This case study is based on a business that you could easily create: a business that teaches individuals in a non-U.S. country to speak English. Although this business is very basic, it still requires the same types of decisions faced by large MNCs. Assume that you live in the United States and invest $60,000 to establish a language school called Escuela de Inglés in any other XYZ country. You set up a small subsidiary in XYZ country, with an office and an attached classroom that you lease. You hire local individuals in your country that can speak English and teach it to others. Your school offers two types of courses: a one-month structured course in English and a one-week intensive course for individuals who already know English but want to improve their skills before visiting the United States. You advertise both types of teaching services in the local newspapers.
All revenue and expenses associated with your business are denominated in Currency of XYZ country. Your subsidiary sends most of the profits from the business in XYZ country to you at the end of each month. Although your expenses are somewhat stable, your revenue varies with the numbers of clients who sign up for the courses in XYZ country.
This background is sufficient to enable you to answer the questions that are asked about your business. Answer each question as if you were serving on the board or as a manager of the business.
1. Your business provides CDs for customers who pay for the English courses that you offer in XYZ. You are considering mass-producing the CDs in the United States so that you can sell (export) them to distributors or to retail stores throughout XYZ country. You would price the CDs in dollars when exporting them. The CDs are less effective without teaching, but still can be useful to individuals who want to learn the basics of the English language.
Suppose that you believe the XYZ country government will impose a tariff on the CDs exported to their country. How could you still execute this business idea at a relatively low cost while avoiding the tariff? Describe any disadvantages of this idea to avoid the Tariff.
2. Assume that the business in XYZ country grows. Explain how financial markets (equity , bond and other) could help to finance the growth of the business.
3. Given the factors that affect the value of a foreign currency, describe the type of economic or other conditions in XYZ country that could cause the currency of your XYZ country to weaken and thereby to adversely affect your business. Answer by taking real data and information of XYZ country.
Instructions for Students:
Each individual is to provide answer on the above 3 questions by choosing any one country (in place of XYZ country used above). (Each student must choose different country from his/her class fellow).