Case study methodology and applications

Cardsmax

Identify and discuss some of the benefits that Blades, Inc., could obtain from DFI.

One of the benefits would be the ability to take advantage in a lower market environment due to the decrease in the Baht. Therefore, it would be easier i.e. less expensive to acquire another business with the economic uncertainty in Thailand. Chung (2010) affirms the thoughts of the CFO by explaining that foreign debt and foreign direct investment FDI affect the recipient country's growth and welfare through different channels. Foreign debt accelerates the growth by lowering the cost of capital while FDI improves the country's welfare by providing an additional income source as well as the labor productivity spillover; a decline in domestic investment may improve domestic welfare as FDI replaces the gap. Even when the welfare deteriorates, its magnitude is mitigated, leaving more room for discretionary fiscal policy. A fiscal policy aimed to stabilize domestic output fluctuations needs to be conducted not to crowd out the welfare benefit of FDI too much. Compared with a country with foreign debt alone, the one with both types of foreign capital experiences a wider welfare swing by an external volatility shock, while the welfare effect from a domestic volatility shock is mitigated.

Sun (2011), reports that it is widely documented that foreign direct investment (FDI) has played an important role in the economic development of host countries. FDI inflows contribute to physical capital accumulation, help to boost domestic employment, and may increase domestic competition, particularly in the short run. In addition, it is argued that FDI can positively affect domestic industries and firms, where positive spillovers can exist. Thus, testing the technology spillover of FDI empirically has attracted some attention. Foreign firms often have some advantages (usually technological superiority) to offset their disadvantages compared with local firms. These advantages inevitably benefit their local counterparts, either through backward and forward linkage, labor mobility, or through a demonstration competition effect.

Do you think Blades should wait until next year to undertake DFI in Thailand? What is the tradeoff if Blades undertakes the DFI now?

One tradeoff is the ability to take advantage of the decreased Bahdt, which is offering a buy in to another business at a significantly lower rate. Sun (2011), discusses how the current state of the economy affects the overall health of a foreign and domestic business. It is reported that, concerning scale economies, as the scale of production increases, firms are usually more capable of reducing their costs and promoting their efficiency. Hence, a positive impact is expected. For market structure, measured by the Herfindahl index, there is no prior expectation. On the one hand, firms in a more concentrated market have less incentive to upgrade their technology and improve their efficiency, as they are not confronted with fierce market competition. On the other hand, firms that have market power are usually bigger and hence more able to overcome the usually big fixed costs of Research and Development activities, adopt measures that will improve their efficiency, and enjoy scale economies not fully captured by the industry's scale economies.

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?

If it is possible to keep rates low, then yes they should renew their agreement with Thai. However, if it were possible to lower cost by utilizing other means then it would be more cost effective not renew the agreement that is in place. There should be a market assessment that takes place during the time of possible renewal. As evidenced by the current states of the market there could be an opportunity to renew at a lower cost. On the other hand, the market could straighten as anticipated and cost could increase significantly.

Assume a high level of unemployment in Thai-land and a unique production process employed by Blades, Inc. How do you think the Thai government would view the establishment of a subsidiary in Thai-land by firms such as Blades? Do you think the Thai government would be more or less supportive if firms such as Blades acquired existing businesses in Thai-land? Why?

Wang (2011) explains the positive impact that subsidiaries in Thailand by firms like Blades, could prove to be good for their economy. If there were in fact a large unemployment rate, the government would want to see any opportunity to stimulate the economy through an influx in jobs. It is however further discussed in the literature review that no country can continue such a one-way series of capital transfers without increasing investments at home. An economy can only prosper through balanced investment at home and abroad. It is also explained in the literature review that in a situation where a company i.e. Blades moves into a place i.e. Thailand to take advantage of low labor costs can affect the home market of that business leaving unemployment in its wake. So though unemployment in Thailand could diminish as a result Blades, Inc. would need to consider the impact that such businesses practices could stand to have on its home market.