None of our client companies operate in a foreign country. They don’t sell into a foreign market. Nor do they manufacture in a foreign market. So we will use a hypothetical manufacturing company, Daewoo, for the assignment.
Daewoo is an American automobile manufacturing company that makes cars in the U.S. and sells in the U.K. market. Assume that a majority of its revenue comes from the U.K. market. Read the attached article, and answer the following questions.
The Bank of England increased its interest rates. the purpose of them doing such was to keep inflation from being imbedded into the national economy. Britain is currently seeing a government change and a new monarch. This makes Britain a fairly shaky place at the time as their economy is floundering and nations are alwyas more vulnerable at times of reasonably large change especially with governments and leaders especially. This poses a large risk to Daewoo as they are counting on this market for sales and less people are going to be able to afford their product especially with consumer prices raising 10% from the year prior. this is going to impact their profits very badly as they will still spend all this money bringing their products to the U.K. and will get less sales in return hurting their profit margin. The company should limit their exports and definitely spend less on thier UK market try to get exporting to local markets like Canada or Mexico and also try to sell more cars in the country of origin America.
The British pound is decreasing in value and was recorded recently trading for $1.12. This means that the US Dollar is worth more than the trade value of the pound. This would harm the profits of the company cause a car sold inside the UK would have 12 cents less in revenue than in America. To combat this Daewoo should try trading more in dollars and again try selling more in the US as it consistently has a strong dependable currency.
What if, instead, Daewoo made cars in the U.K. to sell in the U.S. market? How would your answer above change? Elaborate.
Daewoo would spend more on producing the cars as the U.K. has less industry and the price of materials would be higher. The shipping costs would still be fairly similar if not the same if not the same. they would also have to sell less cars to make the same amount of profit. The only way my anwsers above would change from this is I would focus more on selling in the UK since they are made there although additionally I would still focus on exporting just adding Europe to the market i would additionally add to.