Sabre Computer Corporation Case Study Cost of Capital
Sabre Computer Corporation is a U.S.-based company that plans to participate in joint ventures in Mexico and in Hungary. Each joint venture involves the development of a small subsidiary that helps produce computers. Sabre’s main contributions are the technology and a few key computer components used in the production process. The joint venture in Mexico specifies joint production of computers with a Mexican company owned by the government. The computers have already been ordered by educational institutions and government agencies throughout Mexico. Sabre has a contract to sell all the computers it produces in Mexico to these institutions and agencies at a price that is tied to inflation. Given the very high and volatile inflation levels in Mexico, Sabre wanted to ensure that the contracted price would adjust to cover rising costs over time. The venture will require a temporary transfer of several managers to Mexico plus the manufacturing of key computer components in a leased Mexican plant. Most of these costs will be incurred in Mexico and will therefore require payment in pesos. Sabre will receive 30 percent of the revenue generated (in pesos) from computer sales. The Mexican partner will receive the remainder. The joint venture in Hungary specifies joint production of personal computers with a Hungarian computer manufacturer. The computers will then be marketed to consumers throughout Eastern Europe. Similar computers are produced by some competitors, but Sabre believes it can penetrate these markets because its products will be competitively priced. Although the economies of the Eastern European countries are expected to be somewhat stagnant, demand for personal computers is reasonably strong. The computers will be priced in Hungary’s currency, the forint, and Sabre will receive 30 percent of the revenue generated from sales.
Guidelines for Case Study: For this assignment, you are to evaluate the mini case study. The central issue in your analysis should be to describe what the case tells us about the theory and practice of International Finance Management. In analyzing the case, you should draw upon class readings, internet resources as well as personal experiences that may be relevant. Some general questions that you may want to consider include the following:
What are the issues?
Who are the actors?
What are the organizational forces?
What are the external forces?
What theoretical perspectives or models help you understand what happened in the case? How? What does the case tell us about: The environment within which International Finance occurs? The nature of the International Finance Management system and the policy making process? The decision making process? Leadership and management? Administrative ethics?
What recommendations would I make?
How would I propose to do things differently?
Once you have thoroughly analyzed the Case Study, you should compose a minimum two- page response to the following questions: 1. What are the organizational and external forces at work within this case? 2. Explain the environment within which this International Finance situation is occurring. 3. How might Sabre Computer Corporation finance their exports? Which methods of payments would be most beneficial for the organization? Within the confines of this case study, describe what occurs with the management of accounts during international cash transfers involving network capital.
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