MACASADIA, KIER M.

BSBA-3B
ACTIVITY 1: CASE STUDY

Myzo Co. (based in the U.S.) sells basic household products that many other
U.S. firms produce at the same quality level and these other U.S. firms have about
the same production cost as Myzo. Myzo is considering direct foreign investment. It
believes that the market in the U.S. is saturated and wants to pursue business in a
foreign market where it can generate more revenue. It decides to create a subsidiary
in Mexico that will produce household products and sell its products only in Mexico.
This subsidiary would definitely not export its products to the U.S. because exports to
the U.S. could reduce the parent's market share and Myzo wants to ensure that its
U.S. employees remain employed. The labor costs in Mexico are very low. Myzo will
comply with some international labor laws. By complying with the laws, the total costs
of Myzo's subsidiary will be 20% higher than other Mexican producers of household
products in Mexico that are of similar quality. However, Myzo's subsidiary will be able
to produce household products at a cost that is 40% lower than its cost of producing
household products in the U.S.

QUESTION:
1. Briefly explain whether you think Myzo's strategy for direct foreign investment is
feasible.

For foreign direct investment, Myzo's strategy is unworkable. The process of

making an investment outside of one's home nation is known as foreign direct
investment. Local manufacturers in the country where Myzo is considering
implementing the plan will charge a lower price than the Myzo method, which is not
identical. The strategy will not assist Myzo in earning a positive return or facilitating
growth and development.