International Marketing Incident: Japanese Tsunami

On March 11, 2011, Japan was hit by a 9.0 magnitude earthquake, which subsequently produced a devastating tsunami. The effects of these events were numerous, including entire towns being washed
away, nearly 500,000 people displaced, a nuclear power plant left in critical condition, and thousands of lives tragically lost. The earthquake was one of the largest in modern history, and though
hard to estimate, could cost nearly $300 billion to clean up.

Your group currently has a plant in Japan. While the AllStar plant is not located in an area hardest hit by this disaster, imagine the destruction to the infrastructure alone. Roads, trains,
airports, electrical grids, buildings, all of these things are left in need of serious repair, affecting companies supply chains. In addition, there are major concerns about water safety due to a
possible nuclear reactor meltdown that could leak into groundwater sources.

Your Japanese plant serves the Japan and Korean markets. Currently production at your Japan plant is 200 million units per year. Demand for next year will be 100 million units in Japan, and 100
million units in Korea. Manufacturing costs in Japan will increase 10% due to damaged infrastructure. Production is expected to decrease 25% in the next year due to this disaster (that is, your
capacity next year will drop 25%). As a result, you will still be able to meet all of the Japan demand from the local plant. Korea, however, will have to source products from both the Japan and
home plants.

How will this scenario affect your total landed cost (cost + freight + tariff in USD) for next year? You will need to show your calculations.

Plant Location Home Japan
Average Unit COGS ($) 0.53 0.46
S. Korea
Shipping 0.06 0.02
COGS + Shipping 0.59 0.48
Tariff % 0.08 0.08
Tariff $ 0.0472 0.0384
Total Unit Landed Cost
(COGS + Shipping + Tariff) 0.6372 0.5184

Shipping 0.060 0.01
COGS + Shipping 0.590 0.47
Tariff % 0.00%
Tariff $ 0.000 0
Total Unit Landed Cost
(COGS + Shipping + Tariff) 0.590 0.47

Please answer the following additional questions.

a) What can a company do when it experiences supply chain issues in a particular country? Suggest two recommendations and explain your answers.
b) When landed costs increase, what can you do to minimize the loss of gross margin (where net revenue – landed costs = gross margin) and contributions (where gross margin – marketing costs =
contribution after marketing)? Suggest two recommendations and explain your answers.