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Blades Case 13 Essay

506 words - 3 pages

Blades, Inc. Case, International Financial Management

1. The overall benefits from considering DFI in Thailand is maximizing profits and minimizing costs. Given the current situation, there are several things that would factor in a positive Direct Foreign Investment. First, Blades generates higher profit margin in Thailand. In addition, the cost of materials is significantly cheaper in Thailand. DFI in Thailand would diversify the risk. In other words, Blades would not be solely reliant on the U.S. economic conditions. Finally, Blades would increase its overall market share.
2. The main tradeoff is between the initial outlay required to invest and operating under
uncertain economic conditions. If Blades were to engage in DFI now, the initial outlay
will be low. However, the ...view middle of the document...

, prior to making this decision. Scenario analysis would be useful because we can see the possible outcomes and the changes for worst, best, and average situation. We could go from there. Based on the current situation, however, I would advise Ben Holt to wait with the DFI.
3. Again the main tradeoff is profits versus the risk of poor economic conditions. If Blades
renews the agreement with the retailer for another three years, it will tie itself to relatively
low prices it charges the Thai retailer. If economic conditions improve, there would be
an expected increase in the demand for Blades’ products. Blades would generate higher
profit margins if decided to enter the market through the subsidiary, or construct a more
favorable deal with another retailer. On the other hand, if economic conditions continue worsen, the agreement would be profitable for Blades. Again I believe that a set of financial analysis are needed prior to making this decision.
4. Given all the conditions mentioned, Thai government would have to consider the impact
of Blades subsidiary on the employment, as well as the impact of Blades subsidiary
to local businesses. Generally, Blades could reduce the unemployment rate if they were to commit to employ local workers. However, Thai government should be concerned about the local businesses. In the long run, companies like Blades could run Thai competitors out of business, thus increasing the unemployment even more. In reality, it all depends on the government policy to allow foreign investments. I believe that Thai government would most likely welcome MNC’s subsidiaries in order to deal with the unemployment in a short run. Another promising solution would be possible mergers and acquisitions.

References
Madura, J. (2012), International Financial Management (11 Edition ed., pp. Chapter 13). South-Western Cengage Learning

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