You are the CEO of Smelly Foot shoe company, based in the California. Your compa

Question

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?

Explanation / Answer

Answer1:- At the point when organizations choose to extend their operation to another nation, one of the more vexing issues they confront is whether to create another operation in the remote nation utilizing a greenfield speculation or to just buy a current organization in the outside nation through an acquisition.
While the two techniques will, for the most part, achieve the objective of stretching out an organization's tasks to another outside market, there are a few reasons why an organization may pick one over the other.

Factors that are to be considered for making a decision:- a. Organizations might be more disposed to get a current remote business in circumstances where it is hard to enter an outside market. Purchasing an abroad business rearranges a great deal of conceivably monotonous subtle elements.

b. Besides, the acquired organization may as of now have a decent brand name and other impalpable resources, helping the organization begin off with a decent client base. Acquiring an outside organization can likewise give the parent organization simpler access to financing, in light of the fact that there might be less formality to explore around.

c. On the off chance that a foreign market is at or close to its immersion point, purchasing a current organization might be the main reasonable approach to enter.

d. A business may likewise make a green field venture if there is certifiably not an appropriate focus in the remote nation to gain. A greenfield speculation is a kind of Foreign Direct Investment (FDI) where a parent organization manufactures its operation in a non-home nation starting from the earliest stage. This is great in circumstances where organizations can increase neighbourhood government-related advantages by beginning up starting with no outside help in another nation, as a few nations give sponsorships, tax reductions or different advantages keeping in mind the end goal to advance the nation as a decent area for FDI

As the shoe company is already in a loss and in Indonesia already 6 local players are fighting for market share, the decision would go for merger and acquisition.

Answer2:- I think if the company has done a merger and acquisition and as per the case study the company already in a huge loss, we should pay workers close to the Indonesian industry standard.

The expression race to the bottom is frequently connected with regards to work. Numerous organizations make a huge effort to keep compensation low to secure net revenues while as yet offering a focused item. The shoe segment, for instance, is regularly blamed for taking part in a race to the base and utilizing wages and advantages as the objective of economies. The segment overall opposes work law changes that would expand advantages or wages, which, thusly, would build costs. Because of rising wages and advantages, many companies have moved the generation of products abroad to locales to bring down wages and benefits or have urged their providers to do as such utilizing their acquiring power. The occupations that stay in the local market - the in-store capacities - may cost more as laws change, however, the main part of work associated with assembling and creation can be moved to districts with bringing down cost work.

Answer3:- In response to these contentions, governments may authorize import obligations, duties, portions and swapping scale controls to keep worldwide contenders from coordinating or beating the costs of a newborn infant industry, in this way giving the baby business time to create and balance out. In such case, those five American companies would get benefited. As the infant industry concept says "Infant industry scholars contend that businesses in creating parts of the economy should be shielded to shield universal contenders from harming or obliterating the local industry. Infant industry businesses, they contend, don't have the economies of scale that more established rivals in different nations may have, and ought to be secured, just until the point when they have constructed an economy of comparable scale". If so the relief order to assist those shoe companies would definitely get the first mover advantage.

Answer4: These are contentions advanced to legitimize putting limitations or restriction on free trades:-

a. Environmental:- It is contended that free trade can hurt the earth on the grounds that LDC may go through common stores of crude materials for sending out. Likewise, nations with strict contamination controls may discover purchasers import the merchandise from different nations where an enactment is remiss and pollution permitted. Nonetheless, supporters of unhindered commerce would contend that it is up to singular nations to make natural enactment.

b. Human Rights:- This isn't generally an economic contention, however, more political and social. Numerous nations wish to shield their nations from what they see as an Americanisation or commercialisation of their nations

c. The demand of inefficient producers:- On the off chance that creating nations have ventures that are moderately new, at that point right now these industries would battle against universal rivalry. Be that as it may, on the off chance that they put resources into the business then, later on, they might have the capacity to pick up a near preferred standpoint. This demonstrates a relatively favourable position can change after some time.

d. National Security:- A nation may need to change its utilization propensities. Due to organized commerce, even destructive items like medicines and drugs etc, enter the residential market. To avert such, limitations on an exchange are required to be forced.

e. Labour:- Labour from the workforce is an administration in the commercial centre, and it's exchanged between nations simply like different merchandise and enterprises. On the off chance that work is less expensive in the remote nation, and there are no boundaries to re-bringing in the merchandise created in that nation, organizations in the nation with higher wages will move generation focuses to the nation with bringing down wages. While these distinctions level out because of the organized commerce, in the short to medium term, the specialists in the higher-wage nation will lose their employment in the covered manufacturing plants as well as need to take pay cuts they will be unable to bear the cost of giving their nation's higher average cost for basic items.

WTO should focus on cutting tariffs on modern merchandise and benefit and eliminating appropriations to horticulture makers and restricting utilization of hostile to anti-dumping laws.

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