In: Operations Management
You are the CEO of a large, name-brand consumer packaged goods
company. Some of your most well-known products include frozen
foods, bottled drinks and juices, salad/food dressings and snacks.
You have garnered considerable success in the domestic U.S. market,
where you have commanding market shares in almost all of your food
categories. On a recent trip to the international foods convention
in Vegas, you meet with some investment bankers who are following
your company's strategy and day-to-day events. They point out to
you that they would like to see you continue to sustain the high
growth rate of your company. In fact, they believe that an
important way to continue growing is by entering new overseas
markets. You concur, and are willing to hear what else they might
have to say. The bankers realize you are somewhat risk-averse, as
you are unwilling to make an outright acquisition of a company in a
market or region with which you are not familiar. However, they
note that are two potential alliance partners who would like to
talk with you. Both of these companies are in the same industry as
you, so there is no issue of industry-based friction or tension. On
the other hand, the two prospective firms differ from each other
along some important dimensions.
The first company (call it A) is small, managed by a young and
enthusiastic management team, but is comparatively new to the food
business. In fact, the young leader of company A claims to have
read about you in airline magazines and other business
publications, and he/she aspires to build the same kind of company
that you did. He/she looks up to you and is excited that you are
considering his/her company as a potential partner. Company A is
well-situated in an emerging market that looks promising, but is
already well-represented by the operations and subsidiaries of
other highly diversified, multinational food firms. Most of company
A’s business is dedicated to providing bottled drinks to its own
emerging market. These bottled drinks are wildly popular, and you
are thinking that they could be exported to other similar emerging
markets (and even the U.S. market) if the conditions are right. The
bottled drinks business offer you a nice way to get into A’s
emerging market, where you can contribute important skills, but you
are concerned that the A’s facilities are not quite up to your
quality standards. An additional factor to consider is that the
transportation infrastructure in A’s marketplace is uneven, raising
the possibility that freight damage could occur, as well as
perishability, due to the limited shelf-life of bottled drinks.
Company A prefers to work with you in a joint venture format where
the both companies form a third-party entity that would serve as
the nerve center and operations base of the alliance.
The second company (call it B) is large, and highly diversified in
many food businesses. It is almost two-thirds (2/3) your size and
has been around for almost thirty years. It has a long history of
working closely with the government in its marketplace, and at one
point, was owned by the government before it was privatized.
Competing in a free-market economy remains more of an abstract,
than a real, tangible concept. In fact, company B is often a place
where departing government officials often call home, since there
are many ties with B’s management that were developed over time.
Company B’s management has a marked tendency to look towards its
central government for “guidance” on how it should compete. As
such, the company has not evinced a high degree of urgency for
profitability nor for perfection. Although B owns a number of
modern, state-of-the-art bottling and food processing facilities,
they are all heavily unionized, and workers are worried about
competing in this post-privatization environment. Company B offers
you a wide variety of possible joint food-related projects within a
broad alliance, and B’smarketplace is only now beginning to be
discovered by other multinational firms. Transportation in B’s
marketplace is somewhat better, but company B has relied
exclusively on its own set of suppliers for bottles, cans, labels,
and bottle caps for a long time. There are few other suppliers of
these inputs to B in that market. Company B, however, does not want
to work in a joint venture alliance format with you. In fact,
company B insists on a co-production arrangement that does not
involve any type of third-company formation, equity sharing or the
like.Being somewhat of a cautious person, you choose to investigate
allying with only one of the two potential partners. Financing is
easily available.
Based on the notion of differing perceptions of time, how does Company A appear to think? Also, how does Company B appear to think? What makes each company “tick?”
Company A is a small company which wants to expand its market presence and hence wants to be associated and work on joint venture with already established company in the industry so that it can gain from their best practices and can utilize rhe JV experience to use it as an industry knowledge and establish itself, thereby increasing its target market size and increasing revenue and profit levels.
Company B is already an established player in the market and has a lot of government contacts as well and also does a lot of business with government clients. It wants to work in a partnership arrangement with the other company so that it and wants to gain revenue through equity sharing model.
Each company gets "ticked" in their own way since one company focusses on expansion and learn from the experience of established company and gain target market whereas the other company is more focussed on profit sharing mechanism and collaborate in order to work in partnership arrangement so that combined resources could be pooled and more revenue could be earned.