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JCB in India - Assignment Example

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Foreign expansion into the international markets offers firms an opportunity to take advantage of opportunities in foreign markets, and expand productivity and profitability of firms. Firms may use several strategies as modes of entry into foreign markets, including, exporting,…
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JCB in India
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JCB in India JCB in India Foreign expansion into the international markets offers firms an opportunity to take advantage of opportunities in foreign markets, and expand productivity and profitability of firms. Firms may use several strategies as modes of entry into foreign markets, including, exporting, licensing, joint ventures, wholly owned subsidiaries and franchising (Neelankavil & Anoop, 2009). 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 the emerging markets, such as China and India, would enable the JCB 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 has 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 their 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 a number of problems 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 arrangement with the locals. Another problem experienced by JCB was the risk of losing control over its technological expertise, which were 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 obviously unexploited, JCB was likely to incur less 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 market. Exporting would enable JCB to avoid incurring the costs of setting up productions operations in the new markets, achieve economies of scale and experience curve (Neelankavil & Anoop, 2009). However, as noted earlier, the high tariff rates made it quite difficult to continue pursuing the exporting strategy in an efficient manner. Similarly, exporting was not be 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, pursing the licensing agreement presented two main challenges to JCB. These included the risk of losing the control of the managerial operations and the technological knowhow, which was a major source of its competitive advantage. A joint venture was perceived 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 failure to achieve economies of scale due to 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 knowhow 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. Later, JCB would purchase equity stakes in the ventures in order to assume majority control and ultimately acquire the entire company, transforming it into a wholly owned subsidiary. This would enable them to invest fully in the country and market.
Delios, A. & Kulwant, S. (2012). Strategy for Success in Asia: Mastering Business in Asia. New ` York: John Wiley & Sons
Neelankavil, J.P. & Anoop, R. (2009). Basics of International Business. New York: M.E. ` Sharpe, Inc. Read More
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