Question

Organic Towel Exports (Scenario)

The Organic Towel Company (OTC) employs 400 workers at its facility in Liverpool, England, where the firm has been manufacturing 100% organic cotton towels for five years. OTC sells towels in the United Kingdom primarily to boutique hotels and specialty retail stores, as well as to individual consumers through the company's. Recently, OTC managers attended a trade show in London where they made contact with numerous foreign market managers. OTC received a request from Earth Waves, an organic clothing store in Toronto, Canada, for a large order of towels. OTC had not been looking into expanding, but firm managers are seriously considering the opportunity to reach a global niche market with their towels.
Which of the following should be considered first in making the decision to export OTC towels to Canada?
A) What is the probability of OTC and Earth Waves entering into a joint venture?
B) How much fluctuation occurs in the exchange rate between the Canadian dollar and the British pound?
C) What is the likelihood of Earth Waves opening a subsidiary in Canada?
D) What documentation would be required for OTC to export towels to Asia

Answer 1

How much fluctuation occurs in the exchange rate between the Canadian dollar and the British pound should be considered first, as it directly impacts costs and profitability in exporting OTC towels to Canada. This ensures effective risk management and financial planning for the venture thus option B is correct.

Step-by-step explanation:

In the decision to export OTC towels to Canada, assessing the fluctuation in the exchange rate between the Canadian dollar and the British pound (Option B) is crucial. Exchange rate fluctuations can significantly impact the cost of goods, pricing strategies, and overall profitability in international trade. Understanding the exchange rate dynamics ensures that OTC can manage its financial risks and make informed decisions regarding pricing and financial planning for the export venture.

While the other options (A, C, and D) touch on important considerations in international business, assessing the probability of a joint venture (Option A), the likelihood of Earth Waves opening a subsidiary in Canada (Option C), or the documentation required for exporting to Asia (Option D) may be relevant in later stages of the decision-making process. However, the exchange rate directly impacts the financial aspects of the export venture from the outset, making it a primary consideration.

In conclusion, by prioritizing the evaluation of exchange rate fluctuations, OTC can make informed decisions about entering the Canadian market, ensuring financial stability and effective risk management in the global expansion of their organic towel business.