Strategic Planning Assignment

Added on - 29 Apr 2020

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Joint ventureIntroductionIn today’sfast-movingcompetitive and risky environment, organizations that fail tostrategically plan for their future do not hold a firm position in the market for a longer period.In simple words, commercial strategic planning is a long-term planning that considers allexternal and internalvariablesand recognizes the segments of thetargetmarket. Therefore,any organization that gives due regard to commercial strategic planning can easily attainsuccess by fulfilling every desired goals andobjective. Moreover, to form better relationshipswith a specific target market, many types of legal relationships like joint venture, distributor,agent, etc can be entered into by an organization to execute their strategy of thriving in themarket. Thus, this report intends to focus on such legal aspects of commercial strategicplanning in the context of theRussianmarket.1
Joint ventureTypes of legal relationshipsEntry strategy of an organization is generally a mode of entry that isadoptedto enter a newglobal and competitive market. Such modes of entry are basically legal relationships that canbe utilized to establish a fiduciary relationship in the market. Such relationships are anagency, distributor, and joint venture agreements that can play a vital role in becomingsignificant to a business strategy of a specific organization. Under a distributor relationship,the supplier or manufacturer can easily supply his products to the distributor who canthereafter sell the same to their customers, after adding a margin to cover their profit andother expenses. In contrast to this, an agency relationship exists when the agent haspermission from the supplier to take orders fromcustomersor to establish a legal relationshipbetwixt the customer and supplier (Levine &Prietula, 2013). Nevertheless, the basicdifference betwixt both these legal relationship is thatin anagency, the agent operatesaccording to the desires of the principal, whereas a distributor operates on his own behalf butby pursuing a contractual relationship with the principal to buy specific goods and thereaftermarket them directly. In contrast to both agency and distributor, joint ventures are that kindof legal relationship which can be easily formed informally (Cohn et. al, 2005). However, itmust be noted that the terms and conditions of the relationship must be already set out in thejoint venture agreement. There is no proper legal definition for such joint venture, but it isusually an unincorporated joint venture when it comes to legal relationships. Nevertheless,joint venture legal relationships are a cooperative and commercial arrangement betwixt twoor more businesses to execute a particular business strategy for mutual profits (Alter, 2003).The best advantage of getting engaged in a distributor relationship is that the supplier iscapableofpassing a high degree of risk that is relatedtothe items. Furthermore, a distributoris more motivated to sell the products bought from the supplier because he takes ahigherriskforfailing to sell. Similarly, the advantages of involving in an agency relationshiparethatthese are less risky from the competition law issues. Besides, the courts of EU have statedthat wherein any agent bears nil risk for activities for which he has been appointed, the EUregime will not be applicable for such segments of the agreement that can prevent the way theagent can sell the products of the principal (Cohn et. al, 2005). Further, an agencyrelationship is more suitable for situations wherein the supplier intends to maintain highcontrol over the pricing and marketing of the products. In contrast to these, a joint venturerelationship is also beneficial especially when the organization intends to capture the target2
Joint venturemarket by sharing the risks with the venture partner (Hemmer &Labro, 20008. This canallow them to maintain a lead in the market and obtain better opportunities towards expertiseand capacity. Furthermore, in this competitive market, such relationships can easily offercreative ways for organizations to exit from non-core operations. However, even though theselegal relationships have their own advantages, they have their disadvantages as well that canprevent organizations to avoid involvement in the same. In an agency relationship, it mayhappen that the agent has very lesser resources than the distributor, thereby creating variousissues for further growth (Alter, 2013). Furthermore, an agent may have his own ways ofselling his product in the target market that may not align with the ideals of the principal.Further, the agent may also sell products to customers who can compromise the value of suchitems, thereby causing huge losses to the principal. In relation to distributor relationships, adistributor always faces a problem of having insufficient sales force for introducing newerproducts in larger markets like Russia (Alter, 2013). Another reason why distributorrelationship is disadvantageous is that even after unsatisfactory services from them,disengaging the distributor is very difficult to be conducted. In relation to joint venturerelationships, the most disadvantageous thing is that there is a high level of misbalance in theasset, investment, and expertise level of all the partners involved in the agreement.Furthermore, success in joint venture especially in highly competitive markets like Russiarequires immense analysis and research of the objectives. Therefore, these are the three-keyvital legal relationships that ABC Ltd (fictional enterprise) can form with any organizationpresent in Russia (target country).The focusof ABC Ltd is enhancing partnerships through exporting strategy. Whetherlegal relationships align these with the target country/marketBased on the previously mentioned analysis of the key legal relationships in commercialstrategic planning, it can be seen that agency relationship is more likely to benefit anorganization,especially in cases wherein it intends to market the products of anotherenterprise or wishes to develop its present network of distribution. In other words, if ABCLtd intends to enhance its distribution network and market the products of anotherorganization in Russia, then getting involved in agency relationships will be very relevant forit (Olsen, 2012). Furthermore, if it is considered that ABC Ltd intends to capture theinternational markets through export strategy,thenagency relationships can fetch morebenefits to them, as the agent can easily represent them in the global markets. Besides, thiscan also assist the organization to focus on developing its partnerships with the target country3
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