International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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The manager of a microchip (chip for short) manufacturing firm can choose from various production technologies and must determine whether or not to
(a) move part of their production to a foreign plant, and
(b) use the same technology in their foreign plant that they use in their domestic plant.
Chip manufacturers can produce using either sophisticated equipment and relatively few workers (prevalent choice in the US) or many workers and less complex equipment (prevalent choice abroad).
U.S. chip firms have been moving much of their production abroad for many years. Worldwide sales of chips made in the U.S. dropped from 66% in 1976 to 34% in 1998, and to 17% in 2011, then rose slightly to 21% in early 2015.
U.S. chip firms moved their production abroad because of lower taxes, lower labor costs, and capital grants provided by foreign governments. These grants reduce the cost of operating a foreign facility by as much as 25%, compared to the costs of running a U.S. plant.…
An Australian company has two manufacturing plants, one in Australia and the other
in a Southeast Asian country. Both produce the same product, each for sale in their
respective countries. However, their labour productivity and capital productivity
figures are quite different. The analyst thinks this is because the Australian plant
uses more automated equipment for processing while the other plant uses a higher
percentage of labour.
In your own words, explain how the aforementioned factors can cause productivity
figures to be misleading. Is there another way to compare the two plants that would
be more meaningful?
Myers Inc. manufactures biodegradable bottles. Since this is a patented method of
producing environmentally-friendly plastic, they cannot use an overseas contractor.
They will make the products in the United States. What criteria would you use to
assess their business model?
O The production expertise scale will tell if the company is ready to partake in such a venture.
O The fixed costs need to be compared to other similar companies in the U.S. The
standardization of the product is making it more expensive to produce, as the copyrights
are implemented.
O Since the product will be outsourced, the manager needs to assess the simplicity of the
supply chain. Even though the manufacturing costs are high, the transportation costs will be
low.
O The minimum efficient scale will tell the minimum volume they need to produce to reach
economies of scale. The quality of the in-house product needs to be constantly inspected,
as they will not use outside sourcing.
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