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¶ … Blades, Inc., could obtain from DFI.
Companies such as Blades, Inc. often opt to engage in DFI out of a desire to take advantage of lower labor costs abroad. In the case of Thailand, the nation is less economically developed than Britain, where Blades, Inc. is based. Additionally, due to the depreciation of the baht, labor costs will be even cheaper in Thailand. The location of Thailand has additional financial incentives for Blades given the costs it could save on shipping raw material. Blades currently imports components from Thailand because of the relatively low price and high quality of rubber and plastic components. This has substantially lowered the potential cost for DFI. On the other hand, Thailand's economy is now extremely unstable. Although the baht has depreciated, inflation is increasing. But this does not necessarily mean that Blades is guaranteed to secure an important 'first mover' advantage for the company. The instability of the Thai economy also means that demand for the blades within Thailand may plummet. Rollerblades are not a necessity, and when economic conditions are shaky, people must prioritize. They will choose food and basic necessities over sporting goods, particularly for new sports. Demand for rollerblades in Thailand could thus experience a notable decline. Some of the expected advantages for the DFI may not be realized.
Thailand consumers already enjoy Blades' product. Thus, having Blades within the country is a win-win situation, allowing it to save on both labor and shipping costs. Establishing the company within the nation's borders is likely to increase the company's profile and deepen its hold upon Thailand's burgeoning consumer economy. Thailand, as a developing nation, has a still-untapped market base. Its consumers are young, and as the economy improves, they will eagerly begin to explore purchasing new types of leisure-time consumer goods, including rollerblades. Roller-blading is a sport well-suited to Thailand, because it is a warm weather sport and other than the blades, is fairly inexpensive as a hobby.
Q2. Do you think Blades should wait until next year to undertake DFI in Thailand? What is the tradeoff if Blades undertakes the DFI now?
Q3. Do you think Blades should renew its agreement with the Thai retailer for another 3 years? What is the tradeoff if Blades renews the agreement?
Yes. Even if Thailand's economy remains shaky in the short-term, in the long-term investing in the country could prove to be extremely beneficial. Demand is growing, and Thai consumers are an untapped market for the product. The country has sources of raw materials at low prices, a high level of market demand, and a population of workers willing to work for relatively low wages because of their desire for jobs. This is likely to keep the costs of labor down. Even if…
FDI One of the main benefits that Blades would get from foreign direct investment in Thailand is an operating hedge. The company is currently buying components from Thailand that are priced in baht, and selling to an importer in Thailand who is paying in baht. To an extent, this forms something of an operating hedge, but the components are going to the U.S. first, creating foreign exchange exposure. FDI would help
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