How could you still execute this business idea

Reference no: EM133559875

BACKGROUND

One of the best methods of learning broad concepts in this text is to put yourself in the place of an MNC manager or board member and apply the concepts to make financial decisions. Board members do not normally make the decisions that are discussed here but must have the conceptual skills to monitor the policies that are implemented by the MNC's managers. Thus, they must frequently ask themselves what they would do if they were making the managerial decisions or setting corporate polices.

Consider the following business that you could easily create: a business that teaches individuals in a non-U.S. country to speak English. While this business is very basic, it still requires the same type of decisions faced by large MNCs. Assume that you initially establish this business in Mexico.

Details of Your Business. You live in the U.S. You invested $60,000 to establish a business of a language school called EE (Escuela de Engles: School of English) in Mexico City, Mexico. You hire local individuals in Mexico who can speak English and train others how to speak English. You have a small subsidiary in Mexico, which has an office and an attached classroom that you lease. Clients can come to your subsidiary for a 1-month structured course in English, taught by your employees. You advertise in the local newspapers to promote the teaching services offered by your business.

You also serve some individuals from Mexico who have taken English classes and want to come to the U.S. for a one-week intense course in which they can improve and practice their English and practice it. All revenue and expenses associated with your business are denominated in Mexican pesos. Most of the profits from the business in Mexico are sent to you by your subsidiary at the end of each month. While your expenses are somewhat stable, your revenue varies with the number of clients who sign up for the English-speaking courses in Mexico.

You only need to know this background so that you can answer the related questions that are asked about your business throughout the term. Answer each question as if you were serving on the board of your business or as a manager of the business. The questions in the early chapters force you to assess the firm's opportunities and exposure, while the later chapters force you to offer your input on potential strategies that your business may pursue.

Questions

Your business provides DVDs for free to customers who pay for the English courses that you offer in Mexico. You consider the idea of mass production of the DVDs in the U.S., so that you can sell (export) them to distributors or to retail stores throughout Mexico. You would price the DVDs in dollars when exporting them. The DVDs are not as effective without the teaching but can be useful to individuals who want to learn the basics of the English language.

a. If you pursue this idea, explain how the factors that affect international trade flows (identified in Chapter 2) could affect the Mexican demand for your DVDs. Which of these factors would likely have the largest impact on the Mexican demand for your DVDs? What other factors would affect the Mexican demand for the DVDs?

b. If you believe the Mexican government would impose a tariff on the DVDs exported to Mexico, how could you still execute this business idea at a relatively low cost while avoiding the tariff? Describe any disadvantages of this idea that would avoid the tariff.

Reference no: EM133559875

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