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Report on the ‘Sandford’ Joint Venture in East Timor
Date: 30th September 2011 For: George Jackson From: Mizanur Rahman
Executive Summary Freemantle Construction operates in a domestic environment against ever increasing competition in a saturated market, trying to maintain market share during economic downturn. In contrast Sandford has a strong international presence in the hotel/leisure industry and is looking at diversification to improve their competitive advantage and compliment their current offerings. The opportunity presented by this Joint Venture (JV) will assist both Sandford and Fremantle in entering a new market. It will be challenging mainly because of the fact that both firms are from different industries and may have different goals/objectives along with differing management styles. Furthermore, the JV’s first project is situated in the Democratic Republic of Timor Leste (DRTL), which will have its own complexities to contend with, be it government/business policies or technology/skills shortages etc. The JV will have to consider a decision making processes throughout the partnership, which could be difficult, with each firm’s needs possibly being different. For a successful JV, the partners need to be honest, trustworthy, committed and focus on what will be best for the JV rather than on their own needs. Beamish (2008) quoted that firms enter JVs in order to create new products/services and enter new/foreign markets. This is the key benefit to this JV, whilst there are many risk factors to consider, the rewards will possibly outweigh this but only if all the obstacles and opportunities are correctly assessed and an appropriate strategy is agreed and implemented.
Introduction This report was commissioned by Mr Benny Garstead. The objective was to recommend an appropriate ‘Diversification Strategy’ and identify ‘Opportunities and Obstacles’ that will be encountered by the ‘Sandford & Freemantle’ JV in the DRTL.
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AR50126 Assignment Name: Mizanur Rahman
Diversification via JV What form of JV Prior to engaging in a ‘Diversification’ strategy both firms will have to agree on the type of JV to be implemented for this project, integrated where profit/loss is shared against an agreed percentage, or non-integrated where profit/loss is not shared. The benefit of an integrated system is that it requires capital investment from all partners and this signifies commitment and can enhance the chances of success. These decisions along with objectives and how to manage the JV will have to be agreed prior to engaging the JV. Pearce (1997) indicated that JVs can become very demanding if the partners have differing objectives. The reasons behind the JV are simple, both parties contribute to the overall scale/skills pool, thus being in a position to penetrate new markets. However local knowledge in respect of the newly formed DRTL will be lacking. This gap will need to be filled, possibly with local partners/advisors if the JV is to be successful.
Diversification Theory Ansoff’s (1965) idea of diversification (see matrix below) highlights that this is when firms enter new markets with new products. The new product here is the combined offering of both firms, in a completely new market.
Berry (1975) alternatively states that ‘Diversification’ is an increase in the number of industries a firm is active in. There are numerous other definitions, but in essence it is based on desire for growth, by expanding a firm’s existing offering with other products/services etc., which can be directly or indirectly related to current offerings or be completely unrelated. The notion that this JV needs to be identified separately from both firm’s existing operations, by...