Reference no: EM132213074

You are the CEO of Smelly Foot shoe company, based in the California. Your company lost $3.8 million last year because of difficulty competing with American shoe companies who have opened up factories in China, Vietnam, and Bangladesh. These other companies have been successful because their labor costs are much lower than your company’s costs.

You have decided that Indonesia is a good place in which to begin production. There are no foreign shoe companies in Indonesia, but six Indonesian shoe companies share the Indonesian market.

1. You have decided to proceed by way of foreign direct investment. Your first decision is whether to acquire one of the Indonesian show companies (mergers/acquisitions) or to build a new factory from the ground up (greenfield). What factors should you consider in making your decision?

Other shoe factories in Indonesia pay their workers a very low average salary of 50 cents per hour. This is below a living wage – but is legal in Indonesia. It is not legal in your home country.

2. Should you pay your workers the same wage? Consider your answer within the framework of the concepts of, “Race to the Bottom” Utilize the concepts of relativist and absolutist ethics.

The five long-established major American shoe companies are fast losing money in the United States to shoe imports from Cambodia. They demand relief from the US Government.

3. What forms can such relief take? Who would benefit and who would lose? Could you argue for relief based on the concept of “infant industries”? Could you argue for relief order to assist the five American shoe companies gain “first mover” advantage?

4. You are theoretically in favor of free trade for your prosperous country. But what governmental interventionist arguments against free trade can you think of? Environmental? Human rights? Demands of inefficient producers? National security? Labor? Explain. What position would the WTO take toward these arguments?