EyeCU

Eva Shen, Cleo Lu, John Rose, Justin Lee, Meg Goh

BMGT 477- Section 0201

Table of Contents

I. Executive Summary

Competition

Strategies/Competencies

II. Terms of Sale

III. Financing Requirements

Terms of Payment

Financing

Duties and Tariffs

Sourcing

Cost of Air Transport

IV. Ancillary Services

Marketing

Transportation

IT System

Documentation

Appendix

Works Cited

I. Executive Summary

EyeCU, is an American manufacturer of high-definition headsets designed to help those

with macular degeneration regain their eyesight. Accounting for 5% of blindness globally,

macular degeneration is one of the leading causes of blindness in the world. While the headset

does not cure users of their condition, it restores most of their vision, facilitating their daily

routine and improving their quality of life.

Our headquarters is located in Bethesda, Maryland. It is where we will maintain our

business network, manage finances, product development, product assembly, inventory, and

export services. We hope to expand our operations further and export our product to countries

across the globe. Since individuals above the age of 65 are most affected, we will export to

countries with aging populations. Another consideration is that the headsets are a fairly high

priced medical device (at ~$10,000 a pair), so we will be targeting wealthier populations. Thus

our plan is to export to South Korea. The our buyer and distributor is the College of Medicine at

the Korea University (CMKU). Our sales operations will also be supported by the Asan

Foundation, a philanthropic organization, to help us reach potential customers.

We have a competitive advantage as the pioneer of this new technology since there are

currently no comparable products in the market. This is also evident as it will be hard to imitate

the advanced technology used to create this product. With no alternative products in the market

that can reach the same effect as ours, our headset is rare and valuable for those who wish to

regain their sight. To ensure our success, we will constantly improve our product and maintain

our position as the top manufacturer of high definition headsets.

Strategies/Competencies

For the success of our company, we have implemented many strategies to facilitate our

operations in research and design, manufacturing and inventory management, exporting, and

transport. To save time and resources on research, we formed a strategic partnership with NIH

Services, a government-funded agency that functions as a subsidiary to the National Institute of

Health (NIH). NIH Services grants companies access to a database of information and data that

is necessary for developing their product at the cost of a copyright fee. In our case, we will be

paying NIH Services 10% of the revenue from every product sold in return for the usage of the

research findings from their database.

Forming partnerships is also our strategy for simplifying manufacturing and inventory

management. We conduct product development and testing in our headquarter, before sending

our finished designs to our contract manufacturer, Cadence Inc., a medical device supplier.

Located in Staunton, Virginia, Cadence Inc. specializes in custom designs and medical device

components. This partnership lessens our burden as Cadence Inc will take care of managing raw

material inventory, and production. The finished products will be delivered to Bethesda via UPS

by truck from Staunton.

We will also be partnering with United Bank to work on our exporting operations. They

will be helping us with managing finances, as well as preparing export documents. Expanding

from domestic to international sales includes many complications, thus we will need additional

assistance in this respect.

The strategy that ties all our partnerships together is our location. By establishing our

headquarter in Bethesda, we are in close proximity to our partners: NIH Services, United Bank,

and Cadence Inc. This facilitates communication, as well as transport of materials and

documents between each facility. Bethesda is also close to several nearby airports, has a mature

infrastructure, and is a thriving business district where companies of all industries can be found.

This allows for smoother transit for our domestic operations as well as our export activities.

II. Terms of Sale

EyeCU uses groundbreaking technology and the latest research to produce high definition

headsets for individuals suffering from macular degeneration. As the headsets are a recent

product that required significant development and innovation, we want to have the most control

over its production and sales around the world. For this reason, our terms of sale will be Delivery

at Place (DAP) Incoterm strategy. Using a DAP Incoterm agreement, we will export small

packets of our product by air to our buyer/distributor, CMKU.

As the exporter, we are responsible for the packing and transportation costs as well as

clearing goods for export. We will also pay for insurance as our cargo is valuable intellectual

property. Necessary documents for customs clearance will be provided to CMKU. We will

arrange for freight forwarders from the unloading point in the importing country, and cover

unloading costs as well as import duties to ensure a smooth delivery to CMKU.

As previously stated, our headquarters in Bethesda will be the location of the majority of

our operations. We will also be managing our export procedures in Bethesda. Our products will

be packaged in-house once we receive them from Cadence Inc. and prepared in our office for air

shipping to South Korea.

III. Financing Requirements

Terms of Payment

EyeCU will ask CMKU for a Letter of Credit for secure payment (see Exhibit A). While

engaging in international transactions, EyeCU wants to make sure that there is no issue when it

comes to the payment we receive from our buyers. EyeCU as mentioned before, is selling

directly to hospitals and clinics. As the manufacturer of the products we want to make sure we

get paid as soon as the shipment is made. CMKU will apply for a Letter of Credit at the Second

Seoul Bank located in Seoul, South Korea. CMKU already has approval for financing from

Second Seoul Bank.

Once the L/C has been issued it will be sent to United Bank, headquartered in

Washington D.C.. United will then review the L/C and forward it to us, where it will undergo

further evaluation. Once EyeCU makes sure the document is legitimate, we will then proceed to

produce and ship our eyeglasses. In order to receive payment our company will have to meet a

set of requirements, These requirements are as follows: ship the product by the 1st of every

month; use air transportation; be subjected to an inspection of goods before transport;

transporting product to the designated airport (Seoul Inchon ICN); as well having necessary

documentation in the form of an air waybill. After meeting these requirements, our firm will

know it is getting paid, as Second Seoul Bank is legally binded to payment. In the case that our

product is late, we will provide extra product for free and amend the L/C accordingly.

By engaging in air freight, we will be using an air transport document called an air

waybill (AWB). The air waybill will include the basic conditions and limitations of liability,

commodity description, shipping instructions and transport charges.

Financing

Our firm is going to leverage medical grants as seed money to help us with initial upstart

funding. EyeCU will use both public and private grants. We plan on receiving public grants from

the National Institute of Health, a government agency, as well as private grants from foundations

such as Aetna Foundation and Doris Duke Charitable Foundation . Our firm is also being

supported by a the Asan Foundation, a South Korean philanthropic association which focuses on

connecting people with the aid they need. Through grant funding, EyeCU is hoping to expand

research and development objectives. As a small company engaging in international business, we

are also going to partner with United Bank in Bethesda, Maryland to help us fund our endeavors.

United is based out of Washington D.C. and we believe the close proximity will make the overall

partnership more effective and efficient. United also has historically practiced safe and secure

banking practices.

Duties and Tariffs

Our product carries the six digit product code of 900490. This is the code for spectacles,

goggles and the like. The United States and South Korea currently have a Free Trade Agreement

(FTA) in place. The FTA between the U.S. and South Korea is currently being improved, which

will open the country up more to American products, such as EyeCU’s headsets. However, there

will be duty expenses when importing into South Korea. South Korea has a flat 10 percent Value

Added Tax (VAT) on all imports. There is a special excise tax which falls anywhere from 10 to

20 percent on luxury items and durable goods, but our eyeglasses are not to be found under either

category. The flat 10 percent (VAT) has to be paid in Korean Won within 15 days after the

goods have cleared customs.

Sourcing

The target production for our manufacturing operations is approximately 200 pairs of

headsets a month. This number will change based on perceived demand levels, derived from past

sales, marketing tactics, and market analysis. As previously stated, we rely on contract

manufacturers to make the parts of the headset and only have one supplier, Cadence Inc., due to

the low level of production. Cadence Inc. uses its existing suppliers to procure raw materials and

components to produce our headset’s components. The components include semiconductors for

our electronics as well as injection molding for our external-housing. In total, factoring in

shipping from factory, semiconductors, external-housing and quality assurance, our headset costs

about $1050 per pair to manufacture.

Given our low volume, we project our inventory to be minimal, thus we are to store our

product within the confines of our headquarters without the need for additional warehousing. Our

office consists of over 3500 square feet of space, so several air containers worth of merchandise

can easily be stored without hassle. The merchandise will then be prepared for shipping, with all

label application, instructions and packaging being arranged within each unit box. Label and

instruction production will be produced in-office with our own printer and paper. Packaging will

consist of high strength bubble wrap for about $40 a roll from UPS, with each shipment using

about one roll. The boxes themselves are generic cardboard, being sourced from UPS for $1 per

box, for a total of $200 per shipment.

Costs of Air Transportation

EyeCU views air transportation as the safest and fastest option for our advanced product.

We believe we already have the competitive advantage when it comes to product differentiation

and technology. By engaging in air freight, we bypass water travel time as well as ensure our

products are shipped in a more secure and reliable method.

The headsets will be packaged in individual boxes and shipped in a UPS L11 Container

with 200 boxes per container. Each box will be approximately 8 in x 4 in x 4 in and weigh

about .25 pounds. Our unit boxes will be put into several larger boxes for ease of transport from

ground to container and vice versa.Thus each container will be weighed in at approximately 50

pounds and measured as 14.8 cu. Ft. The L11 is one of UPS’s smallest containers for dedicated

air transport and holds up to 253 cu. Ft of content which is enough for our headsets. We plan to

ship around 200 headsets at a time, giving us an estimated cost of $1210 per shipment. This cost

will be defrayed as it will be included in the price.

IV. Ancillary Services

Marketing

Our marketing efforts will be made directly to hospitals and research institutions in South

Korea. We will work with our current clients by updating them regularly on the research and

innovations we are making to our product based on their feedback. We will also employ direct

marketing practices including virtual brochures and booklets that will be sent to CMKU. Due to

our position in the market as the first manufacturer of high definition headsets, we can expect a

high response rate from optometry practices, eye surgeons, and other specialists in the field

looking to provide the best for their patients. We will also provide 24/7 online support to our

clients to maintain strong relationships with them.

As other companies may enter the market to compete with us, we plan to launch a referral

program in the future to combat imitators. Hospitals and institutions that refer us to new clients

will be able to receive a discount on their next batch of headsets, and we will be able to utilize

our reputable history with current clients to persuade others to choose us over any potential

competitors.

Transportation

Our products will be shipped via air transportation primarily utilizing United Parcel

Service (UPS). The advantages of UPS are clear: they posses their own fleet of planes and run

timely and reliable flights 24/7. Their operations both within the United States and in our

customer countries in Asia are well established and are provide convenience of usage for both

ends. The company also provides the best dedicated business solutions in insurance, tracking and

discounts, with its customer Amazon being a prime example of the efficiency of UPS. Most

importantly, UPS operates a reliable return service, which is crucial to ensuring our product’s

reliability and our customer’s satisfaction; medical products like ours must never be used in

malfunctioning conditions.

Once our products land, shipping on the Asian end will continue to be handled by UPS

until infrastructure becomes local enough to warrant a transfer with an existing regional service

like DHL. With some customers, especially those in very urban areas, UPS may be able to

deliver our product for the entire duration of the journey. Given our low volume and compact

container size, our product can move directly from airport sorting lines to truck trailers to be

shipped out to our various customers. Our established services will have defined shipping tables

to determine arrival time and cost based on weight and distance, as well as standardized routes

and warehouses to keep our product accounted-for while on moving. Once our product has

reached our customer, electronic signoff can instantly confirm its reception.

Information Systems

We will be using IQMS’s EnterpriseIQ ERP software to manage our company’s

production schedule, accounting, purchasing quality control, and CRM. The software system has

an 88% approval rating in their industry and caters to both small and large manufacturing

companies, meaning that we will be able to expand with this software as we grow over time. It

can also be accessed over a cloud network, making it accessible worldwide without a

dependency on hard drives. This can be especially useful in the event we establish an office in

South Korea.

As ERP systems often charge based on the number of users, we sought to minimize the

staff who would require access. Three of our top supply chain managers would have access, as

well as the CEO and marketing manager. We felt that these positions would benefit the greatest

from the information available on the platform. Additionally, the cost accounts for the add-ons

we may need in regards to currency conversion and exchange rates which will be integral to

having a smooth relationship with our clients abroad as well as monitoring our costs and revenue

in real time. Though our suppliers and partners abroad will not have direct access to the ERP

system, we will provide information regarding sales forecasting and past demand levels to our

suppliers to maintain transparency and achieve more accurate production levels.

Documentation

Pro forma invoice: In the process of communication before formally signing the contract, we

issue the pro forma invoice. In the pro forma invoice, we will negotiate with our customers about

product quote, payment method, shipment cost and Incoterm. It is also the crucial document used

to confirm the order before officially issuing the letter of credit and commercial invoice.

Commercial Invoice: Commercial invoice is the final step of ordering process after deciding the

term of trade and term of payment. The commercial invoice states every detail of the transaction

including exporter name, consignee, airport of embarkation, packages, quantity, net weight, unit

price, total value, certification etc. It will also include DAP incoterm rules, which state our duty

and costs related to shipping the goods from the US to the exporter’s place. It is also one of the

important documents for import clearance and also one of the documents should be given back to

the partner bank to recover the payment as required by L/C.

L/C: Importer’s bank will issue the letter of credit to our partner bank after commercial invoice

issued. Letter of credit is the most important document for us to receive the payment and get

financial credit, which will specify every detail of the order and specify requirements for final

products, so we need to carefully negotiate with our customers for first time transaction.

Export Declaration: Before our products transporting to the airport, we have to declare the export

to CBP. The US Government requires that, for cargo values above $2,500, exporters should

declare their exportation by submitting an export declaration form, which includes information

such as our company’s name, the related party’s transaction, ultimate consignee, exporting

carrier, method of transportation, US port of export, foreign port of unloading, commodity

description etc. Since we have intermediate consignees who are responsible for delivering the

products to our final customer, we have to specify them in the document as well.

Manifest: This is one of the shipping document and will be prepared by our carriers, which is

required by the US Government and should include the basic information of the cargo such as

ownership, point of origin, destination, etc. In addition, the manifest should be submitted

electronically prior to the cargo arriving at the airport.

Packing List: One of the most important shipping documents that contain the description of the

cargoes, which is also one of the documents for import clearance and recovering payment as

required by L/C.

Air waybill: This is one of the shipping document and have the same function of a bill of lading

and will travel along the products. It will arrive at the same time at the destination airport with

products and is one of the documents accompanied with packing list and commercial invoice to

recover our payment from partner bank as required by L/C.

Insurance Certificate: Incoterm DAP indicates that we take responsibility before the products

departure the importer’s place except duty payment. We, as exporter, have to prepay the

insurance, which is the important document for import clearance.

The Ministry of Food and Drug Safety (MFDS) License: Korean government requires that any

medical devices should obtain the MFDS License before importing, which is the important

document for import clearance.

V. Projections

With a goal of 200 headsets per month, we expect our headset to see the same success

that it has seen stateside. Initial growth will be slow as we take the time to build up an entirely

new network of customers and attempt to make a dent in the different culture and markets of

these new countries. However, as time goes on, we should expect an ever-increasing growth,

with about 125% total increased growth within the next five years (see Exhibit B). Since we have

thoroughly beat our competition here at home, we have no doubt that EyeCU will find success

around the globe.

Appendix

Exhibit A. Letter of Credit Bank Holding CompanyUnited Bankshares, Inc.

International Square, 1875 I St NW, Washington, DC 20006

OUR ADVICE NUMBER: ZB00000052ADVICE DATE: 12MAR17 ****AMOUNT****ISSUE BANK REF: 2338/DRU/98295 USD**** BENEFICIARY: APPLICANT:EYECU INC. KOREA UNIV. COLLEGE OF MEDICINE 21967 WASHINGTON ROAD 97 HOSPTIAL DRIVE BETHESDA, MARYLAND 20619 SEOUL, SOUTH KOREA WE HAVE BEEN REQUESTED TO ADVISE YOU THE FOLLOWING LETTER OF CREDIT AS ISSUED BY:SECOND SEOUL BANK

4 NORTH TOWERSOUTH KOREA PLEASE BE GUIDED BY ITS TERMS AND CONDITIONS AND BY THE FOLLOWING:CREDIT IS AVAILABLE BY NEGOTIATION OF YOUR DRAFT(S) IN DUPLICATE AT SIGHT FOR 100 PERCENT OF INVOICE VALUE DRAWN ON US ACCOMPANIED BY THE FOLLOWING DOCUMENTS: 1. SIGNED COMMERCIAL INVOICE IN 1 ORIGINAL AND 3 COPIES2. FULL SET 3/3 AIRWAY BILL CONSIGNED TO THE ORDER OF SECOND SEOUL BANK, SOUTH KOREA NOTIFY APPLICANT AND MARKED FREIGHT COLLECT.3. PACKING LIST IN 2 COPIES EVIDENCING SHIPMENT OF: 200 HEADSETS – ADJUSTABLE—DEFAULT 52/18 135 DAP BETHESDA, MARYLAND SHIPMENT FROM: BETHESDA, MARYLAND TO: SOUTH KOREALATEST SHIPPING DATE: 01MAR17

PARTIAL SHIPMENTS NOT ALLOWED TRANSHIPMENT NOT ALLOWEDALL BANKING CHARGES OUTSIDE OF SOUTH KOREA ARE FOR BENEFICIARY’S ACCOUNT. DOCUMENTS MUST BE PRESENTED WITHIN 21 DAYS OF AIRWAY BILL DATE. AT THE REQUEST OF OUR CORRESPONDENT, WE CONFIRM THIS CREDIT AND ALSO ENGAGE WITH YOU THAT ALL DRAFTS DRAWN UNDER AND IN COMPLIANCE WITH THE TERMS OF THIS CREDIT WILL BE DULY HONORED BY US. PLEASE EXAMINE THIS INSTRUMENT CAREFULLY. IF YOU ARE UNABLE TO COMPLY WITH THE TERMS OR CONDITIONS, PLEASE COMMUNICATE WITH YOUR BUYER TO ARRANGE FOR AN AMENDMENT.Exhibit B. Projected Income

Year One Forecast

Number of headsets 2400Unit sale price $10,000Revenue per unit $8950Total revenue $21,480,000Shipping payment $14,520Shipping costs ($14,520)Export costs ($1,920,000)

Net revenue $19,560,000

Works Cited

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"What Is the Cost of a Typical ERP Implementation?" ERP Software Blog. Microsoft Dynamics, 5 Sept. 2012. Web. 20 Apr. 2017.

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“FDA Export Certificates.” U.S. Food & Drug Administration. N.P. 17 Oct 2016. Web. 20 Apr. 2017. <https://www.fda.gov/RegulatoryInformation/Guidances/ucm125789.htm>

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