Project description
Discuss how can persistently weak currency such as Vietnamese Dong be stabilized?
Question 2
BLADES INCORPORATION
Blades. Inc, is a U.S. based company that has been incorporated in the United
States for 3 years. Blades is a relatively small company, with total assets of only
$200 million. The company produces a singly type of product, roller blades. Due to
the booming roller blade market in the United States at the time of the company’s
establishment. Blades has been quite successful. For example, in tis first year of
operation, it reported a net income of $3.5 million. Recently, however, the demand
for Blades’ “Speedos,” the company’s primary product in the United States, has been
slowing tapering off, and Blades has not been performing well. Last year, it reported
a return on assets of only 7%. In response to the company’s annual report for its
most recent year of operations, Blades’ shareholders have been pressuring the
company to improve its performance; its stock price has fallen from a high of $20 per
share 3 years ago to $12 last year. Blades produces high-quality roller blades and
employs a unique production process, but the prices it charges are among the top
5% in the industry.
2
In light of these circumstances, Ben Holt, the company’s chief financial officer (CFO),
is contemplating his alternatives for Blades’ future. There are no other cost-cutting
measures that Blades can implement in the United States without affecting the
quality of its product. Also, production of alternative products would require major
modifications to the existing plant setup. Furthermore, and because of these
limitations, expansion within the United States at this time seems pointless.
Ben Holt is considering the following: If Blades cannot penetrate the U.S. market
further or reduce costs here, why not import some parts from overseas and/or
expand the company’s sales to foreign countries? Similar strategies have proved
successful for numerous companies that expanded into Asia in recent years to
increase their profit margins. The CFO’s initial focus is on Thailand. Thailand has
recently experienced weak economic conditions, and Blades could purchase
components there at a low cost. Ben Holt is aware that many of Blades’ competitors
have begun importing production components from Thailand.
Not only would Blades be able to reduce costs by importing rubber and/or plastic
from Thailand due to the low costs of these inputs, but it might also be able to
augment weak U.S. sales by exporting to Thailand, an economy still in its infancy
and just beginning to appreciate leisure products such as roller blades. While several
of Blades’ competitors import components from Thailand, few are exporting to the
country. Long-term decisions would also eventually have to be made; maybe Blades,
Inc., could establish a subsidiary in Thailand and gradually shift its focus away from
the United States if its U.S. sales do not rebound. Establishing a subsidiary in
Thailand would also make sense for Blades due to its superior production process.
Ben Holt is reasonably sure that Thai firms could not duplicate the high-quality
production process employed by Blades. Furthermore, if the company’s initial
approach of exporting works well, establishing a subsidiary in Thailand would
preserve Blades, sales before Thai competitors are able to penetrate the Thai
market.
As a financial analyst for Blades, Inc., you are assigned to analyze international
opportunities and risk resulting from international business. Your initial assessment
should focus on the barriers and opportunities that international trade may offer. Ben
Holt has never been involved in international business in any form and is unfamiliar
with any constraints that may inhibit his plan to export to and import from a foreign
country. Mr. Holt has presented you with a list of initial questions you should answer.
Required:
a. What are the FIVE (5) advantages Blades could gain from importing from
and/or exporting to a foreign country such as Thailand?
(5 marks)
b. What are the FIVE (5) disadvantages Blades could face as a result of foreign
trade?
(5 marks)
c. Which theories of international business apply to Blades, In.?
(5 marks)
3
d. What long-range plans other than establishment of a subsidiary in Thailand are
an option for Blades and may be more suitable for the company?
ScholarMatic: Explanation & Answer
Your ready answer from a verified tutor is just a click away for as little as $14.99
Click Order Now to get 100% Original Answer Customized to your instructions!
