Part 1 Case study
Westside Rubber Company is best known within the industry as a company in Santa Monica (not the Westside) that makes plastic tubing (not rubber) and is a corporation (not a company).
Despite all that, Westside is a traditional company that was formed in 1938.
In order to be near their main customer Douglas Aircraft Company they relocated from the West Side of Los Angeles to Santa Monica in 1950. They transitioned from rubber to plastics when plastics were productized during World War II. Shortly thereafter they moved out of the rubber industry since rubber was difficult to get during the war.
Westside started out providing rubber tubing for the Army Air Corps (today known as the U.S. Air force) and today is a major supplier of very sophisticated plastic tube products that are used in hospitals, automated test equipment, jet planes and robotic equipment.
They have two major competitors Plastic Technologies out of Wilmington, Delaware and CPI out of Chicago. Both the competitors are 5 or 6 times bigger than Westside, but both are limited in their foreign sales since the technology they sell is controlled by the United States Government under the International Traffic in Arms Regulations (ITAR). Due to this control, it is very difficult and almost impossible for them to establish foreign markets.
Meanwhile, Westside lags these competitors in technology and is losing market share here in the United States. The management of the company believes their opportunities are outside the United States and see a large growth potential since their product is not subject to ITAR.
The foreign competitors are about 5 years behind in this technology so Westside believes it has some time to develop a market. The foreign competitors are:
1. Tonaka Industries in Japan who specializes in serving the Japanese government
2. ORiley Ltd, in Ireland that makes products under license from Tonaka Industries and services the European Union.
3. Pupo, SA a Brazilian company who is being funded by the Brazilian government and is looking for a market
Due to limited resources (money and manpower), Westside wants to gradually enter the foreign market. Their current plan is to start out with one geographic area where they can succeed without a lot of risk. They have retained you as their contracting consultant. They have asked the following questions which they would like to be answered in writing that are responsive, clear, accurate and concise.
1. They see their initial marketplace as the Nordic countries of Northwest Europe as this area has needs for this type of product, are trustworthy and have money. Should they use the same model contract in the countries of Norway, Denmark, Sweden, Germany, Latvia, Finland and Estonia? Why? It would be in English and would be used for governmental and commercial companies.
2. In their discussions with the Finish government they are told that the contract must be InCoTerm CIF – Helsinki as the government sees six problems that could go wrong. Your management asked you what could go wrong as the company has a deminimis loss record on domestic shipments. Also what are the risks for Westside using this InCoTerm?
3. Westside has patents filed for the products in all the countries except for Latvia. The Sales manager said not to worry about it, and you said….
4. The largest potential commercial buyer in Germany has advised that their disputes clause calls for Mediation via the U.N. Office in Brussels, Belgium in the event of a dispute. Westside hasn’t dealt with mediation in their domestic business and asked if there was a disadvantage for them accepting the clause as they had very good success with California Arbitration Association’s over the years.
5. Westside has never used letters of credit, but you advised them that they would need to post a standby letter of credit. They asked you to explain what a standby letter of credit is and why it is used.
6. When going through customs in Lower Slabovia, a small country in East Central Africa, the customs agent advised you could move to the side and fill out a 30-page declaration statement explaining who you are and the purpose of your business trip or pay $250.00 cash. Does this violate the Foreign Corrupt Practices Act (FCPA)? Why?
7. Management of your corporation wants to break into the growing East African market. They have decided that one of the smaller divisions of the corporations would start a field office in Nairobi, capital of Kenya. Nairobi has a metropolitan population of 10 Million and is an economically progressive area. The field office would start selling our cleaning products with the goal of establishing a joint venture
8. Larry Chow has patented in the U.S. Patent Office as of last week, a new way of stopping automobiles in an emergency. He is approaching all the major auto manufacturers regarding licensing. He realizes there is a worldwide demand but only patented in the U.S. What are your recommendations?
9. What methods may a taxpayer use in order to overcome the IRS determination that the transfer prices were not arms-length? (hint three methods)
10. Your corporate office in Pomona received word that your subsidiary in Germany was violating the labor laws covering protective gear and is fined the equivalent of $15,000. Since the subsidiary still hasn’t made a profit and the Germans don’t want to make a domestic company go into bankruptcy as it provides 50 jobs, they are suing the corporate office in Los Angeles. County Superior Court. Is the corporate office responsible for the subsidiary? Why?
