Report On Joint Venture Between Arnott’s Aus & Mcvities Uk

HARVARD Essay Sample

Report on Joint Venture between Arnott’s AUS & McVities UK

Joint venturing is an opportunity to avoid difficulties encountered when entering a new market. It involves distinct entities created, owned, and influenced by two or more firms providing inputs in the outcomes of a newly created entity. With the advent of globalization, it has become paramount for companies to consider ways to expand to new markets while keeping risks minimal. Therefore, the international joint venture strategy acts as a platform investment for foreign firms to enter emerging markets at a lower resource commitment and risk (Parameswar & Dhir, 2019, p. 177). This report proposes an expansion of Arnott’s Biscuits Limited, an Australian-based biscuit manufacturing company, to the United Kingdom by forming a joint venture with McVities UK.

Arnott’s Biscuits Limited Background Information

Arnott’s is one of the oldest and best biscuit producers in Australia. It is popular in the food manufacturing industry. On its website, there is an extensive timeline highlighting the brand’s notable innovations across the years, which significantly relate to Australia’s history (PRIDEAUX, 2009). This crucial historical connection has made the company a national icon, also emphasized in television commercials. The company’s founder, William Arnott, was born in 1827 (Arnotts). Around three decades later, he spent the money earned from a bakery business in the mining fields to open his first bakery shop. He continued to expand his business by adding new products, such as sweet biscuits and cakes, until the establishment of the first factory in 1875. The company has continued to grow since then, making it one of the best biscuit producers in Australia. The growth attracted the interests of investors, such as the Campbell Soup Company, which later pumped millions of funds to the business after the take-over, expanding production capacity to Sydney, Adelaide, and Brisbane. As of 2005, it had employed more than 500,000 Aussies.

McVities UK Background Information

McVities UK has been in the business of cakes and biscuits since 1839 (McVities). The company is located in London, United Kingdom, and is part of the manufacturing industry. In 2009, people voted that McVitie’s biscuits were the favorite biscuits to dunk in tea (Alexander, 2016). The same year, its other biscuits, chocolate digestives, Rich tea, and Hobnobs ranked the country’s top three best biscuits. In 2014, the brand got absorbed by a Turkish company Yildiz which eventually merged some subsidiaries. The company has expanded to other countries over the last years. For instance, in 2010, it entered the Indian market. Other international markets include Italy, Australia, New Zealand, Ireland, and the Netherlands. With its greater market reach, it could offer Arnott’s Ltd a greater brand awareness for its unique products unavailable in some regions.

Joint Venture Feasibility

Expansion of Arnott’s Ltd to the UK is feasible and beneficial on many fronts. Such an international joint venture is advantageous to Arnott’s, increasing its competitive edge in the industry. Having served the same market for many years, Arnott’s Ltd has grown to levels that deserve internationalization and product diversification strategies. According to Luo (2001), the venture would offer learning opportunities by exposing the firm to new markets and partners, reducing the foreign firm’s liability to foreigners and vulnerability in the market while strengthening its benefits.

The UK has a sustainable market for food products, which could help serve the massive production capacities at Arnott’s Ltd. Food and soft drinks constitute the largest manufacturing sector in the UK (Cousins). It relies on its thriving agricultural sector to drive economic growth. Thus, the sourcing of wheat and other ingredients used in the production of biscuits could be easy and cheaper than in most other countries. Since announcing its exit from the European Union on trade, the UK has invested heavily in policies that promote commerce by attracting international investors. Arnott’s Ltd has the financial capacity to get the required resources from within or outside the country. If there are shortages of wheat and other ingredients, they can import from Australia from its local supplies.

The expansion will add a product variety to the market as Arnott’s has been in the industry for decades. The company has experience in the manufacturing sector, which can be a vital resource for McVities UK. Through this venture, UK customers can purchase Arnott’s unique products such as the Tim Tam, the Water Crackers, the TeeVee snacks, and other products. For instance, the Iced Vo Vo and the SAO, launched in 1906, have been the icons in this industry for a long time. Their availability in the UK market would create significant demand. If the venture shows signs of limited potential than expected, it would be relatively easier to withdraw without incurring massive losses.

Making the Joint Venture a Possibility

If the skills of both companies are crucial to the success of the venture, it would be necessary to adopt share management. Management of an international joint venture requires careful strategizing. If approached the right way, there is significant potential. With a shared managerial team, the joint venture could make better decisions. “It is important for managers assigned to joint ventures, or parent managers who are responsible for overseeing joint ventures, to share their knowledge with other managers in the parent” (Tsang, 2002, p. 838). Such information sharing refines the knowledge concerned and makes it more explicit.

Arnott’s Ltd should make a thorough analysis of the UK market. Sometimes a joint venture may mean operating in an unfamiliar country, as in this case. Therefore, it is necessary to familiarize oneself with the risk involved, the type of competition expected, the opportunities it could leverage, and any other information that directly or indirectly affects profitability. In this analysis, it should also ensure there is a culture fit. Cultural conflict threatens a joint venture because customers and employees could decide to find jobs elsewhere.

Reasons for the Expansion

Arnott’s Biscuits Ltd should proceed with the joint venture because it offers access to a new market and distribution networks. With the expansion to the UK, the company will gain a significant percentage of the revenue accrued from the sales in the country, which could improve its equity value in the local market. Additionally, there is a potential increase in capacity. Arnott’s is a mass manufacturer owing to its production capacity in Australia. With such resources, it would increase further to levels that make it possible to pose a competitive threat to other multinationals. Thirdly, it will be able to share the risks and costs involved in the UK market. McVities will carry a share of the expenses, reducing the burden that would otherwise be there with direct exporting. Finally, the joint venture will create access to new knowledge and expertise and more resources such as technology and agricultural materials.

Conclusion

A joint venture between Arnott’s Biscuits Limited and McVities UK will create access to a new market, avail unique products to the UK market and allow the sharing of costs and risks. Arnott’s Biscuits Ltd could use this opportunity to spread brand awareness with its outstanding products that have recorded massive sales over the last decades in Australia. Creating an international joint venture is a great way to access emerging markets than direct exporting, which would be costlier for the parent company. With the increase in globalization’s effect on all industries, firms are leveraging new ways to market their products in new markets, making the international joint venture a viable alternative.

Bibliography

Arnotts, Our story. Arnott’s. Available at: https://www.arnotts.com/our-story [Accessed April 15, 2022].

Cousins, A.O., UK threat. Global Food Security. Available at: https://www.foodsecurity.ac.uk/challenge/uk-threat/ [Accessed April 15, 2022].

Luo, Y., 2001. Product diversification in international joint ventures: Performance implications in an emerging market. Strategic Management Journal, 23(1), pp.1–20.

McVities, McVitie’s history: McVitie’s UK. McVitie’s. Available at: https://mcvities.co.uk/about [Accessed April 15, 2022].

Parameswar, N. & Dhir, S., 2019. Global marketplace strategy and choice of interaction after termination of international joint venture. Strategic Change, 28(3), pp.177–184.

PRIDEAUX, J.I.L.L.I.A.N., 2009. Consuming icons: Nationalism and advertising in Australia. Nations and Nationalism, 15(4), pp.616–635.

Tsang, E.W., 2002. Acquiring knowledge by foreign partners from international joint ventures in a transition economy: Learning-by-doing and learning myopia. Strategic Management Journal, 23(9), pp.835–854.