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EXPORTING LEVIS TO CANADA.
Term Paper ID:28950
Essay Subject:
Analysis of decisions necessary to establish a business designed to export Levis to Canada. Overview of Levi-Strauss & Co. Source of supply. Export business plan. Tariffs & regulations. Customs clearance. Warehousing. Sales force. Funding, taxes.... More...
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Paper Abstract:
Analysis of decisions necessary to establish a business designed to export Levis to Canada. Overview of Levi-Strauss & Co. Source of supply. Export business plan. Tariffs & regulations. Customs clearance. Warehousing. Sales force. Funding, taxes.
Paper Introduction:
FEASIBILITY ANALYSIS FOR EXPORTING LEVIS TO CANADA
Introduction
This paper will reflect the business decisions necessary for establishing a business designed to export Levi's clothing into Canada.
1. About Levis
Levi-Strauss & Co. is the world’s largest clothing manufacturer with 26,000 employees worldwide and annual sales in the 5 to 7 billion-dollar range. However, in 1997, top management began a belt-tightening campaign designed to shave $80 million in overhead, primarily through a reduction of hourly laborers(“Jeans giant. . .”, 1997, 13).
Although the company promised cuts across the board, in fact, most of the cuts took place in the American sector where employe
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border (CCLA, 1999).3. has moved to close 29 US, Canadian, andEuropean plants" (Hoover's Capsule Data, 1999). 3) Establish an agent situation wherein the agent's salesforce calls on the stores and transmits the orders to the US operation. The consulate explained thatonce a company has been registered as an official importer into Canada (aprocess that takes about a week) the clearances become easier (CCLA, 1999). It was learned that the following elements would berequired in the application. A fourth alternative which has been explored is to negotiate directlywith a chain such as the Fields Family Store chain (135 stores in 9provinces). (The wholesale price would depend on actual and projected volume. 2). Based on information from Levis, the typical pair of 5 1's (the best-selling brand) carries a suggested retail price (SRP) of $42, and can costfrom $12 to $2 wholesale, depending on the volume. However, in 1997, top management began a belt-tightening campaigndesigned to shave $8 million in overhead, primarily through a reduction ofhourly laborers("Jeans giant. This has already beeninvestigated via the company's web site, and a request for purchaseinformation was made. 3. Journal of International Business Studies26:4 461. Products were originally divided into three branches according totheir perceived readiness for free trade. Hunsberger, W.S, (Ed.)1996), The Search for international role,recognition, and respect. The 1989 US-Canada Free Trade Agreement (USCFTA) (detailed below) andthe 1994 North American Free Trade Agreement (NAFTA) (which includedMexico) have touched off a dramatic increase in trade and economicintegration with the US, partially responsible for the nation's 1998 GDP of$688.3 billion. The next step would be to find actual retailers in the nation thatwould be interested in carrying Levis. Reappraising the eclectic paradigm inan age of alliance capitalism. C. 22). is the world's largest clothing manufacturer with26, employees worldwide and annual sales in the 5 to 7 billion-dollarrange. Export Business Plan The most important element in the plan is to do an initial market surveyto determine the following elements: A. Tax BurdenOption 1: If this option were chosen, there would be taxation in two countries,which would be: 7% Canadian tax on inventory valuation at time of sale 12% United States Tax on inventory at time of sale.Option 2: If we were to set up a Canadian operation for the sales force, alongwith the one time fees for organizing, there would be Canadian Employee taxes of 14% Canadian Corporate taxes of 22 %Option 3: Canadian VAT of 13% References Canadian Consulate in Los Angeles (Cited as CCLA, 1999). With a 1999 population of 3 million, Canada is an affluent, high-techindustrial society that closely resembles the US in its market-orientedeconomic system, pattern of production, and high living standards. These reps could be convinced to take on the Levis line (more feasiblenow with all of the closings of the Levis plants in Canada) and pay thesereps a commission based on orders. Which provinces have the greatest concentration of potentialcustomers? This has resulted in the reduction of North American market share from3 percent in 199 to 14% today. The first, and most widelyused method, is the Transaction Value method. This survey should help establish a focus on select markets toinvestigate distribution opportunities. When we take the current exchangerate of the Canadian versus the US dollar, that cost would be roughly $3 Canadian. If that route were taken, then at least75 percent of the work force would have to be Canadian (CCLA, 1999).2. A financial application proving a Net Worth of $75 , with two years experience in exporting. The only negative to this concept is that the leasing has to be doneby a Canadian import agent, unless the decision was made to establish atotally Canadian-owned subsidiary. Establish an Agent relationship The ideal is to establish a presence in all fourteen primary marketareas, but to do so would require major capital investment. The consulate also explained that if the source of supply was in theUnited States or Mexico (both NAFTA partners) that the process is easier.With this information, the third choice of Malaysia was eliminated from thestrategic planning. For the rest, tariffs arebeing phased out in 1 equal installments. 7. .", 1997, 13). In Canada, as the consulate explained,many sales reps also take an active role in distribution. D. About Levis Levi-Strauss & Co. SinceWorld War II, the impressive growth of the manufacturing, mining, andservice sectors has transformed the nation from a largely rural economyinto one primarily industrial and urban. Sharpe. In general, there arefourteen primary market areas to consider in Canada, and these are theareas that are most adjacent to the U.S. Proof of business established, including business licenses and proof of insurance, and papers of incorporation, if a corporation. 6. The Canadian consulate in Los Angeles explained that theserequirements are easily met and that with the proper paperwork, theclearance shouldn't take more than two days. How to Clear Customs Imported clothing is one of the items that has some restrictionalelements, mostly in terms of documentation. For the second tranche,covering another 35 percent of traded goods and including most machinery,telecommunications equipment, chemicals (excluding drugs and cosmetics),and paper, pulp, and printed matter, duties were to fall in five equalsteps between January 1989 and January 1993. 5. The point is, the exchange rate does not leave a lot of room forpoint shaving in negotiations. With this system, the agreement to carry the line or lineswould be negotiated at HQS level, with distribution arrangements made toexport directly to their regional warehouses. price paid orpayable) as the basis for determiningthe customs value. What stores are currently selling Levis and how do they get them? How are Levis perceived by potential customers? The downside of the sales force is that it could be expensive toestablish a large enough force to make a difference. In most situations, these Enterprise Zones are located inairports or near sea lane docks. Dunning, J.H.(1995, Dec. After studying the department storepenetration situation one chain of stores, Fields Family Stores, has beenselected as an initial target. Jeans giant Levi Strauss to cut 1, jobs (1997, Dec, 12) ReutersBusiness Report, 13. A representative from Fieldssaid that such a plan is feasible, but that to do so, the prices would haveto be low. Levi Strauss (1999), Hoover's Online Capsule Reports. Five trade credit references C. . The ideal business envisaged is to selldirectly to the stores, but if that is not feasible, then explorations havebeen made for alliances with distributors who have access to these stores. According to the research uncoveredconcerning the clothing distribution market in Canada, there is a strongchannelization structure in place where sports clothing is distributedthrough Canadian-based wholesalers, who generally import the clothing fromthe manufacturers and then sell it at markup to the retailer. Adjustments added to or deducted from the purchase pricemay be required to account for such elements as transportation, packaging,royalties, etc. Canadian customs wants to seedocumentation that the clothing (if a name brand) came from the actualmanufacturer and that all logos and other identifying elements areverifiable. Although the company promised cuts across the board, in fact, most ofthe cuts took place in the American sector where employee hourly costs wereconsiderably higher than the costs in the overseas markets. Tariffs and Regulations The United States-Canadian Free Trade Agreement (USCAFTA) is aspecific addendum to the NAFTA and eliminates all tariffs and removes ormoderates a host of other barriers to the free flow of goods, services, andcapital over a 1 -year period that started on January 1, 1989. There are some markets in Canada where the Levisimage is tarnished somewhat, both because of the dated nature of some ofthe designs and because of the economic impact that came about from theclosing of the manufacturing plants. What stores have stopped carrying Levis and why? An alternativeto the establishment of a sales force is to locate certain sales reps whoare already established with both clients and inventories (Hunsberger,1996). Recently, manyof those job cuts took place in Canada, reflecting what some people callthe declining popularity of the Levis image in that nation. Before progressing further in this analysis, it is essential todevote some space to the perceived market potential in Canada. D. Establish a sales force The sales force concept has a certain practicality to it, since itrequires less investment for storing and maintaining the inventorypresence. There are six methods of determining the value of imported goods,which must be considered in sequential order. A commitment to purchase at least $15 , worth of product at wholesale. Number of workers|Option 1 |Option 2 |Option 3 ||12 |4 -5 |5 | 8. A. The third step would be to make contact with LS & CO to determine thepossibility of buying direct for export. Establish a sales force in Canada tocall on stores and gain orders that are then fulfilled by shipping productinto Canada. Assume that ourcompany is going to come into the picture at the lower end of the volumescale, we can estimate a cost of $2 . Warehousing Presence This could be done in one of Canada's 24 Enterprise Zones whereingoods can be stored in leased warehouses and remain duty free untiltransported out. Therefore, it would seem, logically, that there is a potential for newvenues of channelization. Using thistechnique, it could be possible to export directly to the reps after theorders are received (CCLA, 1999). Current Sources of FundingSmall Business Administration -- Loans up to $35 , Bank of Canada -- Agent loans to Canadians to import --$3 , to $1, , Canadian Enterprise Fund -- Loans to Canadians for importing goods --$5 , to $5 , Canadian 9. 4. FEASIBILITY ANALYSIS FOR EXPORTING LEVIS TO CANADA Introduction This paper will reflect the business decisions necessary forestablishing a business designed to export Levi's clothing into Canada. For the first tranche, coveringabout 15 percent of all goods traded bilaterally, tariffs were eliminatedwith the start of the agreement on January 1, 1989. Generally, importers will use the purchase price (i.e. 1. B. Amronk NY M.E. Investigating these three options revealed the following tangibledata.1. As Hoover's Analysis explains, "To undothe financial damage, LS&CO. B. In addition, there are certain labeling requirementsnecessary, especially for type of materials and the safety ramifications ofthose materials. Distribution Strategy The distribution strategy has three primary options:1) Establish a warehousing presence in one central location in Canada closeto the target market selected. To avoid this process, LS & CO began manufacturing in Canada in the195 's and maintained a solid distribution system of its own, one which iscurrently in the process of being dismantled. 2. The primary sources of supply fromwhich to choose are the LS plants in Kentucky, Mexico and Malaysia. Location of sources of supply Naturally, before embarking on this venture, it was necessary todetermine if a sufficient source of supply could be found to provide theneeded Levi's products to export.
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