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In our report we will look into the expansion opportunities of the company aa , a leading India based clothes manufacturer and retailer into the European market.

Extracts from this document...

Introduction

Executive summary In our report we will look into the expansion opportunities of the company aa , a leading India based clothes manufacturer and retailer into the European market. Based on our research we have pointed out several criteria with regards to the selection of the country to expand our operations in, which are * 1 * 2 * 3 Applying these criteria to Cyprus, we came up to the decision that it was the best possible pathway to follow in entering the EU having in mind our capabilities and constraints discussed in this report. A brief analysis of the macro environment regarding that region which shows the economic growth and political stability, the encouragement of foreign investment by low taxation, its excellent infrastructure (telecommunication and logistics) as well as the cultural of the countries provided us with a platform of selecting a joint venture as the mode of entry. At the very last pat of this report we will be dealing with our selection of our partner in Cyprus. In doing this we have strongly taken into consideration our future partners knowledge of the local and European Market and industry and its ability to contribute and meet the requirements of the investment as well as their reputation in the local market. 01. Introduction AA is an Indian textile manufacturing company with its headquarters in Bombay and about 20 retail outlets scattered around the country. Though the business is doing very well amongst its competitors, the recent policy by the government and the World Trade Organisation members to lift quotas and, therefore end all quantitative limits on textiles and clothing by next year as well as the saturation of the Indian market has caused the top management to consider further expansion of its business beyond the borders of India into a wider market in order to survive and also to establish itself within a region of huge market potential. ...read more.

Middle

Level of technological risk will be minimum or zero as technological knowledge shall not be transferred to an external party. The level of control will be high and therefore the level of autonomy will be high. Profits will not have to be shared However the following risks may be there a. The risk of failure due to the inadequate knowledge regarding the institutional factors as well as the cultural factors is high. b. High levels of resource commitment may be required. Therefore the risk associated too will be higher accordingly. 4.2 ENVIRONMENTAL ANALYSIS While Wood, Van R; Robertson, Kim (2000) discuss six dimensions that should be taken into consideration when evaluating the potential of a new market, Keith D. Brouthers (2002), and Osland, Taylor and Zue (2001) have provided a valuable insight to the criteria that should be considered in the choice of mode of entry. 4.2.1 Application of the Wood and Kim's dimensional framework to retail clothing market in Cyprus: * Politics: Although Cyprus is divided into two areas, controlled by Turkish Cypriot government and the other by Greek Cypriot government, Cyprus maintains strong relationships with the foreign governments. This is particularly important taking into account the geographic location of Cyprus. is at the crossroads of three continents. This offers potential to expand not only to EU but to other areas as well. The Cypriot government views foreign investments favourably and provides incentives. * Market potential: As stated above Cyprus offers the opportunity to expand to the EU as well as to the Middle East. Though Cyprus has a population of 802,500 people as at 2003 (www.animaweb.org) with a population growth rate of around 3.6% (http://epp.eurostat.cec.eu.int/), it will only serve as a base on the long run, therefore the market potential is that of the EU populace, about 500 million with a growth rate of 4%. The clothes exported will have to be designed and developed according to seasonal changes as well as consumer preferences of the market. ...read more.

Conclusion

The choice of mode of entry should depend on the level of investment the company can or is willing to undertake. Choosing BB would reduce the quantity required. 2. Level of control Level of control refers to the degree to which the company wishes to influence the decision making process in the foreign market. Both have however insisted on a 50% stake. 3. Level of technology risk This refers to the transfer of technological knowledge of an organisation to a local firm unintentionally if the mode of entry is not wholly owned. This could result in a loss of competitive advantage in the long run. As production would still be based in India, going into partnership with BB is considered safe. Based on the analyses above, we have decided to choose BB and the emerging company will be registered as OLA ...... OLA Ola will be a JV company consisting of XX and BB owning 50% shares each. The main function of this JV will be Product Development, Design, sales and Marketing. |BB|'s experience and brand value and XX's financial contribution are therefore justified. The Product will be designed and developed by JV in Cyprus, produced in India, exported to Cyprus and warehoused at Larnaca (local tax benefits) and sold through |BB|'s current 4 retail outlets which will be bought by Ola. BB will however, retain its other outlets outside Cyprus in the time being, until Ola is ready to expand into those countries. The proposal has been accepted by |BB| and is currently awaiting approval by the Central bank of Cyprus. 6.0 Conclusion For XX, Cyprus is just a pit stop for final destination that is bigger markets in EU like Germany, France, Italy and UK. Like any racing, in order to reach the chequered flag pit stop strategy and implementation has to be perfect. So for XX, expansion into bigger EU states depends on the success of Cyprus market. There will be bump in the road, lead might change and other players can take the lead. But in long run riding the joint venture will take XX to the chequered flag. ...read more.

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