AUTOEDGE

Submitted by:

Student Number:

Tutor’s Name:

Date of Submission:

Legal Factors

National and Supra National Laws

Regulations

Minimum wages

Monopolies

Mergers

Social & Financial Factors

South Korea – 5th largest Automotive industry

Cultural needs and market needs

Social and demographic

Economic Factors

US Economic Factors

GDP,

Unemployment rate,

Interest rate

Economic Factors

South Korea Economic Factors GDP, Unemployment rate, Interest rate

Country / Microeconomic Factor2013

United States South Korea

Gross Domestic Profit 15684.8 billion 1129.6 billion

Unemployment Rate 7.30 % 3.10 %

Interest Rates 0.25 % 2.50 %

Inflation Rate 1.50 % 0.80 %

Elasticity of Demand

Relatively Elastic:

is an elasticity alternative where a small change in the price, can have a large impact on the other variable, i.e. demand. Here this is where demand is very responsive to the price. The coefficient of elasticity is presented as: 1 < E < ∞.

Economies of Scale and Efficiency

SWOT

Strengths Weaknesses

• Leading National Automotive Supply* Been in market for over 30 years*Strong Brand name and recognition*Known for reliability, dependability, and high quality

• High labor costs*Lacking ability to meet the growing competition* Lack of liquidity* High overheads

Opportunities Threats

* Use the South Korean markets to improve the overall pricing problem * Effectively improve the overall profitability* Serve in the Korean markets as well•Several Chances to sponsor and sell products to Olympic, and other sports teams

• Highly competitive markets* Low barriers to entry* Fake and replicas is a common issue* Different approaches and techniques used by different brands* Increasing currency fluctuations

Market StructureComparison of Imperfect Competition    

Type of market Oligopoly Monopoly Monopolistic Competition

Perfect Competition

Number of Firms Few One Numerous / Many Many

Nature of Product Differentiated or Undifferentiated

Unique Differentiated Undifferentiated

Freedom of Entry Restricted Almost completely Blocked or Restricted

Low Low

Implications on Demand Curve

Downward Sloping, Mostly inelastic dependent

on the reaction of competition to change in

prices

Downward Sloping, More inelasticity than

Oligopoly and the price is controlled by the firm

Highly elastic however not

complete elastic

Perfectly elastic, demand curve is a horizontal line on

price

Power on Price Some Considerable Some None

Competitiveness Based on marketing approach and the product

differentiations

Highly based on marketing and advertising

Based on marketing approach and the

product differentiations

None

Examples Cars, Cement Local Water Company, Drug Company

Retailers Vegetables, Fruits, etc.

Risk, Cost and International ExpansionYear 2012 2013 2014 2015 2016 2017 2018

Cost of Capital 6% 6% 7% 8% 8% 7%

(US$ in millions)

Revenue $30.10 $34.20 $38.10 $40.40 $45.60 $50.00

Selling, General, Admin ($16.10) ($17.20) ($18.90) ($19.50) ($21.40) ($24.30)

Depreciation ($4.10) ($4.40) ($4.80) ($4.90) ($5.30) ($5.70)

Interest Expense ($0.45) ($0.56) ($0.69) ($0.73) ($0.78) ($0.81)

Taxes ($1.10) ($1.30) ($1.70) ($1.90) ($2.00) ($2.10)

Increase in fixed assets ($1.30) ($2.40) ($0.90) $0.00 ($4.90) ($2.10)

Initial Capital Expenditure ($18.00)

Students need to calculate the following:              

Net Income   $8.35 $10.74 $12.01 $13.37 $16.12 $17.09

Depreciation (provided)   ($4.10) ($4.40) ($4.80) ($4.90) ($5.30) ($5.70)

Operating Cash Flows (FV)   $4.25 $6.34 $7.21 $8.47 $10.82 $11.39

Increase in fixed assets (provided)   ($1.30) ($2.40) ($0.90) $0.00 ($4.90) ($2.10)

Free Cash Flow   $15.40 $19.08 $23.12 $26.74 $27.34 $32.08

               

Pvif factor   0.943 0.89 0.816 0.735 0.681 0.666

PV Cash flows   $14.52 $16.98 $18.87 $19.65 $18.62 $21.37

               

Value of future flows $110.01            

Initial expenditure ($18.00)            

NPV $92.01            

Conclusions

South Korean Operations continued

Send Personnel to South Korea, or

Quality Checks in US

Operations returned to US

Recommendation

Operations returned to US

References Baker, H. K., & Powell, G. (2005). Understanding Financial Management: A Practical Guide.

Blackwell Publishing. Rittenberg, L., & Tregarthen, T. (2009). Principles of Microeconomics. Retrieved from Flat World

Knowledge: http://catalog.flatworldknowledge.com/bookhub/reader/21?e=rittenberg-ch03_s04#rittenberg-chpr

Rothaermel, F. (2012). Strategic Management: Concepts. McGraw-Hill/Irwin. Sloman, Jack and Mark Sutcliffe. (2004). Ecnomics for Business, Third Edition. London: Pearson

Education Limited. Sowell, T. (2010). Basic Economics: A Common Sense Guide to the Economy. Basic Books. Trading Economics - Inflation Rate. (2013). South Korea - Inflation Rate. Retrieved from Trading

Economics: http://www.tradingeconomics.com/south-korea/inflation-cpi Trading Economics - Inflation Rate. (2013, October 11). United States Inflation Rate. Retrieved

from Trading Economics: http://www.tradingeconomics.com/united-states/inflation-cpi Trading Economics - Interest Rate. (2013). South Korea - Interest Rate. Retrieved from Trading

Economics: http://www.tradingeconomics.com/south-korea/interest-rate Trading Economics - South Korea - GDP. (2013, October 13). South Korea - GDP. Retrieved from

http://www.tradingeconomics.com/south-korea/gdp Trading Economics - Unemployment Rate. (2013). South korea unemployment rate. Retrieved from

Trading Economics: http://www.tradingeconomics.com/south-korea/unemployment-rate Trading Economies. (2013, October 11). United States GDP. Retrieved from Trading Economics:

http://www.tradingeconomics.com/united-states/gdp Weaver, S. C., & Weston, J. F. (2013). Strategic Financial Management: Application of Corporate

Finance. South-Western.

Thank You!