INTERNATIONAL FINANCE Q&A
CASE STUDY 1 – SEPTEMBER 2020
Blades, Inc. Case
Decision to expand internationally
Blades, Inc. is a U. S. – based company that has been incorporated in the United States for three
years. Blades is a relatively small company, with total assets of only $200 million. The company
produces a single type of product, roller blades. Due to the booming roller blade market in the
United States at the time of the company’s establishment, Blades has been quite successful. For
example, in the first year of operation, it reported a net income of $3.5 million. Recently,
however, the demand for blades’ “Speedos,” the company’s primary product in the United
States, has been slowly tapering off, and Blades has not been performing well. Last year, it
reported a return on assets of only 7 percent. In response to the company’s annual report for
its most recent year of operations, Blades shareholders have been pressuring the company to
improve its performance; its stock price has fallen from a high of $20 per share three years ago
to $12 last year. Blades produce high quality roller blades and employ a unique production
process, but the prices it charges are among the top 5 percent in the industry.
In light of these circumstances, Ben Holt, the company’s chief financial officer (CFO), is
contemplating his alternatives for Blades’ future. There are no other cost-cutting measures that
Blades can implement in the United States without affecting the quality of its products. Also,
production of alternative products would require major modifications to the existing plant
setup. Furthermore, and because of these limitations, expansion within the United States at
this time seems pointless.
Ben Holt is considering the following: if Blades cannot penetrate the U.S. market further or
reduce cost here, why not import some parts from overseas and/or expand the company’s sales
to foreign countries? Similar strategies have proved successful for numerous companies that
expand into Asia in recent years to increase their profit margins. The CFO’s initial focus is on the
, Thailand. Thailand has recently experienced weak economic conditions, and Blades could
purchase components there at a low cost. Ben Holt is aware that many of Blades’ competitors
have begun importing production components from Thailand.
Not only would Blades be able reduce costs by importing rubber and/or plastic from Thailand
due to the low costs of these inputs, but it might also be able to augment weak U.S. sales by
exporting to Thailand., an economy still in its infancy and just beginning to appreciate leisure
products such roller blades. Long-term decisions would also eventually have to be made; maybe
Blades, Inc. could establish a subsidiary in Thailand and gradually shift its focus away from the
United States if its U.S. sales do not rebound. Establishing a subsidiary in Thailand would also
make sense for Blades due to its superior production process. Ben Holt is reasonably sure that
Thai firms could not duplicate the high-quality production process employed by Blades.
Furthermore, if the company’s initial approach of exporting works well, establishing a
subsidiary in Thailand would preserve Blades’ sales before Thai competitors are able to
penetrate the Thai market.
As a financial analyst for Blades, Inc., you are assigned to analyzed international opportunities
and risk resulting from international business. Your initial assessment should focus on the
barriers and opportunities that international trade may offer. Ben Holt has never been involved
in international business in any form and is unfamiliar with any constraints that may inhibit his
plan to export to and import from a foreign country. Mr. Holt has presented you with a list of
initial questions you should answer.
CASE STUDY 1 – SEPTEMBER 2020
Blades, Inc. Case
Decision to expand internationally
Blades, Inc. is a U. S. – based company that has been incorporated in the United States for three
years. Blades is a relatively small company, with total assets of only $200 million. The company
produces a single type of product, roller blades. Due to the booming roller blade market in the
United States at the time of the company’s establishment, Blades has been quite successful. For
example, in the first year of operation, it reported a net income of $3.5 million. Recently,
however, the demand for blades’ “Speedos,” the company’s primary product in the United
States, has been slowly tapering off, and Blades has not been performing well. Last year, it
reported a return on assets of only 7 percent. In response to the company’s annual report for
its most recent year of operations, Blades shareholders have been pressuring the company to
improve its performance; its stock price has fallen from a high of $20 per share three years ago
to $12 last year. Blades produce high quality roller blades and employ a unique production
process, but the prices it charges are among the top 5 percent in the industry.
In light of these circumstances, Ben Holt, the company’s chief financial officer (CFO), is
contemplating his alternatives for Blades’ future. There are no other cost-cutting measures that
Blades can implement in the United States without affecting the quality of its products. Also,
production of alternative products would require major modifications to the existing plant
setup. Furthermore, and because of these limitations, expansion within the United States at
this time seems pointless.
Ben Holt is considering the following: if Blades cannot penetrate the U.S. market further or
reduce cost here, why not import some parts from overseas and/or expand the company’s sales
to foreign countries? Similar strategies have proved successful for numerous companies that
expand into Asia in recent years to increase their profit margins. The CFO’s initial focus is on the
, Thailand. Thailand has recently experienced weak economic conditions, and Blades could
purchase components there at a low cost. Ben Holt is aware that many of Blades’ competitors
have begun importing production components from Thailand.
Not only would Blades be able reduce costs by importing rubber and/or plastic from Thailand
due to the low costs of these inputs, but it might also be able to augment weak U.S. sales by
exporting to Thailand., an economy still in its infancy and just beginning to appreciate leisure
products such roller blades. Long-term decisions would also eventually have to be made; maybe
Blades, Inc. could establish a subsidiary in Thailand and gradually shift its focus away from the
United States if its U.S. sales do not rebound. Establishing a subsidiary in Thailand would also
make sense for Blades due to its superior production process. Ben Holt is reasonably sure that
Thai firms could not duplicate the high-quality production process employed by Blades.
Furthermore, if the company’s initial approach of exporting works well, establishing a
subsidiary in Thailand would preserve Blades’ sales before Thai competitors are able to
penetrate the Thai market.
As a financial analyst for Blades, Inc., you are assigned to analyzed international opportunities
and risk resulting from international business. Your initial assessment should focus on the
barriers and opportunities that international trade may offer. Ben Holt has never been involved
in international business in any form and is unfamiliar with any constraints that may inhibit his
plan to export to and import from a foreign country. Mr. Holt has presented you with a list of
initial questions you should answer.
