Question

Chapter 1 Ranger Supply Company Motivation for International Business anger Supply Company is a large manufacturer and distributor of office supplies. It is based in New York but sends supplies to firms throughout the United States. It markets ts supplies on its website and through periodic mass mailings of catalogs to those firms. clients can make orders at the website or over the phone, and Ranger ships the sup- Plies upon demand. Ranger has had very high production efficiency in the past. This is tributed partly to low employee turnover and high morale, as employees are guaran Job security until retirement. Ranger already holds a large proportion of the market share in distributing office supplies in the United States. Its main competition in the United States comes from one U.S. firm and one Canadian firm. A British firm has a small share of the U.S. market but is at a disadvantage because of its distance. The British firm's marketing and trans- portation costs in the U.S. market are relatively high. Although Ranger's office supplies are similar to those of its competitors, it has been able to capture most of the U.S. market because its high efficiency enables it to charge low prices to retail stores. It expects a decline in the aggregate demand for office supplies in the United States in future years. However, it anticipates strong demand for office supplies in Canada and in Eastern Europe over the next several years. Ranger's execu- tives have begun to consider exporting as a way to offset the possible decline in domestic demand for its products. a. Ranger plans to attempt penetrating either the Canadian market or the Eastern European market through exporting. What factors deserve to be considered in deciding which market is more feasible? b. One financial manager has been responsible for developing a contingency plan in case whichever market is chosen imposes trade barriers over time. This manager proposes that Ranger establish a subsidiary in the country of concern under such conditions. Is this a reasonable strategy? Are there any obvious reasons why this strategy could fail?

Answer 1

I have put together my thoughts to help you understand the factors involved in decision making. Please do go through them, apply your own thoughts and create your own answer using the paragraphs below as framework.

Sl. No.	Criteria	Factors to consider	Should I select Canada?	Should I select Eastern Europe?
1.	Similarity to the market the company currently operates in	If the new geography to expand is similar to the current markets of operations, ease of expansion is high	Yes, Canada should have higher similarity to US than Eastern Europe
2.	Geographical proximity to current place of operations	Whether the new location is in close proximity? This helps in controlling costs and provides solid and continued support to the new location.	Yes, Canada is in closer proximity that Eastern Europe is to USA
3	Political stability	Political risks, kind of governance, single party vs. multi party, risk of expropriation	Yes, both Canada and Eastern Europe are alike	Yes, both Canada and Eastern Europe are alike
4.	Economic stability	Inflation, interest rate, exchange rates, GDP size, GDP growth rate, trade barriers, entry barriers		Yes, Eastern Europe score better than Canada
5.	Socio cultural integration	Better is current country of operation and that chosen for international expansion have similar social & cultural profile and values		Yes, Europe scores better than Canada here, both
6.	Market size	Which market offers a higher size, where do you see opportunity to scale up? Where the potential better?		Yes, Eastern Europe offers better prospects than Canada
7	Level of competition	State of industry, level of competition	Both countries will be alike on this parameter	Both countries alike
8	Entry barriers, future trade barriers, direct and indirect taxation structure	VAT, Income tax rates, trade relations - past, present & future		Europe scores better than Canada on this parameter

Based on my analysis, I will prefer to expand in Eastern Europe.

Part (b)

There are many possible ways of expansion into a new geography:

• Business alliance with any of the player there
• Strategic partnership
• Acquisition of any player there
• Starting a new subsidiary there
• Licensing to a local player there

Subsidiary is a reasonable route to expand into a new market. However, this can help overcome trade barriers if production and manufacturing is shifted to this subsidiary.

Further, the obvious risks associated with this will be:

• Time involved in setting up the subsidiary
• Cost of setting up the subsidiary
• Hiring local employees there
• Cultural integration between holding company and subsidiary
• Exchange rate risks
• Establishing the production and operations at the new subsidiary
• Knowledge of local know how