Acquisition. The acquisition mode of entry represents the greatest political risk to Blair Company. The resulting operation, even if it is given an Indian name, will be known to politicians and social activists as a U.S. (ferengi) owned and managed operation. Thus, it will be vulnerable to the sorts of difficulties recently encountered by such U.S. firms as Cargill, Enroll, MacDonalds, and KFC.
In terms of economic risk, the acquisition mode of entry probably will have greater exposure than a joint venture (and certainly greater exposure than licensing). However, the case points out that the amount of investment actually may be lower for acquisition than a joint venture entry because it depends on exactly what will be acquired. For example, Blair Company might buy only a medium sized manufacturing facility, not an entire company, and the investment could be less than that for a joint venture. About the best that students can do here is to recognize these ideas and move on. The case simply lacks sufficient information for a more complete economic analysis.
D. What should Chatterjee recommend to Blair Company regarding the opportunity in India?
This is the most interesting question in the Note. Unfortunately, given the depth and breadth of preceding discussion, many classes will lack sufficient time to attack this question. In such cases, however, the question makes an excellent take home quiz or extra credit assignment. The question has essentially two answers.
One is for Chatterjee to recommend that Blair Company forget about India for the time being. Mostly this position is based on the idea that India is simply too exotic and that “there is too much at risk.” Before leaving this answer, the instructor should tease out just what students mean. Clearly, India represents a major challenge to Blair Company’s International Division and other LDCs may be easier to enter and offer greater opportunities. However, initial investments and annual fixed costs for the joint working arrangement in India are so small as to be negligible to Blair Company. Still, a troubled joint venture in India might tie up managers at Blair Company and represent a hidden opportunity cost.
The other answer is more adventuresome and would have Chatterjee recommend market entry, either via a joint working arrangement or a joint venture. Licensing is the easier answer and students see it as essentially a no risk decision. Licensing has economic advantages, particularly if initial sales levels are small. Licensing is consistent with Blair Company’s present level of international expertise; it lets Blair Company start small and learn to walk before it learns to run. Many students reason that Blair Company’s operation in India will be that of a single product firm whose product has never seen a moment’s use in the field—in India or in any other country. How could the company consider investing even a small amount of resources in a joint venture with such (in)experience? What joint venture partner in India would see Blair Company as attractive, given the lack of a track record?
Students favoring a joint venture take a longer-term view. After all, they reason, many well‑managed firms selling consumer durable goods recently have entered India. The market is huge, labor costs low, and political and economic risk of reasonable magnitudes. Why not enter with a joint venture? Blair Company managers undoubtedly will make some mistakes but they should try to learn from these mistakes and avoid repeating them. A vigorous entry now may deter one or more other entrants from entering in the very near future.
As should be obvious, the choice between licensing and a joint venture entry has no right answer. Perfectly legitimate positions may be taken on either side, depending on the students’ tolerance of risk and decision horizon. Students who are risk averse and short‑term oriented should favor licensing. Students who are risk tolerant and long‑term oriented should choose the joint venture. The most important point for students to recognize is not “Any answer will do” but rather that “Both positions have strengths and weaknesses that must be understood before managers can make a good decision.”
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