Things have been moving quickly for the PI owners. They are almost ready to open

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Things have been moving quickly for the PI owners. They are almost ready to open operations. An important next step is to finalize negotiations to contract with Naturals to purchase paint and paint supplies. PI wants a clause in the contract with Naturals that PI would buy paint and paint products exclusively from Naturals for three years. The contract will also include a product description that all paints are zero-VOC. Recently, PI owners have learned that although some of Naturals paint products are zero-VOC, most Naturals paint contains 1-5% VOCs, and thus, is not actually zero-VOC. Under state and federal regulations, paint products that contain less than 8% VOCs can legally be categorized as a zero-VOC green product. However, PI has already begun advertising and marketing its business and paint as zero-VOC. Naturals paint products are 15-20% less expensive than other equivalent paint products on the market. PI is unsure whether to continue its plan to contract with Naturals for use of Naturals' paint. The PI owners are concerned about possible liabilities for PI if it uses Naturals’ products under the new contract. PI has again come to BCA for advice. The PI owners believe they have several choices regarding Naturals paint products: Those choice are: Choice 1: Continue PI’s plan to sign a contract with Naturals, use Naturals paint exclusively, and advertise and market the paint as zero-VOC paint because Naturals paint legally can be categorized as zero-VOC paint under state and federal regulations. Choice 2: Discontinue contract negotiations with Naturals and opt to purchase similarly-priced paints from a manufacturer in Mexico. The Mexico company is a new company and one with which PI has no experience. The Mexico company claims all its paint are zero-VOC and its paint supplies are chemical-free. Your BCA supervisors, Pat Braden and Gale Roth, have given you the responsibility of researching and analyzing possible legal implications and potential risks and liabilities regarding the decision facing the PI owners about whether to continue buying paint products from Naturals. Prepare a Power Point + written memorandum regarding PI’s options. The Power Point + memorandum should analyze and discuss each possible choice available to PI and the associated advantages, risks and liabilities for each choice. If you choose this option, you will be creating a "written" visual product for the project in the Power Point AND an accompanying written memorandum to further explain and clarify the power point slides. The Power Point slides must include written notes/details fully explaining each possible choice available to PI and the associated advantages, risks and liabilities. Each point you make, each concept and issue must be fully explained specifically and in detail. You may use bulleted points on the slides, but the slides need to be comprehensive and complete, so they could "stand alone" without the additional explanation of the memorandum. Discontinue contract negotiations with Naturals and opt to purchase similarly-priced paints from a manufacturer in Mexico. The Mexico company is a new company and one with which PI has no experience. The Mexico company claims all its paint are zero-VOC and its paint supplies are chemical-free. memorandum must include the following: A. Analyze and discuss the pros and cons of Choice 3 for PI from a business perspective. B. Analyze and discuss all the specific potential legal risks and liabilities associated with this choice. Be very specific.

Explanation / Answer

Solution:-

Pros:

• A significant reduction in Fixed Cost for the raw material for a 3 year period since Naturals paint products are 15-20% less expensive than other competitors.

•Above will ultimately increase profit margin for the company for 3 years period, further profit generated can be utilized in better investment/ new product opportunities
Still can market the paint as zero-VOC paint, green product, until there appear no obligations from customers

• Appearing as Green product / eco friendly based brand image, has it’s own benefits in the market, like increase Brand Equity, a better quality/ a natural product buying perception in the minds of consumers, more sales, more possibly customer retention and loyalty sales.

• Marketing / promotion expenditure would even reduce to such a brand image, ie, Overhead costs reduced, ultimately given increased profit margin to the Company.

Cons:
• If any obligations from customers or any Health related issues, accidently or non-accidently occur, since product is not 100% zero VOC , then it could raise a big trouble for the company in long run.

• Business sustainability could become an issue, Sales would drop, hence, incurring Company, a considerable loss in the whole investment.

• When such Consumer issues rise above certain extent, then Government may have to intervene to regulate their laws, about declaring VOC content < 8% to something else. This finally, will bring PI owners a big time trouble, as they have a 3 year contract with Naturals.

• If new supplier search arouse, then whole process will cost PI Owners, huge funds, thus resulting in a debt/ loss.

(B) Potential legal risks and liabilities:

•Government intervention and re-regulation of their laws for VOC based products

•Threat to existing Brand image developed of Green Products

• Threat to future Brand image of eco friendliness, Government once devalue or once start legal case in such defaming matter, lost image will never be gained again. Risk to Shareholders and Investors.

•Same legal suits will definitely affect across Value Chain of this business, right from Naturals to Channel Partners, Suppliers etc.

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