The Performance of JCB in India - Assignment Example

The ultimate choice of the mode of entry involves a tradeoff of the various benefits and risks associated with each strategy. The key issue at hand was that JCB wanted to increase its market share, expand its operations, productivity, and profitability. Expanding into emerging markets, such as China and India, would enable JCB to take advantage of the booming construction industry. The strategic rationale adopted by JCB was that it could gain a strategic advantage by focusing on less competitive markets that have high growth potential. JCB estimated that the Indian and Chinese markets were ripe and had huge growth potential in the future.

The company could gain a competitive advantage by exploiting the first-mover advantage in these markets (Delios & Kulwant, 2012). One of the benefits of being a first mover is the ability of a firm to capture the market ahead of its rivals and establish a powerful brand name and image. JCB would also be able to establish great sales volume and build an effective experience curve in the market ahead of its main rivals. The JCB Company experienced several problems in the selection of the appropriate expansion strategy.

Initially, JCB relied on exporting strategy to serve foreign and international markets. It would manufacture approximately three-thirds of its products in Britain and then export them to other nations in which it served. However, given the high tariff rates on direct exporting, this strategy became uneconomical. The alternative was for JCB to go alone in its operations in India, but this was impossible due to the tough government regulations, which required new companies to enter into joint venture arrangements with the locals.

Another problem experienced by JCB was the risk of losing control over its technological expertise, which was its core competence and a major source of its competitive advantage. There were several opportunities for exploitation in the Indian and Chinese markets. Given that these markets were relatively new, less competitive, and unexploited, JCB was likely to incur fewer expansion costs and reap exceedingly from the growth potential (Delios & Kulwant, 2012). Secondly, the relaxation of government regulations offered JBC an opportunity to invest directly in the new markets using wholly-owned subsidiaries.

JBC considered several strategies for expanding into the Indian and Chinese markets. Exporting would enable JCB to avoid incurring the costs of setting up production operations in the new markets, and achieve economies of scale and experience curves (Neelankavil & Anoop, 2009). However, as noted earlier, the high tariff rates made it quite difficult to continue efficiently pursuing the exporting strategy. Similarly, exporting was not economical in case the production costs in the home country are higher compared to those in the host country.

Alternatively, JCB would consider entering a licensing agreement with Escorts (Neelankavil & Anoop, 2009). Firstly, this would enable JCB to avoid incurring the risks and costs of establishing operations in the new markets. Secondly, JCB be able to avoid the tight regulations, which prohibited direct investments in India. Nevertheless, pursuing the licensing agreement presented two main challenges to JCB. These included the risk of losing control of the managerial operations and the technological know-how, which was a major source of its competitive advantage.

A joint venture was perceived as ideal because it would reduce the risks and costs of foreign operations, enable JCB to take advantage of Escorts' local knowledge and expertise and circumnavigate the stiff government regulations (Neelankavil & Anoop, 2009). However, JCB faced the risk of losing control over its technology, experiencing conflicts over investment decisions, and failing to achieve economies of scale due to a lack of control. Ultimately, a fully owned subsidiary would be the most advantageous approach because it would enable JCB to attain full control over its operations, protect its technological know-how and attain experience curve and location economies (Neelankavil & Anoop, 2009).

However, the main drawback was the high risk and costs of operating abroad. The plan of action was quite simple and yet realistic. Firstly, JCB would identify the least exploited markets with huge growth potential, in this case, India and China. Secondly, it would gain entry into these markets by entering into joint venture arrangements with locals, in this case, Escorts.