Blue Ridge Spain
Overall comments: need to tie narrative to terms/concepts from the book. Should stratify comments into uncontrollable and controllable forces. (like Todd did) Although Blue Ridge Restaurants had success with expansion and joint ventures in Australia, the UK, France, Italy, Brazil and Hong Kong through 1987, many differing factors were at play when Yannis Costas evaluated the market and strategy for the Spain in the 1ate 1990s. Factors described by D. A.Ball, et al, 1, considered relevant in a country screening and assessing market expansion, especially the xx screen, political and legal and the fourth screen, socio-cultural, were not favorable for an aggressive expansion in Spain.
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The key issues in the Delta Foods expansion in Spain are:
Probe deeper on these questions:
1. What are the expertise strengths and unique resources that each partner brought to the joint venture?
2. Why does or doesn’t Blue Ridge need a joint venture in Spain?
3. Why does or doesn’t Terralumen need a partner to develop such a business in Spain?
Environment for joint venture
* Peculiarities for doing business in Spain-failure to use value chain analysis What was the competitive cost position at the end of the value chain?
* Terralumen is a package good company looking for restaurant partner
* Market demand-package foods industry and non-tapas menu items popular with working professionals in urban areas only
* Pressing Spaniards on American goals
* Spanish economic trials of 1998-2004
* Lack of implementation plan-see keys to resource deployment Impedances: Socio-Cultural Fear of being exploited
* Explain uncertainty avoidance and masculinity/femininity concepts for Terralumen and BR/Delta Cultural differences, as related to doing business, come into play here in the Blue Ridge case Study.
Significant cross cultural conflicts between parent companies of different nationalities paved the way for the dissolution of the joint venture between Delta and Terralumen. In a Board of Director’s meeting, the American-Spanish joint venture partners could not work together or agree on common goals and policies, or resolve problems.
The Hofstede Model has demonstrated that individuals living in a particular country tend to share similar values, and that they bring these values to the firms for which they work. The stark contrast of cultural values between managers of Delta and Terralumen make it difficult to ensure the success and the longevity of Blue Ridge Spain The European Regional Director, Yannis Costas, is of Greek nationality. According to Hofstede, Greece is high on power distance and high on uncertainty avoidance.
In the Greek culture, people respect senior manager and would not prefer a young inexperienced manager. On the one hand Costas has put much effort into the joint venture and identifies with his work. That’s why he wants to help Blue Ridge. On the other hand, he has a good relationship to the Spaniards who value his ability to establish an interpersonal relationship which can also be traced back to his Greek roots. Decisions are made on subjective feelings and he wants a harmonious balance, a consensus. Overall, he is rather on the side of the Spaniards.
As a Greek, Costas values the solid interpersonal relationship and trust which he and Francisco Alvarez had built over the years in trying to foster a successful joint venture. Costas was often employed to solve conflicts and mend damaged relationships. He also questioned the ethics of his company’s strategy to secretly achieve the upper hand in buyout negotiations. Alvarez, representing Terralumen, is from Spain. He shares many similar cultural characteristics with Costas, including patience and mutual respect. This explains how Costas and Alvarez have come to establish solid friendship and cooperation throughout the joint venture
* Avoid retelling the facts of the case
* Is there something in the Donaldson article on ethics? Geoff Dryden and the company he represented faced the ethical dilemma of how one should act when cross the national boundaries; with unfamiliar law and unclear ethical conduct he faced, one should question Geoff conduct. Geoff who had no overseas experience was transferred from US Delta snack food division to Europe had secretly made suggestion to let Terralumen default on its debt so that they can force a buyout.
Geoff and Delta did not act ethically by pursuing this strategy which showed ethical imperialism of individual and the company which allowed it to happen; one should not act differently when away from home. People’s perception would be affected if they knew that Delta had intensionally let the other could have financial implication In addition, another unethical moment came from Bill Sawyer when he deceived Costas by suggesting that the company will be hiring someone with experience but in turn they hired someone with very little experience compared to Costas’s. The core values establish a moral compass for business practice…” I honesty and integrity is a universal practice and by Bill’s actions and company’s tolerance of it, it represented low level of ethical standard for himself and the company that did not allow full disclosure in hiring process. Also Terralumen had decided to give power of attorney to one individual who can make a decision that will impact the entire joint venture existence; this decision represent unethical practice for the company. Terralumen should have full disclosure practice that would allow for all critical decision been communicated among joint venture.
This practice would have allowed other members a chance to evaluate the decision taken by Terralumen and see what impacts will it have on the existing joint venture. To give the power of attorney to Francisco Alvarez without consultation of other member of joint venture represented unethical act. While the culture and personality of the decision makers impact the important choices made in cases like this one, equally important are the countless spreadsheets and documents that contain the financial factors integral to the success or failure of an international business affair.
The original development plan agreed to in 1998 (exhibit 2) was a far more conservative approach that would see approximately ten new stores per year opened in Spain. With an initial capital investment of around $1 million per store, and a lengthy 18-24 period between the time of investment and the construction of the location, the venture would be operating on very thin margins in the early years, with the hope that the continued expansion would lead to higher profits in the latter years of the plan.
Insert your sources/citings
Delta’s overly aggressive growth strategy set a goal at expanding at three times the pace of the 1998 agreement. Delta’s decision to utilize a consulting firm based in the U. S. might have been a contributing factor to this unrealistic goal. As Bell (2010) states, sometimes management needs to gather data in the potential market rather than just using desk and field reports. For example, the American consultants might not have been privy to the key money costs of around $100k paid off-the-books to property owners at the signing.
With a goal of opening thirty stores per year, this would add an additional $3 million per year in expenses in addition to the other costly expenses. It would’ve also behooved the Delta consultants to consider the uncontrollable economic forces that were going to come into play with their expansion plans. While there were some key economic indicators in Spain working in Delta’s favor, such as a GDP went from just under 3. 5% in early 1997 to over 4. % in early 1998, there were also some warning signs that should have lead them to temper expectations in this market . One of these warning signs deals with Spain’s unemployment rate. As shown by the chart below, Spain’s unemployment rate during this time period was hovering around 20%, although it was beginning to show signs of improvement. While this might be a sign of many possible new hires to work in the restaurants, it also signals a rather weak economy and a potential dearth of customers.
Some of the controllable forces that Delta could have adjusted their approach to help the joint venture deal with the exorbitant royalties and fees the company desired to collect from its Spanish partner right from the get-go. Squeezing the restaurants for this money in the early stages of expansions could have a demoralizing and costly effect on the local managers as they attempted to build their business and compete against better known Spanish restaurants. The growth strategy into Germany and France seems to be an overly optimistic one, as well.
Blue Ridge already had failed at one attempt to enter the French market, and Germany has a culture vastly different than Spain. How could Delta prognosticate having 55 stores within three years in a country where the business model had been an abject failure years before? Without proper planning and a gradual implementation to determine whether the restaurant could succeed in these markets, the company could be faced with an overburdened agenda that could sink the entire plan. Other U. S. ompanies, such as Wal-Mart, learned this lesson the hard way. 1 Ball, D. A. , Geringer, J. M. , Minor, M. S. , and McNett, J. M. (2010) (Assessing and Analyzing Markets) International Business: the Challenge of Global Competition, (12th ed. ) pp 427-464, New York, NY: McGraw-Hill Irwin 2 Donaldson, T “Values in Tension: Ethics Away From Home. ” Reprint No. 96502. Harvard Business Review, 2010. ,65 pg 69-72. http://www. coursesmart. com/9781609272852/firstsection#X2ludGVybmFsX1BGUmVhZGVyP3htbGlkPTk3ODE2MDkyNzI4NTIvNzI=