Blair Water Purifiers India, страница 3

On the plus side, the biggest gain that Blair Company realizes with a joint venture entry is increased control over all business activities, including procurement, production, finance, marketing and distribution. Blair Company also can take advantage of the Indian partner’s expertise in these activities. (As one expert put it, “An international joint venture essentially reduces to a race between the two partners to see which one can learn the most from the other in the least amount of time.”) And, while political and economic risks are increased, these risks will be shared between the two partners. However, so too, will be the rewards.

The amount at economic risk for a joint venture depends on operational scope, as shown in case Exhibit 5. Exhibit 5 also shows that annual fixed costs depend on whether the entry strategy will use dealers or a direct salesforce. Unit contribution margins depend as well on the choice between dealers and a direct salesforce and further on whether a skimming or a penetrating price strategy will be used. Estimated unit contribution margins for the channel and price options can be found in the case’s last section and are summarized below:

Essentially, Chatterjee has figured for the skimming strategy that Rs.1050 are available to cover unit contribution, plus either the dealer’s margin (Rs.400) or the salesman’s commission (Rs.550). For the penetrating strategy, he has allowed Rs.600 to cover unit contribution, plus either the dealer’s margin (Rs.300) or the salesman’s commission (Rs.400). Thus, in both pricing strategies, the dealer margin per unit is less than the direct salesforce’s commission per unit. The dealer option also ties up less money in inventory and incurs lower inventory carrying costs.

Beyond the four contribution margins above, student calculations for breakeven are complicated by the need to estimate advertising and promotion expenditures (next to last paragraph in the case). Chatterjee thinks that Eureka Forbes will spend about Rs.1 million in 1996 on advertising for Aquaguard and that Ion Exchange will spend a total of “around Rs.3 million” for all marketing activities associated with ZERO‑B. Given this meager information, most students will estimate annual advertising and promotional expenditures somewhere between Rs.500,000 and Rs.2 million and recognize that their calculations are quite crude. More skillful students may include a return on investment in their breakeven calculations, applying an annual target return of around 20 to 25 percent to investments shown in case Exhibit 5.

Because students will use different estimates for advertising and promotion expenditures and different rates for ROI (including 0.0), classroom discussion will produce a range of Breakeven quantities and market share percentages. At the end of discussion, some students will be uncomfortable with the absence of a single, agreed upon answer. The case is purposely vague in terms of permitting a single answer, for two reasons. First, the opportunity itself is known to Blair Company only to the precision described in the case (indeed, many at Blair Company would hold that the case is much too exact and that more ambiguity, not less, actually characterizes the situation). Second, the case should be assigned very late in most courses, at a time when students should recognize that interesting marketing phenomena almost never are known to the penny or the paisa and that the whole idea of Breakeven analyses is for students to demonstrate their analytical judgment.