critical thinking exercise 3-2
Evaluating Global Expansion
Greenwich Industries entered the Latin American market in the 1950s by forming a joint venture with Industro Viejes in Santo Ignezeto to manufacture bicycle parts. The joint venture flourished in the 1960s, and Greenwich eventually bought out 100% ownership. The company earned steady profits from the Latin American subsidiary until a military junta overthrew the government in the late 1970s. The ruling generals expropriated all foreign owned companies, including the Santo Ignezeto bicycle parts plant.
Today Santo Ignezeto is ruled by a democratic government that has been in power for ten years. Industro Viejes has approached Greenwich about another joint venture. The government is offering an attractive incentive package to attract foreign investment.
You have been assigned to travel to Santo Ignezeto and begin planning and staffing.
1. What are the potential problems that face the new venture?
2. What are the potential advantages of this venture for the company?
3. Would you recommend entering the joint venture? Why or why not?
4. If Greenwich Industries partners with Industro Viejes, would you recommend hiring local managers or American managers for the top and middle management positions? Why or why not?
NOTES for critical thinking exercise 3-2
1. What are the potential problems that face the new venture?
All of the risks of international commerce are here—currency shifts, cultural differences, infrastructure, etc. In the previous joint venture, Greenwich Industries had its plant expropriated, so this will be an ongoing concern, despite the current government stability.
2. What are the potential advantages of this venture for the company?
Locating a plant in a Latin American country will probably mean lower-cost labor, thus reducing the cost of producing bicycle parts and lowering the prices to consumers. There is also the potential for expanding Greenwich’s consumer base. In most Latin American countries, low per-capita income means fewer people can afford a car. Bicycle transportation is more common and presents an opportunity to enter a new market with both production and revenue potential.
3. Would you recommend entering the joint venture? Why or why not?
Using the answers to questions 1 and 2, balance the risks and potential advantages, and make the decision.
4. If Greenwich Industries partners with Industro Viejes, would you recommend hiring local managers or American managers for the top and middle management positions? Why or why not?
Local managers would be more in touch with the area job market and local customs. In a new enterprise, however, more control and oversight is needed in the early years. A compromise might involve American top management at the beginning, shifting to local managers as the business matures.