Joint Venture Joint Venture

Managing in Globalized Economy -1

Introduction

This is a research paper analysing the feasible choices or options of entry strategy. The case involves the introduction of ABs honey into the new international markets, such as Brazil. To analyse the feasible options, advantages and disadvantages of factors facilitating entry are discussed. These factors include exporting, joint venture, wholly owned subsidiary, turnkey contracts, licensing, and franchising.

Exporting

Exportation requires coordination between the involved parties. For ABs honey exportation, Australia and Brazil have good logistics systems that would facilitate products movement and enjoy the following advantages.

Advantages: Exporting is one means of increasing the sales potential; it enlarges the market share that a company earns money from, otherwise the company is stuck trying to make revenue only out of the local market. In case of the ABs honey, exportation to Brazil would increase sales. Increasing profits is obvious, since when sales increases revenues also follow the same trend. Entry strategy is to make a profit, and the bigger the profit is the better it is for the company. Exports can contribute to the augmented profits, since the average purchase numbers or orders from the international clients are often bigger than those from the local buyers, as importers normally order by the container, as opposed to the pallets used by the domestic customers. It is risky being tied to the local market alone. Exports sales to a various diverse foreign markets can assist to decrease the risk that the corporation may be exposed to due to the fluctuations in local business cycles (Hatten & Timothy, 2012).

Disadvantages: Exporting requires more time, energy, and money to make it feasible. Economical and legal requirements from the partner country affect the business growth directly. Government policies on the foreign investments have an impact on exportation process (Hatten & Timothy, 2012).

Joint Venture

Joint venture between ABs honey fortified with breakfast cereals from Kellogg (Australia) Pty Ltd. This would ensure that benefits of joint venture are fully exploited.

Advantages: Entering a joint venture leads to accessing additional financial resources due to the asset sharing. Another advantage is that venturing allows sharing the economic risks with the co-venture; it pays to have someone to share responsibility in case business encounters trouble. It is widening economic scope practices that will assist the company to grow fast. It assists in trapping new technologies, methods, and strategies. Another advantage associated with the practice is the building relationships with vital contacts (Campbell et al., 2009).

Disadvantages: As responsibility is shared, profit is also shared. Control power diminishes, since consultation is required to do certain things. Uncontrolled or unmonitored augment in the operating expenses is another disadvantage associated with joint venture (Campbell et al., 2009).

Wholly Owned Subsidiary

A parent ABs honey company owns 100 percent of a wholly owned subsidiary, which typically operates separately with its own senior management organization, products (ABs Honey), and customers.

Advantages: The financial merits of a wholly owned subsidiary comprise simpler reporting and additional financial resources. The parent corporation can merge the results of its wholly owned subsidiaries into single financial declaration. The two corporations can incorporate their financial and other data technology systems in order to rationalize business procedures and to reduce costs. The major company normally maintains direct or indirect functional control over its wholly owned subsidiaries. The extent of control differs, but it is understood in the relationship (Otto, 2009).

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Disadvantages: The financial drawback is that an implementation error or malfeasance at a subsidiary can gravely affect the financial deliverance of the parent corporation. The disadvantages to this kind of arrangement include a concentration of threat and a loss of operational elasticity (Otto, 2009).

Turnkey Contracts

A turnkey contract is a kind of agreement, where a self-governing agent gives a flat price to complete a venture. A benefit of this is that the development might be simpler than originally perceived, and so a huge profit is made. A drawback would be in case, if the venture needs a lot more resources or time; in this case, capital is lost (Huse, 2001).

Licensing

The Australia ABs honey company enters into an agreement with Brazil Company as a licensee and, thus, obtains the right to utilize the production or exportation process, a trademark or a patent design, technical information or some amenity in return for some charge or royalty. It is frequently the fastest way of entering the foreign markets. The cost of licensing between the countries are reduced due to the patent between them (Sherman, 2004).

Advantages: Licensing mode carries low investment cost and financial risks for the licensor. Licensor investigate the foreign market at a lower cost and basically enjoys the low cost of investment.

Disadvantages: reduced market opportunities, both parties have to maintain the product quality and to promote it. Costly and tedious litigation disadvantages are associated with licensing.

Franchising

ABs honey product is intended to make entry into Brazils market. This make franchising irrelevant, since franchising is meant for the established business models and would be in appropriate for a single production (Sherman, 2004).

Brazilian foreign investment has been growing due to the growth in infrastructure; thus, would facilitate success of entry strategies.

Elements of competitive advantages

Possible entry in regards to exporting feasibility

Conclusion

The comparison and contrast of the feasibility entry have been done, and it is evident that ABs Honey would get easy entry into Brazilian market due to the favourable factors mentioned above. Brazil and Australia have direct foreign investment agreements that facilitate the trade.

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