International Logistics

An organization looking to expand its operations will have to consider financial, economic, political and operational feasibilities of such expansion before taking any final decision. Conducting a detailed investigation on the expansion strategy to assess the probable implications on the overall performance of an organization is extremely important to the successful decision making in respect to an expansion strategy.

Running head: INTERNATIONAL LOGISTICS
International Logistics
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INTERNATIONAL LOGISTICS
Executive summary:
An organization looking to expand its operations will have to consider financial, economic,
political and operational feasibilities of such expansion before taking any final decision.
Conducting a detailed investigation on the expansion strategy to assess the probable implications
on the overall performance of an organization is extremely important to the successful decision
making in respect to an expansion strategy. Yariba Cream, an ice cream company in Peru, is
looking to expand its business outside side South America. It is clear from the discussion here
that there are number of different options available to the company to expand its business.
However, selection of best possible strategy is key to the successful expansion of the company in
the future.

INTERNATIONAL LOGISTICS
Contents
Executive summary:........................................................................................................................1
Introduction:....................................................................................................................................3
Discussion with proper analysis:.....................................................................................................3
Joint venture:...................................................................................................................................5
Acquisition and conversion of a Medina based yoghurt:................................................................8
Expansion of operations in Peru to export the products to Egypt and other countries:.................10
Expansion through wholly owned subsidiaries:............................................................................13
Conclusion:....................................................................................................................................21
Recommendation:..........................................................................................................................21
References:....................................................................................................................................22

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Introduction:
As per the findings of the market research it is clear that Yariba Cream has a strong brand value
in the market. As a result the company has a potential to grow at a rapid speed through its
expansion in the future. Assessing the implications of expanding the business of the company in
MENA region is the objective of this document. The implications are not only financial and
economic but also of logistical and support complications involved in the expansion. A detailed
financial, economic and logistic feasibility study is conducted below to determine the expected
outcome of expanding the business of the company to the MENA region in the future.
Discussion with proper analysis:
An organization while decides to expand its business operations to a different country or
countries then apart from the financial and economic feasibility the logistic requirements and
feasibility are also to be considered with equal importance. Yariba Cream, here in after to be
referred to as YC only in this document, shall also consider the financial, economic and logistical
feasibilities of different expansion strategies available to the company to take correct decision
(Haryuni, 2017).
The company has following expansion options available in-front of it.
Joint venture:
Expansion through joint venture with the focus firmly on manufacturing low end ice creams with
low cost with a company located Marrakesh is an option to the company to expand its business
outside South America.
Acquisition and conversion of a Medina based yoghurt:

INTERNATIONAL LOGISTICS
Acquiring and converting of yoghurt producer based in Medina will also help the company to
increase its production capacity to expand its market. The production capacity of Medina based
yoghurt manufacturer is similar to that of Peruvian operations of the company.
Expansion of operations in Peru to export the products to Egypt and other countries:
The company has the option to expand its operations in the country itself, i.e. in Peru and export
the products in different parts of the world. This strategy is simple and less risky as compared to
the direct expansion of market by starting investing outside the country. However, the feasibility
of logistical support is a huge cause of concern as exporting ice creams to different parts of the
world by maintaining its quality is a true logistical challenge for any organization.
Expansion through wholly owned subsidiaries:
Expansion through wholly owned subsidiary is another option available to YC. By acquiring a
wholly owned subsidiary including a sorbet production plant in Cairo the company can expand
its market significantly. The sorbet production plant in Cairo is expected to have a capacity
which is 5 times more than the capacity of Lima (Arif, 2014).
A detailed investigation shall be carried out on the possible implications of expansion of business
by the company by using the above expansion strategies. On the basis of the findings from the
detailed investigation of each of the options available to the company the best course of action
for the company shall be recommended by considering the economic, financial, technological
and logistical feasibilities.

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Joint venture:
Cost of operations is always an important consideration to be given due consideration by an
entity while taking expansion decision. It is always desirable to reduce the operational cost to the
minimum and select the expansion strategy that has lowest operating costs. The expected
outcome of using joint venture option shall also be verified to check which mode of operations
will maximize the financial benefit to the company (He, Marginson & Dai, 2019).
Operational cost under joint venture strategy:
Operational Costs & cost
components
Mode of entry: JV
Costs Egypt/SKU if produced in MOROCCO
Production cost / SKU (labour) $ 0.97
Raw material costs / SKU (fruit) $ 0.65
Raw material costs / SKU (all other) $ 0.26
Total COGS / SKU: $ 1.88
Operating Expenses / SKU if produced in
MOROCCO
Overhead costs / SKU $ 0.22
Marketing costs / SKU $ 0.55
Sales costs / SKU $ 1.05
Storage & Logistic costs / SKU $ 0.22
Transport 1 costs/SKU (FGI) $ 0.92
Transport 2 costs/SKU (Raw Material) $ 0.53
Transport 3 costs/SKU (FGI local road
cargo)
$ 0.42
Transport 4 costs/SKU (Air cargo) $ 1.00
Allocated Operating Expenses: $ 4.91
Other associated costs/alternative: $ -
Total Base Costs Egypt / SKU: $ 6.79

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The risk assessment and probability of different risks from materializing under joint venture are
outlined below.
R.
#
Time
frame
Risk description: Suggested Mitigation:
1
ST Loss from business operations in the short
run
Increasing the price of products
2
MT Lack of coordination between YC and its
joint venture partner
Continuous cooperation between the two by
proper line of communication and as per
agreement.
3
LT Loss of business New product development.
4
LT Steps to increase own market share at the
expense of the other
Proper agreement shall be in place and the
operations shall be in accordance with such
agreement.
LT Inability to continue in the long run Taking necessary steps to ensure that both the
companies are financially and economically

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5
benefitted from the joint venture agreement
(Kujawa, 2008).
Acquisition and conversion of a Medina based yoghurt:
Acquisition and conversion of Medina based yoghurt Production Company to increase the
production capacity of YC to expand its market expansion will require following operational
expenses.
Operational Costs & cost components
Mode of entry: Acquisition
Costs Egypt/SKU if produced in SAUDI-
ARABIA
Production cost / SKU (labour) $ 0.70
Raw material costs / SKU (fruit) $ 0.75
Raw material costs / SKU (all other) $ 0.25
Total COGS / SKU: $ 1.70
Operating Expenses / SKU if produced in SAUDI-
ARABIA
Overhead costs / SKU $ 0.22
Marketing costs / SKU $ 0.55
Sales costs / SKU $ 1.55
Storage & Logistic costs / SKU $ 0.32
Transport 1 costs/SKU (FGI) $ 0.95
Transport 2 costs/SKU (Raw Material) $ 0.53
Transport 3 costs/SKU (FGI local road
cargo)
$ 0.28
Transport 4 costs/SKU (Air cargo) $ 1.00
Allocated Operating Expenses: $ 5.40

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Other associated costs/alternative: $ -
Total Base Costs Egypt / SKU: $ 7.10
It is clear that the operational cost of YC will be highest if the Medina based yoghurt production
company is converted and acquired to produce higher quantity of ice creams required for
business expansion. However, the net benefit from such decision can only be assessed at the end
of the document when the investment outcomes shall be prepared for all the four expansion
strategies (Li, 2012).
R.
#
Time
frame
Risk description: Suggested Mitigation:
1
ST High cost of operations Increase efficiency of business operations
2
ST Low amount of operating profit Reducing the cost of operations.
3
ST Quality of ice cream. Use of proper materials and technology to
produce high quality ice cream.
MT Logistical nightmare Using appropriate logistical means to comply

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4
with the logistical requirements.
5
LT Inability to fulfil the demand of the
customers
Increasing capacity of the company by
acquiring new plants in the future.
Expansion of operations in Peru to export the products to Egypt and other countries:
This is the simplest form of expansion in which the company does not even need to go beyond its
existing operational market, i.e. Peru. However, exporting ice creams from Peru to Egypt is a
matter of concern as the quality of ice cream can be adversely affected. The operating cost under
the above strategy is provided below.
Operational Costs & cost
components
Mode of entry: Export
Costs Egypt/SKU if produced in PERU
Production cost / SKU (labour) $ 0.32
Raw material costs / SKU (fruit) $ 0.65
Raw material costs / SKU (all other) $ 0.38
Total COGS / SKU: $ 1.35
Operating Expenses / SKU if produced in PERU
Overhead costs / SKU $ 0.45
Marketing costs / SKU $ 0.35

0 INTERNATIONAL LOGISTICS
Sales costs / SKU $ 0.70
Storage & Logistic costs / SKU $ 0.15
Transport 1 costs/SKU (FGI) $ 1.75
Transport 2 costs/SKU (Raw Material) $ 0.53
Transport 3 costs/SKU (FGI local road
cargo)
$ 0.25
Transport 4 costs/SKU (Air cargo) $ 1.00
Allocated Operating Expenses: $ 5.18
Other associated costs/alternative:
Total Base Costs Egypt / SKU: $ 6.53
The risk assessment of the above strategy is outlined in the table below.
R.
#
Time
frame
Risk description: Suggested Mitigation:
1
ST Capacity Currently the company operates with 30%
capacity only in Peru thus, by increasing its
operational intensity the required quantity of
ice cream can be produced.
2
MT Quality of export. The ice cream is a very delicate food item
thus, proper packaging shall be done to ensure
the quality of ice cream is maintained during
the course of export.
LT Loss of goodwill Providing top quality ice cream to the
customers.

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3
4
LT Operational costs is quite high Using the resources of the company
effectively.
5
LT Risk of loss Correctly pricing ice creams.
Expansion through wholly owned subsidiaries:
Expansion through wholly owned subsidiary company in Cairo with 5 times more capacity will
have the following operational costs.
Operational Costs & cost
components
Mode of entry: WoS
Costs Egypt/SKU if produced in EGYPT
Production cost / SKU (labour) $ 0.85
Raw material costs / SKU (fruit) $ 0.65
Raw material costs / SKU (all other) $ 0.19
Total COGS / SKU: $ 1.69

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Operating Expenses / SKU if produced in EGYPT
Overhead costs / SKU $ 0.22
Marketing costs / SKU $ 0.55
Sales costs / SKU $ 1.05
Storage & Logistic costs / SKU $ 0.22
Transport 1 costs/SKU (FGI) $ 0.92
Transport 2 costs/SKU (Raw Material) $ 0.53
Transport 3 costs/SKU (FGI local road
cargo)
$ 0.34
Transport 4 costs/SKU (Air cargo) $ 1.00
Allocated Operating Expenses: $ 4.83
Other associated costs/alternative: $ -
Total Base Costs Egypt / SKU: $ 6.52
It is clear that the operational cost of the company will be lowest if the expansion is affected by
acquiring wholly owned subsidiary in Cairo. This is mainly because the huge capacity of Cairo
will help the company to get the benefit of large scale of operations ("Special Topic Forum
onResources and Supply Chain Management", 2013).
R.
#
Time
frame
Risk description: Suggested Mitigation:
1
ST Inability to use the capacity The 5 times more capacity should be used
strategically.
MT Huge increase in fixed costs In case the company does not use the 5 times
more capacity properly the increase in fixed
costs would be huge. Thus, the capacity should

3 INTERNATIONAL LOGISTICS
2 be used properly.
3
LT Inability to sale Properly marketing its products to attract
customers.
4
LT Break down of the plant Proper maintenance of the plant.
5
LT Huge loss from operations. Proper and apt utilization of capacity to earn
significant revenue from business operations.
Investment outcomes under different options when shipping is by Sea:
Income Statement
EXPORT
LIMA
Wos EGYPT JV
MOROCCO
M&A SAUDI-
ARABIA
Revenue $
21,600,000
$
21,600,000
$
21,600,000
$ 21,600,000
COGS $
2,430,000
$
3,042,000
$
3,384,000
$ 3,060,000
Gross Profit $
19,170,000
$
18,558,000
$
18,216,000
$ 18,540,000
Transportation cost $
4,554,000
$
3,222,000
$
3,366,000
$ 3,168,000
Warehousing cost $
270,000
$
396,000
$
396,000
$ 576,000

4 INTERNATIONAL LOGISTICS
Inventory Carrying cost $
-
$
-
$
-
$ -
Other Op. Expenses $
2,700,000
$
3,276,000
$
3,276,000
$ 4,176,000
Total Op.Cost $
7,524,000
$
6,894,000
$
7,038,000
$ 7,920,000
EBIT $
11,646,000
$
11,664,000
$
11,178,000
$ 10,620,000
Interest $
584,500
$
1,169,000
$
412,750
$ 1,503,000
Taxes $
2,488,838
$
2,361,375
$
2,422,181
$ 2,051,325
Net Profit $
8,572,663
$
8,133,625
$
8,343,069
$ 7,065,675
With FOREX conversion
Revenue £
270,000,000
£
270,000,000
£
270,000,000
£ 270,000,000
Gross Profit £
239,625,000
£
231,975,000
£
227,700,000
£ 231,750,000
EBIT £
145,575,000
£
145,800,000
£
139,725,000
£ 132,750,000
Net Profit £
107,158,281
£
101,670,313
£
104,288,359
£ 88,320,938
As can be seen that net profit is highest if the company operates from LIMA and export ice
creams produce in LIMA to MINA region with net profit of £107,158,281 if the product is
shipped by sea.
Investment outcomes under different options when shipping is by Air.
Income Statement
EXPORT
LIMA
Wos
EGYPT
JV
MOROCCO
M&A SAUDI-
ARABIA
Revenue $ $ $ $ 21,600,000

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21,600,000 21,600,000 21,600,000
COGS $
2,430,000
$
3,042,000
$
3,384,000
$ 3,060,000
Gross Profit $
19,170,000
$
18,558,000
$
18,216,000
$ 18,540,000
Transportation cost $
6,354,000
$
5,022,000
$
5,166,000
$ 4,968,000
Warehousing cost $
270,000
$
396,000
$
396,000
$ 576,000
Inventory Carrying cost $
-
$
-
$
-
$ -
Other Op. Expenses $
2,700,000
$
3,276,000
$
3,276,000
$ 4,176,000
Total Op.Cost $
9,324,000
$
8,694,000
$
8,838,000
$ 9,720,000
EBIT $
9,846,000
$
9,864,000
$
9,378,000
$ 8,820,000
Interest $
584,500
$
1,169,000
$
412,750
$ 1,503,000
Taxes $
2,083,838
$
1,956,375
$
2,017,181
$ 1,646,325
Net Profit $
7,177,663
$
6,738,625
$
6,948,069
$ 5,670,675
With FOREX conversion
Revenue £
270,000,000
£
270,000,000
£
270,000,000
£ 270,000,000
Gross Profit £
239,625,000
£
231,975,000
£
227,700,000
£ 231,750,000
EBIT £
123,075,000
£
123,300,000
£
117,225,000
£ 110,250,000
Net Profit £
89,720,781
£
84,232,813
£
86,850,859
£ 70,883,438
Similarly, the net profit is highest if the company operates from LIMA and export ice creams
produce in LIMA to MENA region with net profit of £89,720,781 if the product is shipped by
air.

6 INTERNATIONAL LOGISTICS
However, despite the fact that the operating profit will be highest for the company if it operates
from Lima and export ice creams to different parts of the world, the logistical issues that will
arise in exporting ice creams to MENA region will have to be considered properly. It is
important to note that unlike other goods and products ice cream is very difficult to export in
distant places. Thus, the risk involved in exporting ice creams to MENA region from Lima is to
be considered and only if it is possible to maintain the quality of ice cream during the course of
export that the company should go with this alternative of expansion. Otherwise the company
should enter into a joint venture agreement with JV Morocco to expand its business outside
South America successfully as second highest return is expected to be earned from joint venture
operations with JV Morocco (Taner, 2012).
Conclusion:
It is important to consider each and every facet of a business before taking a crucial decision of
expanding the business in foreign countries. Consideration shall be placed on economic,
financial, technological and operational feasibility before finalizing the mode of expansion in a
business. Thus, despite expected to have highest amount of return from the strategy to operate
from Lima, the company has to consider the second highest return option as the logistical
improbability came in the way of this strategy.
Recommendation:
The company should enter into a joint venture with JV Morocco to produce required quantity
of ice cream as the expected return from investment is second highest under the strategy along
with no logistical improbability. Also the quality of ice cream will not be hampered with no
requirement to export the goods from distant places.

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He, G., Marginson, D., & Dai, X. (2019). Do voluntary disclosures of product and business
expansion plans impact analyst coverage and forecasts?. Accounting And Business
Research, 1(2), 1-33. doi: 10.1080/00014788.2018.1559717
Kujawa, B. (2008). Journal of Transport and Supply Chain Management. Journal Of Transport
And Supply Chain Management, 2(1), 12-17. doi: 10.4102/jtscm.v2i1.40
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Special Topic Forum onResources and Supply Chain Management. (2013). Journal Of Supply
Chain Management, 49(2), 137-137. doi: 10.1111/jscm.12024
Taner, M. (2012). A Feasibility Study for Six Sigma Implementation in Turkish Textile
SMEs. South East European Journal Of Economics And Business, 7(1), 63-71. doi:
10.2478/v10033-012-0006-6