Comparative advantage,

5 May 2016

What are the advantages Blades could gain from importing from and/or exporting to a foreign country such as Thailand? Ans: 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 firms 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 firm to seller roller Blades in Thailand. Diversify their investment by opening option to export to other countries beyond Thailand to ensure company sustainability.

2. What are some of the disadvantages Blades could face as a result of foreign trade in the short run? In the long run?

Ans: The disadvantages Blades could face as a result of foreign trade in the short run are: Exchange rate risk.

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Blades would be exposed to currency fluctuation in the Thai baht if importation cost increase without Thai suppliers adjusting their price. International economic condition; if Thailand’s economy undergoes recession, Blades would suffer from sales
decrease in Thailand.

In the long run, Blades should be aware of the political risk involved in operating in Thailand, such as any regulatory changes or tax increase may impact on Blade’s subsidiary. 3. Which theories of international business described in this chapter apply to Blades, Inc. in the short run? In the long run?

Ans: There are three theories of international business in this chapter will apply to Blades, Inc.: the theory of comparative advantage, the imperfect markets theory, and the product cycle theory. In the short run, Blades would like to import from Thailand because it will reduce its cost. On the other hand, Blades would like to export to Thailand because roller blades currently are in demand 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 be became the first roller blades manufacturers in Thailand. The superiority of its production process suggests that the theory of comparative advantage would apply to Blades in the long run.

Also, the product cycle theory will apply 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.

4. What long-range plans other than the establishment of a subsidiary in Thailand are an option for Blades and may be more suitable for the company?

Ans: Since Blades has never operated in other country, and CFO Ben Holt is unfamiliar with international business, establish a subsidiary in Thailand would not be the best interest for Blades, Inc. to gain a foothold in Thailand at this time.

A joint venture with Thai roller blades manufacture may be more suitable for the company in a short run. Since this option will allow Blade to gain access to Thai’s distribution channels, familiarity of the Thai culture, consumer behavior and political rule and regulation in Thailand before establishing a permanent subsidiary market.

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