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HI 5013 Managing Across Borders

Published : 17-Sep,2021  |  Views : 10

Question:

Writing a successful essay involves the planning or organising stage. Organising can help you to sort out your ideas and to present your essay in the order that communicates best to your readers. Organisation is the procedure of constructing an outline that acts as an plan for your writing task. An outline forces you to think before you write. 

It, therefore, must begin with a Management (or Executive) Summary within which you state in stark form (i.e. unsupported by argument) what you are asserting in this report and you must do that in less than two pages. you can begin the main body of the report with some general background followed by a description and discussion of significance of the specific issues considered. 

Answer:

Over the past decades, the demands of managing the international businesses have greatly changed. This phenomenon has influenced the strategies of managing the international ventures across the borders (Durmaz & Ta?demir, 2014, p. 48). The goal of every business is to develop, grow and expand with the aim of serving wide market coverage. As a result of the urge to reach huge market has forced businesses target extend their operations both in the local and international markets. Business operating in the international markets faces a number challenges such as adhering to the host country trade laws, hazardous weather conditions, lack of the right labor, fluctuating exchange rates, resistance by customers to have standardized global products and services, host nation based differentiated approaches, flexible manufacturing technology, and others.

To manage these challenges effectively it calls for the proper management of the international business operations. The International joint venture is one of the most common strategies used by the business to operate in the international arena (Romeli & AbdShukor, 2016, p. 20). Ideally, joint venture partnership occurs when two business in two different or more countries agree to carry out business (Le & Nhu , 2009). This approach helps the company to explore international business without undertaking the full responsibilities associated with the international business operations. Instead, the large responsibility of overseeing business operations in the international market is left to the host country company.

There are several and critical reasons why businesses may prefer to enter into the international joint ventures. Factors such as lower taxes, favorable currency exchange rates and lowering of the manufacturing costs often make all the international joint ventures beneficial (Le & Nhu, 2009, p. 61). However, despite having a lot benefits in the international ventures, there are risks of entering foreign markets using the same strategy. Usually, the international joint ventures permit multinational corporations to reduce their risk while expanding in the global market with a goal of serving the new market and new customers as well.

The companies in the host country may be unable to access local market effectively because of the lack of the appropriate technology, right skills or marketing strategies. However, when they corporate with another foreign country with the goal of establishing a joint venture they can be provided with the necessary knowledge, capital, technology as well as valuable resources to have full access to the market. The joint venture will create mutual benefit for the two companies entering into a partnership. The home company will benefit from using the partner's resources to reach the domestic market. On the other side, the international company will be helped to access the foreign market without fully getting involved in the running of the business.

Apart from the numerous benefits associated with the international joint venture, the relationship may also be risky. This greatly depends on the country as well the industry. In certain countries, the government may have huge interests in the ownership of the business and therefore becoming so keen not to allow foreign business in the country (Birkinshaw & Hood, 2012, p. 142). Likewise, in the industries such as defense and banking it might be difficult for the global companies to create international joint ventures. International joint ventures may also suffer from sovereign risk. Frequently, foreign markets regulate business and sometimes they may confiscate the joint venture resources without fair compensation.

In case this occurs, the international company using joint venture as the entry to the foreign markets will suffer losses. Therefore, it is important for the business anticipating to use international joint venture strategy to examine the country’s private businesses nationalization history to gauge whether it can offer favorable business environment. The analysis of the host country government regulation of the business will help the global business to avoid risks and losses that are associated with the government intervention. This report uses an example of SPAR FACTS Australia Pty Limited to explore how the international businesses can manage their operations across borders successfully.  This was a joint venture between SPAR Group Inc. and Face and Cosmetic Trading Services Pty Ltd (FACTS).

SPAR FACTS Background Information

The background of SPAR FACTS can be traced back in 1996 when the FACT Company was founded. The success of the FACTS was attributed to offering extensive experience to their customers through retail products. Its success attracted the New York-based company, SPAR Group Inc. The SPAR Group Inc. was publicly listed company that was operating with several subsidiaries in more than eleven countries. The joint venture between the two partners led to the establishment of the SPAR FACTS which up to now has blossomed and expanded to other nations such as New Zealand. Currently, SPAR FACTS offers complete retail merchandising for wholesalers, retailers, suppliers, and marketers.

SPAR Australia Joint Venture Business Operations

SPAR Australia was also known as SPAR FACTS; it is a joint venture between SPAR Group and Face and Cosmetic Trading Services Pty Ltd. The venture between the two companies was the brilliant idea of SPAR Group to extend its international presence by entering the Australian market. However, the company found it difficult to establish a new business in the country from scratch. Instead, the company opted for a joint venture with Face and Cosmetic Trading Services Pty Ltd. The SPAR FACTS entry in the Australian can be aligned to the (Fethers & Salter, 2013) argument that joint ventures are the best gateways of doing business in Australia. The joint venture was owned 49 percent by Face and Cosmetic Trading Services Pty and 51 percent by SPAR Group Inc.

SPAR Australia Supplies grocery products and at the same time offer retail and marketing support services to more than three hundred independent retail supermarkets. It serves a different number of retailers especially in Pacific Island, Northern Territory, Australian Capital Territory, New South Wales and Queensland areas (Australian Chamber of Commerce and Industry , 2016). It is crucial to highlight that SPAR Australia is one of the only two key suppliers of the independent suppliers on Eastern Seaboard of Australia.  SPAR Australia operates a huge distribution center of approximately 40,000sqm. The company distribution center can hold up to 15,000 hard grocery lines as well as 2,500 frozen product lines. The company distribution centers apply the latest technology including ERP computer platform that facilitates warehouse management systems and RF technology.

SPAR Group is one of the widely recognized leading contemporary leading company in the world. This can be confirmed by the number of the awards that have been won by the company as an innovative retailer. Besides, its extension to Australia through the SPAR Australia is gaining a lot of recognition and findings show that it is one of the fastest growing retailers in Australia. For example, when the joint venture was formed in 2006 it had only 25 stores. The number rose to 75 stores in 2008 and in 2015 the company had over 140 stores (Australian Chamber of Commerce and Industry, 2016). The success of SPAR Australia can be ascribed to its strategic position that is aimed at capitalizing the on the industry growth. The company is achieving this my provisions of the offers and services that are tied to the customers’ needs. Therefore, as the company strives to succeed it is also putting into consideration the satisfaction of its customers. In fact, the SPAR Australia philosophy emphasizes on working together so that all can benefit. This is the ideal ingrained and embraced by all the employees in SPAR Australia.

From the above analysis, it has been well elaborated that SPAR Australia has had successful business operations in the Australian market. Despite the fact that the company has partial foreign ownership of the SPAR Group it has effectively competed with the other domestic retail businesses. Besides, the company has established its position as one of the major suppliers to the independent retailers in the Australian retail industry. However, this success cannot be celebrated without appreciating the injection of the SPAR Group.

The SPAR Group provided FACTS with the essential resources needed to compete with other domestic businesses effectively. On the other hand, the SPAR Group has stood to gain from the joint venture relationship. The company business operations have deeply penetrated in the Australian market and industry. Maybe this could have been a different case if the SPAR Group had been operating on its own as the foreign company. This observation can be strongly linked to the SPAR Group impact and recognition in the Australian since 1994 to 2006 when it was operating on its own without a joint venture. The success of the SPAR Australia is largely noticeable from 2006 when the company started operating a joint venture with an Australian domestic business.

The Entry of SPAR Group in Australian Market

In the above discussion, this group has found that SPAR Group has been operating in more than eleven countries globally. Ideally, the SPAR Group began operating in Australian in 1994. To realize total benefits and save costs associated with carrying business in the international market, the company made several changes in wholesaling and retailing sectors. It is out of this changes whereby the SPAR Group ended up forming the SPAR FACT joint venture in 2006. Besides that SPAR Australia Limited is an unlisted public company, its operations are quite evident especially in Queensland and New South Wales States. The SPAR Australian has expanded its services to the point of supporting the independent retailers to develop their brand by offering them range services through the company distribution centers (SPAR Australia, 2013). SPAR Australia, was the perfect company for the SPAR Group to rely on order to enter the Australian market deeply.

SPAR Australia Marketing Management

Through the utilization SPAR FACTS joint venture in Australia, the company has been able to receive significant benefits from the partnership. For example, FACTS has been able to extend its major services such as store design and development, retail operations, branding and marketing, supply chain, purchasing and provision staff training and consultancy services in the Australian market. This report will explore how the joint venture has helped SPAR Group in the provision of these services.

  • Store Design and Development:  The SPAR Australia has helped small businesses in the Australian market to develop a format that suits local business needs.
  • Retail Operations: The Company establishes world-class retail operations that facilitate efficient and effective retail operations.  The SPAR Australia also support retailers through helping them in staff management, waste management and in-store merchandising.
  • Branding and Marketing: The SPAR Australia offers a variety of products that are accompanied by the different marketing strategies. This approach permits the smooth entry of the SPAR Group products in the market.
  • Supply Chain: For any retail business to succeed it must have an efficient supply chain. SPAR Australia has well-established supply chain operations, distribution centers and effective warehouses for successful supply chain management.
  • Purchasing: The SPAR Group provides its international venture in Australia with the range of its brands. This saves the company from being exposed to the threating power of suppliers in the market.

Benefits of using SPAR Australia Joint Venture to SPAR Group Inc.

Avoiding Import Barriers and other Protectionist Legislation

Over the years Australia's anti-dumping policy has been a stumbling block for many international businesses that want to the extent their operations globally (Coch, 2016). This is deemed to protect the domestic consumers. However, the move has had a negative impact on the consumers. As noted earlier in the discussion, joint venture is the right gateway to do business in Australia. SPAR Group has focused on international joint venture strategy to enter the Australian market. This has helped SPAR Group in eradicating the quotas and restrictions imposed on the importation of some its products in the country as well avoiding the high charges paid as import duties.

Sharing Costs and Risks

SPAR and FACTS share the cost and risk of running SPAR Australia Ltd. by 51 percent and 49 percent respectively. This cost and risk sharing ratio is based on the percentage of ownership of each company in the joint venture. The sharing also extends to the joint venture operations in the foreign markets.

Access to Australian Markets

Before, it was difficult for the SPAR Group to penetrated Australian market deeply. Even being an international company it was hard for the SPAR Group to have wide access in the Australian market and retail industry because of the challenges facing global companies in the Australian market. However, in 2006 when the company entered into joint venture with FACTS, a company in Australia, it avoided some of the costs as well having the full access in the country market. According to Agarwal & Ramaswami (2012, p. 2), international companies facing the trade barriers and protectionist to enter in a certain country market, they can focus on employing the international joint venture relationship. Similarly, SPAR Group found that it had difficulties in accessing the Australian market fully. Therefore, it resulted in having a joint venture which helped it undertake its marketing activities in Australia. Besides, the SPAR has largely opted for several international joint ventures to access other markets across the globe.

Enabled Rapid Entry

Based on the above discussion, the entry in the foreign markets is hindered by different obstacles and challenges. Therefore, it calls for the multinational corporations to come up with the right strategies of entering the international markets effectively. Despite that the operations of SPAR Group have been evident in Australia since 1994, its business operations gained momentum and became well known when it entered into joint venture agreement with FACTS in 2006. Therefore, it indisputable that SPAR Australia accelerated the entry of the SPAR group in the Australian. Besides, the operations of SPAR Australia in the country increased and expanded to other foreign nations such as New Zealand.

 Taking advantage of Synergies

Ideally, when two companies come together, the value and performance are usually higher than that of a single company (Le & Nhu , 2009). This because the two companies bring together different experience and knowledge in the running of the combined business. Similarly, SPAR relationship with FACT brought together different marketing skills of doing business. For example, SPAR Group had an experience on how to run international businesses while on the other side, FACTS had domestic marketing experience that helped SPAR Group encroach Australian market effectively.  Additionally, the SPAR Group benefited from cost reduction, technology, combined technology and increased revenues. It is also important to note that apart from the joint venture relationship the advantages of the synergy are also attributable to mergers and acquisitions.  

Reduction of Political Risks

Despite that Australia is largely politically free risk country, there are still existing political risks.  The changing business environment in the country has frequently been calling for the Australian government. The continued interventions may have negative impacts for the international companies operating in Australia. However, having SPAR Australia as the joint venture has helped the SPAR group reduced the political risks that can affect its operations in the country in the event of an occurrence.

 Challenges Facing SPAR Australia as an International Joint Venture

Just like any other business, the international joint ventures operate in a dynamic environment. This means that was perceived as a marketing opportunity when entering the joint venture agreement may turn out as risk. Similarly, the SPAR Australia faces some of the challenges facing other international ventures in the country. However, the challenges and problems being faced by the company they are not severe to hamper its business operations in the country (Hoque & Swanson, 2015). The major problems being faced by the SPAR Australia comprises of;

Anti-competition Behavior from other Players in the Market

The market of the packaged products is largely dominated by Woolworths and Coles whereby they claim approximately 77 percent of the market share. The independent retailers and Metcash accounts for about 18 percent of the market share. In the supply to the independent retail supermarkets, Metcash claims 98 percent while SPAR Australia has got only 2 percent.  However, despite the small market share being enjoyed by SPAR Australia, Metcash has engaged in the anti-competitive behaviors with the efforts stifling the SPAR growth and eventually kick it out of the market (Spar Australia Limited, 2014). This is happening without the intervention of the Senate, yet it can provide some assistance to help small businesses is operating under the SPAR Australia franchise (Australian Chamber of Commerce, 2016).

Increased Consolidation of the Small Businesses

SPAR Australia largely targets on the small retail businesses. The consolidation rationalization trend has continued to swindle the major market target for the SPAR Australia (Spar Australia Limited, 2014).  Alternatively, the remaining small businesses have continued to suffer from the threat from unethical competitors with regulators and government unwilling or unable to do anything to curb the menace.  

Government Regulations that Favor Domestic Businesses

The Australian Government has continued to enact and maintain the business regulations that largely favor domestic retailers and supermarkets. For example, according to the SPAR Australia, there are independent retailers and supermarkets that compete with major supermarkets in the country such as Woolworths and Coles appropriately. However, the competition approaches applied by the Metcash against the independent retailers and supermarkets appear unethical. Metcash competition is widely tied to the price an act that holds back many independent retailers from aggressive and healthy competition. The SPAR Australia perceives that Metcash has been able to achieve huge profit margins because it is the only national wholesaler to the independent retailers (SPAR Australia Limited, 2014). This is a special type of monopoly that is protected by the Australian government at the expense of other competitors in the industry.

Conclusion

The International joint venture is one of the competitive and appropriate strategies for entering the international market. The business using this strategy is guaranteed the full access to the foreign market. Besides, the foreign business will be able to overcome many challenges and barriers that will be executed by the joint venture. Similarly, the SPAR Group has been able to enter the Australian market and compete effectively through the SPAR Australian joint venture. This foreign market entry strategy has accrued SPAR Group with a lot of benefits such as reduction of the political risks, overcoming import barriers, full access to the Australian market and others. On the other side, the SPAR Australia joint venture has had challenges such as anti-competitive behavior by some of the competitors as well lack of government regulation to protect small businesses. However, the benefits associated with SPAR Group entry strategy in Australia supersedes the risks.  

References

Agarwal, S. & Ramaswami, S. N., 2012. Choice of Foreign Market Entry Mode: Impact of Ownership, Location and Internalization Factors. Journal of International Business Studies, 1(1), pp. 1-28.

Australian Chamber of Commerce and Industry, 2016. Spar Australia. [Online]
Available at: https://www.acci.asn.au/node/5443
[Accessed 15 September 2017].

Australian Chamber of Commerce, 2016. Australia must try harder, competitiveness report shows. [Online]
Available at: https://www.acci.asn.au/news/australia-must-try-harder-competitiveness-report-shows
[Accessed 15 September 2017].

Birkinshaw, J. & Hood, N., 2012. Characteristics of foreign subsidiaries in industry clusters. Journal of International Business Studies, 31(1), pp. 141-54.

Coch, L., 2016. Consumers lose out to Australia’s protectionist anti-dumping laws. [Online]
Available at: https://theconversation.com/consumers-lose-out-to-australias-protectionist-anti-dumping-laws-62971
[Accessed 15 September 2017].

Durmaz, Y. & Ta?demir, A., 2014. A Theoretical Approach to the Methods Introduction to International Markets. International Journal of Business and Social Science, 5(6), pp. 47-54.

Fethers, E. & Salter, S., 2013. Joint Ventures - A Gateway to Doing Business in Australia. [Online]
Available at: https://www.terralex.org/publication/p68ae56bdf6
[Accessed 14 September 2017].

Hoque, N. & Swanson, D. A., 2015. Opportunities and Challenges for Applied Demography in the 21st Century. 6th ed. s.l.: Springer.

Le, N. H. & Nhu, D., 2009. Role of Parent Control of International Joint Venture in Gaining Competitive Advantage. International Journal of Economics, 1(2), pp. 60-68.

Romeli, N. & AbdShukor, A. S., 2016. Economic Challenges in Joint Venture Infrastructure Projects: Towards Contractor's Quality of Life. Procedia - Social and Behavioral Sciences, 234(2), pp. 19-27.

SPAR Australia , 2013. SPAR Australia. [Online]
Available at: http://spar-international.com/country/australia/
[Accessed 15 September 2017].

SPAR Australia Limited, 2014. Submission to the Senate Economics Legislation Committee Inquiry into the Small Business Commissioner Bill 2013 , Queensland: SPAR Australia Limited.

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