Reference no: EM131380855

Damar International
Damar International, a fledgling firm importing handicrafts of chiefly Indonesian origin, was established in Burke, Virginia, a suburb of Washington, DC. Organized as a general partnership, the firm is owned entirely by Dewi Soemantoro, its president, and Ronald I. Asche, its vice president. Their part-time, unsalaried efforts and those of Soemantoro's relatives in Indonesia constitute the entire labor base of the firm. Outside financing has been limited to borrowing from friends and relatives of the partners in Indonesia and the United States. Damar International estimates that its current annual sales revenues are between $20,000 and $30,000.

Although the firm has yet to reach the break-even point, its sales revenues and customer base have expanded more rapidly than anticipated in Damar's original business plan. The partners are generally satisfied with results to date and plan to continue to broaden their operations. Damar International was established to capitalize on Soemantoro's international experience and contacts. As the daughter of an Indonesian Foreign Service officer, Soemantoro spent most of her youth and early adulthood in western Europe and has for the past 18 years resided in the United States. Her immediate family, including her mother, now resides in Indonesia.

In addition to English and Malay, Soemantoro speaks French, German, and Italian. Although she has spent the past four years working in information management in the Washington area, first for MCI and currently for Records Management Inc., her interest in importing derives from the six years she spent as a management consultant. In this capacity, she was frequently called on to advise clients about importing clothing, furniture, and decorative items from Indonesia.

At the urging of family and friends, she decided to start her own business. While Soemantoro handles the purchasing and administrative aspects of the business, Asche is responsible for marketing and sales. Damar International currently imports clothing, highquality brassware, batik accessories, wood carvings, and furnishings from Indonesia. All of these items are handcrafted by village artisans working in a cottage industry. Damar International estimates that 30 percent of its revenues from the sale of Indonesian imports are derived from clothing, 30 percent from batik accessories, and 30 percent from wood carvings, with the remainder divided equally between brassware and furnishings. In addition, Damar markets in the eastern United States sell comparable Thai and Philippine handcrafted items imported by a small California firm. This firm in turn markets some of Damar's Indonesian imports on the West Coast. Most of Damar's buyers are small shops and boutiques. Damar does not supply large department stores or retail chain outlets. By participating in gift shows, trade fairs, and handicraft exhibitions, the firm has expanded its customer base from the Washington area to many locations in the eastern United States.

In supplying small retail outlets with handcrafted Indonesian artifacts, Damar is pursuing a niche strategy. Although numerous importers market similar massproduced, manufactured Indonesian items chiefly to department stores and chain retailers, Damar knows of no competitors that supply handcrafted artifacts to boutiques. Small retailers find it difficult to purchase in sufficient volume to order directly from large-scale importers of massproduced items. More importantly, it is difficult to organize Indonesian artisans to produce handcrafted goods in sufficient quantity to supply the needs of large retailers. Damar's policy is to carry little if any inventory. Orders from buyers are transmitted by Soemantoro to her family in Indonesia, who contract production to artisans in the rural villages of Java and Bali.

Within broad parameters, buyers can specify modifications of traditional Indonesian wares. Frequently, Soemantoro cooperates with her mother in creating designs that adapt traditional products to American tastes and to the specifications of U.S. buyers. Soemantoro is in contact with her family in Indonesia at least once a week by telex or phone to report new orders and check on the progress of previous orders. In addition, Soemantoro makes an annual visit to Indonesia to coordinate policy with her family and maintain contacts with artisans. Damar also fills orders placed by Soemantoro's family in Indonesia. The firm, in essence, acts as both an importer and an exporter despite its extremely limited personnel base. In this, as well as with its source of financing, Damar is highly atypical. The firm's great strength, which allows it to fill a virtually vacant market niche with extremely limited capital and labor resources, is clearly the Soemantoro family's nexus of personal connections.

Without the use of middlemen, this single bicultural family is capable of linking U.S. retailers and Indonesian village artisans and supplying products that, while unique, are specifically oriented to the U.S. market. Damar's principal weakness is its financing structure. There are limits to the amount of money that can be borrowed from family and friends for such an enterprise. Working capital is necessary because the Indonesian artisans must be paid before full payment is received from U.S. buyers.

Although a 10 percent deposit is required from buyers when an order is placed, the remaining 90 percent is not due until 30 days from the date of shipment F.O.B. Washington, DC. Yet, the simplicity of Damar's financing structure has advantages: To date, it has been able to operate without letters of credit and their concomitant cost and paperwork burdens. One major importing problem has been the paperwork and red tape involved in U.S. customs and quota regulations. Satisfying these regulations has occasionally delayed fulfillment of orders. Furthermore, because the Indonesian trade office in the United States is located in New York rather than Washington, assistance from the Indonesian government in expediting such problems has at times been difficult to obtain with Damar's limited personnel.

For example, an order was once delayed in U.S. customs because of confusion between the U.S. Department of Commerce and Indonesian export authorities concerning import stamping and labeling. Several weeks were required to resolve the problem. Although Damar received regulatory information directly from the U.S. Department of Commerce when it began importing, its routine contact with the government is minimal because regulatory paperwork is contracted to customs brokers. One of the most important lessons that the firm has learned is the critical role of participating in gift shows, trade fairs, and craft exhibitions. Soemantoro believes that the firm's greatest mistake was not attending a trade show in New York.

By connecting with potential buyers, both through trade shows and "walk-in scouting" of boutiques, Damar has benefited greatly from helpful references from existing customers. Buyers have been particularly helpful in identifying trade fairs that would be useful for Damar to attend. Here too, the importance of Damar's cultivation of personal contacts is apparent. Similarly, personal contacts offer Damar the possibility of diversifying into new import lines. Through a contact established by a friend in France, Soemantoro is currently planning to import handmade French porcelain and silk blouses. Damar is worried about sustained expansion of its Indonesian handicraft import business because the firm does not currently have the resources to organize largescale cottage-industry production in Indonesia. Other major concerns are potential shipping delays and exchange rate fluctuations.

Questions
1. Evaluate alternative expansion strategies for Damar International in the United States.

2. Discuss Damar's expansion alternatives in Indonesia and France and their implications for the U.S. market.

3. How can Damar protect itself against exchange rate fluctuations?

4. What are the likely effects of shipment delays on Damar? How can these effects be overcome?