Breezy case

This case analysis explores the possibility of Breezy, a leading supplier of carburators and air filters in North America, the possibility of developing offshore busines in countries where car manufacturing is growing. The report is structured as follows: First, there are five important questions that Breezy must consider and ask itself before developing a relationship with a new customer. After Breezy decides to go offshore, it will have to go through the negotiating process, which involves five steps. Breezy then, must have capabilities of how an offshore business is organized, consider the many different costs and risks involved in the implementation and decide how it will finance the project. The report also talks about how Breezy will have to modify its corporate strategy. Finally, the report concludes with the best reccomendation for Breezy to maintain its competitive advantage. 1. In exploring the possibility of developing a relationship with offshore car manufacturers, what questions should Breezy be asking? a) Who are the suppliers of carburators and air filters that Breezy will be competing against? This is an important question when conducting an external analysis of the players in the Industry because Breezy will be able to design a strategy that will make their products different from competitors. b) What are the car manufacturers human, financial, physical and organizational resources and capabilities? Breezy should be asking and investigating the firms that it plans on partnering abroad because they would not want to d business with car manufacturers that are not financially stable or have a bad organizational culture. c) How is the business done in the country (Brazil or India)? Breezy must consider the different business styles deriving from different countries in order to succeed in the global market. d) Does the car manufacturer have a good credit? Breezy must make sure its customers can pay for the products in order to avoid having to write off uncollectible accounts. e) Will Breezy be able to gain competitive advantage over local suppliers? Breezy could choose between cost leadership strategy or product differentiation strategy. 2. How should it approach the issue of negotiating with them? The negotiation process involves 5 steps: 1. Define objectives for the partnership: Breezy should have benchmarks in which to compare their objectives with the manufacturers objectives. These will define whether they can meet common grounds when doing business together. Examples of benchmarks include nature of agreement, duration of alliance, expectations, key aspects to protect, etc 2. Assemble a negotiating team: Breezy will have a team that represents all areas of the company affected by this relationship. In addition, the team will be composed of a chief negotiator, an experienced interpreter, and senior management personnel and personnel with knowledge of technical, operational, and legal details. The roles of the team will be to choose a negotiating technique and conduct due dilligence on the parties involved, understand the business and social customs of the country. 3. Establish trust: Breezys negotiating team should first build rapport with the manufacturers before presenting their proposals. 4. Establish the business framework: After rapport has been established, the team should be able to draw an agreement where all parties reach consensus, then outline the alliance in general terms, define objectives, consider how internal politics will affect the deal and define respective contributions of both sides. This should be done in a Letter of Intent. 5. Establish a legal framework: This will allow establishment of structure, definition of rights and obligations and scope of cooperation. (FITT, 6th ed). In the end, set the negotiations with a Memorandum of Understanding. 3. How should any offshore operation be organized? What are the key location considerations? Every offshore operation should have the right people. For example, a senior manager should be in charge of managing all operations with personnel with knowledge of global operations reporting to him. Therefore, there must be clearly designed roles for each person involved. Any offshore operation will be defined by the financial commitment that each party will contribute and the risks and rewards that comes from it. An foreign subsiadiary could be set up in the country they plan to enter in order to have face to face contact with potential and new customers. Regarding the global supply chain, companies will have to create a distribution strategy and implement it. Also, companies should select an intermediary involved to facilitate the shipping of cargo, aid with documentation and customs brokerage. Regarding location, companies going offshore must use the Porters Five Forces model. A location where the threat of buyers, threat of new entrants, threat of rivalry, threat of substitutes and threat of suppliers are all low would be an ideal place to do business and exploit opportunities. The choice of country will be based on the efficiencies or competitive advantages it can gain from being located in that country. These include proximity to market, cheaper labour costs, production efficiencies, etc (FITT, 6th ed). In addition, if the country has trade or economic sanctions, is politically instable, has high tax rates, inadequate transportation systems and undeveloped banking systems, firms should consider going into other markets. 4. What costs are likely to be incurred in this venture? Transportation costs including cargo insurance and freight Labour costs Maintenance charges Taxes and International carges Loading and unloading fees Freigh forwarders, customs brokers fees Export fees Documentation fees such as obtaining licenses and permits Marketing and advertising costs 5. How could this initiative be financed? There are many different ways to finance the offshore venture and implement the plan. Breezy can get a loan from financial institutions, sell shares if it is a private corporation or sell shares on the exchange market if it is a public company. Another source of fund is acquiring a loan from venture capitalists or government agencies such as Business Development Corporation (BDC). 6. What business should Breezy be in? How should it revise its corporate vision? Considering that the North American industry is already saturated with limited scope foor expanding sales and profits have been significantly declining for Breezy, it is certain that the companys industry is in its mature phase of development. It is time for Breezy to take advantage of its competitive advantage by exploring new markets. Breezy should be in the business of producing carburators and air filters for the future popular car in India, in addition to the North American market, however due to the changing trends in the auto industry, where fuel efficiency is going under way, Breezy will have to adapt to the new trends in order to maintain its competitive advantage. Breezy should also keep an eye on countries where car manufacturing is growing. So far, the companys best strategy if it was to go into India or Brazil is to refine its current products , emphasize on increasing the quality of service with new customers, and focus on reducing manufacturing costs and increased quality through process innovations. The original corporate vision of becoming North America’s leading supplier of carburetors and air filters should be revised to becoming the leading supplier of fuel efficient carburators and air filters by expanding Breezys market share to potential markets. 7. What risks does the offshore venture face that the domestic company does not? Theft/ Damage of shipments in transit: If Breezy was to ship their products by sea, there is a risk of pirates or improper handling of containers, improper storage or conditions of the cargo. Missing documentation for customs clearance in the sea ports. Degree of expertise in international business documentation, transportation, payment, etc. Breezy has to find suitable intermediaries such as a freight forwarders to assist with the offshore venture. Culture differences: Breezy needs to adapt to the culture in which it is doing business in. Differences include language, geographic distance, cultural issues. Inadequate infraestructure such as roads, warehouses. If Breezy is going to do business in a thirld world country, it must consider whether it is possible to transport and store their products and maintain its condition and know if they have to spend extra for proper transportation and storage. Environmental considerations: Breezy needs to consider whether it has to alter the design and packaging to withstand the effects of climate. Cost escalation, higher costs: Breezy will have to be able to afford the higher costs that comes with doing business offshore and still be able to outscale competitors. Risk of having contractual disputes with new customers. Conclusion Overall, Breezy was faced with two alternatives. One was to stay in the North American market and extend its product offering and continue working with existing customers even though there was not much potential to exploit opportunities for increasing profitability. The other option is to expand its market share by going into new markets and developing new customer relationships. I believe the latter alternative is the best course of action for Breezy as it will be able to acquire new customers while taking advantage of its reputation and competitive advantage. Breezy will benefit from increased sales and will be able to stay in business.