BLADES, INc. CASE Consideration of Direct Foreign Investment For the last year,
ID: 2804829 • Letter: B
Question
BLADES, INc. CASE Consideration of Direct Foreign Investment For the last year, Blades, Inc., has been exporting to that this is a perfect time to either establish a subsidiary for another two years. Furthermore, to diversify inter- stabilizes. begun exporting to the United Kingdom. Under the in Thailand as opposed to the United Kingdom. Fore- Blades' suppliers of the needed components for its roller blade production are located primarily in the United States, where Blades incurs the majority of its cost of goods sold. Although prices for inputs needed to manufacture roller blades vary, recent costs have run because Blades' U.S. sales have recently declined due to the high prices it charges, Holt expects that DFI in the United Kingdom will yield similar results, especially as the components required to manufacture roller blades are more expensive in the United Kingdom than in the United States. Furthermore, both domestic and foreign ponents from Thailand because of the relatively low price of rubber and plastic components and because of their high quality. These imports are denominated lished in the United Kingdom, so the growth potential there is limited. Holt believes the Thai roller blade mar ket offers more growth potential. prevailing market prices for these components in Thai- erate higher profit margins in Thailand than it can in of roller blades cost approximately 3,000 Thai baht per has committed itself to purchase a fixed number of fastest growing economies, recent events in Thailand Nevertheless, because the cost of goods sold incurred in economic cifically, the Thai baht, which had been pegged to the United States, Blades has managed to generate higher dollar, is now a freely floating currency and has depre profit margins from its Thai exports and imports than recent levels of inflation in Thailand have been very high. Hence, future economic conditions in Thailand As a financial analyst for Blades, Inc., you generally agree with Holt's assessment of the situation. However Ben Holt, Blades' chief financial officer (CFO), is affected yet by the unfavorable economic conditions. Copyright 2018 Cengage Learning All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-203 1 may subside, to make a decision regarding DFI in Thai- 2. Do you think Blades should wait until next year to expensive and because the baht may appreciate. You are considering expanding into Thailand in the next with the Thai retailer for another three years? What is or establishes a subsidiary there by the end of next year, Thailand and a unique production process employed expressed an interest in renewing the contrac Thailand by firms such as Blades? Do you think the ment would view the establishment of a subsidiary in oweverExplanation / Answer
(1).
Blades, Inc. could obtain following possible benefits from DFI;
1. It will be in the position to use maximum possible available reosurce of Thailand.
2. It will be in the position to utilize maximum untapped demand of the market because as it is given that Thailand is a fastest growing economy that is why there is a lot of possibility of consumers’ demand.
3. As resources are aslo unutilized in this country so resouces can be used efficiently that is why overall per unit cost will be much lower in that country.
4. In such country there will be a good supply of efficient workforce at a resonable wages rate hence it will also imrove the profitability.
5. Apart from this as Blades Inc. already exporting goods to the Thailand’s consumers so after FDI it will also help in minimizing costs of transportation between two countries and other associated costs also will be minimized.
6. Risk associated with currecy fluctations also will be minimized.
(2).
Blades should not wait until next year because as per information it is clear that if economic conditions in the Thailand improves then FDI will be very difficult in that country because it will be more expensive. It is also given that competition may be also high in coming time that is why Blades should take decision about FDI just now.
Although it is also true that during this year there may be weak demand but it can be managed through good marketing tools apart from this Blades can resign the agreement with the retailers to maintain the demand in coming years or during weak demand seasons.
(3).
Yes Blades should renew its agreement because if Blades is taking decision about FDI then renew of agreement will help in maintaining a proper level of demand for the Blades in Thailand. Apart from this it is also given that there are some ups & downs in Thailand economy so that is why Blades should have a minimum level of demand all the time to recover its basic costs.
(4).
It is give that there is a very high level of unemployment in Thailand that is why Thailand government will want that firms should generate more and more jobs hence if firm is adopting unique way of production process then definitely it will hammer on the posiibility of more jobs that is why Thailand government may be less supportive. So in case when Blades Inc. is going to acquire existing businesses in the Thailand then Thailand government may be less supportive due to possibility of less jobs because as it is given that new way of production may hammer on the employment. Thus if Blades Inc. give more employment then Thailand government may be more supportive.
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