The licensing contract is only three years, the Bar Maisse is not famous, and the sales is difficult to be estimated, therefore, we suspect if licensing could meet the expectation of rapid growth. The cost of licensing is lower in comparison to joint venture and direct investment, but the royalty is only 5% of gross sales. The growth of CAH might not be significant. Besides, CAH will have no control of operation and reputation if they choose ¡§licensing¡¨ option.
Joint venture might be an unviable choice of CAH because Bar Maisse may not be willing to launch joint venture with CAH. CAH has insufficient information about Bar Maisse, CAH doesn¡¦t know whether Bar Maisse would seek to control the operation or not, that is, CAH will have limited control of operation and reputation. In addition, CAH should share profit with Bar Maisse, and the break-even quantity is 700(see exhibit 3) that is not easy to achieve in the short term because it took CAH six year to expanding sales from 23 to 700 in the US market. (from 1991 to 1997)
It is tough to directly invest in Europe market since only little information is available in Europe and the risk is high. Moreover, the estimated investment cost is about 1530000, which is high; it might take time to cover this investment cost. If CAH chooses direct investment, they should be responsible for all losses, but it is difficult to estimate sales in the Europe market and CAH is not familiar with Europe market. It is hard for CAH to control the variance under uncertainty. If CAH decides to enter Europe, Pierre would be the choice to head up the ¡§direct investment¡¨ option, then CAH will loss one outstanding salespeople to deal with the US market.
It is recommended that CAH not entering the Europe market. CAH has successful experience in expanding sales into the US market, and US market has unrealized potential. Thus, CAH should make more effort in the US market, and sales could be increased....
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