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Strategic turnaround

Pret A Manger is functioning in a very stable position presently and should seriously consider for international expansion more vigorously. International expansion involves establishing significant market interests in new countries. Additional foreign markets provide additional sales opportunities for the firm that may be constrained by the relatively smaller number of countries at present exporting. Firms expand globally to seek opportunity to earn a return on large investments such as plant and capital equipment or research and development, or enhance market share and achieve scale economies, and also to enjoy advantages of locations.

Other motives for international expansion include extending the product life cycle, securing key resources and using low-cost labor. However, to mould their firms into truly global companies, Pret A Manger must develop global mind-sets. International expansion is fraught with various risks such as, political risks and economic risks. International expansions increases coordination and distribution costs and managing a global enterprise entails problems of overcoming trade barriers, logistics costs. There are several methods for going international.

Each method of entering an overseas market has its own advantages and disadvantages that must be carefully assessed It is common for a firm to begin with progress to licensing, then to franchising finally leading

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to direct investment. As the firm achieves success at each stage it moves to the next. If it experiences problems at any of these stages, it may not progress further. If adverse conditions prevail or if operations do not yield the desired returns in a reasonable time period, the firm may withdraw from the foreign market. Expansion into foreign markets can be achieved through: • Licensing

• Joint Venture • Direct Investment Licensing: Licensing permits a company in the target country to use the property of the licensor. Such property usually is intangible, such as trademarks, patents, and production techniques. The licensee pays a fee in exchange for the rights to use the intangible property and possible for technical assistance. Licensing has the potential to provide a very large ROI since this mode of foreign entry also does require additional investments. However, since the licensee produces and markets the product, potential returns from manufacturing and marketing activities may be lost.

Joint Venture: There are five common objectives in a joint venture: market entry, risk/reward sharing, technology sharing and joint product development, and conforming to government regulations. Other benefits include political connections and distribution channel access that may depend on relationships. Joint ventures are favored when: • The partners’ strategic goals converge while their competitive goals diverge; • The partners’ size, market power, and resources are small compared to the industry leaders; • Partners’ are able to learn from one another while limiting access to their own proprietary skills.

The critical issues to consider in a joint venture are ownership, control, length of agreement, pricing, technology transfer, local firm capabilities and resources, and government intentions. Potential problems include, conflict over asymmetric investments, mistrust over proprietary knowledge, performance ambiguity — how to share the profits and losses, lack of parent firm support, cultural conflicts, and finally, when and how when to terminate the relationship. Joint ventures have conflicting pressures to cooperate and compete:

• Strategic imperative: the partners want to maximize the advantage gained for the joint venture, but they also want to maximize their own competitive position. • The joint venture attempts to develop shared resources, but each firm wants to develop and protect its own proprietary resources. • The joint venture is controlled through negotiations and coordination processes, while each firm would like to have hierarchical control. Direct Investment: Direct investment is the ownership of facilities in the target country. It involves the transfer of resources including capital, technology, and personnel.

Direct investment may be made through the acquisition an existing entity or the establishment of a new enterprise. Direct ownership provides a high degree of control in the operations and the ability to better know the consumers and competitive environment it requires a high degree of commitment and substantial resources. There are three major strategy options for international expansion: Multidomestic: The organization decentralizes operational decisions and activities to each country in which it is operating and customizes its products and services to each market.

Global: The organization offers standardized products and uses integrated operations. Transnational: The organization seeks the best of both the multidomestic and global strategies by globally integrating operations while tailoring products and services to the local market. In other words a company ‘thinks globally but acts locally’. Global electronic communications and connectivity can help integrate operations while flexible manufacturing enables firms to produce multiple versions of products from the same assembly line, tailoring them to different markets.

This gives more choice in locating facilities to take advantage of cheaper labor or to get the best of other factors of production Managing Global Supply Chains to Enhance Competitiveness Logistics capabilities make or mar global operations. Global operations involve highly coordinated international flow of goods, information, cash, and work processes. Setting up a global supply chain to support producing and selling products in many countries at the right cost and service levels is a difficult task.

However the benefits of managing this difficult task has many benefits, which include rationalization of global operations by setting up right number of factories and distribution centers and integration of far-flung operations under a unified command to better manage inventory and order filling activities. Optimizing global supply chain operations can cut the delivery times and costs drastically and improve global competitiveness. Smart supply chain planning may result in locating facilities where they make the most logistical sense.

References

http://www.pret.com/

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