Feasibility of International Trade

Global Value Chain

Global Value Chain Management and Strategic Sourcing

A Supply Chain Problem

Metrovox is a German electronics manufacturer that designs, develops and manufactures a range
of products for the entertainment and home electronics sector. Management has recently focused
on two related products, Bugabyte and Bugabyte Lite. The Bugabyte is a video and audio player
with a flash drive. The company has invested heavily in the research and development of this
product, which is a small hand-held unit about the size of a credit card, and is about 50 percent
thinner than its competitor’s offerings. The Bugabyte Lite is a flash drive and MP3 player.
Metrovox sells this product to a distributor in North America and to a major European retailer.
The market for these two products is highly competitive, and Metrovox relies on product
differentiation as a source of competitive advantage in both Europe and North America. The retail
price is the same as, or slightly higher than, its competitors. Product uniqueness is based on the
size of the Bugabyte and the storage capacity of the Bugabyte Lite. The Bugabyte is a relatively
new product on the market and was designed to meet predicted future growth in the popularity of
handheld video devices. Demand is anticipated to be low to moderate for the first few years of
sales, and expected to grow thereafter. The Bugabyte Lite has been on the market for over six
years, under a different product name. The casing design was recently changed to compliment
the Bugabyte, and marketing efforts within the last few months have strived to address the fact
that this is the same quality product with a new look. This product experienced healthy growth for
its first four years, and has stabilized over the past two. The Bugabyte Lite is not a product that
will contribute to significant revenue growth for Metrovox, although its presence in the market
contributes to brand continuity and awareness in an increasingly competitive marketplace.
Currently, Metrovox purchases components for these products from suppliers in China and has
them shipped to its assembly plant in Germany. The suppliers are reliable, and do not contribute
to any delays in production or assembly. The assembly process involves mounting a SMD
(surface-mount device) decoder chip and a PIC controller to a circuit board, sending the
assembled boards for testing and then integrating the tested boards into the product casing. Due
to the recent development of the video-capable Bugabyte, Metrovox is experiencing increasing
production delays, contributing to its 30 percent late delivery rate. As a result, management is
considering outsourcing the assembly process to one of its suppliers. The company now needs

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Global Value Chain

to determine which of the two products, the Bugabyte or the Bugabyte Lite, is the best candidate
for outsourcing assembly.
In Need of Advice
Metrovox hires the services of Grunwald and Vogel, a manufacturing consultant, to help
determine how delivery times can be better managed and how to reduce its 30 percent late
delivery rates. On-time delivery lead times from procurement, assembly and circuit board testing
through to the assembly of the tested components in their casings takes approximately four
weeks. There are very specific measurements for circuit board quality testing compliance, defined
in terms of the solder used and the soldering process. The circuit boards for both the Bugabyte
and the Bugabyte Lite must have a minimum life span of ten years.
Annual demand for the Bugabyte in the first year of release is 300 percent over forecasted
demands. Production management and the sales team cannot reasonably predict future demand.
Since the Bugabyte Lite has experienced stability in sales over the past two years, forecasting
has been accurate and the margin of error is much lower than that of the Bugabyte. The entire
assembly process for Bugabyte and the Bugabyte Lite accounts for about 5 percent of each
product’s price, and is not viewed as an aspect that contributes to the product’s competitive
advantage.
With the recent design and production of the Bugabyte, Metrovox has had to include several new
stages in the assembly stage, to accommodate the video capability of the product. There is also
a significant amount of proprietary information that is used during circuit board testing. Bugabyte
Lite has a well established assembly process because of its existing presence in the market.
Product testing is based on technology that is widely used and that has been around for five years.
Outsourcing Criteria
Grunweld and Vogel’s task is to assess which product is the most suitable candidate for
outsourcing assembly. A key element that needs to be taken into account is that the new supplier
and assembler must commit to delivering the assembled circuit boards to meet Metrovox’s
delivery schedule. Metrovox has an agreement with North American distributors and European
retailers that it would deliver the Bugabyte and Bugabyte Lite in the same shipment. With quality
and defective rates a concern of management, the outsourced assembler must ensure Metrovox
will maintain its market position and competitive advantage.

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Global Value Chain

Learning Outcomes
This case study relates to the following learning outcomes from the module Cost and Pricing
Analysis and Risk Analysis and Management in the course Feasibility of International Trade and
the module Document Management in the course Global Value Chain:

• Describe possible effects of Incoterms® in relation to export and import costs.

• Identify the intellectual property (IP) assets and potential risks associated with IP
infringement in order to ensure business viability within both the domestic and international
target markets.
• Describe the types and purposes of international trade documentation for the
management of the movement of goods and services in international trade transactions.
• Explain the purpose and importance of using Incoterms® rules within international trade
transaction documentation.
• Manage required documentation for international trade transactions to ensure compliance
and maximum efficiency.

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Global Value Chain

Case Study Questions

1. Based on the risk factors associated with the Bugabyte and the Bugabyte Lite, which product
do you think Grunwald and Vogel will recommend as the best candidate for assembly
outsourcing?

2. Based on Grunwald and Vogel’s decision, what will be the benefits and disadvantages of
outsourcing the assembly function?

3. If Metrovox can outsource the assembly of the circuit boards to an existing supplier, discuss
the key contract issues Metrovox will need to consider with its supplier.

4. Which inventory management strategy should Grunwald and Vogel recommend Metrovox
adopt to ensure efficiencies throughout its entire supply chain? Why?

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Global Value Chain

Photo Attributions
Image #1 (Mobile)

Attribution: No attribution required Licence: Public Domain, free for commercial use

pixabay.com/en/mobile-phone-iphone-music-616012

Image #2 (Globe)

Attribution: No attribution required Licence: Public Domain, free for commercial use

pixabay.com/en/international-world-global-earth-1952464

Image #3 (Hard drive)

Attribution: No attribution required Licence: Public Domain, free for commercial use

pixabay.com/en/hard-disk-storage-computer-159264

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