Finance
1. What are the advantages Blades could gain from importing from and/or exporting to a foreign country such as Thailand?
ANSWER: The cost of rubber and plastics i.e. the basic inputs for Blades Inc. in Thailand is very cheap and by importing inputs from Thailand, Blades Inc. will get an opportunity to reduce its cost of production. The reduction in the cost of production will directly benefit the company in increasing its profits and the lower cost of production will also increase the competitiveness of Blades Inc. With the increased competitiveness, the company can beat its competitors. Not only this, importing materials from Thailand will help the company to maintain relationship with local suppliers which will be helpful for the company in the future since it is planning to establish subsidiary in Thailand. This will help company to grow easily in Thailand. In the context of exporting, the Blades Inc. will be the market leader in Thailand which will be selling roller blades. This obviously will give the company with first mover advantage in Thai market. By exporting, the company can maintain its profits as the sales in the US market are declining. This exporting will also help company to revive its product’s life in Thailand market and enjoy greater sales.
2. What are some of the disadvantages Blades could face as a result of foreign trade in the short run? In the long run?
ANSWER: International trade does not have advantages only. There are several disadvantages that the company involved in the international trade will suffer and Blades Inc. will also have to face several disadvantages. The very first disadvantage is that the company will be exposed to foreign exchange risk. With this risk, the company might have to pay more dollar to import raw materials if the dollar depreciates. In the case of dollar appreciation i.e. Thai Baht depreciation, the company will realize less income from the sales of goods in Thailand. Not only this, the business of the company will also be dependent on the economic condition of Thailand. If the economic condition of Thailand deteriorates, then the company will also experience the downfall of sales. If the company is largely dependent on the Thailand market for its revenue, then in such condition the economic condition of Thailand will determine the future of the company.
The company will also face problem in the long run. In the long run, the government of Thailand might change several laws and regulations that might affect the business. The change in the political situation of the country in the long run can bring the political risk and the government of Thailand might force the company to shut its subsidiary in Thailand. Repatriation of profits can be affected by new laws. Change in demographic, cultural and social aspects of the nation may pose another kind of risk to the company where people might prefer goods from their own country and reject the goods from the foreign subsidiary. This will reduce the sales of the company. With the difference in culture, the manager of Thai Subsidiary might work as per his culture and might not work for the overall benefit of the company. Monitoring cost increasing and there might be possible conflicts of interest between home country and host country.
3. Which theories of international business described in this chapter apply to Blades, Inc. in the short run? In the long run?
ANSWER: This case can be analyzed by using three theories of international business viz. the product life cycle theory, comparative advantage theory, and the market imperfection theory. As the price of rubber and plastic are cheaper in Thailand than US, the Blades Inc. will benefit from importing such materials from Thailand and then export the roller blades to Thailand, and sell it in higher prices. As a fewer number of roller blades are sold in Thailand, in the short run, it is a wise decision to import raw materials at cheap prices from Thailand and export high priced finished products back to Thailand. This suggests that the market imperfect theory applies in the short run. Since the company is planning to establish subsidiary in Thailand, and stand as a pioneer in roller blade manufacturing, the company can use its superior production process to gain competency. Superior production process of Blades Inc. will help them to gain comparative advantage, and this is the point where the theory of comparative applies. In addition to this, since the roller blade sales in US are decreasing, the company must enter into new market to maintain its sales or revenue. In the Thai market, the product will gain new market and sales will increase which will help the company to gain competitive advantage over its Thai competitors. So, the product life cycle theory also applies in the long run.
4. What long-range plans other than the establishment of a subsidiary in Thailand are an option for Blades and may be more suitable for the company?
ANSWER: It is clear from the case that Ben does not have good knowledge about international business and the Blades have never expanded its operation outside of America. In this situation, it is not a wise decision to enter the Thai market with subsidiary as it will be difficult for Blades Inc. to sustain its operation. So, in this situation Blades Inc. should think of establishing a joint venture by finding the suitable partner in Thailand. By doing so, Blades Inc. will get a chance to understand about the Thai market through its local partner. The company will also get the advantage of using the distribution channel, exploit market share, the knowledge of existing market practices and laws of Thailand through its partner in Thailand. This will not only help Blades Inc. as the joint venture will give Thai partner to excel in the market using the knowledge of the production process of Blades Inc. which it can use after the end of the joint venture contract.
