The company is currently selling the GPS system for $2000 with a cost of goods sold at 48% of sales $960. Investing in China offers a 50% reduction in hardware cost and a 6% reduction in software cost which means a total cost reduction of 56%. If the company invests in China the total cost will be $422.4 which means 21.12% and an increment in gross profit of $537.6.
Recommendations on the Choice of Country
The company should invest in China rather than India as there is more information available in terms of reduction in hardware cost in China and no such information could be obtained for India. Even considering the cost reduction in software, investment in China offers a reduction of 50% whereas India offers only a reduction of 32%. Another element to be considered is the political instability in India as this would affect the way of doing business.
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