The most attractive way to reduce or eliminate the impact of paying tariffs on pairs imported to a company’s distribution warehouse in Europe-Africa is to a. pursue a strategy of selling footwear to retailers in Europe-Africa at a wholesale price of $39 per pair or less–no import tariffs have to be paid on branded pairs shipped to footwear retailers in Europe-Africa when the wholesale price is below $40 per pair. b. lower the S/Q rating on all pairs sold in Europe-Africa to 2 stars or less–no tariffs have to be paid on branded footwear having an S/Q rating of 2-stars or below. c. pursue a strategy of selling fewer pairs in Europe-Africa than rival companies, which will then keep the company’s costs for import tariffs in Europe-Africa lower than those of rivals and give the company a competitive advantage based on low tariff costs on its sales in Europe-Africa. d. build a production facility in Europe-Africa and then expand it as may be needed so that the company has sufficient capacity to supply all (or at least most) of the branded and private label pairs the company intends to try to sell in that geographic region. e. withdraw from the business of selling either branded or private-label footwear in the Europe Africa region.
The Correct Answer and Explanation is:
The correct answer is:
d. build a production facility in Europe-Africa and then expand it as may be needed so that the company has sufficient capacity to supply all (or at least most) of the branded and private label pairs the company intends to try to sell in that geographic region.
Explanation:
Tariffs are taxes imposed on imported goods. Companies that import footwear into the Europe-Africa region are subject to these tariffs, which increase the cost of doing business and reduce profit margins. The most effective and sustainable way to eliminate or reduce these costs is to avoid importing goods altogether—and that is exactly what option D suggests.
By building a production facility within the Europe-Africa region, the company would manufacture the shoes locally, thereby bypassing the need to import them. As a result, the company avoids paying import tariffs entirely, since tariffs are only applied to goods that are transported across borders into the region.
This strategy provides several advantages:
- Cost Savings: Avoiding import tariffs can significantly lower production costs, making the company more competitive in terms of pricing.
- Speed and Efficiency: Local production shortens lead times for distribution, allowing the company to be more responsive to market demand.
- Capacity for Growth: Expanding the facility as needed allows the company to scale its operations based on sales volume.
- Strategic Positioning: Establishing a physical presence in the region can improve relationships with local retailers and consumers, potentially increasing market share.
In contrast, the other options (A through C and E) involve restrictive or less effective methods—such as artificially lowering wholesale prices or quality, which may damage brand perception, or simply selling less, which reduces potential revenue. Option E suggests abandoning the market entirely, which is not a growth-oriented solution.
Thus, building and expanding local production capacity is the most attractive and strategic approach to eliminating the impact of tariffs in the Europe-Africa region