A brief overview of the case
The case involves the Charles River Laboratories (CRL) Company and the ALPES Company considering entering into a joint venture. This involves the senior vice-president, Dennis Shaughnessy presenting a report regarding this before the chief company leadership. The key aim of the two companies entering the joint venture is to engage in the production and pre-incubation of SPF eggs for international agricultural vaccine companies in Mexico which would serve in enabling the two companies to realize growth. This joint venture involves the Charles River Laboratories Company investing in the venture, two million U.S dollars in cash to fund the operations. On the other hand, the ALPES Company will have to make a contribution in kind in terms of facilities. Each company will have to obtain a 50 percent share from the joint venture. However, this venture can not be entered into before some issues are resolved. The CEO of CRL as well as some members of the board raises some issues that make entering into the joint venture not to be easily realized.
Analysis – Problems/Major issues identification
Several issues and problems are raised concerning this joint venture. Among these issues and problems are the ones that are raised by the chief executive officer of the company (CRL). The CEO sees that the joint venture would distract SPAFAS – specific antigen-free avian services as it went on expanding at a rapid pace in the United States of America. Another issue that is presented is the idea that investing in Mexico is a risky initiative to be taken by the company. This is for the reason that, in Mexico, there is some great instability regarding the changing currency and the uncertain market.
More so, concerns are directed towards the idea of partnering with a family-owned company. This family-owned business was not making a new investment of its own, but instead has full reliance on the capital of the Charles River Laboratories Company. Another issue, which is a final issue, is that, in the course of time, in a period of more than fifty years, the CRL had never attained any success in conducting business in Mexico.
The issues that are raised by the board members include the concerns about the complex organizational structures of Grupo IDISA, the large number of transactions between ALPES, IDISA and other Romero companies, and lack of transparency of a company that only held board meetings once a year and tended not to have strategic plans, the operating budgets, and the meeting minutes among other formal corporate documents which are always used by the U.S public companies.
The issue of the joint venture comes about when Romeros, owners of the ALPES Company, want to obtain the required funds to engage in the expansion of their business. CRL rules out the idea of lending money to this company as well as the idea of being minority shareholder in the company. Eventually it is considered that the two companies enter into a joint venture. Romero, points out that, if a fruitful consensus is not reached by both of them, then, his company will have to consider partnering with Lohmann-Tierzucht International of Germany which is a primary competitor to SPAFAS.
By ALPES entering into a joint venture, it will have to be able to increase the production to meet the ever-increasing demand and also to be able to meet the international quality standards in order to serve the European countries which were very strict on these standards. More so, on the other hand, CRL would be able to obtain more revenue from engaging in the production and distribution of SPF eggs that were in high demand in the international market. Also, by engaging in a joint venture, the CRL Company would avoid much competition from Lohmann-Tierzucht International of Germany which is a primary competitor to SPAFAS, if otherwise allowed to partner with ALPES. This will also serve to open up an opportunity for both the companies to operate on the international market. By CRL accessing the international market, it would improve its revenues to as much as 50 million US dollars from the 25 when it operates from within.
Developing Alternatives
Some consequences would come out of the two companies engaging in the joint venture or failing to enter the venture. Considering the issues and problems above, there tend to be more benefits that will have to come out of the joint venture than the losses. The ALPES Company will have to be able to obtain the necessary funds to engage in the expansion of its operations to meet the rising demands of the customers in the international market. On the other hand, the CRL Company will be able to increase its revenue and increase its base in the international market. More so, the CRL Company will have to gain from this company in that the company has been in the business operations in regard to the SPF eggs, especially in Mexico and it is well established and there will be not much effort to be carried out in terms of product promotion. More so, by the two companies carrying out the operations jointly, they will have to benefit from one another by employing a wider range of the management skills. These benefits will not be there if the joint venture is not entered in. The CRL may be affected negatively if the ALPES Company enters a joint venture with Lohmann-Tierzucht International of Germany which is a primary competitor to SPAFAS.
Recommendations, justifications and implementation plan
It is recommended that the two companies enter into a joint venture in order for both of them to enjoy growth in the market. There are market opportunities for the two companies. The ALPES Company is being faced with the ever-increasing demand for SPF eggs and the need to improve the quality standards to have access to the European market. On the other hand, the CRL Company has funds available and as well wants to expand in the international market. However, there are issues that come up that may hinder entering the joint venture on the side of CRL. The concerns about the complex organizational structures of Grupo IDISA, the large number of transactions between ALPES, IDISA and other Romero companies among other concerns by the CRL board members brings in complications. In regard to this, Dennis Shaughnessy has the responsibility to ensure that these issues are made clear to the board members to clear any doubts. This can be carried out by trying to establish the nature organizational structures of Grupo IDISA, and the transactions between ALPES, IDISA and other Romero companies
Since Shaughnessy has had an opportunity to interact directly with the Romero family and since he knows much about the family through his interaction with it more than any member of the board; he needs to make the necessary efforts to enable these members to have the right picture of this family like the one he has.
Shaughnessy should also make the CEO to be aware of the befits of entering in a joint venture by investing 2 million US dollars and the projected returns from this amount where it is projected that the joint venture will have produce sales-worthy 3 million in the year that will follow and more than doubling by year four. He should make the CEO to be aware of the fact that, by CRL accessing the international market; it would improve its revenues to as much as 50 million US dollars from the 25 dollars when it operates from within. Therefore this will serve to reduce his worries about the joint venture distracting SPAFAS – specific antigen-free avian services which he sees as expanding at a rapid pace in the United States of America.
In the implementation plan, there will be investing two million in cash in a new joint venture that will be located near Mexico City and this will be in exchange for 50 percent of the company’s equity. The partner, ALPES would make a contribution of the existing SPF and commercial egg (for vaccine) assets it has to the joint venture company for its 50 percent equity interest. There will be sharing of the profits equally by the two companies. This investment will be aimed at improving the quality of the products as well as raising the level of production to meet the demand.
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