Advantages of Establishing a Company-Owned Marketing and Sales Subsidiary in the US
What are the advantages of a company-owned and -operated marketing and sales subsidiary compared to working with a foreign distributor? How many units will the US subsidiary have to sell each year for Sur Systems to justify the investment?
1. Tailored Marketing Strategies: Direct control over marketing and sales operations allows for tailored strategies to specific markets and target audiences, ensuring better alignment with overall branding and positioning.
2. Visibility and Transparency: Greater visibility into sales performance and customer interactions enables direct access to customer data, leading to deeper insights and informed decision-making.
3. Long-Term Investment and Growth: Establishing a presence in the US market allows for brand recognition, key customer relationships, and potential market expansion within North America.
Minimum Number of Units for Justifying Investment:
To determine the break-even point, Sur Systems Software needs to calculate the minimum number of units the US subsidiary must sell per year. This calculation involves dividing the fixed costs ($12,000 per unit + $500,000 annual SG&A costs) by the contribution margin per unit ($17,991 - $12,000).
Advantages of Company-Owned Subsidiary:
Another advantage of a company-owned subsidiary is the visibility and transparency it provides into sales performance and customer interactions. With direct access to customer data, Sur Systems Software can gain valuable insights into consumer behavior, preferences, and needs. This data-driven approach enables the company to make informed decisions, develop targeted marketing campaigns, and implement personalized sales tactics to acquire and retain customers effectively.
Furthermore, establishing a company-owned subsidiary in the US presents an opportunity for long-term investment and growth. By building a presence in the US market, Sur Systems Software can enhance brand recognition, establish relationships with key customers, and expand its local network. This foundation sets the stage for sustained growth, potential market expansion within North America, and future opportunities in other regions.
Calculating Break-Even Point:
To determine the minimum number of units the US subsidiary needs to sell each year to justify the investment, Sur Systems Software must consider its fixed costs and contribution margin per unit. The fixed costs include the cost of goods sold per unit ($12,000) and the annual selling, general, and administrative costs ($500,000).The contribution margin per unit is calculated as the selling price ($17,991) minus the variable cost per unit ($12,000). By dividing the total fixed costs by the contribution margin per unit, Sur Systems Software can ascertain the minimum sales volume required to reach the break-even point.
While specific values for the contribution margin and fixed costs are not provided in the given information, Sur Systems Software can perform the necessary calculations using actual data to determine the exact number of units the US subsidiary needs to sell annually to cover costs and achieve a neutral financial outcome.