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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 to reduce this exposure. In addition, FDI could potential help reduce the company's political risk, at least if it retains a strong local partner. In many countries, a local partner is essential to reducing political risk and Thailand is no exception.
A third potential advantage is that FDI would give the company long-term exposure to Thailand at a relatively low price. Blades would also enjoy whatever first move advantages might accrue. Lastly, the company would gain a manufacturing foothold in Asia, something that could be scaled up should demand in Asia grow rapidly. Southeast Asia is a large market, but Thailand is sufficiently well-connected to China that it might be able to sell goods in that market as well. In addition, Blades would gain significant knowledge about operating in Asia in general, knowledge that could be transferred to other, future operations on the continent.
2. If Blades undertakes...
By solidifying a market position, the company would be able to essentially block out competitors. Blades would gain the ability to have a strong market share as well. However, the tradeoff is that there is considerable financial uncertainty. In particular, the Thai economy may deteriorate and this would adversely affect demand conditions. If Blades does not undertake foreign direct investment in Thailand, then it has the ability to exit the market quickly if it becomes unprofitable. At this point, the market looks too volatile. No market has been able to sustain long-term growth in rollerblades and Thailand does not look especially promising. There are limited venues for rollerblading given the lack of public green space and the rather hazardous road conditions in Thailand. Without strong evidence that rollerblades are on a long-term growth trajectory, I do not think that Blades should get into the Thai market. The company needs to retain the ability to exit this market quickly should the Thai economy -- or just rollerblade demand -- turn south rapidly.
3. I do not believe that Blades should renew its agreement with the Thai retailer for the next three years. The deal exposes Blades to significant exchange rate risk. The company's deals with the Thai supplier should be in dollars, putting…
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
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