Question

This Discussion question introduces the concepts of which mode of entry or legal structure is most conducive to a given business model for entering a foreign market.
The legal structure (exporting, licensing, joint-venture, or wholly-owned subsidiary) that a firm chooses to enter a foreign market has both advantages and disadvantages.
you will be evaluating modes of entry strategies for Venezuelan Chocolate and Brazil’s Embraer.

Answer 1

We will be evaluating each option for the Venezualan Chocolate and Brazil's Embraer to arrive at the most conducive option for entering a foreign market:

1. Entry Strategy for Venezualan Chocolate: Go for Joint Venture in the first few years and then move to a Wholly Owned Subsidiary.

a) Exporting (Verdict is No): Venezualan Chocolate will manufacture the products in the home country and will ship them to the other country. This model involves high risk as once the importer in other country receives the products, Venezualan Chocolate will have no say or check measures on the supply chain. The importer might sully the image of the brand by selling the products unrefrigerated in the melted state to consumers, denting the image of the brand. This is not a good strategy for Venezualan Chocolate to enter foreign market. The verdict is no.  

b) Licensing (Verdict is No): The recipes or formulations are the strength of companies in businesses like chocolate. Venezuelan Chocolate by licensing will give the recipe or formulations to the foreign company. This foreign company can create its own brand with the same recipes or formulations. This is not a good strategy for Venezualan Chocolate to enter a foreign market. The verdict is no.  

c) Joint Venture (Verdict is Yes): In Joint Venture, the companies getting into agreement share the profits and losses in the pre-decided manner. Joint Ventures can help the companies to share their resources to achieve the common goal. Venezuelan Chocolate while keeping its formula and recipe secret, can utilize the resources or expertise of the foreign joint venture partner. For Example, the foreign partner's existing distribution network, licenses, warehouses, customer care, etc. Joint Ventures also give freedom to partners not to renew the contract once it expires. This can be used by Venezuelan Chocolate to gauge the actual demand, distribution networks, etc during the joint venture and then after the end of the joint venture move to the Wholly-Owned Subsidiary model. The verdict is yes.

d) Wholly-Owned Subsidiary Model (Verdict is Yes): This model gives the highest control and high profits to the parent organizations. If the parent company finds that the initial high investments in greenfield or brownfield projects make sense in the long run then it can go for this route. This model is a high risk model as any wrong judgment on demand will leave the Venezualan Chocolate with high investments not leading to enough revenues and profits. Usually, companies choose the mix of Joint Venture and Wholly Owned Subsidiary Model. In the first few years, Joint ventures reduce the risk of high investment and later Wholly Owned Subsidiary Model gives high rewards in the form of return on investments. The verdict is yes.

2. Entry Strategy for Brazil’s Embraer: Go for Exporting

a) Exporting (Verdict is Yes): Technical Know-How secrets can be retained. The company can ensure that the quality is given utmost importance as any flaw can lead to loss of life of those traveling. Also, not sharing profits will leave the company with the required money to invest in Research & Development for creating new products for the future. The verdict is yes.

b) Licensing (Verdict is No): Brazil's Embraer might loose the superior technical know-how to a company in another country that can misuse it. Also, any gap in quality by the foreign company can put Brazil Embraer in grave risk of any mishap leading to the loss of lives of people, denting its image as well. The verdict is no.

c) Joint Venture (Verdict is No): Unless there is a strong case, a joint venture can lead to sharing high margins, that if retained by the Brazil Embraer can help it in Research & Development efforts to develop superior products in the future. The verdict is no.

d) Wholly-Owned Subsidiary (Verdict is No): Greenfield or Brownfield investments in setting up manufacturing facilities in a foreign land can be huge. The cost-benefit analysis puts such investments at a great disadvantage. The verdict is no.

Answer 2

When evaluating modes of entry strategies for Venezuelan Chocolate and Brazil's Embraer into foreign markets, such as discussing which legal structure (exporting, licensing, joint-venture, or wholly-owned subsidiary) would be most conducive to their business models, it's important to consider the advantages and disadvantages of each option. Here's an evaluation of the potential modes of entry for both companies:

1. Venezuelan Chocolate:

• Exporting: Exporting Venezuelan Chocolate products to foreign markets could be a viable mode of entry. It allows the company to leverage its existing production capabilities and brand reputation. Advantages include lower financial investment and greater control over operations. However, potential disadvantages include limited control over distribution and market conditions in the target countries.

• Licensing: Licensing the production or distribution of Venezuelan Chocolate to foreign partners can provide an opportunity to enter markets quickly and benefit from their local knowledge. Advantages include reduced risk and investment, as well as leveraging partner expertise. However, disadvantages may include limited control over quality standards and potential conflicts with partners.

• Joint-venture: Establishing a joint-venture with a local partner could provide access to local resources, distribution networks, and market knowledge. Advantages include shared risks and costs, as well as local market expertise. Disadvantages may include potential conflicts of interest and challenges in managing the partnership effectively.

• Wholly-owned subsidiary: Setting up a wholly-owned subsidiary in a foreign market allows Venezuelan Chocolate to have full control over operations, branding, and distribution. Advantages include complete control over strategic decisions and maintaining brand consistency. However, disadvantages may include higher financial investment, regulatory challenges, and potential cultural barriers.

2. Brazil's Embraer:

• Exporting: Exporting Embraer's aircraft to foreign markets can be a viable mode of entry. It leverages the company's manufacturing capabilities and established reputation. Advantages include lower financial investment and control over production. Disadvantages may include challenges with logistics, tariffs, and limited control over distribution channels.

• Licensing: Licensing the production or assembly of Embraer aircraft to foreign partners can provide a quick market entry. Advantages include reduced financial risk and leveraging partner expertise. Disadvantages may include limited control over quality standards and potential conflicts with partners.

• Joint-venture: Collaborating with a local partner to establish a joint-venture can provide access to market knowledge, distribution networks, and shared resources. Advantages include risk sharing, local expertise, and potential government support. However, disadvantages may include managing the partnership effectively and potential conflicts of interest.

• Wholly-owned subsidiary: Setting up a wholly-owned subsidiary allows Embraer to have complete control over operations, sales, and service. Advantages include full control over strategic decisions and brand reputation. Disadvantages may include higher financial investment, regulatory challenges, and potential cultural barriers.

Ultimately, the choice of the most suitable mode of entry strategy for Venezuelan Chocolate and Embraer will depend on various factors, including their specific business models, available resources, market conditions, and risk tolerance. A thorough analysis of these factors will help determine the optimal approach for each company to enter foreign markets successfully.