Question

Silca Electronics Inc. is a consumer-electronics company based in the country of Pelo. It has approximately 300 stores across the country and is already active in three foreign countries. It attempts to establish itself successfully in the country of Zevar, and uses its low-cost strategy to do so. However, due to the additional costs associated with training, coordinating across geographic distances, and other costs associated with doing business in an unfamiliar cultural and economic environment, Silca Electronics Inc. incurs huge financial losses in Zevar. In this scenario, Silca Electronics Inc.'s failure to establish itself successfully in Zevar occurs most likely because:

Answer 1

It under-estimated its cost and liabilities in expanding to Zevar market

Step-by-step explanation:

The pricing strategy adopted by Silca is low cost , which is the practice of stimulating demand and gaining market share through setting a lower price with the benefit of higher profit per sale , which is made possible as a result of lower cost of production.

However , the processes involved in expansion to Zevar attracted additional costs which violated the the lower cost principle, as the cost of operation became higher than would have been , leading to a financial loss.

It is apparent here that Silca did not do its due diligence properly before going ahead with the expansion move as cost and liabilities appeared to have been under estimated.