Reference no: EM132610901

RSA Manufacturer is a U.S based company with the supposition of their total assets of only $200 million. Suppose, the company produces a single type of product, roller blades (Speedos). Steven, chief financial officer (CFO) of company has decided to counteract the decreasing demand for "Speedos" roller blades by exporting this product to Thailand. Furthermore, due to the low cost of rubber and plastic in Southeast Asia, Steven has decided to import some of the components needed to manufacture "Speedos" from Thailand. Steven feels that importing rubber and plastic components from Thailand will provide RSA with a cost advantage (the components imported from Thailand are about 20 percent cheaper than similar components in the United States). Currently, approximately $20 million, or 10 percent, of Company's sales are contributed by its sales in Thailand. Only about 4 percent of Company's cost of goods sold is attributable to rubber and plastic imported from Thailand. RSA faces little competition in Thailand from other U.S. roller blades manufacturers. Those competitors that export roller blades to Thailand invoice their exports in U.S. dollars. Currently, This Company follows a policy of invoicing in Thai baht (Thailand's currency). Steven felt that this strategy would give Company a competitive advantage, since Thai importers can plan more easily when they do not have to worry about paying differing amounts due to currency fluctuations. Furthermore, Company's primary customer in Thailand (a retail store) has committed itself to purchasing a certain amount of "Speedos" annually if Company will invoice in baht for a period of three years. Company's purchases of components from Thai exporters are currently invoiced in Thai baht. Steven is rather content with current arrangements and believes the lack of competitors in Thailand, the quality of company's' products and its approach to pricing will ensure company's position in the Thai roller blade market in the future. Steven also feels that Thai importers will prefer this company over its competitors because company invoices in Thai baht.

You, Company's financial analyst, have doubts as to Company' "guaranteed" future success. Although you believe company's strategy for its Thai sales and imports is sound, you are concerned about current expectations for the Thai economy. Current forecasts indicate a high level of anticipated inflation, a decreasing level of national income, and a continued depreciation of the Thai baht. In your opinion, all of these future developments could affect company financially given the company's current arrangements with its suppliers and with the Thai importers. Both Thai consumers and firms might adjust their spending habits should certain developments occur. In the past, you have had difficulty convincing Steven that problems could arise in Thailand. Consequently, you have developed a list of questions for yourself, which you plan to present to the company's CFO after you have answered them.
questions are listed here:

1. How could a higher level of inflation in Thailand affect RSA (assume U.S. inflation remains constant)?

2. How could competition from firms in Thailand and from U.S. firms conducting business in Thailand affect RSA?

3. How could a decreasing level of national income in Thailand affect RSA?

4. How could a continued depreciation of the Thai baht affect RSA? How would it affect this company relative to U.S. exporters invoicing their roller blades in U.S. dollars?

5. If RSA increases its business in Thailand and experiences serious financial problems, are there any international agencies that the company could approach for loans or other financial assistance?