Blades Inc
Case Study: Blades, Inc – Assessment of Purchasing Power Parity
Summary:
Blades Inc, a US based company that manufactures roller blades, is currently importing from and exporting to Thailand. The decision to work with Thailand resulted from the realization that there were little to no foreign or Thai competitors and Thailand’s potential growth as a country was on the rise. As a result Blades entered into an agreement with Entertainment Product, a Thai retailer, for an annual purchase contract lasting 3years. This agreement stated Entertainment Product would buy 180,000 pair of Blades’ top product, Speedos, annually at a fixed baht-denominated price; which would ultimately result in 10% of Blades’ revenue.
Additionally, the decision was made to import certain rubber and plastic components from Thailand. Due to the country’s ability to produce these items at a cheaper rate Blades believed they would be able to keep their cost low. However, Blades failed to enter into an agreement on the price of the plastic and rubber components making them susceptible to the varying price changes. These fluctuations were caused by the country’s rise in inflation. As Blades made all purchases of these components in baht the higher the currency the more money spent on these items; raising their cost. With the purchase of these components Blades currently incurs approximately 4% of their cost of goods sold in Thailand alone.
In this case Blades CFO, Ben Holt, is concerned about Thailand’s inflation levels. Although Blades has an agreement with Entertainment Products for an annual purchase amount Holt has begun to question whether it was a good idea to agree to a fixed price with no inflation considerations in the contract. Also, he is concerned about the company’s cost of goods sold as Blades did not enter into a fixed price for the imported plastic and rubber components invoiced in baht making them subject to increases in the price due to inflation in their free
Summary:
Blades Inc, a US based company that manufactures roller blades, is currently importing from and exporting to Thailand. The decision to work with Thailand resulted from the realization that there were little to no foreign or Thai competitors and Thailand’s potential growth as a country was on the rise. As a result Blades entered into an agreement with Entertainment Product, a Thai retailer, for an annual purchase contract lasting 3years. This agreement stated Entertainment Product would buy 180,000 pair of Blades’ top product, Speedos, annually at a fixed baht-denominated price; which would ultimately result in 10% of Blades’ revenue.
Additionally, the decision was made to import certain rubber and plastic components from Thailand. Due to the country’s ability to produce these items at a cheaper rate Blades believed they would be able to keep their cost low. However, Blades failed to enter into an agreement on the price of the plastic and rubber components making them susceptible to the varying price changes. These fluctuations were caused by the country’s rise in inflation. As Blades made all purchases of these components in baht the higher the currency the more money spent on these items; raising their cost. With the purchase of these components Blades currently incurs approximately 4% of their cost of goods sold in Thailand alone.
In this case Blades CFO, Ben Holt, is concerned about Thailand’s inflation levels. Although Blades has an agreement with Entertainment Products for an annual purchase amount Holt has begun to question whether it was a good idea to agree to a fixed price with no inflation considerations in the contract. Also, he is concerned about the company’s cost of goods sold as Blades did not enter into a fixed price for the imported plastic and rubber components invoiced in baht making them subject to increases in the price due to inflation in their free