and not that ready or willing to undertake some risks along the entire business process. On the other hand, JTC is looking forward to sustainable manufacture and sale of product, in order to sustain its business operation. Hence, a long tie-up with Gumpbell was proposed. In the case of JTC, it is necessary in its operation to ensure constant flow or guaranteed supply. Production is therefore vital on the part of JTC to sustain its operation, as well as on the point of view of Gumpbell. Therefore, production itself is the key. It is at this point that Gumpbell must be creative enough and should be willing to employ highly differentiated actions in order to improve its organizational performance across the international market. In fact, study shows that production and operations improve organizational performance even eliminate the presence or influence of cultural for market orientation support (Benito and Benito 797). In other words, by addressing the prevailing needs of the two firms and meeting half-way should provide a substantial opportunity for creating a new innovative business model in the long run for international business transaction. The second phase involved in the business transaction involves the quality, quality control and inspection and rejection. Gumpbell is noted for its high quality standard for its product offerings. In fact, the firm is noted to have comprehensive operations that include research and development laboratory for new product development, quality control division and production plants throughout the United States. On the other hand, considering that JTC is a well-established experienced Japanese trading company which imports, exports and distributes a wide variety of products and goods in Asia, investing in quality is also its primary consideration. In order to maintain a high quality standard for its product offerings, JTC is aiming to employ an independent testing laboratory (Specialty Foods Laboratories), for it to be able to either accept or reject non-conforming or substandard product. This at some point will have to bear a great risk for additional costing on the part of Gumpbell. JTC wants that Gumpbell carries the costs linked to laboratory testing and product rejection. In international business transaction, the evaluation of quality is essential. It is at this point that the formulation of a quality framework should matter to both JTC and Gumpbell. There must be a clear and evident standard for quality, in order to make sure that the entire acceptance or rejection process of the product should be fair both on the part of JTC and Gumpbell. The standard should be well-formulated. For this reason, quality evaluation framework should be clear to both parties. A certain study suggests that in business process modelling, it is essential to have the following: “the identification of the quality factors relevant to business processes, and the definition of the metrics that provide a means for objectively measuring quality of business process” (Heidari and Loucopoulos 193). However, initiation or setting of the standard alone does not suffice the need to ensure obtaining high quality standard offering on the part of Gumpbell. Gumpbell should further continue to improve and evaluate its manufacturing practices. Quality is linked to Gumpbell’s performance, which is the first crucial point as to why JTC chose Gumpbell over the Slick Willie. It is for this reason that Gumpbell should try to improve or enhance more its manufacturing practices, as its sustainable competitive advantage over the competitors in its industry. As argued, manufacturing practices mediate product development strategies on performance (Koufteros et al. 83). This means that with innovative manufacturing practices, Gumpbell would be able to come up with high quality, which is tantamount to the kind of performance that JTC is looking forward to its supplier’s inherent characteristics in the international business arena. Delivery, which is another phase in the international business transaction, is a great risk on the part of Gumpbell, as JTC sets the point of acceptance or rejection of products that may not conform to the set standards. In the event of reject due to handling, Gumpbell will have to shoulder the cost. In addition, Gumpbell will also have to take into account the variable cost, such as in line with transportation cost. At this point, delivery may have substantial connection to the entire manufacturing practices of Gumpbell. Nowadays, international companies consider the idea of global market expansion, and even to the extent of buying existing, small or weak companies that are in line with their business or industry. It is therefore imperative or a strong decision to take into account putting up Gumpbell extensions in Japan and rather than in the US alone. This will ensure less cost associated with delivery, and the strategic option to have essential base in Japan that is somewhere nearer to neighbouring Asian countries. As strategic as it might sound, Gumpbell will still have to consider understanding the existing Foreign Direct Investment (FDI) policy in Japan and other neighbouring countries. Based on the report, the data of the FDI flows of Japan to nine dynamic Asian countries from 1987 to 2008 reveal that: “FDI declined with a depreciation of the yen against host country currencies; it increased with exchange rate volatility; and it was little affected by the Asian financial crisis, especially when disguised financial flows were removed from the data” (Takagi and Shi 265). This simply means that Japan remains to be one of the aggressive Asian countries to go with direct investment in Asia. Considering the point that Gumpbell would want to spread its market across Asia, Japan is a remarkable opportunity for such consideration, especially at the point of delivering its product offerings to not just in Japan, but across other Asian countries that are willing to spend for high quality product service offerings. Thus, instituting a satellite branch for Gumpbell or a manufacturing plant in Japan would make sense. Such investment should require thorough financial analysis. There are a lot of issues about International trade finance. There are many banks diversifying internationally and are willing to help or reach out to those companies that are looking forward to international investment such as the future case of Gumpbell, if it is willing to invest in Japan, just to ensure optimum delivery or distribution of its product offerings in the country and across its neighbouring Asian countries for that purpose. Multinational banks are smart enough in scanning the world for investment opportunities as a primary way to access money and capital markets (Damanpour 110). Although banks are trying to take excessive risks at some point because of their international diversification, they are also able to externalize their costs (Hoflich 31). Thus, at this point, Gumpbell should begin to think that diversification of its investment, such as expansion to Japan can essentially reduce its risks and even can provide it a wide array of choices for securities. After all, there are many investors out there in the global business arena who are trying to diversify their investment, helping them reduce their chance for risks and while exposing them further to a wide variety of choices for securities (Fatemi and Salvatore 108). Finally, pricing is another vital consideration of Gumpbell in its future transaction with JTC in the international market. Based on the case, the most important consideration aside from quality is the price. Gumpbell is trying to consider the future trend of variable costs that may have significant impact on the price of its product offerings. In the same manner, JTC is trying to establish not just long-term assurance of product supply to ensure its sustainable operation, but fixed price coming from its direct soon-to-be supplier. While it is clear that Gumpbell is trying to sale primarily based on quality and not on price, its great apprehension is the volatility of the foreign market exchange. This may have substantial impact on its profitability that may have to be influenced by the fixed pricing within the span of three years. As a conservative firm, Gumpbell only tries to establish its security upon dealing with the JTC. It tries to secure its future revenue and profitability. On the part of Gumpbell, if pricing is to be fixed, then a short-term contract might be essential. However, this offer does not sound to be appealing on the part of JTC. JTC still wants to pursue even a higher price with Gumpbell provided that a three-year contract with a fixed price on supply that does not have a clear quota will be realized. This is to JTC a sound advantage on its part, but a great risk on the point of view of Gumpbell. In this case, a clear policy between these trading parties should be clearly elaborated. At some point, JTC might be able to offer a sure sum of money in return for the revenue of the contract, if this is the only way to ensure constant supply that may have important implication on profitability and continuity of operation. On the other hand, Gumpbell must weigh this option if it would truly address its objectives, and such could only be determined by understanding the nature of loss in the midst of exchange rate’s volatility. Based on a study, the negative effect of exchange rate’s volatility can be intervened through higher mark-up or exports, and exacerbated for lower mark-up plants with larger volume of imported intermediaries (Kandilov and Leblebioglu 220). The idea of higher mark-up for pricing is appealing on the part of Gumpbell. However, that would defeat the purpose of establishing the fixed price for three years. Thus, it is not going to be feasible for the two parties. On the other hand, Gumpbell must eventually agree with constant pricing, but then it has to ensure that there must be larger volume of imported intermediaries coming for its manufacturing process. The whole idea is that Gumpbell should think like how the usual businesses think in the international market in today’s highly globalized industry for almost every product offering. In a nutshell, JTC and Gumpbell are two firms trying to establish sustainable operation in the international market. However, there are a lot of considerations they need to take into account that would eventually cover the issues of globalization, corporate governance, international monetary system, foreign exchange market, transaction, FDI and international trade finance. These are all essential considerations if JTC and Gumpbell would want to succeed in their respective industries and ensure their sustainable competitive advantage at some point. However, at this point in time, it seems that Gumpbell is not yet that ready to take its plunge to the international market, especially that its approach is very conservative. For this reason, corporate governance may sound an interesting viewpoint on the part of Gumpbell to take, especially in the area of innovation, and differentiating business model, in order to face some challenges that may be linked to the volatility of foreign market exchange, sophistication of international monetary system, upgrading FDI and global business transaction and international trade finance. If Gumpbell would be willing to consider all of these, its future with JTC and in the Asian markets could be remarkable. Works Cited Benito, O. G., and Javier Gonzalez Benito. “Cultural vs operational market orientation and objective vs subjective performance: Perspective of production and operations.” Industrial Marketing Management 34.8 (2005): 797-829. Print. Damanpour, Faramarz. The Evolution of Foreign Banking Institutions in the United States: Developments in International Finance. Westport: Greenwood Publishing Group, 1990. Print. Fatemi, Khosrow., and Dominick Salvatore. Foreign Exchange Issues, Capital Markets and International Banking in the 1990s. New York, NY: Routledge, 2012. Print. Golder, Peter N. “Insights from senior executives about innovation in international markets”. Journal of Product Innovation Management 17.5 (2000): 326-340. Print. Heidari, Farideh, and Pericles Loucopoulos. “Quality evaluation framework (QEF): Modeling and evaluating quality of business process.” International Journal of Accounting Information Systems 15.3 (2014): 193-223. Print. Hoflich, Peter. Banks at Risk: Global Best Practices in an Age of Turbulence. Hoboken, NJ: John Wiley & Sons, 2012. Print. Kandilov, Ivan T., and Asli Leblebicioglu. “The impact of exchange rate volatility on plant-level investment: Evidence from Colombia.” Journal of Development Economics 94.2 (2011): 220-230. Print. Koufteros, Xenophon, Guanyi Lu, Richard C. Peters, Kee-hung Lai, Christina W. Y. Wong, T. C. Edwin Cheng. “Product development practices, manufacturing practices and performance: A Mediational perspective.” International Journal of Production Economics 156 (2014): 83-97. Print. Takagi, Shinji and Zongying Shi. “Exchange rate movements and foreign direct investment: Japanese investment in Asia, 1987 – 2008.” Japan and the World Economy 23.4 (2011): 265-272. Print. Read More