A note to Olin Executive MBA Class 41… I know I don’t have to remind you – graduation is only a few weeks away! But before you can don the brown hood, you have one final project, Global Tycoon, a global strategy simulation. (Hard to imagine anything other than a competition piquing your interest at this point. ) In a way, Global Tycoon is the entire curriculum in a nutshell – running a multi-national company; competing as a team against other, capable competitors; managing through complex, ambiguous situations; and maximizing shareholder return – with strategy being the shell that keeps it all coherent. After watching 20,000+ MBAs and managers compete in Global Tycoon over the years, I believe the keys to success are less the cognitive and analytic skills (although there are a lot of numbers to crunch) and more team leadership skills. Nothing is more real-world than that, and here’s a great chance to practice those skills one more time among friends before leaving Mother Olin. Global Tycoon is modeled loosely on the consumer electronics industry. You and your teammates will get one of seven TV manufacturing companies at an auction, and run it for 10-12 decision cycles, with each cycle being a quarter of a fiscal year. Your classmates will run the other companies. You can make TVs using raw materials available from either suppliers or other competitors, and you can sell your TVs to large retailers, e.g., you are Samsung selling to Best Buy. You can produce and sell in up to four regions of the world. Your job is to help make decisions for your team. The decision matrix is very large – nearly five hundred decisions among all four regions – so I will share with you some tips for preparing when we meet in class on May 3. Before class, please read the following introduction to Global Tycoon. Your assignment is to think about what subset of the functional decisions you would like to make for your team. You will get more details in class. See you soon! ~ John Ehlers olinemba2014@intellisim.com Copyright © 2014 by IntelliSIM, Ltd. All rights reserved. Not to be reproduced or redistributed without IntelliSIM's permission. Global Tycoon® Olin Executive MBA Class 41 Introduction… In preparation for the May 3 class, please read this document to get a general sense of the scale and scope of the Global Tycoon simulation. I will provide additional details in class. I. II. III. IV. V. Welcome to Global Tycoon! (<1 page) The Industry – the markets, products, competitors, and much more (7 pages) The Functional Roles – decide which roles you can fill for your team (7 pages) Regional Data – industry characteristics that remain constant throughout the simulation (4 pages) Comparative Company Data – current data on the seven companies in the industry (5 pages) The May 3 class marks the beginning of Global Tycoon, and we will begin with a flurry. You will meet with your teammates to decide on individual roles and decision responsibilities, elect your team CEO, and begin a comprehensive team assignment, the Pre-simulation Exercise. You will also receive demonstration software and a comprehensive manual during class. We want you to continue your individual training until The Competition begins on May 15. Before then, CEOs must email team Pre-simulation Exercise solutions and bid on companies in an on-line auction. After your team receives its company, you can set your corporate goals, formulate a strategy, plan your first moves to implement that strategy … and get ready to dominate your industry! Good luck in your preparations, and I will see you in class. Please email me with questions at olinemba2014@intellisim.com. You will receive a reply within 24 hours. ~ John Ehlers, your IntelliSIM facilitator I. Welcome to Global Tycoon® During the next four weeks, you will join a senior management team, buy a virtual company at auction, train to make expert decisions, set corporate goals and formulate a strategy, all culminating in a competition with other team-run companies in a complex, somewhat ambiguous and uncertain, global business environment. We will run 10-12 decision cycles, with each cycle representing a quarter of a fiscal year. You will make decisions at the beginning of each quarter based on recent company reports, regional data, the newsletter, and other resources. Each quarter, team members make operating decisions using the Global Tycoon software, test their decisions with trials, upload their decisions to the server and download their teammates’ decisions, run some more trials, and think strategically, all before the decision deadline. After the deadline passes, you can take a brief break (you’ve earned it!) while the facilitator processes the quarter. The facilitator will read all teams’ decisions, invoke various pre-scheduled events, process the quarter, and post the new results to the server for teams to download. As soon as the facilitator posts the new results, a new quarter begins. At the end, we will compare all companies and crown a winner – it’s business, after all. To help others understand your experience, your team may be asked to give a brief report, as if to your board of directors, on how well you met your goals. II. The Industry Here is your opportunity to put your business acumen to the test, flex your management muscles, and dominate your competition! You and your team will manage your company in a realistic, global business environment that is modeled on the consumer electronics industry. You must identify, develop, protect, exploit, and reevaluate your competitive advantages. Macroeconomics, exchange rates, and product life cycles will influence you. Watch out, competitors are capable and aggressive. Contingency planning for exogenous factors, such as strikes and natural disasters, can mean the difference between success and failure. At the outset, each company is quite different from the others, but all have their corporate headquarters, a factory, a sales office, warehousing, and research facilities in the United States. Most companies have offshore production, sales, and warehousing facilities, too. As a management team, you may open and close regional subsidiaries as you wish, but you must keep the U.S. corporate headquarters. You may buy, sell, and produce in any region where you have operations. Operating your company will involve making decisions in marketing, production, research and development, logistics, economic forecasting, and finance, much as you would in your own real-life business. In past competitions, firms have made money in many ways. Most firms invest to lower their cost of goods and increase their margins. Many firms differentiate on quality or customer service to grow their margins. Nearly all firms invest to gain market share; however, a few firms have chosen only to supply industry competitors under long-term contracts. The keys to your company's success will depend on you and your fellow team members. A. Finished goods For all competing companies, the principal source of revenue is shipping finished goods to customers and competitors. The finished goods in demand are: • • LED (Hi-def) TVs [LED TVs] OLED (Tru-def 3D) TVs [OLED TVs] Companies either can make finished goods in a batch assembly process that combines various raw materials, or they can buy them from competitors for resale. The attributes that transfer with the finished goods include cost, quality, and, for OLED TVs, technical format. Some finished goods, especially low quality ones, will be defective and require warranty repair. Product economics is currently only fair at about 50 percent gross margin, industry-wide. Increased production efficiencies, and economies of scale and scope in marketing, promise significantly improved financial performance for aggressive management that can 'get it right'. B. Product markets A large market currently exists for LED TVs, as shown in the Industry Characteristics report, but demand is stable or slightly decreasing. However, many other market growth factors have already been identified that could contribute to substantial LED TV growth. The OLED TV market, initially smaller, is growing. Long-term market potential for OLED TVs is especially strong if producers adopt a common, uniform technical format. Most highly successful companies have a strong commitment to all available product markets, to maximize volume and flexibility, but not all. In a few cases, companies have leveraged success in a single product to dominate an entire industry. C. Regional markets There are eight markets in Global Tycoon – 2 types of finished goods and 4 regions. Each market will evolve into a unique arena of competition, based on market size factors and market share factors. Most successful companies find ways to export competitive advantages to new markets, undermining the long-standing positions of existing competitors. The regions and their local currencies are: • • • • the United States – dollars ($) the European Union – euros (€) Japan – yen (¥) Inflatia – currens (₡) Worldwide demand is several hundred thousand units per quarter for each type of finished goods. The largest regional market is the U.S. and the others are somewhat smaller, as shown on the Industry Characteristics report. Demand follows a seasonal cycle, peaking at Christmas each year (Quarters 12, 16, 20,) in most regions. Regional markets grow at different rates, depending on numerous market size factors, some of which management can control. Since all companies already sell in the U.S., it is the most competitive. Inflation and interest rates are moderate there. Far fewer companies sell in the E.U., even though its market is large. Inflation and interest rates in the E.U. are comparable to the U.S. Other regions are smaller, initially, and quite diverse. The Macroeconomics report shows recent and forecasted regional economic data. All regions are closely modeled on conditions that have existed sometime during the past ten years, except Inflatia which is a fictitious, near-hyperinflationary region with high market growth potential, but many uncertainties, too. In prior competitions, many companies have perished in Inflatia while chasing fantastic dreams funded with debt. During The Competition, quarterly reports and Newsletters will forecast major shifts in regional markets and economies. D. Customers Customers are large retailers of audio equipment – imagine Sears Brand Central, Best Buy, or other national outlets – who order thousands or tens-of-thousands of units each quarter. There are up to 12 customers in each region. Customers only operate locally, so Customer #1 in the U.S. has nothing to do with Customer #1 in the E.U. or in Japan, except for their demand preference profiles. Customers place their orders based partly on their sensitivities to these market share factors: • • • price-sensitive customers are also the least sensitive to finished good quality variations image-sensitive customers (e.g., advertising and sales rep activities) are also the least sensitive to finished good price variations quality-sensitive customers are also the least sensitive to image factor variations Quarterly seasonality factors vary by region and by customer type. Some customers pay their accounts more promptly and more consistently than others do. The regional marketing data gives further details about customers. E. Production process The finished good production process is a quarter-long batch assembly process that begins in the current quarter with raw materials and ends in the following quarter with finished goods that are ready to ship, either to fill customer orders, to transfer to other subsidiaries, or to sell by contract to competitors. To produce finished goods successfully, you need three resources in place at the beginning of the batch process: • • • Equipment - production assembly lines, specific to the type of finished goods you want to produce Raw materials - various combinations, depending on what finished goods you want to produce Skilled workers - in numbers sufficient to fully staff whatever lines you choose to operate You can schedule production for an unlimited number of finished goods, but the least of these three resources will limit what your company can actually produce. Ideally, equipment capacity should limit production, because you can always buy more raw materials and hire more workers. Production takes priority over repair, regular time hours take priority over overtime hours, and LED TVs take priority over OLED TVs for resource allocation. All finished goods that your company produced, shown as work-in-process [WIP] on your most recent Inventory report, plus any inventory remaining after shipments in the most recent quarter, are available to ship in the current quarter. The Inventory Reconciliation report itemizes this information. Your company's equipment and workforce data appear on the Production report. Raw material inventory data appear on the Inventory report. The Cost of Goods Produced report itemizes your company's production-related expenditures. Standard production costs appear in the regional production data. Standard workforce costs appear in the regional human resources data. Worker experience effects and other productivity factors may cause those producing outside the U.S. to have somewhat higher unit production costs, but this may change over time. F. Warranty repair Customers will identify some those finished goods that your company ships to them as defective, and they will return them over time to the sales office from where they bought them. It is up to you to schedule repair of defective finished goods in a timely manner, so that your customers remain confident of your commitment to service after the sale. Higher finished good actual quality results in fewer warranty repairs. To repair finished goods, your company needs no equipment capacity since repairs occur off-line, but you do need: • • Raw materials - any raw material may prove defective and require replacement Skilled workers - any skilled worker is capable of repairing finished goods You can schedule repair for an unlimited number of defective finished goods, but the lesser of these two resources will limit what your company can actually repair. Ideally, you will be able to repair everything that you schedule - both units remaining in the repair queue from previous quarters and units that arrive in the current quarter, as shown on the Defects report. The Defect report also shows which raw materials are needed to repair defective finished goods already in the repair queue, and estimates of current repair costs. Raw materials required for future repairs appear in the regional production data. Production takes priority over repair for resource allocation, so you will miss repair opportunities if you run short of either raw materials or skilled workers. G. Raw materials Your company needs raw materials (a) to produce finished goods and (b) to repair defective finished goods returned to you under warranty. (a) The regional production data shows which raw materials are required to produce each type of finished goods. Some raw materials are wasted during the process, as shown on your company Production report. (b) The regional production data also shows which raw materials typically are required to repair future returns each type of defective finished goods. The Defects report shows which raw materials are required to repair units already returned and remaining in the repair queue. Raw materials have an inherent quality that affects any finished goods that are made with them. Your company's weighted-average raw material inventory quality is shown on the Inventory report. You can get raw materials from these sources: • • • Suppliers - available anywhere you have operations, but you must order them Subsidiaries - anywhere in the world, by contracting to transfer them Competitors - anywhere in the world, by contracting to buy them Some suppliers have limited supply as shown on the Raw Materials report, so if your company wants to order from them, you must also bid competitively. Other suppliers have unlimited supplies. The Raw Materials report also shows raw material prices and recent backorders, and the regional logistics data shows the quality of raw material from various suppliers. H. Suppliers Suppliers sell raw materials for your company to use to produce finished goods and to repair defective finished goods returned by customers under warranty. Your company can order from any supplier in any region where you currently have operations. You can also buy raw materials from competitors and from subsidiaries by contract, if needed. Suppliers have many defining characteristics, described more fully below: • • • • • • • Raw material price Raw material quality Quantity of raw materials available Delivery time horizon Delivery short-ship percentage Delivery defect percentage Volume purchase discounts Supplier prices vary each quarter, as shown on your company Raw Materials report. For every order your company places, you pay both a fixed order charge, shown on the regional logistics data, plus the per-unit price for the quantity delivered. Your company days-payable policy determines how soon after delivery you pay your suppliers. Suppliers pay for shipping. Suppliers maintain constant raw material quality over time, as shown on the regional logistics data. The quality rating is a dimensionless index. Higher quality raw materials make proportionally higher quality finished goods, all other process quality factors being equal. Most suppliers offer unlimited quantities each quarter. Those that offer limited quantities, as shown on your Raw Materials report, decide who gets delivery by bidding. Rush Suppliers deliver raw materials in time to use for production and repair in the same quarter as ordered. All other suppliers deliver their raw materials too late to be used in the same quarter as delivery. As a separate timing issue, Suppliers 1 deliver raw materials one quarter after orders are placed. All suppliers tend to short-ship orders by a small percentage, as shown on the regional logistics data. Your company can minimize short-ships by setting a low days-payable policy. Of course, you do not have to pay for any short-shipped units. Most suppliers also tend to ship a small percentage of defective raw materials, also shown on the regional logistics data. Similar to short-ships, your company can minimize defects by setting a low days-payable policy. Defective raw materials are weeded out at the receiving dock as they enter your facilities, and do not affect finished good quality or cause warranty defects. All suppliers offer uniform volume discounts on each raw material order as follows: • 10% discount on either LED Display assemblies or OLED Display assemblies beginning at 50,000 units, and an additional 2% discount on the entire order for each additional 10,000 units beyond that, up to a maximum discount of 30%. • 10% on universal Processor/tuner Board assemblies beginning at 100,000 units, and an additional 2% discount on the entire order for each additional 10,000 units beyond that, up to a maximum discount of 30%. Warehousing costs over time may offset some or all of the volume discount savings. I. Competitors Existing competitors have widely diverse skills and successes. Some are niche players, while others are already truly global competitors. Some carry significant debt, while others are generating huge cash balances. Some excel at personal selling but ignore other market opportunities. Several firms have potential for high production efficiencies, but they under-invest in related factors like quality control, line maintenance, or worker wages. Investment in research and development varies widely among firms. At the outset, all companies do some things well and some things not so well in each functional area. See section V. Comparative Company Data. The Competitor Descriptions report in the demonstration software has brief company information. Finally, the demonstration software also has complete details about each company’s decisions and results. To be most efficient, follow the preparation hints in the manual and focus your analysis on Quarter 12 reports and graphs, only. J. Other industry characteristics Global Tycoon includes many entities, exogenous to competitors, that add to the realistic business environment: • • • • • • Bankers – for financial help in times of need Government agents – e.g., the Securities and Exchange Commission [SEC], which requires notification about future debt and equity transactions, and the Internal Revenue Service Insurance agents – for protection against loss, except people-related loss (strikes and kidnappings) Judges – for resolving contract disputes between and among competitors Union representatives – for protecting workers’ rights Terrorists, arsonists, and thieves – society’s fringe element Read the Newsletter each quarter for the latest industry information. K. Regional Data (see also section IV. Regional Data) While data in the company reports change every quarter, unless reported otherwise in the Newsletter, these regional data (also shown in section IV) typically remain constant over time: • • • • • Marketing data Logistics data Production data Human resource data Regional expansion & operations data All monetary values are expressed in 'real' local monetary units. To calculate the current value from the ‘real’ value, multiply the 'real' amount by the current consumer price index [CPI]. The Quarter 12 CPI is 1.14 in the U.S., 1.15 in the E.U., 1.08 in Japan, and 1.59 in Inflatia. Click here to download regional data in Excel format (zipped XLSX file). III. The Functional Roles Global Tycoon can be overwhelming. The best way to make sense of the exercise is to choose your roles as early as possible, and focus your preparation on your role responsibilities. During The Competition, your teammates will be depending on your expertise in your chosen functional areas. There are ten functional roles. You and your teammates are responsible for all role responsibilities. During The Competition, you may find that some roles require more effort than others do. Stay flexible, and be ready to assist your teammates when they ask for help. Chief Executive Officer [CEO] The CEO provides leadership and control for all team members' efforts. As CEO, you will help keep your company on a path consistent with your corporate strategy. Although you have no quarterly decision responsibilities, you must make some very important decisions: Before the Bidding Session deadline, Monday, May 5, 2014 at 9:00pm CT: • Bidding on companies Before the Quarter 13 decision deadline, Thursday, May 15, 2014 at 10:30am CT: • Re-naming the Company • Selecting Cost Allocation Method • Setting Evaluation Criteria Weightings • Setting Product Performance Weighting • Updating Corporate Strategy • Updating Organizational Design Throughout The Competition, you will be responsible for internal control systems, promoting, and demoting. You may reassign functional decision responsibilities to fellow team members anytime. Often, CEOs find that they need to arbitrate the divergent interests of functional managers, such as whether to dedicate limited resources to capital improvements or to daily operations. As you struggle with the many complex and integrated decisions that your company faces, remember that it is lonely at the top! The functional managers have all the detailed information, and the CEO's duty is to solicit that information and facilitate decisions in a way that enables your company to achieve its goals. Team management questions: • • • • How do you keep everyone in your company working towards the same goals? How are shifts in goals determined? How are decisions made, by action work teams or by specialists? What is the real role each team member serves, and how can you manage them on several levels? Who controls the recording and transfer of information? How does your organization learn? Are your information tools and processes effective enough? How do the shifting power bases in your company affect its decision-making ability? How can you control the directions of these shifts? You should be fully familiar with various strategic analyses: • • • Business-level strategy Competitive strategy Global strategy Remember, nothing is static. Current positions are just the starting points for all future activities. Chief Financial Officer [CFO] CFOs make decisions about cash management, investments, loans, and internal cash transfers. As CFO, you must develop and implement policies for common stock and dividend transactions. You should be your company’s authority on stock pricing, corporate taxes, and the tax implications of transfer pricing. Typical CFO decisions include: • • • • • • Setting Short-term Debt Balance Issuing Long-term Debt Retiring Long-term Debt Investing in Short-term Securities Transferring Cash to Parent from Subsidiaries Transferring Cash to Subsidiaries from Parent • • • • • Buying Short-term Insurance Issuing Preferred Stock Issuing Common Stock Repurchasing Common Stock Issuing Dividends • • • Notifying SEC of Long-term Debt Transaction Notifying SEC of Preferred Stock Transaction Notifying SEC of Common Stock Transaction Since all companies' Parent operations are in the U.S., all common stock and preferred stock transactions are available only in the U.S. Accounting Manager The Accounting Manager is responsible for the company’s cash flow. As Accounting Manager, you should understand the reports detailing the product cost accounting components of work-in-process [WIP]. You may account for variances between operating budgets and financial statements. Finally, you may have to interpret the complexities of international accounting and consolidation accounting to team members. Use the Trial runs during The Competition to forecast cash flow, rather than trying to create your own. VP-Production The VP-Production is responsible for meeting multiple objectives: making enough finished goods to fill customer orders, at good quality levels, and at a reasonably low cost so that the company is profitable. The VP-Production faces the most complex quantitative decisions, especially in companies that have multiple regional production facilities making multiple products. Typical operating decisions include: budgeting for maintenance and quality control, scheduling production and warranty repairs, and converting lines: • • • • • Investing in Quality Control Investing in Maintenance Scheduling production of finished goods, subject to labor, capacity, and material constraints Scheduling warranty repairs, subject to labor and material constraints, only Converting Assembly Lines to produce another product The VP-Production should work closely with the VP-Logistics and the VP-External Relations to assure that materials are available in time for production, with the Human Resources Manager to assure workers are ready and able, and with the R & D Manager to maintain competitive technology. Research & Development Manager As R&D Manager, you can invest in research & development to lower your cost or to improve your products. You will have opportunities to evaluate and prepare bids for patents from outside inventors. R&D facilities are in the U.S. for all companies, so the U.S. operating income usually understates the actual manufacturing and sales profitability. R&D is most cost-effective if consistently implemented over time. Through continual R&D, you can achieve many product improvements, each incrementally improving the quality or lowering the cost of your products. Any R&D benefits that you receive are permanent. The R&D Manager typically budgets for quarterly investment in R&D projects. Your company can have only one cost reduction project and one quality improvement project at a time for each product, for a total of four concurrent projects. Successful projects end with a benefit; unsuccessful ones continue for another quarter using the funds already budgeted. If you invest in R&D for a type of finished goods that you do not yet produce, later, if you choose to begin production, the accumulated R&D benefits will apply to the new process: • Productivity R&D lets you produce the same number of finished goods in fewer hours by increasing your line speed, which usually increases production capacity and lowers average unit cost of finished goods. • Product quality R&D increases the quality of your finished goods. The benefits apply immediately to all current and future work-in-process [WIP], but not existing finished goods inventory. Increased quality is an important factor in determining your company's share of customer demand. Productivity improvements generally take more money to achieve than quality improvements. But the impact of individual productivity improvements on profits, given other rational policies, tends to be less than the impact of a quality improvement. You can estimate the relative impacts of productivity and quality R&D from historical data, but the analysis will be difficult due to limited data and numerous factors. R&D Manager also typically bids on patents offered by outside inventors. VP-Marketing The VP-Marketing has one main objective: getting sufficient customer orders at a profitable price. The VP-Marketing faces a complex set of decisions involving pricing, advertising, customer focus, product focus, and sales rep management. For some of these decisions, the VP-Marketing will have market estimates reports that give accurate, although imprecise, data for all competitors. For others, no competitor data is given. The impact of these decisions affect not only the company's market share, but they also contribute to the market size for the entire industry. Marketing decisions include: • • • • Investing in Advertising Setting Finished Goods Selling Price Focusing Sales Reps on Customers Focusing Sales Reps on Products VP-Marketing should also work with the VP-Production to balance capacity with demand, with the VPHuman Resources to manage sales reps, and the VP-Logistics to fill orders and keep customers happy. Challenges will include forecasting demand and dealing with imprecise competitor information. Good VPMarketing candidates embrace ambiguity! VP-Logistics As VP-Logistics, you manage inventory flow – the transfers among regions, from suppliers to your firm, and from your firm to customers. Tariffs, shipping fees, market demand, production scheduling, and expansion may influence your decisions. Common carriers ship raw materials and finished goods. Their rates remain constant throughout The Competition, unless the Newsletter says otherwise. Shipping Raw Materials If you need additional raw materials to use this quarter, you have two or three options, depending on the region: • • • You may bid on Rush raw materials, which are available only in the U.S. and the E.U.. You may transfer raw materials from other regions. The transfer price is the source region average inventory cost. You may buy raw materials from competitors by contract. If you need additional raw materials next quarter, you also can buy supplier 2 raw materials this quarter, for delivery later this quarter and use next quarter. There is a non-negotiable price per unit, plus the ordering fee. If you can wait two quarters until you use them, then you also can buy supplier 1 raw materials this quarter, for delivery late next quarter and use the following quarter. Like Supplier 2, there is a nonnegotiable price per unit, plus the ordering fee. Shipping Finished Goods You cannot ship more finished goods than allowed by your finished good inventory at the end of the most recent quarter, plus what you produced during the most recent quarter, plus any net changes in finished goods inventory as a result of current subsidiary transfers and contracts with competitors. Orders not filled are lost. If you try to ship more to retail customers than you have in inventory, your shipments will be adjusted, and you will pay a fine for the confusion. But if you ship fewer units than a customer ordered and you still have finished goods inventory remaining, you will incur customer ill-will, resulting in fewer orders in the current quarter and in the near future. The buyer always pays shipping and tariff charges for finished goods shipments among competitors and subsidiaries. International shipments incur only region-to-region shipping costs, and not domestic shipping costs. Typical VP-Logistics decisions include: • Ordering Supplier 1 and 2 Raw Materials • • • • • Ordering Rush Raw Materials Bidding on Rush Raw Materials Setting Days-payable Policy Contracting with Subsidiaries Shipping Finished Goods to Customers The VP-Logistics should assist the VP-Production by purchasing raw materials for production, the VPMarketing by filling customer orders and managing inventories, and the VP-External Relations by suggesting amounts to contract with competitors. VP-Regional Operations As VP-Regional Operations, you are responsible for identifying expansion opportunities into new regions, and understanding the timing and cost of building new capacity and entering new markets. The VP-Regional Operations must understand and differentiate among various important regional distinctions, including: • regional marketing distinctions ... Advertisers find that Inflatia offers the biggest bang for the advertising buck. Extreme advertising policies, both high and low, in the U.S. and Inflatia will have the most extreme effects. The most rapid response to new advertising is in the E.U., and Inflatia has the longest lingering effects from past advertising. An experienced sales rep in Japan is likely to gain more orders over a lessexperienced competitor sales rep than in any other region. This effect is slightly less pronounced in the E.U., and is least in Inflatia. Customers in Japan pay off their accounts more promptly than in any other region. • regional raw material sourcing distinctions ... When purchasing Rush raw materials, consider that the range of defects shipped as part of the order is twice as great in the E.U. compared to the U.S., even though they both average three percent. The Supplier 2 in Japan short-ship rate is half that of Supplier 2 in other regions, and on the average ships fewer defects, too. The range of defects shipped by Supplier 2 is greatest in Inflatia. The long-term trend in Supplier 1 prices is expected to be the most favorable to manufacturers in Inflatia, and the least favorable in the U.S. The long-term trend in Supplier 2 prices is expected to be the most favorable in Inflatia, and the least favorable in Japan. The minimum order to get raw material discounts occurs at a threshold twenty percent lower in Inflatia than in any other region, and the maximum available discount is ten percent higher! There is initially ten percent greater raw material waste during production in both the E.U. and Inflatia, compared to the U.S. Japan has twenty percent less waste than the U.S. These waste rates can be eliminated in all regions by worker experience effects. • regional production distinctions ... Labor productivity is greatest in Japan and the U.S., with the E.U. close behind. Inflatia workers are considerably less productive, but improving due to better public education throughout the region. Japan laborers work the longest hours, and the E.U. laborers the shortest. With overtime, the gap widens even more. See Regional Human Resources Distinctions, below. Long-term maintenance programs are the most effective, but optimal levels vary by region. Maintenance benefits last the longest in Japan, and the shortest in Inflatia. In the E.U., low quality control is the least detrimental of any region, and spending for full line maintenance is fairly high. Inflatia is the opposite – no maintenance can be catastrophic, but a little maintenance goes a long way. Fixed and variable overhead expenses are currently ten percent higher in the E.U. than in the U.S., and about one-third lower in Inflatia. Fixed overhead in Japan is higher than in the U.S., and the variable overhead is comparable. • regional human resources distinctions ... In Japan, corporate relationships are more important, such as the relationships among management and both production workers and sales reps, among a firm and its suppliers and customers, and among a firm and its competitors. See Regional Production and Marketing Distinctions, above, for other related effects. A reasonable sales rep pay policy in Japan results in more productive sales reps, compared to those who are improperly paid, than in any other region. These effects are less in the E.U. and Inflatia. Minimum wage is the highest in the E.U., Japan is next highest, then the U.S., and finally, by a wide margin, Inflatia. Worker attrition is usually one-third in Japan what it is in the U.S., Inflatia is slightly higher than the U.S., and the E.U. is slightly lower. When you hire experienced workers in Japan, only about 25 percent come from other firms, compared to 50 percent in the E.U. and Inflatia, and 75 percent in the U.S. In Japan, a drop in worker wages, or firing a significant portion of the work force, lowers worker morale more than in any other region. • regional expansion distinctions ...Inflatia has the lowest barriers to entry in the form of startup costs, and Japan has the highest. Operations in the E.U. have higher general and administrative expenses than other regions, especially compared to Inflatia, which is very low. New production line construction costs are the highest in the E.U. and the lowest in Inflatia. Warehousing and storage costs are lowest in Inflatia, and highest in the E.U. In Japan, renting warehouse capacity is a more attractive option to building warehouses than in other regions. Typical VP-Regional Operations decisions include: • • • • Opening Subsidiary Operations Closing Subsidiary Operations Building Warehouse Capacity Building Assembly Lines, both Rush and Regular construction The VP-Regional Operations works closely with the CEO to determine how best to grow the company and where to locate strategic assets, and with all managers who are impacted by expansion decisions. VP-Human Resources The Human Resources Manager is responsible for hiring, firing, paying, and training your company's factory workers and sales reps. Because of language barriers, human resources can only be deployed in the region where they are hired. Factory workers Each company has a different size workforce to staff lines and repair defective finished goods. All factory workers are unionized. You are bound by collective bargaining agreements that span the entire industry, covering minimum wage, benefit package, limited hours per quarter, and possibly strike negotiations. If you need workers immediately, you can hire a limited number of skilled workers. If you can wait one quarter for the new hires to operate lines or repair warranty goods, you can hire unskilled workers as apprentices. Sales reps Each company has a different size sales force to call on customers. If you need sales reps immediately, you can hire a limited number of experienced reps to call on customers immediately. If you can wait one quarter while they serve their apprenticeship, you can hire an unlimited number of inexperienced reps. Typical VP-Human Resources decisions include: • • • • • • Hiring Inexperienced Sales Reps Hiring Experienced Sales Reps Firing Sales Reps Training Sales Reps Paying Sales Rep Salaries Paying Sales Rep Commissions • • • • • Hiring Unskilled Factory Workers Hiring Skilled Factory Workers Firing Factory Workers Training Factory Workers Paying Factory Worker Wages Employees are your company's most important resource, so treat them well and avoid high attrition. VP-External Relations The VP-External Relations is responsible for negotiating contracts with competitors. Your company can buy or sell raw materials, finished goods, production lines, warehouse space, and technical formats by contract. Often, long-term strategic alliances evolve from short-term mutual agreements. Contract negotiations may prove critical to your company’s success. When contracting, be sure to include penalty clauses to discourage both contracting parties from reneging on the deal. You should record these in writing and archive them in case litigation ensues. You may not sell finished goods at a price that is less than the seller's average unit cost (dumping). You may price other assets at whatever price the two contracting parties agree. Finished goods received from competitors are available to ship to customers in the same quarter. Similarly, raw materials received from competitors are available for use in production in the same quarter. Production lines and warehouse space are available immediately for the buyer to use. The physical facility is all that transfers, and that workers and inventory remain with the seller. You may not both buy an asset from a competitor and sell that same asset to another competitor in the same quarter. Timing problems during contract fulfillment prevent this. In Closing … So that is it for the pre-reading, except for the regional data and Quarter 12 comparative company data that follows, but we’ve only scratched the surface. When we get together in class, we will fill in the details so that you can prepare fully for your decision-making responsibilities during The Competition. IV. Regional Data – Global Tycoon® Marketing Data Sheet Customer Descriptions Customer Type Customer Number Consistency of account payment Demand Sensitivities Price sensitivity Quality sensitivity Image sensitivity* A 1 to 4 Low B 5 to 8 Medium C 9 to 12 High High Low Medium Low Medium High Medium High Low * Image sensitive customers respond highly to advertising and sales rep activities. U.S. E.U. Japan Inflatia 87% 102% 115% 96% 92% 111% 103% 94% 88% 92% 116% 104% 92% 108% 120% 80% 92% 108% 110% 90% 84% 96% 112% 108% 95% 103% 112% 90% 101% 113% 102% 88% 96% 98% 104% 102% 66% 64% 68% -65% 62% 65% 64% 61% 62% 62% -- 62% 61% 66% -67% 69% --70% 71% 70% -- 65% 64% 68% -65% 64% --62% ---- Medium Medium Large -Small Large Large Small Small Large Small -- Small Medium Small -Large Small --Large Small Large -- Medium Medium Large -Small Large --Medium ---- Seasonal Demand Factors (percent of average quarterly demand) Customer Type A [1 through 4] Season 1† multiplier 88% Season 2 multiplier 111% Season 3 multiplier 117% Season 4 multiplier 84% Customer Type B [5 through 8] Season 1 multiplier 82% Season 2 multiplier 108% Season 3 multiplier 130% Season 4 multiplier 80% Customer Type C [9 through 12] Season 1 multiplier 90% Season 2 multiplier 103% Season 3 multiplier 122% Season 4 multiplier 85% † Season 1 occurs in Quarters 13, 17, 21, 25, … Average Accounts-receivable Paid by Customers Each Quarter Customer 1 70% Customer 2 70% Customer 3 66% Customer 4 62% Customer 5 62% Customer 6 65% Customer 7 65% Customer 8 65% Customer 9 62% Customer 10 60% Customer 11 62% Customer 12 62% Relative Customer Sizes Customer 1 Customer 2 Customer 3 Customer 4 Customer 5 Customer 6 Customer 7 Customer 8 Customer 9 Customer 10 Customer 11 Customer 12 Medium Small Medium Medium Small Small Large Large Large Large Large Small Global Tycoon® Logistics Data Sheet Warehousing Costs per Cubic Foot New warehouse construction cost Quarterly cost, owned space Quarterly cost, rented space U.S. $8.00 $0.90 $2.00 E.U. €7.10 €0.80 €1.80 Japan ¥1100 ¥120 ¥260 Inflatia ₡25.00 ₡2.50 ₡6.00 Warehousing Space Requirements per Unit Raw Materials LED Display (cubic feet) 2 Processor/tuner Board (cubic feet) 1 OLED Display (cubic feet) 1.5 Finished Goods LED TV (cubic feet) 3 OLED TV (cubic feet) 2 U.S. Raw Material Supplier Quality Supplier 1 LED Display Processor/tuner Board OLED Display Supplier 2 LED Display Processor/tuner Board OLED Display Rush Supplier LED Display Processor/tuner Board OLED Display E.U. Japan 150 97 202 147 103 205 151 97 206 149 98 192 172 114 221 168 114 230 157 113 214 165 106 222 130 94 182 140 93 175 n/a n/a n/a n/a n/a n/a Raw Material Supplier Reliability (maximum, varies with days-payable policy) Defect percentage, Supplier 1 0% 0% 0% Defect percentage, Supplier 2 3% 3% 2% Defect percentage, Rush supplier 3% 3% n/a Short-ship percentage, Supplier 1 3% 3% 3% Short-ship percentage, Supplier 2 5% 5% 5% Short-ship percentage, Rush supplier 7% 7% n/a Supplier Volume Discounts Minimum Order for Discount LED and OLED Displays Processor/tuner Boards Order change for next disc’t Discount increment Maximum discount Inflatia 50,000 100,000 10,000 2.00% 30% 50,000 100,000 10,000 2.00% 30% 50,000 100,000 10,000 2.00% 30% 0% 3% n/a 3% 5% n/a 40,000 80,000 10,000 2.00% 33% Raw Material Ordering Costs Fixed charge per order U.S. E.U. Japan Inflatia $20,000 €17,600 ¥2,860,000 ₡60,000 ¥200 ¥300 ¥200 ₡2.30 ₡3.30 ₡2.30 ¥520 ¥720 ¥200 ¥600 ₡16.00 ₡6.00 ₡20.00 ₡2.00 ¥260 ¥360 ¥100 ¥300 ₡8.00 ₡3.00 ₡10.00 ₡1.00 ¥400 ¥550 ¥150 ¥450 ₡12.00 ₡4.50 ₡15.00 ₡1.50 €22 €30 ¥2,000 ¥2,800 ₡22.50 ₡30.00 €15 €13 €25 €25 ¥2,600 ¥3,600 ¥1,000 ¥3,000 ₡80 ₡30 ₡100 ₡25 €12 €10 €20 €20 ¥2,100 ¥2,900 ¥800 ¥2,400 ₡64 ₡24 ₡80 ₡20 Raw Materials Tariff and Shipping Costs, per Unit Import Tariffs LED Display, to [column] $1.00 €1.75 Processor/tuner, to [column] $2.00 €2.75 OLED Display, to [column] $1.00 €1.75 Domestic and Overseas Shipping Costs, LED Display From U.S. to [column] $2.00 €3.00 From E.U. to [column] $4.00 €1.75 From Japan to [column] $6.00 €5.00 From Inflatia to [column] $6.50 €5.00 Domestic and Overseas Shipping Costs, Processor/tuner Board From U.S. to [column] $1.00 €1.50 From E.U. to [column] $2.00 €0.88 From Japan to [column] $3.00 €2.50 From Inflatia to [column] $3.30 €2.50 Domestic and Overseas Shipping Costs, OLED Display From U.S. to [column] $1.50 €2.25 From E.U. to [column] $3.00 €1.33 From Japan to [column] $4.50 €3.75 From Inflatia to [column] $5.00 €3.75 Finished Goods Tariff and Shipping Costs, per Unit Import Tariffs LED TV, to [column] $10 OLED TV, to [column] $14 Domestic and Overseas Shipping Costs, LED TV From U.S. to [column] $15 From E.U. to [column] $20 From Japan to [column] $30 From Inflatia to [column] $33 Domestic and Overseas Shipping Costs, LED TV From U.S. to [column] $12 From E.U. to [column] $16 From Japan to [column] $24 From Inflatia to [column] $26 Note - Monetary values change as CPI changes. Values shown are for CPI = 1. Global Tycoon® Production Data Sheet U.S. E.U. Japan Inflatia 500 20% 420 10% 600 25% 550 20% 1 1 1 1 1 1 35% 25% 20% 15% 5% 100% 45% 25% 15% 10% 5% 100% 30% 25% 20% 15% 10% 100% 10 hours 56% 8 hours 50% 24 hours 47% €2,200,000 ¥370,000,000 ₡6,750,000 €28 €31 ¥4,200 ¥4,600 ₡85 ₡90 €10 €25 ¥1,400 ¥3,500 ₡35 ₡90 €75,000 €225,000 ¥10,500,000 ¥31,500,000 ₡500,000 ₡1,500,000 Assembly Line Construction and Conversion Data Regular Construction Cost Stage 1 (first quarter) $6,000,000 Stage 2 (second quarter) $2,000,000 Rush line construction cost $16,000,000 Convert line to other product $2,000,000 Shutdown hours for converting line 280 €5,300,000 €1,770,000 €14,154,000 €1,770,000 310 ¥800,000,000 ¥265,000,000 ¥2,130,000,000 ¥264,000,000 270 ₡18,000,000 ₡6,000,000 ₡48,000,000 ₡6,000,000 550 Technical Format Conversion Costs (DVD only) OLED TV production lines, per line $500,000 OLED TV inventory, per FG unit $50 Shutdown hours to convert line or inventory 0 €500,000 €50 0 ¥50,000,000 ¥5,000 0 ₡1,500,000 ₡150 0 Allowable Worker Data Regular quarterly hours Allowable overtime percentage Raw Material Requirements to Produce One Finished Good Number of display assemblies* 1 Number of processor-tuner assemblies* 1 * does not include waste rate Future Returns of Defective Finished Goods, for Warranty Repair Percentage returning next quarter 35% Percentage returning in 2 quarters 25% Percentage returning in 3 quarters 20% Percentage returning in 4 quarters 15% Percentage returning in 5 quarters 5% Total to be returned 100% Warranty Repair Requirements Hours required to repair unit Repairs requiring drive assemblies 7 hours 52% Fixed and Variable Production Overhead Costs Fixed production overhead $2,500,000 Variable production overhead Per LED TV $32 Per OLED TV $35 Quality Control and Maintenance Guidelines Quality Control, per unit produced Minimum effective $10 Maximum effective $25 Maintenance, per line* Minimum effective $100,000 Maximum effective $300,000 * Includes all lines that are active, idle, and under-construction Note - Monetary values change as CPI changes. Values shown are for CPI = 1. Global Tycoon® Human Resource and Regional Operations Data Sheet U.S. Sales Rep Hiring, Firing, and Training Costs Experienced Reps Hiring cost per rep $30,000 Hiring limit, per company, per quarter 1,000 Training cost per rep $9,500 Training hours required per rep 0 Maximum training benefit, quarters 4 Inexperienced reps Hiring cost per rep $10,000 Hiring limit, per company, per quarter unlimited Firing severance cost per rep $10,000 E.U. Japan Inflatia €26,550 1,000 €8,360 0 4 ¥3,560,000 1,000 ¥1,358,500 0 4 ₡9,000 1,000 ₡28,500 0 4 €8,850 unlimited €8,850 ¥1,190,000 unlimited ¥1,190,000 ₡3,000 unlimited ₡3,000 Production Worker Hiring, Firing, and Training Costs Skilled Workers Hiring cost per worker $10,000 Hiring limit, per company, per quarter 1,000 Training cost per worker $5,000 Training hours required per worker 100 Unskilled Workers Hiring cost per worker $1,000 Hiring limit, per company, per quarter unlimited Firing severance cost per worker $2,500 Legal minimum hourly wage $5.25 Hourly benefits, % of wage 40% Overtime pay premium 50% €8,850 1,150 €3,872 105 ¥1,200,000 875 ¥181,967 110 ₡15,000 3,500 ₡4,294 85 €885 unlimited €2,210 €4.00 55% 40% ¥130,000 unlimited ¥430,000 ¥600.00 45% 35% ₡1,500 unlimited ₡7,500 ₡4.75 65% 70% Start-up Capitalization and Organizational Expense New region, start-up capitalization n/a Initial organizational expense n/a €13,300,000 €745,000 ¥2,800,000,000 ¥168,000,000 ₡30,000,000 ₡2,000,000 Quarterly General & Administrative Expenses Sales-only (no lines) $1,000,000 Sales and production – 1 line $2,000,000 Sales and production – 4 lines $3,000,000 Sales and production – 100+ lines $4,000,000 €1,000,000 €2,000,000 €3,000,000 €4,000,000 ¥133,000,000 ¥266,000,000 ¥400,000,000 ¥533,000,000 ₡2,400,000 ₡4,800,000 ₡7,200,000 ₡9,600,000 €10,000 50% to 200% ¥144,000 50% to 200% ₡30,000 50% to 200% 3% 3% 3% 3% +2% 5% 2% to 7% 0% +2% 5% +2% 5% +2% 5% Error Fees First Errors report error, per category Premium for continual errors $10,000 50% to 200% Securities and Exchange Commission Fees Change-fee, % transaction value change Investment Banking Fees Emergency ST debt, interest premium LTD early-retirement, % transaction value Stock transaction, % transaction value Dividend transaction Regional Tax Rates Corporate income tax rate 34% 42% 53% 45% Dividend tax, shareholder distributions 10% ---Dividend tax, cash transfers to Parent* -10% 10% 10% * U.S. offers Foreign Tax Credit on some cash transfers from subsidiaries to Parent. See ‘Corporate Taxes’ in the manual for details. Note - Monetary values change as CPI changes. Values shown are for CPI = 1. V. Comparative Company Data at the End of Quarter 12 (Excel CSV format) COMPARATIVE FINANCIAL DATA (all values in $1,000,000, not all accounts shown) United States (Parent) Balance Sheets Cash equivalents Accounts Receivable Total Inventory Total Current Assets Net Property Plant & Equip. Total Assets Total Current Liabilities Total Liabilities Common Equity Retained Earnings Total Equity Comp#1 33 16 28 77 21 103 Comp#2 13 6 7 27 4 133 Comp#3 0 7 15 22 8 123 Comp#4 14 9 17 40 8 88 Comp#5 6 7 16 28 8 103 Comp#6 0 13 16 31 8 180 Comp#7 0 15 58 72 5 146 4 4 1 1 27 27 1 1 2 2 42 42 70 70 150 -51 99 109 15 132 131 -34 96 136 -32 86 113 -27 101 177 -43 137 122 -24 76 United States (Parent) Income Statements Sales revenue Cost of Goods Sold [COGS] Gross Margin Expenses & Amortizations EBIT Net Income for Common Stock Operational Cash Flow Comp#1 40 -20 20 -21 Comp#2 18 -11 7 -10 Comp#3 20 -11 9 -14 Comp#4 24 -12 12 -17 Comp#5 21 -11 11 -20 Comp#6 34 -17 18 -15 Comp#7 40 -30 10 -15 -1 -1 1 -3 -3 1 -5 -5 -1 -5 -5 -6 -9 -9 -15 2 0 13 -5 -6 -4 Comp#1 33 16 28 77 21 103 Comp#2 78 18 24 120 17 136 Comp#3 19 18 73 110 18 128 Comp#4 30 16 28 74 13 89 Comp#5 41 14 35 90 16 106 Comp#6 101 33 41 175 17 196 Comp#7 0 18 63 81 13 97 4 4 5 5 32 32 2 2 5 5 58 58 21 21 150 -51 99 109 23 132 131 -35 96 136 -50 86 113 -12 101 177 -40 137 122 -46 76 Comp#1 40 -20 20 -21 Comp#2 47 -24 23 -20 Comp#3 53 -26 27 -25 Comp#4 41 -21 20 -26 Comp#5 47 -23 23 -39 Comp#6 96 -38 59 -31 Comp#7 48 -28 20 -23 -1 -1 1 3 1 2 2 -2 0 -7 -7 -5 -15 -15 -14 28 12 14 -4 -4 -3 Consolidated Balance Sheets Cash equivalents Accounts Receivable Total Inventory Total Current Assets Net Property Plant & Equip. Total Assets Total Current Liabilities Total Liabilities Common Equity Retained Earnings Total Equity Consolidated Income Statements Sales revenue Cost of Goods Sold [COGS] Gross Margin Expenses & Amortizations EBIT Net Income for Common Stock Operational Cash Flow COMPARATIVE MARKETING DATA Comp#1 Number of Sales Representatives US 166 EU -JA -IN -- Comp#2 Comp#3 Comp#4 Comp#5 Comp#6 Comp#7 66 72 --- 145 -136 -- 206 --81 254 300 --- 111 -209 -- 166 --72 17.9 16.3 --- 23.1 -16.5 -- 27 --17.6 24.2 30.6 --- 26.1 -17.4 -- 16.5 --14.4 37,039 ---- 31,302 28,571 --- 25,112 -3,350,265 -- 28,091 --87,626 28,322 23,066 --- 28,253 -3,436,269 -- 27,679 --92,143 Product Focus, LED TV % / OLED TV % US 100/0 EU -JA -IN -- 100/0 100/0 --- 100/0 -100/0 -- 50/50 --50/50 50/50 50/50 --- 100/0 -50/50 -- 100/0 --100/0 135 180 --- 214 -182 -- 180 --163 186 208 --- 180 -148 -- 202 --210 0 0 --- 0 -0 -- 236 --234 225 258 --- 0 -278 -- 0 --0 1,266 1,161 --- 913 -131,018 -- 1,084 --3,086 1,118 1,061 --- 1,123 -196,272 -- 971 --2,778 0 0 --- 0 -0 -- 1,063 --3,086 1,169 1,067 --- 0 -198,255 -- 0 --0 11 23 --- 20 -23 -- 16 --35 17 51 --- 19 -19 -- 27 --40 0 0 --- 0 -0 -- 32 --67 34 84 --- 0 -43 -- 0 --0 Sales Rep Experience (quarters-equivalent) US 18.1 EU -JA -IN -Sales Rep Compensation US (in $s) EU (in €s) JA (in ¥s) IN (in Çs) LED (Hi-def) TV Perceived Quality US 193 EU -JA -IN -OLED (Tru-def) TV Perceived Quality US 0 EU -JA -IN -LED (Hi-def) TV Price (CPI adjusted) US (in $s) 864 EU (in €s) -JA (in ¥s) -IN (in Çs) -OLED (Tru-def) TV Price (CPI adjusted) US (in $s) 0 EU (in €s) -JA (in ¥s) -IN (in Çs) -LED (Hi-def) TV Orders (in 1,000s) US 44 EU -JA -IN -OLED (Tru-def) TV Orders (in 1,000s) US 0 EU -JA -IN -- COMPARATIVE PRODUCTION DATA Comp#1 Comp#2 Comp#3 Comp#4 Comp#5 Comp#6 Comp#7 11.75 12.24 --- 16.59 -2,260 -- 19.36 --15.75 13.83 14.53 --- 16.23 -2,067 -- 19.5 --22.12 43 ---- 7 18 --- 20 -25 -- 10 --7 8 8 --- 17 -11 -- 10 --23 LED TV Finished Goods (in 1,000s) US EU JA IN 0 ---- 0 0 --- 0 -63 -- 0 --0 0 0 --- 3 -0 -- 60 --0 OLED TV WIP (in 1,000s) US EU JA IN 0 ---- 0 0 --- 0 -0 -- 11 --8 9 9 --- 0 -12 -- 0 --0 OLED TV Finished Goods (in 1,000s) US EU JA IN 0 ---- 0 0 --- 0 -0 -- 0 --0 0 0 --- 0 -0 -- 0 --0 Completed LED (Hi-def) TV Assembly Lines US 5 EU -JA -IN -- 1 3 --- 2 -2 -- 1 --1 1 1 --- 2 -1 -- 1 --3 Completed OLED (Tru-def) TV Assembly Lines US 0 EU -JA -IN -- 0 0 --- 0 -0 -- 1 --1 1 1 --- 0 -1 -- 0 --0 LED TV Line Speed (units/hour/line) US 17.9 EU -JA -IN -- 13.7 14.9 --- 20.3 -22.2 -- 20.6 --13.3 17.1 20.4 --- 17.3 -19.2 -- 20.2 --14.7 OLED TV Line Speed (units/hour/line) US 16.6 EU -JA -IN -- 14.2 15.5 --- 20.5 -22 -- 22 --14.2 17.8 21.2 --- 19 -20.9 -- 20.2 --14.6 Wages and Benefits (per hour, CPI adjusted) US ($) 14.52 EU (€) -JA (¥) -IN (Ç) -LED TV WIP (in 1,000s) US EU JA IN COMPARATIVE STOCK OUT DATA Minimum Raw Material Level in Quarter 12 Comp#1 Comp#2 Comp#3 Comp#4 Comp#5 Comp#6 Comp#7 US LED Displays Processor/tuners OLED Displays 15,007 90,276 0 6,917 4,262 0 2,432 16,439 0 14,061 31,900 19,909 7,787 15,069 5,423 3,913 19,676 0 10,423 21,721 0 EU LED Displays Processor/tuners OLED Displays ---- 29,751 39,559 0 ---- ---- 2,792 28,248 5,073 ---- ---- JA LED Displays Processor/tuners OLED Displays ---- ---- 7,552 46,304 0 ---- ---- 6,190 26,279 12,792 ---- IN LED Displays Processor/tuners OLED Displays ---- ---- ---- 11,055 4,079 10,621 ---- ---- 9,951 50,991 0 Expected Raw Material Surplus in Quarter 13 (based on Quarter 12 usage rates) Comp#1 Comp#2 Comp#3 Comp#4 Comp#5 Comp#6 Comp#7 US LED Displays Processor/tuners OLED Displays 60,992 42,316 0 69 8,628 0 34,172 14,974 0 2,677 7,711 6,014 2,182 9,686 11,814 25,605 3,182 0 -690 9,901 0 EU LED Displays Processor/tuners OLED Displays ---- 8,714 18,455 0 ---- ---- 12,204 8,432 12,981 ---- ---- JA LED Displays Processor/tuners OLED Displays ---- ---- 35,667 17,574 0 ---- ---- 9,214 1,229 4,177 ---- IN LED Displays Processor/tuners OLED Displays ---- ---- ---- 2,917 25,429 784 ---- ---- 33,057 24,828 0 MICRO THEORY versus STRATEGIC POSITIONING (all monetary amounts expressed in local currency) Orders / Capacity Actual Price Micro Price Move Price / Quality Value (8=Best) 0.813 1.304 0.83 1.272 1.689 0.903 2.193 987 1,445.96 1,042.90 1,238.33 1,276.67 1,281.91 1,108.63 Decrease Increase Decrease Increase Increase Decrease Increase 5.117 8.102 4.878 6.491 6.475 6.607 5.49 7 2 8 4 5 3 6 2.439 3.172 1,213.52 1,335.32 Increase Increase 5.152 5.668 8 7 European Union LED TVs Europe's Best BiCont'l Products OLED TVs BiContinental Products 1.098 5.366 1,337.15 1,222.13 Increase Increase 6.865 5.888 7 8 8.593 1,228.95 Increase 4.756 8 Japan LED TVs Internat'l Amalg. Pacifica Hi-Fi OLED TVs Pacifica Hi-Fi 0.698 1.303 141,635 212,177 Decrease Increase 777.109 1,185.49 8 7 2.723 214,321 Increase 771.899 8 Inflatia LED TVs BraZZy Musica Rhythm Systems OLED TVs BraZZy Musica 3.949 1.363 4,900.11 4,410.70 Increase Increase 26.696 21.05 7 8 7.188 4,900.11 Increase 20.921 8 United States LED TVs Compact Products Europe's Best Internat'l Amalg. BraZZy Musica BiCont'l Products Pacifica Hi-Fi Rhythm Systems OLED TVs BraZZy Musica BiCont'l Products MINIMUM ALLOWABLE BIDS, all values in $ Company Number and Name 1. Compact Products 2. Europe's Best 3. Internat'l Amalg. 4. BraZZy Musica 5. BiCont'l Products 6. Pacifica Hi-Fi 7. Rhythm Systems Book Value Debt Minimum Bid Min. Bid + 7% 99,438,662 131,857,126 96,143,407 86,494,105 100,874,604 137,119,227 65,526,699 0 0 23,794,787 0 0 39,963,323 6,299,944 99,438,662 131,857,126 96,143,407 86,494,105 100,874,604 137,119,228 65,526,699 106,399,368 141,087,125 102,873,446 92,548,693 107,935,827 146,717,574 70,113,568