Blade Inc Human Resources Process - Case Study Example

Blade Inc. would be better off acquiring Skates ‘n’ Stuff other than establishing a subsidiary in Thailand. Skates n stuff has a positive NPV thus implying it will turn out to be a profitable venture for Blade Inc. The NPV being 2,290,916, 656 is the first positive sign that the Chief financial Officer for Blades should highlight for the Board. Setting up a subsidiary company is a very expensive venture. First, the location must be identified. This could incorporate land buying costs, leasing or renting. When considering the location, factors like closeness to potential customers and raw materials might force the company to buy a high valued piece of property to set up the business on. Extensive research must be done in the area so as to establish the appropriate places. For Blade Inc. to open a subsidiary branch in Thailand, they would have to go through the cost of market research, identify an appropriate site or property and then acquire it. This is a costly and time consuming process which would be by-passed if they acquired Skates n stuff which would come with already acquired property. After the site has been acquired, appropriate buildings have to be put up or if a property was leased, renovations are done to transform the building into a business area for Blade Inc. the complete building is also furnished according to Blade Inc.’s specifications. This is also a costly affair. The acquisition of Skates n stuff would be way less costly. Other that necessary renovations (which might not be necessary since it is at the same level of production and operations as Blade Inc) there are no other money consuming procedures are required for business to proceed. Another point that the Chief financial Officer for Blades should highlight is the fact that in the event Blade Inc. decides to establish a subsidiary, they will have to incur the cost of staff training. After setting up in the new location, Blade Inc. will be required to look for new staff and get some people from the already existing branches to train the new staff. This training period costs a lot since the new staff is already on the payroll and the inconvenience of getting trainers from their other branches also affects business. When training is complete, the new staffs take over the branch. Their salaries will have to come from Blade Inc.’s reserves before the branch breaks even. This could take months. This cost cannot be compared with the situation where they decide to acquire Skates n stuff. Skates n staff will have their already trained staffs who are already accustomed to working there. For the subsidiary company’s business to pick, Blade Inc. will have to spend a lot of money in marketing and advertising so as to establish itself in the market. Advertising can be approached in many angles depending on the kind of clientele Blade Inc. is targeting. Skates n stuff has already established itself in the market and has a well distribution network. Thus, if Blade Inc. decides to acquire Skates n stuff, they will not incur the expenses attached to advertising and marketing and business will pick at a very fast since there is an already established distribution network. Skates n stuff has formed its own customer base over the period of time and these customers will still transact business with Blade Inc. when the acquire Skates n stuff. In general, the chances of Blade Inc. to succeed are higher if they decide to acquire Skates n stuff. If the board disagree with the Chief financial Officer and go with the subsidiary company option, they will be putting Blade Inc. through a very risky venture. As much as the Chief Financial Officer can prove to the board that the acquisition of Skates n stuff is a more profitable investment than establishing a subsidiary company in Thailand, it is also wise for him to consider the cost at which Blades Inc. will have to pay to acquire Skates n stuff. During the process of acquisition of Skates n stuff, it is important for Blade Inc. to negotiate for the best offer. The figures he gets will be used to make his point stronger to the board. Given the same level of production and operations, schedules showed that Skates n stuff will be profitable for ten years and after ten years, it would be disposable at a price of 1.1 billion Thai Baht. This figure is the cost of machinery and the Skates n stuff plant itself. Therefore, the price of acquisition should not go beyond this amount. For this to be considered a profitable venture, the price has actually to be lower than the 1.1 billion. The lower the price goes below the 1.1 billion mark, the more profitable the venture will be hence the better for Blade Inc. anything more than 1.1 billion should not be encouraged. Any figure above 1.1 billion Thai Baht will generate a negative NPV, hence the venture will be considered a loss. NPV is defined as “the difference between the present value of cash inflows and the present value of cash outflows. NPV is used in capital budgeting to analyze the profitability of an investment or project.” When the NPV of a company is calculated and is found to be positive, the company is believed to be making profits in its business and vice versa, when the NPV is found to be a negative value, the firm is believed not to be making a profit. When acquiring already established firms, it is wise to evaluate the NPV of the firm in question so as to establish whether the venture will be profitable or not. It is advisable to only acquire firms that register a positive NPV. The NPV for Skates n stuff was found to be 2,290,916,656. This is a positive NPV that shows Blade Inc. board members that the acquisition will turn into profits and thus it is a direction worth considering. For Blade Inc. to realize a profit, it has to acquire Skates n stuff at a cost below the final estimated disposal price. Thus, Blade Inc. will have to acquire the other company at a cost of at most 1 billion or below since its final estimated price was set at 1 billion Thai Baht. Blade Inc. will have to negotiate for this price with the people at Skates n stuff. Acquiring Skates n stuff for a price higher that 1 billion will generate a negative NPV which directly means the venture will not be profitable as hoped for. The lower the acquisition price for Skates n stuff, the better for Blades Inc. An appropriate price should be set at around 700-800 million Thai Baht to ensure a positive NPV is maintained. Another important angle that the board is likely to look at this situation is the Thai environment and how it could affect the state of business in Skates n stuff in the future. Factors like the political environment; infrastructure and government policy on foreign investments could adversely affect the inflation rates in the country and affect the business in general. Investing in a new environment needs extreme caution against such factors. Since the cost of production and the production processes do not change in Skates n stuff, it will be fairly easy to know the appropriate amount of money to sell their products at so as to make a profit. Despite this fact, there are other factors that could affect the status of the business. The stability of Thailand is very important. Both political and economic stability is very important for the success of any business operating in that country. Recent research has shown that in 2010, the economic status of Thailand was rated as uncertain. Every business is a risk in its own way but every business man tries to minimize the risk that his business will encounter. When the economic environment is rated as uncertain, it discourages potential investors. Even though there might be some truth in this prediction, the economic environment could change and returns of the business could rise. Before starting the business, intensive research should be done to verify the facts. Another fact that should be considered is the policies in the country. In every advanced economy, the uncertainty is about the timing of their exit policy and if the commitment by the economy to its fiscal consolidation will be fulfilled. On the other hand, for the young economies that have markets emerging, the uncertainty is about the approach that would be used when making policy that manages the flow of capital. Most Asian countries, including Thailand, are in this bracket. The uncertainty in this region touches on management of the exchange rate, their monetary policies and the control of capital. Policy uncertainty is a serious concern for investors in most growing markets. This could be a big turn off for investors planning to invest in Thailand. Thailand is putting a lot of effort to straighten its policies so as to attract investors from other countries and the world over. They have started policy normalization and have raised the policy interest rates by 25 basis points. This is the first raise from the global economic crisis that forced Thailand to lower the interest rate by 2.5% to support the economy during that hard time. Assessment by various researchers has shown that the trend of economic recovery could continue into 2011. This is also supported by the overall global economic recovery. The only sector that is unlikely to share this tremendous growth is the tourism industry that suffered greatly after the political unrest that occurred in mid last year. Tourist sectors are easily bruised by political turmoil’s as can be seen in Thailand. As for the rest of the economic sector, it was not affected as much as analysts had expected by the mid last year political turmoil. This is considered a good indication of the strengthening of the Thai economic environment. If Blade Inc. is to look carefully at the trends being displayed by the Thai economy, investing there would be a great idea. There are risks involved in the long term investment in Thailand. In the case of a persistent political crisis, analysts do not think that the Thai economy is strong enough to handle a persistent crisis. If they are right, then investing here must be looked at very keenly. It is clear that the political environment directly impacts the economic performance in a country especially if it is a growing economy. Poor infrastructure can also be a very big hindrance to the economy. It directly affects the cost of buying raw materials, distribution of finished goods and marketing of the goods. Some years back, Thailand’s infrastructure would be rated as below average. The economy was growing at a very fast rate but the infrastructure failed to keep up. Economists believe that the economy at that time would have grown even further had it not been for the obstacles brought about by poor infrastructure. Thailand learned from this experience and drastically improved their infrastructure. Today, Thailand is known for its vast road network which is well distributed almost all over the country. Other modes of transport that could substitute the road transport are the rail and sea transport. Thailand has also heavily invested in these sectors and they go a long way in raising the economic state of the country. The state of communication in a country is also a limiting factor to the economy. The introduction of internet communication has improved the economy by making communication easier. Today, even monetary transactions are done online. This reduces time and the cost involved in carrying out the transaction. In Thailand, the population has embraced internet usage thus economic activities are carried out more easily. A few years back, there were a lot of factors that discouraged investors from investing heavily in Thailand. The Thailand government has taken tremendous steps towards correcting this situation. Other than enhancing the infrastructure, it has also taken steps in making better policies that are favorable to the investors. Considering all these factors, Thailand is a good country for Blade Inc. to invest. The acquisition of Skates n stuff could eventually bring attractive returns. References Andres, L & Foster, M 2005, The Impact of Privatization in Firms in the Infrastructure Sector in Latin American Countries. World Bank, Washington D.C. Canning, D 1999, The Contribution of Infrastructure to Aggregate Output, IMF Staff Papers César, C & Luis, S 2004, The Effects of Infrastructure Development on Growth and Income Distribution, Central Bank of Chile Working Papers. Cynthia, C, Tyrrell, D, Somchai, J, Anil, K & Wu. G 2004, Assessing The Impact Of Transport And Energy Infrastructure On Poverty Reduction, United Nations publication. David, C & Esra, B 1999, The Social Rate of Return on Infrastructure Investments, World Bank, Washington D.C. Gonzalez, J, Guasch, L & Serebrisky, K 2007, Addressing High Logistics Costs and Poor Infrastructure for Merchandise Transportation and Trade Facilitation, World Bank, Washington D.C. 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