Direct Foreign Investment (DFI) Please Respond to the Following

discussion week 7 Direct Foreign Investment (DFI)" Please respond to the following:  From the case study, examine three (3) possible benefits realized by a DFI in Thailand. Compare the tradeoffs of investing now versus a year from now. Provide a rationale for your response.

Blades could benefit from investing in Thailand in a number of ways, as this is seen as a market that is continuing to attract DFI. Thailand would offer a new market to grow demand given the potential for growth as forecasted in the country. Expanding to Thailand will also help reduce exposure to the US market given that much of Blades’s business is consolidated there; expanding internationally to Thailand will differentiate its interests and risk across multiple markets, making it more secure. Third, the company will be able to spend less on operations in Thailand because raw materials are cheaper there, which will improve profit margins.

The Asian market has growth potential, but this means that future investments will cost more for companies who wait to invest. As growth occurs, prices will rise and the value of local currencies will increase, which will make it more expensive to invest or set up operations in Thailand later than presently. Now is idea because the baht has recently depreciated, creating opportunity to get more for the American dollar invested in the country. There is risk involved, however, as if growth is not realized, income may not reach the anticipated levels, which means the company could lose money at least in the short run. However, waiting until next year also means that some of the risk involved in the current economic climate could pass, making it clearer whether it would be a good investment. The company may also have to deal with greater competition if it waits rather than acts as a first/early mover in the market.

 From the case study, assuming high unemployment in Thailand and taking Blades unique production process into account, predict the reaction that Thai government might have to Blades making a DFI in Thailand. Determine the appropriate discount rate that Thai government should use when assessing the viability of this project. Provide a rationale for your response. Blades could establish a subsidiary in the nation, which would have some advantages and disadvantages. The Thai government will likely welcome DFI from Blades in order to help spur the economy and create jobs. However, it may have some drawbacks as well, as local businesses would have to compete and would lose out to Blades. Because Blades has a unique production process, local businesses may have difficulty competing, but this could also set it apart and offset some of the direct competition. Other local businesses could be able to obtain the same technology, which would level the field in the market. Based on this, the appropriate discount rate that the Thai government should use when assessing the viability of the project would be a higher rate given the volatility of the current economy in Thailand and fluctuation of the baht. Asian Development Bank. (2016). Thailand Economy. Retrieved from http://www.adb.org/countries/thailand/economy Hull, J. C., & White, A. (2000). Forward rate volatilities, swap rate volatilities, and the implementation of the LIBOR market model. Muthitacharoen, A. (2016). Assessing Tax Incentives for Investment: Case Study of Thailand (No. 21.). Puey Ungphakorn Institute for Economic Research.

 From the case study, examine three (3) possible benefits realized by a DFI in Thailand. Compare the tradeoffs of investing now versus a year from now. Provide a rationale for your response. From the case study, a few points were highlighted with regards to this. Holt mentioned he sees the potential in the Asian economy once the Thai economy stabilizes as well as the local market in Thailand has some potential to grow as well. He is right. The Asian Development Bank (ADB) has predicted growth in the developing Southeast Asia to be around 4.5% and 4.8% next year (Cerojono, 2016). This is considered good for the region. As for Thailand, according to the Asian Development Bank (ADB), growth is seen to be picking up in 2016 and 2017 as higher public spending drove the economic growth to 2.8% in 2015 from 0.8% in 2014 (Thailand:Economy, 2016) Another reason why Thailand is great as a country for DFI is because the economy is tied to the world’s economic system and acts as an important production base for distributing product to the global market and about 70% of Thailand’s GDP is derived from the export sector (Rajenthiran, 2004). Apart from that, they have come a long way in reducing their legal obstacles in making and creating a more transparent and easy doing business environment. For instance, the Foreign Business Act 1999 which replaced the Alien Business Law 1972 as well as the amended Investment Promotion Act 1977, brought about fresh impetus (Rajenthiran, 2004). Apart from that, similar to the concept of EU, there is the ASEAN Economic Community (AEC) (Anantarangsi, 2011). The Royal Thai Government (RTG) has taken seriously the benefits of being a regional production and distribution hub (Anantarangsi, 2011). Believe it or not, Thailand is the most economically diversified and successful of the ASEAN countries even when compared to Singapore and Malaysia. According to the World Bank’s annual Doing Business Report, Thailand is ranked number 49 (Ease of Doing Business in Thailand, 2016). With all good things comes a price. The trade off in this case is as mentioned, should the economy as projected improves, and it would get expensive for Blades to make a decision with regards to a DFI as the Baht will appreciate. At the same time, due to the favorable conditions at the moment, there will be an increase in competition as well. However, should the projected economic conditions not occur, either way, consumer spending will decrease. These are the potential scenarios that Holt will have to look at.  From the case study, assuming high unemployment in Thailand and taking Blades unique production process into account, predict the reaction that Thai government might have to Blades making a DFI in Thailand. Determine the appropriate discount rate that Thai government should use when assessing the viability of this project. Provide a rationale for your response. From the case study, there are two options on how Blades could establish its presence in Thailand. One is acquiring an existing business or by establishing a subsidiary. Let’s go with the first scenario of acquiring an existing business. This means Blades would have to work with the existing employees in that company and I am sure they would retain those employees due to the labor and production cost being low. Holts did mention in trying to have a high profit margin after all. Perhaps, there would be some representatives from Holt’s side to ensure the smooth running of the company but otherwise, if this is the scenario, the Thai government will not have or impose serious barriers and will be more supportive in this arrangement as it ultimately boosts their economy in terms of employment and trade. Scenario two is on establishing a subsidiary. This is similar to the concept of big box versus independent retails (McReynolds, 2016). Think about it this way. When this MNC establishes its presence in Thailand, the local businesses are not able to compete with the superior technology, brand name, marketing and managerial skills and economies of scale (Goldstein, 1991). As such, they lose out and this leads to unemployment. There are two discount rates which could be applied which is either the financial approach or the social approach. The financial approach is a perspective on how much it costs the government in terms of lost revenue rather than from the viewpoint of the society (Kohyama, 2006). The discount rate would be the government’s borrowing cost (Kohyama, 2006). The second approach is the social approach. This is a perspective which takes into account the impact the tax expenditures and the cost-benefit analysis of public spending (Kohyama, 2006). Reference List: Anantarangsi, S. (2011). Thailand and the Inflow of FDI under the ASEAN Economic Community (AEC). SIU Journal of Management, 101-118. Cerojono, T. (2016, March 30). An Asian Development Bank report says softer growth prospects for China and a weak recovery in major industrial economies are expected to push down economic growth in developing Asia to 5.7 percent in 2016 and 2017, below previous projections. Retrieved May 17, 2016, from U.S. News: http://www.usnews.com/news/business/articles/2016-03-29/adb-says-asia-economy-to- grow-57-percent-in-2016-and-2017 Ease of Doing Business in Thailand. (2016). Retrieved May 17, 2016, from World Bank Group Doing Business: http://www.doingbusiness.org/data/exploreeconomies/thailand/ (1991). In M. Goldstein, Determinants and Systemic Consequences of International Capital Flows (p. 70). Washington DC: International Monetary Fund. Kohyama, H. (2006, May 22). Selecting Discount Rates for Budgetary Purposes. Retrieved May 17, 2016, from Harvard Law School Federal Budget Policy Seminar: http://www.law.harvard.edu/faculty/hjackson/DiscountRates_29.pdf McReynolds, R. (2016, March 9). Mom-and-Pop vs. the Big Box. Retrieved May 16, 2016, from Colombia Business School: https://www8.gsb.columbia.edu/chazen/globalinsights/node/325 Rajenthiran, A. (2004, November 18). Thailand as an FDI Oasis. Retrieved May 17, 2016, from YaleGlobal Online: http://yaleglobal.yale.edu/content/thailand-fdi-oasis Thailand:Economy. (2016). Retrieved May 17, 2016, from Asian Development Bank: http://www.adb.org/countries/thailand/economy