Madura Chapter 14 Questions
1 Motives for FDI Some MNCs from developed countries are keen to enter dynamic emerging markets such as China. On the other hand, several Chinese companies have set up subsidiaries in developed countries such as Germany. How are the motivations of the Chinese companies different from developed country MNCs?
- Impact of a Weak Currency on Feasibility of FDI. Fisher and Paykel Appliances, a New Zealand manufacturer of white goods, plans to establish a subsidiary in Indonesia in order to penetrate the Indonesian market. Their executives believe that the Indonesian Rupiah’s value is relatively strong and will weaken against the New Zealand dollar over time. If their expectations about the rupiah’s value are correct, how will this affect the feasibility of the project? Explain.
- FDI Restrictions in Selected Industries Some countries restrict foreign ownership in selected industries such as banking, media and telecommunications.
- If Australia introduced fresh restrictions on foreign ownership in the real estate sector how would this affect Australian real estate companies? Australian home owners? Renters?
- If Australia removed previously existing restrictions on foreign ownership in the banking sector, how would this event affect Australian-owned banks? Bank customers? Shareholders of Australian banks?
- Impact of Import Restrictions. If Australia imposed long-term restrictions on imports, would the amount of FDI by non-Australian MNCs in Australia increase, decrease, or be unchanged? Explain.
- Capitalising on Low-Cost Labour. Some MNCs establish a manufacturing facility where there is a relatively low cost of labour, but they sometimes close the facility later because the cost advantage dissipates. Why do you think the relative cost advantage of these countries is reduced over time? (Ignore possible exchange rate effects.)
- Opportunities in Less Developed Countries. Offer your opinion on why economies of some less developed countries with strict restrictions on international trade and FDI are somewhat independent from economies of other countries. Why would MNCs desire to enter such countries? If these countries relaxed their restrictions, would their economies continue to be independent of other economies? Explain.
- FDI Strategy. Rip Curl, an Australian designer, manufacturer and retailer of surfing sportswear has decided to establish a subsidiary in Brazil that will manufacture and sell their products there. It expects that its cost of producing their products will be one-third the cost of producing them in Australia. Assuming that its production cost estimates are accurate, is Rip Curl’s strategy sensible? Explain.
- Reversal of FDI A number of global auto manufacturers have decided to stop producing cars in Australia and closed down their plants.
- What are the potential reasons behind an auto MNC’s decision to cease production in Australia?
- One solution to prevent a foreign auto manufacturer from leaving Australia is to offer a subsidy. Explain how a subsidy may induce an auto maker to remain in Australia?
- It was observed that even after receiving subsidies from the Australian government, several foreign auto makers decided to cease manufacturing in Australia. Explain the reasons behind this outcome.
- Comparing International Projects. Billabong Limited, a manufacturer of surfing clothing and sports equipment, wants to increase its market share by acquiring a target producing a popular clothing line in Europe. This clothing line is well established. Forecasts indicate a relatively stable euro over the life of the project. Harvey Norman Limited, a retailer of computer, furniture and related goods wants to increase its market share in the computer market by acquiring a target in Thailand that currently produces radios and converting the operations to produce PCs. Forecasts indicate a depreciation of the baht over the life of the project. Funds resulting from both projects will be remitted to the respective Australian parent on a regular basis. Which target do you think will result in a higher net present value? Why?
Additional Questions
- 1. Outline the motives for Slater and Gordon’s acquisition of Quindell and why the investment proved unsuccessful.
- Discuss the proposed Adani Coal mine in Queensland in terms of host government impacts.