Name: Nurul Afriani ID: 108081100005 Blades, Inc. Case Blades, Inc., is a U.S.-based company that has been incorporated in the United States for 3 years. The company produces produces a single type of product, roller blades. Due to the booming roller blade market in the United States at the time of the companys establishment, Blades has been quite successful. Recently, however, the demand for Blades Speedos, the companys primary product in the United States, has been slowly tapering off, and Blades has not been performing well. 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 a go to $12 last year. In light of this circumstances, Ben Holt, the companys chief financial officer (CFO), is contemplating his alternatives for Blades future. He 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 companys sales to foreign countries? countries? The CFO initial focus is on Thailand. Thailand has recently experienced weak economic conditions, and Blades could purchase components there at a low cost. It might also be able to augmented weak U.S. sales by exporting to Thailand, an economy still in its infancy and just beginning to appreciate leisure products products such as roller blades. Establishing a subsidiary in Thailand would also make sense for Blades due to its superior production process. Furthermore, Furthermore, if the company initial approach of exporting works well, establishing a subsidiary in Thailand would preserve Blades sales before Thai competitors competitors are able to penetrate penetrate the Thai market. Answer
1. The advantages for Blades can gain by exporting to foreign country are: y
Increased sales and profits
Selling goods and services to a market the company never had before boost sales and increases revenues. Additional foreign sales over the long term, once export development costs have been covered, increase overall profitability. profitability. y
Gain global market shares
By going international, companies will participate in the global market and gain a piece of the huge international international marketplace.
y
Lower Per Unit Costs
Capturing an additional foreign market will usually expand production to meet foreign demand. Increased production can often lower per unit costs and lead to a more efficient use of existing capacities. y
Potential for company expansion
Companies who venture into the export business usually have to have a presence or representation in the foreign market. This might require additional personnel and thus lead to expansion. y
Sell excess production
capacity
Companies who have excess production for any reason can probably sell their products in a foreign market and not be forced to give deep discounts or even dispose of their excess production. y
Product life cycle expansion
Many products go through various cycles namely introduction, growth and maturity before declining signifying the end of their usefulness in a specific market. Once a product reaches its mature stage in a given market, it can be introduced to a different market where it will be perceived as new. The advantages for Blades can gain from importing to foreign country are: Importing allows countries to achieve higher standards of living by obtaining products and resources that cannot be obtained domestically. By purchasing components at the low cost in Thai, it will reduce production cost that Blades spend, rather than make it in the U.S. It will be helping both the importer and the exporter. 2. There are several disadvantages to foreign trade. Some risk/disadvantage that Blades would face is: economic condition risk, political condition risk and exchange rate risk. The currency fluctuations in Thailand dollar would affect Blades. For instance the dollar cost of imported inputs may become more expensive over time. Blades would also be exposed to the economic conditions in Thailand. For example, if there is a recession, Blades would suffer from decreased sales in Thailand. In the long run, Blades should be aware of any regulatory and environmental constraints the Thai government may impose on it. Blades should be aware of the political risk involved in operating in Thailand; they should research the likelihood of expropriation by the Thai government. They should also figures out how they would monitor the foreign subsidiary with such a huge geographical distance.
3. There are three commonly held theories to why firms want to expand their business internationally: y
Theory of comparative advantage
y
Imperfect markets theory
y
The product cycle theory.
In the short run the imperfect markets theory applies, because Blades wants to import their inputs such as rubber and plastic from Thailand because the cost of them are cheaper there. Also, it would like to export to Thailand to take advantage of the fact that there are very few of their competitors who sell roller blades in Thailand. The theory of comparative advantage would apply to Blades in the long run because of the superiority of its production process. Also Blades goal is to possibly establish a subsidiary in Thailand and to be one of the first roller blade manufacturers there. The product cycle theory also applies to Blades, since its U.S. sales are declining and Blades feels that it must eventually establish a subsidiary in Thailand in order to preserve its competitive advantage. 4. Blades should consider a joint venture with Thai firms that manufacture roller blades. The advantage would be access to Thai distribution channels, able to become familiar of Thai firms, customs and ethics, and start off in an already established market. Also joint ventures allow two firms to apply their respective comparative advantage in a given project.
