Question

The owner of a U.S. company that produces sound systems for home entertainment theaters is considering the establishment of an Australian-based company to produce and sell the systems there. He is being told that the production costs would be one third the cost of producing them in the United States. Considering the economic factors, is this a good strategy that you could recommend to the owner?

Answer 1

In order to decide whether the owner of the U.S. Company should produce and sell sound systems of home entertainment theaters in Australia or not, he/she will have to first analyse the market. The market has to be studied and then the demand of the product has to be predicted. The other things that need to be considered are the socio- economic, cultural, political and legal factors involved in this. For example: the owner has to understand whether the raw materials required for the production process is available in Australia or not. If yes, is the cost of obtaining raw materials cheaper than what it was in US. The currency exchange rate of US Dollar and Australian Dollar should also be studied. The predictions of the exchange rate should also be analyzed. The trade relations between the two countries i.e. US and Australia should be analysed and then only the decision for setting up business in Australia should be taken. The current strategy does not seem good as proper research is not yet done.