Question 1 and 2 thank you

Consideration of Direct Foreign Investment For the last year, Blades, Inc., has been exporting its products to Thailand to supplement its declining U.S. sales. Under the existing arrangement, Blades sells 180,000 pairs of roller blades annually to Entertainment Products, a Thai retailer, for a fixed price denominated in Thai baht. The agreement will last for another two years. Furthermore, to diversify internationally and to take advantage of an attractive offer by Jogs, Ltd., a British retailer, Blades has recently begun exporting to the United Kingdom. Under the resulting agreement, Jogs Chaptar 13r Dinet Foreigh investifient 4.) will purchase 200,000 pairs of Speedos, duades' primary product, annually at a fixed price of cano per pair. ilade' suppliers of the needed components for its poller blades production are located primarily in the tonited States, where Blades incurs the majority of it. cast of goods sold. Although prices for inpatin neteded somanufacture roller blades vary, tecent costs have nun approximately s70 per paic. Blades alno imports compo. nests from Thailand because of the telatively low heat prices of robber and plastic components and because of those cotrponenis thigh qualify. These inports are denominated in Thai boht, and the exact price (in bahe) depends on prevailing market prices for these compopents in Thailand. Currently, inputs sufficient to muste. ficture a pair of roller blades cont approximately 3,000 Thai baht per pair of roller blades. Although Thatland had been amoag the world's fastest-growing ecopomies, recent events in that county have increased the level of oconomic tincertainty. spacifically, the Thar bubt, which had been pegged to the dollar, is now a freely floating currency and has depreciated substantially ia recent months. Furthermore. recent levels of inflation in. Thitland have been very bigh. Hence, future econormic conditions in Thailasd are highly uncertain. Ben Holt, Blades' chieffinancial officer (CFO), is seri. ously cansidering DHI in Thailand. He believes that this isa perfect time to either establish a subsidiary or acquire an existing business in Thailand because the uncertain. economic conditions and the depreciation of the baht have substantially lovered the initial costs required for DFI. Holt believes the growth potential in Asia will be extremely high once the Thaf economy stabilizes. Although Holt has also considered DFI in the United Kingdom, he would prefer that Blades invest in Thailand as opposed to the United Kingdom. Forecasts indicate that the demand for roller blades in the United Kingdom is similar to that in the United States; because Blades' U.S, sales have recently declined due to the high prices it charges, Holt expects that DFI in the United Kingdom will vidd similar results, especially as the components required to manufacture roller blades are more expensive in the United Kingdom than in the United States. Furthermore, oth domestic and foreign roller blades manufacturers are clatively well established in the United Kingdom, so the rowth potential there is limited. Holt believes the Thai iter blades market offers more growth potential. Blades can sell its products at a lower price but generate gher profit margins in Thailand than it can in the United tes. This outcome will occur because the Thai customer hes commented ituelf to parchase a fixed number at blacke? modbct anmally only if it can purdiase Spectos at a sub. imanegd to generate higher profit margies frues ita Thal eaperts and imports than in the United States. As a financial andiyst for Btades, Inc, you generally Gour are concetned that Thut consumers have not been. affected yet by the unfavotable economic conditions. You belisve that they may roduce their spending on leiiture produsts within the nert year. Therefore, you think Iit would be beneficial to wait until next year, when the unfororable econoinic conditions in Thailand may whiside, to malke a decision regarding DFI in Thailand. However, if economic conditions in Thalland impeove over the next year, DFI may become more expensive both because target firms will be more expensive and because the baht may appreciate. You are also innare that several of Blades' U,S, competitors are considering expanding into Thailand in the next year. If Blades acquires an eristing besiness in Thatland or establithes a subsidiary there by the end of next year, it would fulfill its agreenent with Entertainment Products for the subsequent year. The Thai retaike has expressed an interest in renewing the contractual agreement with Btades at that time if Ptades establisher operations in Thailand. However, Holr believes that Blades could charge a bigher price for its products if it establishes its own distribution channels. Holt has asked you to answer the following questions: 1. Identify and discuss some of the benefits that Blades, Inc, could obtain from DEL. 2. Do you think Blades should wait until next year to undertake DFl in Thailand? What is the trade-off if Bhades undertakes the DFI now? 3. Do you think Blades should renew its agreement with the Thai retailer for another three years? What is the trade-off if Blades renews the agreement? 4. Assume a high level of unemployment in Thailand and a unique production process employed by Blades, Ine. How do you think the Thai government would view the establishment of subsidiaries in Thailand by firms such as Blades? Do you think the Thai government would be more or less supportive if firms sach as Blades acquired existing businesses in Thailand? Why