(a) Identify which company has a comparative advantage in fixed-rate borrowing, and in floating-rate borrowing, respectively.
(b) What are the cost savings for each company by using swap?
(c) What are the net costs of borrowing for ABC and XYZ by using swap?
(d) Design and show the swap with a diagram (hint: assume ABC pays the bank LIBOR and the bank pays XYZ LIBOR).
(e) Regarding the criticism of the comparative-advantage arguments of the swap contract, why the spread between fixed rates is greater than the spread between floating rates?
At a time when the industry and the agriculture business sector have been characterized for the dominance of one of the "big sister"(Cargill, Bunge, Louis Dreyfuss, ADM) downstream and have been highly fragmented and heterogeneous upstream, the Halderman companies has achieved great success in U.S. soybeans industry in the early twenty-first (21st) century. The reason for the Halderman companies’ success in the U.S soybeans market can be largely attributed to factors including: Steady increase of soybean demand, technological and financial power, and innovation. In addition, when comparing to oversea competitors, the Hadlerman companies also have competitive advantages in areas such as: Factor condition (technological power), supporting industry (financial power), demand condition (increasing demand of soybeans world-wide till 2030), and government (agriculture support program). The former three are sustainable competitive advantages whereas the last one is not sustainable.
Looking forward, in order to manage future growth in the soybeans market and be an strong international company, my suggestions to CEO of the Halderman companies are: to continue to maintain the technological and financial power over other competitors, establish cooperation with oversea competitors, and enter market in other developing countries.
2.To be a strong International Player
Apparently, the trend for soybeans industry, and also agriculture industry as a whole, is going to be a global market. Therefore, following are my suggestions to the CEO of the Hadlerman companies in terms of managing future growth and the firm’s international strategy:
a.Continue to maintain the technological and financial power over other competitors;
b.Establish cooperation with oversea competitors
For example, HFMS can be a professional farm management service provider to soybean producers in Brazil and Argentina. Rather than competing directly in soybean market, the Halderman company can do business with other oversea competitors to generate more business values.
c.Enter market in other developing countries
As illustrated in Table 1, demand of soybeans in developing countries in Asia like China and India are strong through 2030, so it is wise for the Halderman companies to have a strong presence in those emerging markets.