Acme is setting up a greenfield production facility overseas. The two finalist countries are Finland and Japan. This report will outline the advantages and disadvantages of each of these countries and make a recommendation on how Acme should proceed.

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One of the most significant issues when considering international expansion of this type is foreign currency exposure. Unlike its Nordic neighbors, Finland uses the Euro, which is in a of appreciation vs. The dollar. This means that the facility’s factor costs, which will be denominated in Euros, will become more expensive over time if this trend continues. The Japanese yen, by contrast, is in a against the dollar. This will mean a decrease in factor costs should the trend continue. One benefit to both of these currencies is they are subject to liquid international derivatives markets, which will allow us to implement hedging programs to limit our foreign currency exposure risk.

In terms of trade policies, Finland has a relatively liberal . A factory in Finland will give us access to the entire EU market, the world’s second largest. The Finnish government places a high priority on exports, particularly in the technology sector. Proximity to the Russian market is mitigated by both impending trade disputes regarding lumber and the fact that most of Finland’s trade with their larger neighbor comes under the auspices of the EU. Japan also has a free market economy. The Japanese have entered into fewer free trade agreements that the Finns, but have maintained open markets for factor materials and for exports.

The Finns have a favorable culture for setting up a business. They have an excellent education system and strong technological skills. Finns are multilingual, learning four languages in their school years, and have an international outlook that will support the presence of a foreign company. They have relatively high unemployment, giving us access to some of those highly-skilled workers. There are several distinct cultural features of the Finns that conflict with American culture, but none so significant that they cannot be overcome with some training.

The Japanese have much higher cultural barriers. Japanese culture is insular and difficult to penetrate for outsiders. Many Japanese do not speak English. Japanese corporate culture is also vastly different from our own, and American firms have difficulty establishing American corporate values in Japanese subsidiaries. However, Japanese corporate culture is moving more towards our own, with cornerstones such as the keiretsu and lifetime employment replaced by western concepts. Moreover, the Japanese are hard-working, loyal, highly-educated and have high technological literacy.

It is recommended that we set up greenfield in Finland. The cultural similarities will allow us to translate many of our operational competencies easily to the new facility. Setting up in Japan would be more appropriate for a joint venture where the local partner could help us navigate the cultural waters. The Finnish subsidiary will have full access to the Euro zone and regions with strong trade ties to the EU. Japan also has strong market access, but not as strong as the EU. The only drawback is the currency. If we contain our sales focus to the Euro zone, the currency exchange risk will be largely on paper. Moreover, adding Euro revenues will help improve the wealth of overall wealth of Acme in the face of declines in the dollar. Additionally, the Japanese subsidiary would rely on sales outside of Japan, resulting in a less ideal operating hedge than Finland would provide.

Works Cited

Eiteman, K.D., Stonehill, I.A., & Moffett, H.

(7th ed.). Boston, MA: Pearson Education, Inc.