1) ABC Co. has recognized numerous opportunities to expand in foreign countries and has assessed many foreign markets, including Brazil, Greece, Mexico, Portugal, Singapore, and Thailand. It has opened new stores in Europe, Asia, and Latin America. In each case, the firm was aware that it did not have sufficient understanding of the culture of each country that it had targeted. Consequently, it engaged in joint ventures with local partners who knew the preference of the local customers.
a. What comparative advantage does ABC have when establishing a store in a foreign country, relative to an independent variety store?
2) By spreading its store throughout in the foreign market it has created more international diversification , so that its overall performance is not as heavily influenced by U.S economic conditions Now suppose that ABC establishes a Chinese subsidiary that produces cell phones in China and sells them in Japan. This subsidiary pays its wages and its rent in Chinese Yuan, which is stable against the dollar. The cell phones sold to Japanese marketed are denominated in Japanese yen. Assume that ABC expects that the Chinese Yuan will remain stable against the dollar. The subsidiary’s main goal is to generate profits for itself, and it reinvests those profits. It does not plan to remit any funds to the U.S. parent.
a. Assume that the Japanese yen strengthens against the U.S. dollar over time. How would this be expected to affect the profits earned by the Chinese subsidiary?