Giordano Entered a Contract Joint Venture with Real in Germany free essay sample

During 2000 2001, Giordano had been facing a serious of challenges, like intensifying competition, rising unemployment rate, which had increased to 4. 5% in March 2001. Moreover, economic growth in Asian countries was predicted to drop during that period of time. The management believed that the Group profit was at risk if the growth of its two major markets, Hong Kong Taiwan, slowed down in consequence. Giordano management decided to continue its multi-region development strategy and, as a result, the Group made its debut in Germany through a joint venture in March 2001. Germany is an important gateway for the Group to enter into the European Union (EU) consumer market. Through this venture, the Group also wishes to tap into the increasingly important East European apparel-manufacturing base. By the end of the fiscal year, there were 23 Bluestar Exchange outlets operating within a hypermarket (supermarket) chain in a shop-in-shop format, where the company will be selling its goods in Bluestar Exchange label owned by Giordano in 50 â€Å"Real shops†. We will write a custom essay sample on Giordano Entered a Contract Joint Venture with Real in Germany or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Real is owned by Germany’s SB Warenhaus, a unit of Metro, Europe’s second-largest retailer. Selection Criteria for entering an overseas market Every decision making should be aligned with Giordano’s core value (customer service, 2) cost control and 3) speed simplicity). After deciding Germany as the first overseas market of EU, SLEPT factors may be useful in providing guidelines which the most appropriate market entry mode is (Appendix 1). Based on both SLEPT factors and the Group’s core value, the method of market entry could be easily defined, that is, Contract Joint Venture with REAL in Germany. More elaboration can be found in the following section. International Market Entry Modes – Contract Joint Venture The decision of how to enter a foreign market can have a significant impact on the results. There are many different ways to expand into foreign markets, in this essay, we will concentrate to discuss four major mechanisms: exporting, licensing, ownership and joint venture. The management of Giordano finally chose ‘Joint Venture’ as its entry method into Germany. The illustrations will be given below. 1)Exporting The company produces their products in their home market and then sells them to customers overseas. Reasons for not choosing this mode: ?The Group still needs to find ways to distribute its apparel ? Prospect of exports of clothing is not encouraging ?Further intensify of export competition with Chinese enterprises and other low-cost overseas suppliers like Eastern Europe and the Mediterranean ? Consignments of textiles and apparel imported into Germany require a certificate of origin because certain quotas apply to low labour-cost countries (like China). ?Non-EU manufacturers should be aware of the costs associated with exporting such as customs duties, value-add tax and distributor margins which have a direct effect on prices of their goods and consequently their competitiveness. ) Licensing Here Giordano might grant the company in the foreign market a license to produce the product, use the brand name, trademark, etc. in return that they will receive a royalty payment. The Group can enter the market very quickly. However, the control over the use of asset is less, especially when Giordano wanted to promote its brand through this expansion; the reputation of its brand is difficult to control. In addition, if Giordano wanted to keep its customer-orientated image, they may need to invest extra money on staff training. 3) Foreign Direct Investment It is the direct ownership of facilities in the target country. It involves the transfer of resources including capital, technology and personnel. Direct ownership provides a high degree of control in the operations and the ability to better know the consumers and competitive environment. However, it requires a high level of resources and a high degree of commitment. Except previous trial/small scale expansion had been done to test the feedback in Germany, otherwise, this case is comparatively too risky for Giordano’s first entry to European counties. 4)Joint Venture To share the risk of market entry into a foreign market, two organizations may come together to form a company to operate in the host country. Giordano is therefore bounded to match up with an appropriate local partner (REAL) in order to smooth entry into that business environment. Shop-in-shop systems are becoming increasingly powerful. From a study (Ref. no. 5), every fourth Euro spent on textiles in Germany goes to four leading companies KarstadtQuelle, Otto, CA and Metro. Apparently, Giordano selected a good business model and a potential partner for entering the Europe. There are 5 common objectives in a joint venture: ?market entry ?risk/return sharing, ?technology/resources sharing ?joint product development ?conforming to government regulations. Most likely, the above objectives met with that of Giordano quite well. At that moment, what Giordano looked for was an economic (cost control) and efficient (speed) way to expand into the European market. Moreover, the idea behind joint venture is mutual benefit. That’s why it was relatively easy for Giordano (comparative smaller scale than Metro) to get a local well-known partner. Other entry method cannot help this out. Joint ventures give the following advantages: ?Faster market entry ?Sharing of risk, resources and ability ?political connections ?Joint financial strength ?As the source of supply for a third country (further expansion) ? Financial interests will ensure that both parties pay more attention and commitment to the venture ? Provide network to distribute the product ?Benefit also to the local participant, who is able to scale up their operation to world standards and gain tangible benefits such as profits, echnology and international business experience. They also have disadvantages: ?have conflicting pressures to cooperate and compete ?Partners do not have full control of management. ?Partners from different background may have different perceptions, expectations and views on expected benefits ? Dependence on a potential competitor (the partner) If the partners carefully map out in advance what they expect to achieve and how, then many problems can be overcome. Conclusion Basic studies reflected that joint venture seemed an appropriate way to enter Germany. However, due to recognition of the inappropriate distribution channel and/or other practical issues, the Management made a prudent decision to cut losses at an early stage. The joint venture was dissolved and the entire 23-outlet Bluestar Exchange chain was closed on September 30, 2002. Not losing completely, the brief 18 months of operation in Germany allowed Management to establish good relationships with some European retailers and suppliers, which will be beneficial for the Group’s future expansion in Europe.