Fins Tanaka

Tanaka

...Committed to Quality, Excellence and Building Relationships

PRE-NEGOTIATION STRATEGY REPORT

Prelude

Over the years, Tanaka has become a name synonymous with quality, excellence, and

dynamism. With a humble beginning in the city of Tokyo, we have built ourselves as a strong,

respectable, and successful electronics corporation in Japan. We are one of the leading

manufacturers and exporters of microanalyzers with a world market share of 20%. With the

objective of expanding our global reach and maintaining our competitive position, we are

building strategies to invest in the emerging markets of the Exotican continent, with the primary

focus being on the countries of East Tropicalia, West Tropicalia, and Paradiso.

We, the Board of Directors of Tanaka, are proud to present our Pre-Negotiation Strategy Report.

Intended End-Game Position

Broadly speaking, our intended end game position is based on the five mutually

supporting foundations with respect to the Exotica market. First, we intend to

capture a 50% market share of the microanalyzer market in Exotica. Secondly,

we will take advantage of our internal efficiencies in microanalyzers production

in conjunction with the efficiencies gained by a transnational value chain

structure in order to further reduce costs and increase margins.

The following crucial factors have been analyzed to provide a basis for our strategy:

Microanalyzer Industry and Globalization:

Local Global Driver Global

Market

Cost

Government

Competition

Third, microanalyzers are a relatively small portion of our overall business (10% of sales), so

while anticipated sales growth in this product line is significant, its largest impact is expected to

serve as a brand leader for our other product lines. Fourth, we need to acquire expertise in the

character of business activities such as production and marketing in the specific emerging

markets. Finally, we recognize that our microanalyzer is a value product and as such it is well

positioned to compete with the more leading edge but correspondingly lower profit margin

products in emerging markets which tend to be more value conscious.

More specifically, we are looking to:

�� Establish and operate manufacturing plants of microanalyzers in the emerging markets of

Tropicalia and Paradiso through a joint venture with our local distributors. This will allow

for an efficient transnationally-structured value chain with local production and distribution

along with other activities which can be aligned in a similar fashion;

�� These savings along with our existing efficiencies will allow for lower price points while

maintaining our existing margins;

�� Lower price points will allow us to aggressively push our microanalyzers into Tropicalia,

Paradiso and the Exotica region. Note that our most direct competitor is Eurodata, which

has a product technologically on par with ours but with a higher cost structure.

Megatronics, on the other hand, has a technological lead but they too suffer from lower

margins. This confluence of circumstance gives us a unique opportunity in the Exotican

market. By enhancing value while maintaining quality and margins, we can capture market

share from both corporations;

�� The expected Exotican market demand for microanalyzers is 180,000 units six years from

now, with an aggressive but reasonable projection of a 50% market share yielding 90,000

units annually;

�� Our overall corporate position and brand recognition will be enhanced in the rapidly

growing markets of Exotica via the extension of our brands through the joint ventures and

contractual agreements. Thus, our regional sales in non-microanalyzer product lines would

be expected to grow in conjunction with our increased brand recognition generated by the

microanalyzer;

�� Tax incentives and import duty relief have a significant impact upon margins and the

ability to achieve a lower price point. Therefore, it is critical to that our rates are at least as

low as Eurodata and Megatronics. This is required to ensure our ability to implement the

cost leader strategy. Moreover, due to expected ramping of sales over time, rates starting

low and increasing with time are highly undesirable. Instead, either a constant low rate or a

higher initial rate decreasing with increased sales is desirable. Our target tax rate is 5%,

and regional import duties of 0% along with a non-regional rate of 6%. The target dividend

tax rate is 10%;

�� The target for technology license fees will