Question

Assuming today was 1^st January 2019. You are the chief financial officer of a US-based company which manufactures and distributes office supplies. As the competition in local market was getting stiffer despite the company’s strong customer base, the Board of Directors (the Board) is considering for the company to expand its international business by penetrating to either the Canadian market or Mexican market through exporting. The company anticipates strong demand for office supplies in these two markets.

e) Assume the company has already established the subsidiary in both Canadian and Mexican markets by June 2019. By late December 2019, you realized that the COVID-19 has badly hit the global economy. Analyse how the pandemic may affect the performance of the overall company? Between the two subsidiaries, which is more adversely affected by the pandemic? (Hint: compare the economic impacts between the two markets, analyse exchange rate risk, and reflect your analysis with goal of the firm).

Answer 1

The pandemic affects the overall company's performance by decreasing the production, effectiveness, and profit of companies. During the epidemic, the company needs to connect with customers' changed habits, restructure the global resilience, build new resources for new opportunities, less workforce, and create new technology to strengthen the business process during the pandemic outbreaks.

I these two subsidiaries, Canadian and Mexican markets, the Canadian market is more affected because the Canadian market faces low stock market value. It is decreased to 1/3 compared to past stock value. The Mexican market automobile sector lost 3.6 million jobs during the pandemic and lost a large amount of market growth and GDP by giving compensation to employees and citizens to fight against the epidemic.

The economic growth in Canada is facing an 11% decrement in their GDP. The economic growth of the Mexican market is facing a 2% decrement in their GDP.

The exchange rate of Mexican peso as one us dollar is equal to 22.76 Mexican pesos, and a Canadian exchange rate of 1 Canadian dollar is equivalent to 0.743 us dollars.

The company goal is to anticipate the demand for office supplies. Still, during the pandemic, both markets were facing economic crises, and the company markets were at a lower position. The companies objective is not achieved during the pandemic in both of the markets.