Chapter 1 – Case
1) What are the advantages that Blades could gain from importing from and/or exporting to a foreign
country such as Thailand?
Blades, Inc. can significantly lower production costs by importing cheaper raw materials (rubber and
plastic) from Thailand, boosting net income and U.S. competitiveness. Exporting to Thailand offers
revenue diversification, taps into a new market, extends product life cycles, and provides first-mover
advantages, especially as local competitors are limited.
Advantages of Importing from Thailand (Components):
Lower Cost of Goods Sold (COGS):
Components like rubber and plastic are cheaper in Thailand, allowing for reduced production costs.
Increased Competitiveness:
Lower input costs help Blades improve its competitive position in the U.S. market, where its prices
are among the highest.
Strengthened Supplier Relationships:
Early importing helps build crucial relationships with local suppliers, easing future plans to establish a
subsidiary.
Access to Low-Cost Labor:
Leveraging Thailand's cheaper labor for manufacturing inputs.
Advantages of Exporting to Thailand (Finished Goods):
Revenue Diversification:
Offsets declining sales in the U.S. market by expanding into a new, growing, or untapped market.
First-Mover Advantage:
As many competitors focus only on importing, exporting to Thailand allows Blades to establish brand
loyalty and gain an early, dominant market share.
Product Life Cycle Extension:
Selling products that may be nearing maturity in the U.S. to a new market in Thailand can rejuvenate
sales.
Competitive Advantage:
Utilizing superior, high-quality production processes that are hard to replicate in the Thai market.
Strategic Long-Term Benefits:
Strategic Positioning:
Both importing and exporting help establish a presence in Thailand, setting the foundation for
potentially opening a foreign subsidiary there in the future.
BLADES INC CASE STUDY-ALL CHAPTER’S ANSWERS
Ch1
1. What are the advantages Blades could gain from importing from and/or exporting to a foreign
country such as Thailand?
ANSWER:
The advantages Blades, Inc. could gain from importing from Thailand include potentially lowering
Blades’ cost of goods sold. If the inputs (rubber and plastic) are cheaper when imported from a
foreign country such as Thailand, this would increase Blades’ net income. Since numerous
competitors of Blades are already importing components from Thailand, importing would increase
Blades’ competitiveness in the U.S., especially since its prices are among the highest in the roller
blade industry. Furthermore, since Blades is considering longer range plans in Thailand, importing
from and exporting to Thailand may present it with an opportunity to establish initial relationships
with some Thai suppliers. As far as exporting is concerned, Blades, Inc. could be one of the first firms
to sell roller blades in Thailand. Considering that Blades is contemplating to eventually shift its sales
to Thailand, this could be a major competitive advantage.
2. What are some of the disadvantages Blades could face as a result of foreign trade in the short run?
In the long run?
ANSWER:
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.
3. Which theories of international business described in this chapter apply to Blades, Inc. in the short
run? In the long run?
ANSWER:
There are at least three theories of international business: 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 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 rollers’ 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.
4. What long-range plans other than the establishment of a subsidiary in Thailand is an option for
Blades and may be more suitable for the company?
ANSWER:
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.
CHAPTER-2
How could a higher level of inflation in Thailand affect Blades (assuming U.S. inflation remains
constant)?