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Posted on April 21st, 2014, by

1. You just got a job at Good Manufacturing Corp, which makes bikes for children. Congrats! They are considering buying up packaging business. From a corporate strategy perspective, what might be two reasons to buy this business? (10 points)

Buying the packaging business may have several justifications from the corporate strategy perspective. First, the company aims at the diversification of its products. The diversification of products means that along with bikes for children, the company can start its packaging business. Entering the new market, the company can back up its main business, in case bike manufacturing confronts substantial problems. In addition, the company can buy the packaging business because the company wants to own the packaging business and refuse from packaging suppliers. In such a way, the company cuts its spending and provides packaging for its bikes. Hence, on the one hand, the company saves costs on packaging for bikes, while, on the other hand, the company provides its packaging business with regular orders.

2. Good Corp is considering selling their amazing product in Japan. What are some of the pros and cons of entering Japan by exporting, alliances, or foreign direct investment (Greenfield, Acquisition, International Joint Venture)? (15 points)

Exporting bikes for children to Japan raises certain problems. First, bikes have to be adapted to needs of local customers. For instance, Japanese customers may have different ergonomic requirements compared to western customers. Hence, bikes for Japan have to be different and the company should introduce technical changes in its products and launch the new line for manufacturing bikes for Japan exclusively. In addition, the company will have to cover substantial transportation costs since there are two ways to deliver bikes to Japan: either by sea or by air. Both ways of transportation are costly. On the other hand, Japan is an attractive target market which can bring the company considerable profits.

Alliances also have their drawbacks as well as strengths. On the one hand, alliances facilitate the market penetration since the company can use its business partners to reach the target customer group faster and easier since business partners will have their clients, their distribution channels. Alliances will enhance the competitive position of the company in the target market due to the support of business partners. On the other hand, alliances imply sharing profits with business partners. The company has to have something to offer its allies. Otherwise, the company will find no business partners. Hence, the company is likely to share a part of its profits with business partners.

Foreign direct investments are probably the most costly way of the market penetration since the company has to launch the brand new business in the new country. Good Corp has to build up the production facilities, to train local employees, to find local suppliers and to develop distribution channels. All these steps are costly. However, the company will have an opportunity to rip off all the profits it gains in Japanese market. In addition, local products will be fully adapted to needs of local customers, while the local authorities are likely to support the business development.

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