Case Study Of Mabe's Joint Venture

Abstract

It was three years after the recession in 2008, Mabe a home appliances manufacturer started reviewing their Joint Venture (JV) stand with Fagor, a Spanish manufacturer of washing machine in Russian market. Romiro Perez, Mabe’s international Vice-President faced an acute cognitive dissonance about the JV made with Fagor and their entry into Russia.

Problem Statement

In all of their market penetration except Russia and Brazil, Mabe had been very successful in their transition to adapt new environment and understanding the culture.

i. What could had been the initial approach Perez had taken before entering Russia? ii. What corrective measure should Perez embrace to overcome the current situation?

The approach includes the JV with Fagor,

Mabe has certain competitive advantages, but when expanding business into a new country firm should focus on exploiting the resource and capability in the country which helps improvising their competitive advantage. Mabe has the comparative advantage of superior R&D support from GE and producing quality products. Even though Mabe has successful acquisition and JV experience in expanding to new market, Mabe lags certain capabilities to overcome cultural variation and achieving market share in Russian market. As the industry is highly competitive, the entry strategy should be appropriate in terms of selecting their right partners, distribution of products and leveraging availability of resources.

Financial Analysis

From table 2 & 3 from appendix

i. High and increasing equity-debt ratio, so high reliance on debt financing leads to high interest costs and risk (if obligation not met) ii. Receivables and inventories comprises the major part of assets which is profitable but hard to convert profit into cash iii. Liquidity ratio proves it is hard to get the profit out from the investment and not efficient to make further investment iv. Declining profit margin though increasing gross margin and operating margin – significantly loss in non-operating activities

v. Steep decrease in profit margin depicts the economy of scale is dropping

In order to overcome the existing problem, Mabe should go with alternative 2. As the profit margin is deteriorating, acquiring a local manufacturing plant would help the firm to increase the economy of scale and increase the market share. From Porter nation diamond frame work it is evident that the factor condition supporting the industry (Labour & Raw material) is good. The problem exists with the rivalry, internationalization strategy and demand condition. If Mabe would acquire a local manufacturing plant it would aid Mabe to attain competitive advantage over their rivals and help to overcome culture variation.

Implementation Plan

i. Define and establish the pattern of internationalisation from trading industry to global industry ii. Analyse the consequences and industry condition for achieving competitive advantage iii. Frame strategy for exploit overseas opportunities for production and marketing by acquiring the local plant iv. Fix a target for achieving market share and economy of scale

v. Achieve coordination and use Mabe’s “action learning” methodology to understand the firm culture vi. Deploy employees at all level to integrate and work closely with the acquired company vii. Instil Mabe culture into the firm by providing training to management executives and employ pilot group from acquired