The Indian market for home water purifiers is unattractive for these reasons. India is a large, complex, far away nation considerably removed from Blair Company’s established “comfort zone” of countries whose business practices and cultures are much more Westernized. The market may be mature with its numerous established competitors, who will not look the other way should Blair Company enter. The Indian government may reverse its position regarding the attractiveness of foreign investment.
C. Compare the three modes of market entry available to Blair Company in India.
Joint Working Arrangement or License. The joint working arrangement or license mode of entry represents relatively low risk: Blair Company would invest almost nothing and would occupy a very low political profile. Likely the product could be placed quickly on dealers’ shelves and royalty payments soon would flow to Blair Company. However, Blair Company would have limited control over product quality and nothing at all to say about the nature and level of marketing activities. Blair Company would establish no brand awareness among consumers and develop no trade relationships among channel members. It would learn little about consumers, competitors, and business practice in India.
Breakeven quantities for the joint working arrangement or license depend on the hiring of an Indian national who would manage the arrangement. Annual fixed costs before hiring this individual are given in the case as $40,000; fixed costs after hiring drop to $15,000. The average royalty paid to Blair Company in both cases is given as Rs.300. For breakeven quantities, we have:($40,000 x 35)/Rs.300 = 4,667 units before hiring the Indian manager, and ($15,000 x 35)/Rs.300 = 1,750 units after.
These quantities can be compared to market forecasts for 1998 or 1999 (the expected first year of operation) in case Exhibit 1 to estimate necessary market shares. Using the “realistic scenario,” forecasts from Exhibit 1, we have for 1998, 1,750 units/430,000 units = 0.4 percent of the market and 4,667 units/430,000 units = 1.1 percent. Both percentages are based on nation‑wide demand. If the licensee restricts operations to just two regions (market potentials shown in case Exhibit 5), the same market shares for 1998 would be 1,750/55,000 or 3.2 percent and 4,667/55,000 or 8.5 percent. Some students may want to recover the $25,000 cost of the field study in the first year or two of operations and their breakeven quantities and share percentages will be a bit higher.
Students also might examine the upside aspect of licensing. Suppose that Blair Company actually achieves a 10 or a 20 percent market share in 1998. Using the same realistic scenario forecasts from Exhibit 1, profits for a 10 percent share of the national market would be (.10)(430,000 units)(Rs.300) – ($15,000)(Rs.35) = Rs12.375 million or approximately $354,000. For a 20 percent share, profits would be (.20)(430,000 units)(Rs.300) – ($15,000)(Rs.35) = Rs.25.275 million or approximately $722,000. If operations focus only on two regions, profits for 10 and 20 percent market shares reduce to Rs.1.125 million and Rs.2.775 million, respectively ($32,140 and $79,285).
On balance, the joint working arrangement looks extremely attractive—little is at risk and the opportunity is present for huge rewards—if Blair Company can find and motivate a licensee.
Joint Venture. When Blair Company partners with an Indian firm, the resulting joint venture will occupy a more visible position in the political arena and place more capital at risk (in the form of investments and annual fixed costs). Another concern is that Blair Company may find it difficult to find and convince an Indian firm to commit to the partnership. Blair Company also may find it difficult to establish day‑to‑day work rules, policy, and strategic direction with the partner. Still other potential thorny issues include the distribution of profits versus their reinvestment, transfer of technology, access to dealers, and product research and development, all possibly leading to mistrust and early dissolution of the joint venture.
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