Week 7 Homework
Week 7 Homework
Mohamed E. Abdelrahman
Prof: James Glenn
International Finance FIN: 535
Strayer University
Spring 2013
15. DFI Strategy:
A. What comparative advantage does JCPenney have when establishing a store in a foreign country, relative to an independent variety store?
B. Why might the overall risk of JCPenney decrease or increase as a result of its recent global expansion?
C. JCPenney has been more cautious about entering China. Explain the potential obstacles associated with entering China.
ANSWER:
A. J.C. Penney has name recognition, which could result in customer trust, and therefore a
stronger demand for its products. It also has marketing expertise that it applies to each store. It
also has economies of scale, because it could buy its products in bulk and distribute the products
to the stores that need those products.
B. Its risk may decrease because it has a strategy that allows it to utilize its expertise, while
relying on foreign expertise for part of the business that requires knowledge about foreign
cultures. Also, it has created more international diversification by spreading its store throughout
more foreign markets, so that its overall performance is not as heavily influenced by U.S.
economic conditions.
Its risk could have increased if it selected local partners in the foreign countries that do not
properly apply their knowledge of the local culture when making decisions about the types of
products that the store should carry.
C. Obstacles include high inflation in China, difficulties in converting foreign currency,
difficulties in efficiently distributing products across stores, and the lack of disposable income
for many China residents.
16. FDI Location Decision.
A. Assume that the Japanese yen strengthens against the US dollar over time. How would this be expected to affect the profits earned by the Chinese subsidiary?
B. If Decko Co. ltd had
Mohamed E. Abdelrahman
Prof: James Glenn
International Finance FIN: 535
Strayer University
Spring 2013
15. DFI Strategy:
A. What comparative advantage does JCPenney have when establishing a store in a foreign country, relative to an independent variety store?
B. Why might the overall risk of JCPenney decrease or increase as a result of its recent global expansion?
C. JCPenney has been more cautious about entering China. Explain the potential obstacles associated with entering China.
ANSWER:
A. J.C. Penney has name recognition, which could result in customer trust, and therefore a
stronger demand for its products. It also has marketing expertise that it applies to each store. It
also has economies of scale, because it could buy its products in bulk and distribute the products
to the stores that need those products.
B. Its risk may decrease because it has a strategy that allows it to utilize its expertise, while
relying on foreign expertise for part of the business that requires knowledge about foreign
cultures. Also, it has created more international diversification by spreading its store throughout
more foreign markets, so that its overall performance is not as heavily influenced by U.S.
economic conditions.
Its risk could have increased if it selected local partners in the foreign countries that do not
properly apply their knowledge of the local culture when making decisions about the types of
products that the store should carry.
C. Obstacles include high inflation in China, difficulties in converting foreign currency,
difficulties in efficiently distributing products across stores, and the lack of disposable income
for many China residents.
16. FDI Location Decision.
A. Assume that the Japanese yen strengthens against the US dollar over time. How would this be expected to affect the profits earned by the Chinese subsidiary?
B. If Decko Co. ltd had