Year 1
Demand
The demand for mobile handsets in all three markets is expected to grow quite rapidly as customers
believe that an increase in competition will lead to lower prices. Analysts are expecting that sales growth
will be very strong in all markets. Asia is forecasted to experience growth within a range of 25-30%,
Europe within 6-10%, and the USA within 15-20% for the round. A market research report by Tecno
Analytics Inc. (TA) found that especially in Europe and Asia, the hype around the next generation of
handsets (Tech 2) is driving customers peanuts, according to CEO Bruce Summersteen. TA provided 100
Asian and 100 European hardcore technology consumers with Tech 2 handsets for a week to evaluate
the feasibility of introducing the new technology to the market. Two weeks after the experiment, the
group was called back and all but two in the test groups were exhibiting serious WITHDRAWAL
symptoms. The most common symptoms were nausea, depression, sleeping disorders, loss of appetite,
weight loss, and headaches.
Costs
Political tensions between USA and the government of China have caused the tariffs for American goods
exported to the Asian continent to almost double from $7 per handset last year to $12 this year. There
are no notable changes in production costs.
Finance
The European Union has reached a common tax agreement unifying corporate tax rates at 31%
throughout Europe. Economists believe that Europe is jeopardizing its already shaky position in the
global marketplace by further increasing its high tax level. The Euro is expected to fall.
Year 2
Demand
Due to sudden breakthroughs in network technology, Europe and USA are now able to support Tech 4
mobile phones. The R&D expenses for developing the new technology are believed to be enormous. The
phenomenal growth experienced last year seems to be slowing down a bit. However, growth is expected
to remain strong at least for a couple of years. Demand growth in USA is estimated to be between 7-
10%, in Asia between 17-20%, and in Europe roughly 5%. Tecno Analytics Inc., the research group,
believes Tech 2 is now more attractive than ever, particularly in Asia.
Costs
Last week the United States matched the tariff for Asian goods imported to the US at $12 per handset in
an effort to offset the building trade imbalance. William Cotledge at the Foundation for a Less Uncertain
Tomorrow (FLUT), the Washington, D.C., headquartered think tank, commented on the current world
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order: “in our view, it is quite possible that the situation may escalate further in the next few years.” A
reliable source suggests your competitors are building factories in Asia to offset the effects of the current
foreign trade situation. There are new players in the sourcing market and thus, outsourcing capacity is up
by 9%. At the same time, production costs are up 2%.
Finance
USA and Asia have in turn increased their corporate tax rates to 38% and 18%, respectively. The
European Union has reached a common tax agreement unifying corporate tax rates at 31% throughout
Europe. Economists believe that Europe is jeopardizing its already shaky position in the global
marketplace by further increasing its high tax level. Euro reverses its downturn against both the USD and
RMB.
Year 3
Demand
Civil war has erupted in Oilistan, known for its vast natural resources. Rebels in the relatively poorer
northern territory have kidnapped high-ranking government officials. The southern territory has begun
military operations as retaliation. As a result, the flow of oil has been cut off to foreign countries. 5000
UN peacekeepers have been dispatched to cool down the situation. Demand growth has slowed down as
the global political uncertainty has caused investors and consumers alike to worry. Growth in the USA is
estimated to be slightly positive, in Asia between 5-8%, and negative in Europe which was affected most
heavily by the disruption in the flow of oil.
Costs
The war caused a surge in oil prices which in turn has stepped up transportation costs by almost 15%.
The increase in oil prices is expected to extend to production and outsourcing costs as well, but to a
more limited extent. Economists at Gloomburg.com believe the situation in Oilistan will be settled soon,
and with it the oil price will level off once again. Outsourcing capacity has again risen by 13% in the USA
and 10% in China.
Finance
A tax reform in China causes the corporate tax rate to rise to 19%. The Euro is expected to fall
dramatically against the USD whereas the RMB should strengthen when compared to the USD. The
European Central Bank has raised its interest rates by 0.5% in order to cut off the devaluation of the
euro. In US and China the interest rates remain unchanged for the moment.
Year 4
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Demand
The war in Oilistan is over and oil exports have returned to normal levels. There are however other news
impacting the demand of handsets: It has already become a standard that passengers can freely use
mobile phones on airplanes. Now there has been a suspicious case regarding an airplane crash in
southern China. The plane had crashed immediately after taking off, but luckily the amount of casualties
was rather limited. Some of the survivors said that they had seen a mobile handset exploding while a
passenger was using it intensely for video-conferencing. This event was widely published all over the
world and it has tamed the markets for new handsets. In the USA the demand for handsets is expected
to decrease by about 3% and in Asia by about 7%. European demand is expected to remain unchanged.
Costs
Transportation costs diminish by approximately 6% as the price of oil takes corrective downward action.
Production costs are expected to remain constant. Outsourcing capacity continues to rise: expected
capacity is 13% in USA and 19% in China. As a result, outsourcing costs have fallen 4-6%.
Finance
Once again the corporate tax-rate in Asia is raised. It is now up to 22%. Concerns about the
competitiveness of the Chinese economy results in the Central Bank of China selling a large amount of
Rmb into the FX market. Consequently Rmb falls nearly 10% against USD. The Euro rebounds. Interest
rates are up half a percentage point in China, and up a quarter in the USA. European interest rates are
down a quarter.
Year 5
Demand
Turmoil around exploding handsets has settled. Investigations concluded that there was no explosion on
the plane, but someone had placed an opened durian fruit in the cockpit and both the captain and the
co-pilot lost their consciousness due to the smell of the fruit. Contrary to handsets, demand is exploding
for the coming round: growth rates of 15% in Europe, 20% in the USA, and over 40% in Asia are
expected.
Costs
The Chinese-US predicament escalates. The USA sees an increase of tariffs to 15$ per handset as a way
to further weaken the Chinese economy. China retaliates by matching the US tariff. Production costs are
expected to fall in the US by 5% and to remain level in Asia. Last period some of your sourcing companies
went out of business due to heavy price competition in an industry that is already operating on thin
margins. Therefore, outsourcing capacity has fallen by 15% and as a result outsourcing costs are up close
to 10%.
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Finance
The RMB continues to devalue compared to the USD, Euro strengthens. Interest rates are unchanged in
the USA, and Europe, but up a quarter in Asia.
Year 6
Demand
Robust market growth rates are expected to gradually decline over the next few years as the markets
begin to mature. Europe is expecting a growth rate of roughly 15%, USA just under 20%, and Asia of over
30%. Recent market research implies that particularly Europeans are highly appreciative of the highest
technologies. This comes along with the realization that Tech 3 has been a “lemon” in the USA, according
to Tecno Analytics.
Costs
Production costs as well as outsourcing costs are down this period in Asia. Outsourcing costs are up 2%
worldwide. Meanwhile the government of Nepal announced that the population of gorillas is decreasing
to near extinction. This is happening because the jungle where gorillas live is being destroyed while
extracting tantalum, a crucial metal component in production of mobile phones. Together with the world
wildlife foundation, the government of Nepal has been able to justify certain fees to mobile phone
producers, which will reflect in the increased fixed costs for every production plant.
Finance
The Euro appreciates against the USD again. At the same time, RMB is gaining its strength against the
USD, up almost 10% from last year. The US Federal Reserve reacts to signs of inflation by increasing the
interest rates by half of a percentage point. Europe and Asia follow and raise their rates accordingly.
Year 7
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Demand
Sales growth is between 8% and 15% in all markets. In line with previous information, growth figures are
leveling off.
Costs
The conflict between the US and China has for some time now been called a “trade war” by the media.
Now, the situation has escalated even further. Both countries have raised the tariffs to 25 $ on routes
from USA to Asia and Asia to USA. Outsourcing costs are falling a bit as there is a large increase in
outsourcing capacity. As the markets continue to mature, the make or buy decision will be of greater
importance in the future. Outsourcing capacity is expected to rise at a high rate enabling a higher
reliance on outsourcing.
Finance
The USD gains on both the Euro and the RMB. Interest rates fall in all three markets.
Year 8
Demand
It seems that the market growth has leveled off to a 3-7% range for some time except for in Europe
where the political situation has worsened the supply of mobile phones. For the time being, talks of
European growth figures are merely wishful thinking: demand drops by 15%.
Costs
The US has presidential elections. The new president Jonathan Walker was previously the US
Ambassador to China. With his influential connections in the Chinese government, Pres. Walker has been
able to smooth out the situation and reach an agreement to abolish tariffs between USA and China.
Europe however, has been making its situation much worse. The Scandinavian leaders have criticized the
US on its pollution levels and China on its breach of human rights. The EU takes a political stand and sets
sanctions on goods from both the US and China. This has caused a tariff of 20 USD per handset for
incoming shipments which is estimated to have an adverse effect on European demand figures.
Outsourcing capacity is up 25% and as a result outsourcing costs fall by 4%.
Finance
The RMB surges against both euro and USD and the euro falls drastically (10%). The ECB raises interest
rates in Europe by 0.75%.
Year 9
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Demand
Almost all analysts agree that the present trend of slow growth is going to continue in the foreseeable
future. The industry has clearly reached a stage of maturity and as a result, a significant growth in sales
can only be achieved by increasing market share. Overall growth has leveled off to a 3-7% range for the
time being except for Europe where demand bounces up from last year’s slump.
Costs
After realizing the disastrous effects of political activism in the global marketplace, Europe abolishes the
tariffs it had set for imported goods. Tariffs are now zero for all goods in all markets and goods can now
flow freely. Production costs in Asia rise by 20% due to massive labor strikes in the Asian electronics
industry. As a result, outsourcing costs are also up in Asia, but not as much since the workers are not as
heavily unionized. Production costs in the USA however, fall a bit.
Finance
European countries are finally taking steps to add more dynamics to their economies. This shows
immediately in increased confidence in euro and it appreciates five percent against USD. At the same
time, RMB is appreciating against USD.
Year 10
Demand
Demand is still developing according to previous forecasts. As growth rates continue to decrease, the
competition for market share intensifies. While the Asian and American markets seem to be matured at
growth rates of 1-3%, the European market seems to experience a new push: The Eastern European
countries have caught up with the western development and are living through a boom phase. The
European growth rates are at 8-12%.
Costs
The labor strikes in Asia have been settled by raising salaries. Therefore production costs are 5% higher
compared to the times prior to the strikes. This is roughly a 15% decline from last round’s production
cost.
Finance
Euro and RMB continue to increase in value compared to the USD. European and Asian interest rates are
increased by a quarter of a percentage point.
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