This assignment focuses on the available options for The McGrew Company to manufacture peanut combines in Brazil. The current scenario is that The McGrew Company was using a foreign distributor responsible for distribution and after sales services in Brazil. The McGrew Company is faced with a situation where they now have to produce peanut combines in a foreign country, Brazil, to compete with a local firm that has started production of the machines locally. McGrew having used the non equity mode of indirectly exporting gained little experience from the transactions.
Licensing, joint venture, foreign direct investment and contract manufacturing are the feasible market entry methods for McGrew to produce locally in Brazil. A manufacturing joint venture would be the most favorable option since it addresses McGrew’s problem of lack of experience in foreign manufacturing. McGrew will also be able to retain the services of their current distributor in order to take advantage of access to the distribution channels and backup services for the machines. Feasible Options I would present to the President of The McGrew Company
The McGrew Company will have to produce locally in Brazil but they lack foreign manufacturing experience and marketing expertise. I would present, licensing, joint venture, foreign direct investment and contract manufacturing as feasible options of market entry to manufacture locally in Brazil. Licensing of a firm in Brazil means that the local firm will produce and market the machines and McGrew can benefit from the location advantage. In a joint venture McGrew will partner with a Brazilian firm to produce the machines.
Through foreign direct investment McGrew may purchase an existing business or establish a new business in Brazil. Contract manufacturing as an option will assist McGrew to enjoy the benefits of local production by having a local firm in Brazil manufacture machines on their behalf (McGraw-Hill, 2008). The Option Recommended The most favorable option I would recommend with potentially low risk and high returns is a joint venture of McGrew and the Brazilian firm that has started to produce locally in Brazil.
McGrew will contribute their skill, expertise and experience in production and get the benefit of local presence in Brazil. I would further recommend that this joint venture be a manufacturing joint venture where the two partners would be free to maintain their marketing and distribution channels. McGrew would therefore retain the services of their distributor in Brazil. Why the Option is recommended The joint venture will combine industry specific marketing expertise from McGrew and country specific marketing expertise from the Brazilian partner.
The McGrew Company will be viewed as a local producer and risks are shared between the partners. McGrew have to take advantage of the established sales and marketing presence for their machines already existing in Brazil hence the need to maintain the services of their current distributor.
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McGraw-Hill Higher Education. (2008). Entry Modes. In International Business: The Challenge of Global Competition, 11e (Chp. 16). Retrieved April 8, 2009 from: http://highered. mcgraw- hill. com/sites/0073530166/student_view0/chapter16/powepoint_ slides. html
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