Academic journal article Journal of the International Academy for Case Studies

Mia Motors: The Arrival of an International Firm into the American economy.(Instructor's Note)

Academic journal article Journal of the International Academy for Case Studies

Mia Motors: The Arrival of an International Firm into the American economy.(Instructor's Note)

Article excerpt

CASE DESCRIPTION

The primary subject matter of this case concerns the entry of a Korean multinational firm into the U.S. automobile industry and the development of their pioneering management challenge to not only exist and prosper but to explore their hopes for corporate growth in a market dominated by large multinational firms. The issue of valuation and use of the firm's public shares is a central focus for the case evaluator and student. Determining methods for exchange rate risk and stock to American Depository Receipt (ADR) choice to finance expansion plans into foreign ventures (Assembly plant in Alabama) are the themes addressed in the case. How should the automobile industry and the American stock market value this firm's shares as they compete against major competitors who are virtual giants in the U.S. auto world namely, the big three: Ford, GM and Chrysler? The case has a difficulty level of three, appropriate for first year graduate level. The case has both current and historical applicability for MBA students concentrating in corporate finance, international financial management, or multinational corporate entrepreneurial relations and serves as a pedagogically sound tool for applied market strategy by Korean firms and the valuation of the shares for multinational auto designer and manufacturing firms. The case is designed to be taught in three class hours and is expected to require 6-8 hours of outside preparation by students.

CASE SYNOPSIS

This case affords students an opportunity -- from both a strategic and financial point of view -- to evaluate Mia Motors decision to enter the U.S. to manufacture and sell automobiles and the special international funding and use of ADR public offerings to finance their planned installation and implement operations of their U.S. assembly plant in Alabama. The analysis and discussion basis for the case hinges on the international financing of its capital needs by means of traditional debt and equity-ADRs. The corporate objective of this Korean firm is essentially to establish assembly plants in the U.S and to determine the extent of funding necessary to allow for their successful operations with a product simply known as " Foreign Import" which is widely known and accepted now. All data elements and statements were derived from public Internet data and public financial data, and Mia MOTORS represents a fictitious firm although its financials may resemble others in the international automobile industry. No private or insider information was provided or extracted from other company files or other such cases

INSTRUCTORS' NOTES

PROBLEM STATEMENT

In August 1999, the Board of Directors of Mia Motors Incorporated faced the decision threshold concerning several issues facing its "expanding to America plan" for the firm including: (1) how does this firm survive in an international automobile industry market when it is but a small dot on the industry horizon, (2) which international market would best "fit" the mission and direction of the firm (i.e., further expansion in Europe or an Assembly plant in the U.S.); and (3) how would the firm fund its international plans. First, a consideration is made of what funding sources are available from its parent firm in Korea or, if that is not available, what can be acquired from U.S. exchange markets based on the suggestions of an underwriting team of J. P. Morgan Chase, Inc. and Wachovia Securities, Inc., who would be handling (or provide the sponsoring of an ADR issue) the funding issue. According to Wall Street estimates and CNN News.com, the underwriters have agreed to fully underwrite 300,000 shares of Mia's common stock for ADRs depending on the firm's decision. The underwriters were also granted the option to purchase up to 10,000 additional shares from the company to cover any over-allotments. There were numerous risk factors to consider with respect to an equity issue, including the company's limited U. …

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