Abstract
1. Compare the advantages and disadvantages of acquiring the existing firm, and continuing production in Korea through acquisition for Zip-6. 2. Compare the advantages and disadvantages of re-purchasing the licensing agreement and either establishing Zip-6 subsidiary through Greenfield venture and producing in South Korea, exporting the product to Korea, franchising to another firm or relicensing to another firm. 3. State your choice of options to pursue and reasons for this choice.
Answers:
1. If you get it right, there can be many good reasons why buying an existing business could make good business sense. Remember though, that you will be taking on the legacy of the previous business owner, and you need to be aware of every aspect of the business you are about to buy. Advantages are:
Some of the groundwork to get the business up and running will have been done. It may be easier to obtain finance as the business will have a proven track record. A business plan and marketing method should already be in place. A market for the product or service will have already been demonstrated. There are maybe established customers, a reliable income, a reputation to capitalize and build on and useful network of contacts. Many of the problems will have been discovered and solved already. Existing employees should have experience you can draw on.
Disadvantages are:
Zip-6 will often need to invest a large of amount up front, and will also have to budget for professional fees for solicitors, surveyors, accountants etc.. It will probably also need several months of working capital to assist with cash flow. If the business has been neglected Zip-6 may need to invest quite a bit more on top of the purchase price to give it the best chance of success. Ravi and Keith may need to honour or renegotiate any outstanding contracts the previous owner leaves in place. They also need consider why the current owner is selling up and how this might impact the business and they are (Zip-6) taking it over. It is possible current staff may not be happy with a new boss, or the business might have been run badly and staff morale may be low.
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2. I will define licensing agreement: in this case we are talking about an international licensing agreement which allow foreign firms, either exclusively or non -exclusively to manufacture a proprietor’s product for a fixed term in a specific market. Licensing is a relatively flexible work agreement that can be customized to fit the needs and interests of both, licensor and licensee. Advantages of using an international licensing agreement are: Is highly attractive for companies that are new in international business. Obtain extra income for technical know-how and services
Quick expand without much risk and large capital investment. Reach new markets not accessible by export from existing facilities. Political risk is minimized as the licensee is usually one hundred percent locally owned. Retain established markets closed by trade restrictions.
Pave the way for future investments I the market.
Disadvantages are:
Low income than in other entry modes.
Risk of having the trademark and reputation ruined by an impotent partner The foreign partner can also become a competitor by selling its production in places where the parental company is already in. Loss of control of the licensee manufacture and marketing operations and practices leading to loss of quality.
Franchising agreement compare to licensing agreement tends to be longer and the franchisor offers a broader package of rights and resources which usually includes ,equipment, managerial systems, operation manual, initial trainings, site approval and all the support necessary for the franchisee to run business in the same way it is done by the franchisor. Franchising is limited to trademarks and operating know-how of the business.
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Advantages of the international franchising are:
Low political risk
Low cost
Allows simultaneous expansion into different regions of the world. Well selected partners bring financial investment as well as managerial capabilities to the operation.
Disadvantages are:
Franchise may turn into competitors.
Demand of franchisees may scare when starting to franchise a company, which can lead to making agreements with wrong candidates. A wrong franchisee may ruin the company’s name and reputation in the market. Comparing to other modes such as exporting and even licensing, international franchising requires a greater financial investment to attract prospects and support and manage franchisees. The key success for franchising is to avoid sharing strategic activity with any franchisee. Especially for Zip-6 Co they do have a secret ingredients to their soft drink. Sharing those strategic activity may increase the potential of the franchisee to be their future competitor due to the knowledge and strategic spill over.
Greenfield investment is establishment of a new wholly owned subsidiary, its often complex and potentially costly, but it is able to provide full control to the firm and has the most potential to provide above average return. Greenfield is more likely preferred where physical capital intensive plants are planned. It is high risk due to the costs of establishing a new business in new country Zip-6 may need to acquire knowledge and expertise of existing market by third parties, such consultant, competitors, or business partners. And also this entry strategy takes much time due to the need of stablishing new operations, distribution network, and the necessity to learn and implement appropriate marketing strategies to compete with rivals in a new a market.
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3. My option will be Acquisition because its quick access and it offers the fastest, and largest, initial international expansion of any of the alternative. It is also a way to achieve greater market power. It is lower risk than Greenfield investment because of the outcomes of an acquisition can be estimated more easily and accurately. In overall, acquisition is attractive if there are well established firms already in operations or competitors want to enter the region. Of course there are many disadvantages and problems in achieving acquisition success. But where there is risk there is also success.
References
http://www.export.gov/foreign_market_entry_modes.
https://www.business.qld.gov.au/business/…/business…/buying. Retrieved from: Global Business Today, 8th Edition (Charles W. L. Hill 2014).
2012 books.lardbucket.org/books/challenges-and-opportunities-in-international-business/s13-exporting-importing-and-global.html.
