International expansion business venture
To: Joaquin Armada, President of Caribbean Tile Company
From: Production and Warehouse Manager
Subject: International expansion/production
Date: February 23, 2014
Mr. Armada,
Caribbean Tile Company has been operating for over two decades providing excellent and competitive products and prices in the construction industry. One of the reasons for such success has been the high demand for our products during the real estate boom and the competitive prices that our company was able to offer. Today we are thankfully experiencing another unexpected demand for our products in an economy where there are more companies competing for our business and offering similar high quality products for lower prices. Our company has been forced to find alternatives to continue to provide the same quality in our products and compete in offering the lowest prices in our industry. It is therefore that I recommend that our company consider expanding our production to Honduras, where the cost for labor is considerably less than our current cost here in the United States and in doing so will offer us the opportunity to maximize profits and increase the company’s value.
In undertaking such venture, our company will undertake the Foreign direct investment technique (FDI) in which our company will join one of Honduras’ major tile producers, Leiva’s Tiles Inc. and allow us to participate in the management and expertise of the country’s labor laws. Leiva’s technical expertise in the production of the product will help us to increase the effectiveness of our business expansion and production. The benefit of the flexibility is directly associated the FDI technique because it provides production flexibility that generates several incentives for a business that has geographically dispersed operations. The value of production also increases due to switching the production processes between locations of two different countries (Tong & Reuer, 2007). In this particular case, expanding our
From: Production and Warehouse Manager
Subject: International expansion/production
Date: February 23, 2014
Mr. Armada,
Caribbean Tile Company has been operating for over two decades providing excellent and competitive products and prices in the construction industry. One of the reasons for such success has been the high demand for our products during the real estate boom and the competitive prices that our company was able to offer. Today we are thankfully experiencing another unexpected demand for our products in an economy where there are more companies competing for our business and offering similar high quality products for lower prices. Our company has been forced to find alternatives to continue to provide the same quality in our products and compete in offering the lowest prices in our industry. It is therefore that I recommend that our company consider expanding our production to Honduras, where the cost for labor is considerably less than our current cost here in the United States and in doing so will offer us the opportunity to maximize profits and increase the company’s value.
In undertaking such venture, our company will undertake the Foreign direct investment technique (FDI) in which our company will join one of Honduras’ major tile producers, Leiva’s Tiles Inc. and allow us to participate in the management and expertise of the country’s labor laws. Leiva’s technical expertise in the production of the product will help us to increase the effectiveness of our business expansion and production. The benefit of the flexibility is directly associated the FDI technique because it provides production flexibility that generates several incentives for a business that has geographically dispersed operations. The value of production also increases due to switching the production processes between locations of two different countries (Tong & Reuer, 2007). In this particular case, expanding our
References: Tong, T.W. & Reuer, J.J. (2007). Real options in multinational corporations: organizational challenges and risk implications. Journal of International Business Studies 38, 215-230