Your company, Formulae Inc., based in San Francisco, provides a premium infant formula to all major U.S. markets and a less-successful but growing line of economically priced, enriched baby food. The company has made a decision to expand globally. Formulae currently has 2,000 employees in the United States and wants to double its personnel within the next 4 years to help meet increasing product demand. Research has provided data to suggest there is huge growth potential to dominate in an emerging off-shore marketplace, especially among the new strata with disposable income and increasing interest in ready made, time-saving food products. Formulae has made the decision to expand into Guatemala first and, if successful, Mexico next. As a key member of the expansion team, you will be a lead player in ensuring this new venture is a success. You will be responsible for providing assessments, analysis, and written plans for successful expansion of the firm's business internationally/globally. Extensive travel may be required. Formulae's senior management believes that expanding into the international market and doubling the size of employee base within the next 4 years will impact profitability in the short term but will more than double profits over the long term.
You have now been charged with outlining the advantages and disadvantages of each type of major ownership structure and making a final recommendation of which organizational structure Formulae should choose when entering into a foreign market.
The structures that who can choose from are: wholly owned subsidiary, mergers/acquisitions, alliances and joint ventures, licensing, franchising, and export/import
Pick one of the structures listed above. Then you must write a 1000-word summary on why or why not the particular structure(s) is (are) a good fit for Formulae. I HAVE CHOSEN FRANCHISING FOR THIS PART.
Once Part one is completed look at all the structures and decided why is your chosen structure is best for Formulae. Make your recommendation in the form of a formal recommendation with rationale to the board of directors for Formulae. Your 1250-1500 word rationale should include an exploration of the rejected models for Formulae and the chosen structure. Be sure to make your choice clear. Give a concise and thorough explanation along with the rationale for the group's choice.
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Franchising is the best or easiest way to enter into the foreign market in order to expand its business operations. It involves minimal consignment of resources and effort on the part of the international marketer (Cherunilam, 2005). In the form of technical collaboration, franchiser is the entrant and the franchisee is the host country. The franchisee makes use of intellectual property rights i.e. copyrights, trademark, managerial assistance, business know-how, etc. Franchising covers transfer of the total business functions.
Mainly, franchising is regarded as a form of licensing. In this mode of international business, home company i.e. franchiser allows any independent company i.e. franchisee (host company) to use all the rights of the home company in order to conduct the business successfully in the global environment. This market entry strategy give various rights to the franchising company in the form of selling the host company's products (franchisor's product) in the target market by using its brand name, marketing techniques, competitive advantages, trademarks, etc (Cherunilam, 2005).
This way to expand globally is more common in service industry, where brand name plays more crucial role for the company. Mainly the franchising is divided into two forms i.e. direct franchising and indirect franchising. Direct franchising is the most effective way for the Formulae Inc. because in this franchising, the company easily frames policy, monitors and directs the activities in each host company from its home country base, in order to capture large market share and become lead player in the global market.
With franchising, the Formulae Inc. easily licenses its brand name to a foreign business entity in return for a percentage of the overall franchisee's profit. The contract of franchising specifies the various rules and regulations that must be carry out by the franchisee company. Formulae Inc. use this mode of entry into the foreign market, so that it permits the foreign company in Guatemala to use its brand name as long as they agree to run their stores on exactly the same lines such as economically priced, premium infant formulae, etc.
Franchising is the good way and best fit for the company to enter into the foreign market because it allows the franchiser to maintain consistency of its economically priced products in different target market. It is a very low risk mode of entry in foreign markets. Another vital advantage of choosing franchising by the company is that it will easily established its franchising by monitoring the operations of each and every franchisee in that particular market. It also economizes the costs and risks associated with opening foreign markets. It also boosts up the growth of franchised chain formula units, so that the home company easily earns profit margin on the gross sales of these units (Hill, 2005). With the franchising, the Formule Inc. can boost up and double its personnel within the next 4 years, which is its ultimate target in order to fulfill the ever growing demand of its products.
This major ownership structure is accurately fit for the Formulae Inc. because it fulfills all the key requirements of the franchising. The key requirements of the franchising are as follows:
? Good track record of profitability: This is one of the crucial requirements of the franchising. Formulae Inc. have good profitability record because of the economical price products with infant formula to enriched baby food.
? Built around a unique or unusual concept: The company deals in the baby food products because now day's customers are more interested in the readymade or time saving foods, which provides all the nutrients according to the demand. The premium infant formula is the unique concept in the ...
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