Department of Management Sciences, National University of Modern
Languages
Assignment
Submitted by:
Shahraz Mushadi
Roll NO: 31466
Subject: IF
Submitted to: Mam Talya Naeem
Class: MBA (3.5)6th Afternoon
Date: 14-03-2021
What are the advantages Blades could gain from importing from and/or
exporting to a foreign country such as Thailand?
The advantages Blades could gain from importing from and/ or exporting to
Thailand could be decrease their cost of goods sold, and increase Blades’ net
income since rubber and plastic are cheaper when imported from a foreign
country such as Thailand. Due to its superior production process Thai firm
could not duplicate the high-quality production process so establishing a
subsidiary in Thailand would preserve blade sales before Thai competitors.
Allow Blades to explore the option of exporting to Thailand by building
relationships with some local suppliers. As far as exporting is concerned,
Blades could become the first time to seller roller blades in Thailand.
Diversify their investment by opening option to export to other countries
beyond Thailand to ensure company sustainability.
What are some of the disadvantages Blades could face as a result of
foreign trade in the short run? In the long run?
There are several potential disadvantages Blades, Inc. should consider. First
of all, Blades would be exposed to currency fluctuations in the Thai baht. For
example, the dollar cost of imported inputs may become more expensive
over time if the baht appreciates even if Thai suppliers do not adjust their
prices. However, Blades’ sales in Thailand would also increase in dollar terms
if the baht appreciates, even if Blades does not increase its prices. Blades,
Inc. would also be exposed to the economic conditions in Thailand. For
example, if there is a recession, Blades would suffer from decreased sales to
Thailand.
In the long run, Blades should be aware of any regulatory and environmental
constraints the Thai government may impose on it (such as pollution
controls). Furthermore, the company should be aware of the political risk
involved in operating in Thailand. For example, the likelihood of
expropriation by the Thai government should be assessed. Another
important issue involved in Blades’ long-run plans is how the foreign
subsidiary would be monitored. Geographical distance may make
monitoring very difficult. This is an especially important point since Thai
managers may conform to goals other than the maximization of shareholder
wealth.
Which theories of international business described in this chapter
apply to Blades, Inc., in the short run? In the long run?
There are at least three theories of international business:
1. The theory of comparative advantage
2. The imperfect markets theory
3. The product cycle theory
In the short run, Blades would like to import from Thailand because inputs
such as rubber and plastic are cheaper in Thailand. Also, it would like to
export to Thailand to take advantage of the fact that few roller blades are
currently sold in Thailand. Both of these factors suggest that the imperfect
markets theory applies to Blades in the short run. In the long run, the goal is
to possibly establish a subsidiary in Thailand and to be one of the first roller
blade manufacturers in Thailand. The superiority of its production process
suggests that the theory of comparative advantage would apply to Blades in
the long run. However, 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 over
Thai competitors.
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?
Since Ben Holt is very unfamiliar with international business, and since
Blades has never operated outside the United States, establishment of a
subsidiary in Thailand is probably not the best way for Blades, Inc. to gain a
foothold in Thailand in the long run. Blades should initially consider a joint
venture with Thai firms that manufacture roller blades. The advantage
would be access to Thai distribution channels, familiarity of the Thai firm
with customs and ethics in Thailand, and an established market. Of course,
since Blades’ production process is unique, a joint venture would provide the
Thai subsidiary with knowledge of the production purposes, which it may
duplicate after the joint venture terminates.
