Question

 

MERCOSUR is a free trade block, with current member countries including Argentina, Brazil, Paraguay, and Uruguay. The Bravo Luggage Company is a Latin American firm based in Buenos Aires, Argentina. Bravo has seen a sharp increase in orders over the last few months and needs to increase the amount of material purchased. Currently, the materials used to manufacture Bravo luggage come from suppliers in Paraguay. Bravo managers have been approached by suppliers from Mexico and China who are both offering very competitive prices on materials.

1. Which of the following questions would be most important for Bravo managers to evaluate when determining which supplier to use?

A) How will using non-South American material affect the Bravo brand name?

B) What other MERCOSUR nations sell leather and fabric supplies for luggage?

C) What will be the total cost of materials shipped from Paraguay, Mexico, and China?

D) Are other countries planning to join MERCOSUR in the near future?

2. Which of the following best supports using a supplier from Paraguay over a supplier from Mexico or China?

A) MERCOSUR members agree to use exporters from other MERCOSUR nations.

B) The Mexican supplier is in closer proximity to Bravo than the Chinese supplier.

C) Mexican and Chinese suppliers would pay the same tariff to export to Argentina.

D) Bravo could avoid tariffs because Paraguay is a member of MERCOSUR.

3. Which of the following should be considered when making the decision to use a MERCOSUR supplier or a non-MERCOSUR supplier?

A) Will the additional tariffs charged on non-MERCOSUR supplier offset the cost savings?

B) Do other MERCOSUR nations use outside suppliers?

C) What percentage of tariffs will Argentina receive?

D) How will Bravo managers handle the free trade area?

4. If the material prices from the Chinese and Mexican suppliers are both competitive enough to cover up the additional tariffs, which of the following should be most considered when choosing between the Chinese and Mexican supplier?

A) will Mexico join MERCOSUR in the future?

B) is China a member of the WTO?

C) which supplier requires higher transportation cost?

D) all of the above

Answer 1

1 Option C What will be the cost of materials shipped from Paraguay, Mexico, and China?

The supplier with the least cost will be selected as this will help in reducing the cost of production and also the product will be sold at lower price to customers.

2. Option D Bravo could avoid tariffs because Paraguay is a member of MERCOSUR.

Choosing Paraguay will help in saving on cost of tariffs and thus reducing the total cost of production and price charged to consumers.

3.Option A Will the additional tariffs offset any savings for Bravo?

Choosing a non MERCOSUR Supplier means that company will be unable to save on cost of tariffs. The company should evaluate both alternatives and if non MERCOSUR supplier supplies materials at reduced price which is less than cost of materials supplied by member then choice of non member will be more feasible. The ultimate guide is that company will choose for alternative resulting in lowest cost of production.

4.Option C Which supplier requires higher transportation cost.

The company will choose the supplier with less transportation costs as it will reduce the cost of production and ultimately the products will be sold at lower cost to customers.

Transportation costs can be a significant part of a company’s overall logistics spending. With increases in the price of fuel, the proportion allocated to transportation can be upward of 50 percent. This cost is passed on to the customer and the price of goods continues to rise.