Case Study: International Joint Venture of SPAR Australia Limited

This case study examines the international joint venture of SPAR Australia Limited, a partnership between SPAR Group Inc. and FACTS. The report analyzes SPAR's market entry into Australia, the benefits of the joint venture, including smoother market access, shared costs and risks, and reduced political risk. It also discusses the challenges faced, such as anti-competitive behaviors from competitors and the consolidation of small businesses. The study explores SPAR Australia's business operations, marketing management, and the overall success of the joint venture in the Australian retail market, highlighting its strategic positioning and customer-focused approach. The report concludes that despite the challenges, the benefits of the joint venture outweigh the risks, making it a successful international business strategy.

INTERNATIONAL JOINT VENTURE-SPAR AUSTRALIA LIMITED CASE STUDY 1
INTERNATIONAL JOINT VENTURE-SPAR AUSTRALIA LIMITED CASE STUDY
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Executive Summary
The International joint venture is one of the strategies employed by the
multinational corporations to have full access to the foreign market. Research confirms
that international joint venture foreign market entry strategy is more beneficial than the
risks arising from the approach. This report uses the case study of the SPAR Australian
to explore the advantages and disadvantages attributable to the international joint
ventures. SPAR Australia also was known as SPAR FACTS it is the joint venture
between the international SPAR Group Inc. and Australian Face and Cosmetic Trading
Services Pty Ltd (FACTS). Despite that SPAR Group had operated in the Australian
market since 1994, its operations expanded rapidly from 2006 when it formed a joint
venture with FACTS. The report has found that through joint venture, SPAR Group has
been able to have smooth access in the Australian market, shared costs and risks with
the other partner, reduced political risk and taken advantage of the combined synergies.
On the other hand, the joint venture has also experienced several problems. For
example, competitors such as Metcash employ anti-competitive behaviors without the
intervention of the Australian Government. Secondly, many small businesses which are
major targets of SPAR Australia they are either consolidating or closing down. However,
besides the challenges, report analysis shows that the benefits realized by the company
are more than the risks.

INTERNATIONAL JOINT VENTURE-SPAR AUSTRALIA LIMITED CASE STUDY 3
Table of Contents
Executive Summary......................................................................................................... 2
Introduction...................................................................................................................... 4
SPAR FACTS Background Information............................................................................5
SPAR Australia Joint Venture Business Operations.....................................................6
The Entry of SPAR Group in Australian Market............................................................7
SPAR Australia Marketing Management..........................................................................8
Benefits of using SPAR Australia Joint Venture to SPAR Group Inc...............................9
Challenges Facing SPAR Australia as an International Joint Venture...........................11
Conclusion..................................................................................................................... 12
References.....................................................................................................................13

INTERNATIONAL JOINT VENTURE-SPAR AUSTRALIA LIMITED CASE STUDY 4
Introduction
Over the past decades, the demands of managing the international businesses
have greatly changed. This phenomenon has influenced the strategies of managing the
international ventures across the borders (Durmaz & Taşdemir, 2014, p. 48). The goal
of every business is to develop, grow and expand with the aim of serving wide market
coverage. As a result of the urge to reach huge market has forced businesses target
extend their operations both in the local and international markets. Business operating
in the international markets faces a number challenges such as adhering to the host
country trade laws, hazardous weather conditions, lack of the right labor, fluctuating
exchange rates, resistance by customers to have standardized global products and
services, host nation based differentiated approaches, flexible manufacturing
technology, and others. To manage these challenges effectively it calls for the proper
management of the international business operations. The International joint venture is
one of the most common strategies used by the business to operate in the international
arena (Romeli & AbdShukor, 2016, p. 20). Ideally, joint venture partnership occurs when
two business in two different or more countries agree to carry out business (Le & Nhu ,
2009). This approach helps the company to explore international business without
undertaking the full responsibilities associated with the international business
operations. Instead, the large responsibility of overseeing business operations in the
international market is left to the host country company.
There are several and critical reasons why businesses may prefer to enter into
the international joint ventures. Factors such as lower taxes, favorable currency
exchange rates and lowering of the manufacturing costs often make all the international
joint ventures beneficial (Le & Nhu, 2009, p. 61). However, despite having a lot benefits
in the international ventures, there are risks of entering foreign markets using the same
strategy. Usually, the international joint ventures permit multinational corporations to
reduce their risk while expanding in the global market with a goal of serving the new
market and new customers as well. The companies in the host country may be unable
to access local market effectively because of the lack of the appropriate technology,
right skills or marketing strategies. However, when they corporate with another foreign
country with the goal of establishing a joint venture they can be provided with the

INTERNATIONAL JOINT VENTURE-SPAR AUSTRALIA LIMITED CASE STUDY 5
necessary knowledge, capital, technology as well as valuable resources to have full
access to the market. The joint venture will create mutual benefit for the two companies
entering into a partnership. The home company will benefit from using the partner's
resources to reach the domestic market. On the other side, the international company
will be helped to access the foreign market without fully getting involved in the running
of the business.
Apart from the numerous benefits associated with the international joint venture,
the relationship may also be risky. This greatly depends on the country as well the
industry. In certain countries, the government may have huge interests in the ownership
of the business and therefore becoming so keen not to allow foreign business in the
country (Birkinshaw & Hood, 2012, p. 142). Likewise, in the industries such as defense
and banking it might be difficult for the global companies to create international joint
ventures. International joint ventures may also suffer from sovereign risk. Frequently,
foreign markets regulate business and sometimes they may confiscate the joint venture
resources without fair compensation. In case this occurs, the international company
using joint venture as the entry to the foreign markets will suffer losses. Therefore, it is
important for the business anticipating to use international joint venture strategy to
examine the country’s private businesses nationalization history to gauge whether it can
offer favorable business environment. The analysis of the host country government
regulation of the business will help the global business to avoid risks and losses that are
associated with the government intervention. This report uses an example of SPAR
FACTS Australia Pty Limited to explore how the international businesses can manage
their operations across borders successfully. This was a joint venture between SPAR
Group Inc. and Face and Cosmetic Trading Services Pty Ltd (FACTS).
SPAR FACTS Background Information
The background of SPAR FACTS can be traced back in 1996 when the FACT
Company was founded. The success of the FACTS was attributed to offering extensive
experience to their customers through retail products. Its success attracted the New
York-based company, SPAR Group Inc. The SPAR Group Inc. was publicly listed
company that was operating with several subsidiaries in more than eleven countries.

INTERNATIONAL JOINT VENTURE-SPAR AUSTRALIA LIMITED CASE STUDY 6
The joint venture between the two partners led to the establishment of the SPAR
FACTS which up to now has blossomed and expanded to other nations such as New
Zealand. Currently, SPAR FACTS offers complete retail merchandising for wholesalers,
retailers, suppliers, and marketers.
SPAR Australia Joint Venture Business Operations
SPAR Australia was also known as SPAR FACTS; it is a joint venture between
SPAR Group and Face and Cosmetic Trading Services Pty Ltd. The venture between
the two companies was the brilliant idea of SPAR Group to extend its international
presence by entering the Australian market. However, the company found it difficult to
establish a new business in the country from scratch. Instead, the company opted for a
joint venture with Face and Cosmetic Trading Services Pty Ltd. The SPAR FACTS entry
in the Australian can be aligned to the (Fethers & Salter, 2013) argument that joint
ventures are the best gateways of doing business in Australia. The joint venture was
owned 49 percent by Face and Cosmetic Trading Services Pty and 51 percent by SPAR
Group Inc.
SPAR Australia Supplies grocery products and at the same time offer retail and
marketing support services to more than three hundred independent retail
supermarkets. It serves a different number of retailers especially in Pacific Island,
Northern Territory, Australian Capital Territory, New South Wales and Queensland
areas (Australian Chamber of Commerce and Industry , 2016). It is crucial to highlight
that SPAR Australia is one of the only two key suppliers of the independent suppliers on
Eastern Seaboard of Australia. SPAR Australia operates a huge distribution center of
approximately 40,000sqm. The company distribution center can hold up to 15,000 hard
grocery lines as well as 2,500 frozen product lines. The company distribution centers
apply the latest technology including ERP computer platform that facilitates warehouse
management systems and RF technology.
SPAR Group is one of the widely recognized leading contemporary leading
company in the world. This can be confirmed by the number of the awards that have
been won by the company as an innovative retailer. Besides, its extension to Australia
through the SPAR Australia is gaining a lot of recognition and findings show that it is

INTERNATIONAL JOINT VENTURE-SPAR AUSTRALIA LIMITED CASE STUDY 7
one of the fastest growing retailers in Australia. For example, when the joint venture
was formed in 2006 it had only 25 stores. The number rose to 75 stores in 2008 and in
2015 the company had over 140 stores (Australian Chamber of Commerce and
Industry, 2016). The success of SPAR Australia can be ascribed to its strategic position
that is aimed at capitalizing the on the industry growth. The company is achieving this
my provisions of the offers and services that are tied to the customers’ needs.
Therefore, as the company strives to succeed it is also putting into consideration the
satisfaction of its customers. In fact, the SPAR Australia philosophy emphasizes on
working together so that all can benefit. This is the ideal ingrained and embraced by all
the employees in SPAR Australia.
From the above analysis, it has been well elaborated that SPAR Australia has
had successful business operations in the Australian market. Despite the fact that the
company has partial foreign ownership of the SPAR Group it has effectively competed
with the other domestic retail businesses. Besides, the company has established its
position as one of the major suppliers to the independent retailers in the Australian retail
industry. However, this success cannot be celebrated without appreciating the injection
of the SPAR Group. The SPAR Group provided FACTS with the essential resources
needed to compete with other domestic businesses effectively. On the other hand, the
SPAR Group has stood to gain from the joint venture relationship. The company
business operations have deeply penetrated in the Australian market and industry.
Maybe this could have been a different case if the SPAR Group had been operating on
its own as the foreign company. This observation can be strongly linked to the SPAR
Group impact and recognition in the Australian since 1994 to 2006 when it was
operating on its own without a joint venture. The success of the SPAR Australia is
largely noticeable from 2006 when the company started operating a joint venture with
an Australian domestic business.
The Entry of SPAR Group in Australian Market
In the above discussion, this group has found that SPAR Group has been
operating in more than eleven countries globally. Ideally, the SPAR Group began
operating in Australian in 1994. To realize total benefits and save costs associated with
carrying business in the international market, the company made several changes in

INTERNATIONAL JOINT VENTURE-SPAR AUSTRALIA LIMITED CASE STUDY 8
wholesaling and retailing sectors. It is out of this changes whereby the SPAR Group
ended up forming the SPAR FACT joint venture in 2006. Besides that SPAR Australia
Limited is an unlisted public company, its operations are quite evident especially in
Queensland and New South Wales States. The SPAR Australian has expanded its
services to the point of supporting the independent retailers to develop their brand by
offering them range services through the company distribution centers (SPAR Australia,
2013). SPAR Australia, was the perfect company for the SPAR Group to rely on order to
enter the Australian market deeply.
SPAR Australia Marketing Management
Through the utilization SPAR FACTS joint venture in Australia, the company has
been able to receive significant benefits from the partnership. For example, FACTS has
been able to extend its major services such as store design and development, retail
operations, branding and marketing, supply chain, purchasing and provision staff
training and consultancy services in the Australian market. This report will explore how
the joint venture has helped SPAR Group in the provision of these services.
 Store Design and Development: The SPAR Australia has helped small
businesses in the Australian market to develop a format that suits local business
needs.
 Retail Operations: The Company establishes world-class retail operations that
facilitate efficient and effective retail operations. The SPAR Australia also
support retailers through helping them in staff management, waste management
and in-store merchandising.
 Branding and Marketing: The SPAR Australia offers a variety of products that
are accompanied by the different marketing strategies. This approach permits the
smooth entry of the SPAR Group products in the market.
 Supply Chain: For any retail business to succeed it must have an efficient
supply chain. SPAR Australia has well-established supply chain operations,
distribution centers and effective warehouses for successful supply chain
management.

INTERNATIONAL JOINT VENTURE-SPAR AUSTRALIA LIMITED CASE STUDY 9
 Purchasing: The SPAR Group provides its international venture in Australia with
the range of its brands. This saves the company from being exposed to the
threating power of suppliers in the market.
Benefits of using SPAR Australia Joint Venture to SPAR Group
Inc.
Avoiding Import Barriers and other Protectionist Legislation
Over the years Australia's anti-dumping policy has been a stumbling block for
many international businesses that want to the extent their operations globally (Coch,
2016). This is deemed to protect the domestic consumers. However, the move has had
a negative impact on the consumers. As noted earlier in the discussion, joint venture is
the right gateway to do business in Australia. SPAR Group has focused on international
joint venture strategy to enter the Australian market. This has helped SPAR Group in
eradicating the quotas and restrictions imposed on the importation of some its products
in the country as well avoiding the high charges paid as import duties.
Sharing Costs and Risks
SPAR and FACTS share the cost and risk of running SPAR Australia Ltd. by 51
percent and 49 percent respectively. This cost and risk sharing ratio is based on the
percentage of ownership of each company in the joint venture. The sharing also
extends to the joint venture operations in the foreign markets.
Access to Australian Markets
Before, it was difficult for the SPAR Group to penetrated Australian market
deeply. Even being an international company it was hard for the SPAR Group to have
wide access in the Australian market and retail industry because of the challenges
facing global companies in the Australian market. However, in 2006 when the company
entered into joint venture with FACTS, a company in Australia, it avoided some of the
costs as well having the full access in the country market. According to Agarwal &

INTERNATIONAL JOINT VENTURE-SPAR AUSTRALIA LIMITED CASE STUDY 10
Ramaswami (2012, p. 2), international companies facing the trade barriers and
protectionist to enter in a certain country market, they can focus on employing the
international joint venture relationship. Similarly, SPAR Group found that it had
difficulties in accessing the Australian market fully. Therefore, it resulted in having a joint
venture which helped it undertake its marketing activities in Australia. Besides, the
SPAR has largely opted for several international joint ventures to access other markets
across the globe.
Enabled Rapid Entry
Based on the above discussion, the entry in the foreign markets is hindered by
different obstacles and challenges. Therefore, it calls for the multinational corporations
to come up with the right strategies of entering the international markets effectively.
Despite that the operations of SPAR Group have been evident in Australia since 1994,
its business operations gained momentum and became well known when it entered into
joint venture agreement with FACTS in 2006. Therefore, it indisputable that SPAR
Australia accelerated the entry of the SPAR group in the Australian. Besides, the
operations of SPAR Australia in the country increased and expanded to other foreign
nations such as New Zealand.
Taking advantage of Synergies
Ideally, when two companies come together, the value and performance are
usually higher than that of a single company (Le & Nhu , 2009). This because the two
companies bring together different experience and knowledge in the running of the
combined business. Similarly, SPAR relationship with FACT brought together different
marketing skills of doing business. For example, SPAR Group had an experience on
how to run international businesses while on the other side, FACTS had domestic
marketing experience that helped SPAR Group encroach Australian market effectively.
Additionally, the SPAR Group benefited from cost reduction, technology, combined
technology and increased revenues. It is also important to note that apart from the joint
venture relationship the advantages of the synergy are also attributable to mergers and
acquisitions.

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Reduction of Political Risks
Despite that Australia is largely politically free risk country, there are still existing
political risks. The changing business environment in the country has frequently been
calling for the Australian government. The continued interventions may have negative
impacts for the international companies operating in Australia. However, having SPAR
Australia as the joint venture has helped the SPAR group reduced the political risks that
can affect its operations in the country in the event of an occurrence.
Challenges Facing SPAR Australia as an International Joint
Venture
Just like any other business, the international joint ventures operate in a dynamic
environment. This means that was perceived as a marketing opportunity when entering
the joint venture agreement may turn out as risk. Similarly, the SPAR Australia faces
some of the challenges facing other international ventures in the country. However, the
challenges and problems being faced by the company they are not severe to hamper its
business operations in the country (Hoque & Swanson, 2015). The major problems
being faced by the SPAR Australia comprises of;
Anti-competition Behavior from other Players in the Market
The market of the packaged products is largely dominated by Woolworths and
Coles whereby they claim approximately 77 percent of the market share. The
independent retailers and Metcash accounts for about 18 percent of the market share.
In the supply to the independent retail supermarkets, Metcash claims 98 percent while
SPAR Australia has got only 2 percent. However, despite the small market share being
enjoyed by SPAR Australia, Metcash has engaged in the anti-competitive behaviors
with the efforts stifling the SPAR growth and eventually kick it out of the market (Spar
Australia Limited, 2014). This is happening without the intervention of the Senate, yet it
can provide some assistance to help small businesses is operating under the SPAR
Australia franchise (Australian Chamber of Commerce, 2016).
Increased Consolidation of the Small Businesses

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SPAR Australia largely targets on the small retail businesses. The consolidation
rationalization trend has continued to swindle the major market target for the SPAR
Australia (Spar Australia Limited, 2014). Alternatively, the remaining small businesses
have continued to suffer from the threat from unethical competitors with regulators and
government unwilling or unable to do anything to curb the menace.
Government Regulations that Favor Domestic Businesses
The Australian Government has continued to enact and maintain the business
regulations that largely favor domestic retailers and supermarkets. For example,
according to the SPAR Australia, there are independent retailers and supermarkets that
compete with major supermarkets in the country such as Woolworths and Coles
appropriately. However, the competition approaches applied by the Metcash against the
independent retailers and supermarkets appear unethical. Metcash competition is
widely tied to the price an act that holds back many independent retailers from
aggressive and healthy competition. The SPAR Australia perceives that Metcash has
been able to achieve huge profit margins because it is the only national wholesaler to
the independent retailers (SPAR Australia Limited, 2014). This is a special type of
monopoly that is protected by the Australian government at the expense of other
competitors in the industry.
Conclusion
The International joint venture is one of the competitive and appropriate
strategies for entering the international market. The business using this strategy is
guaranteed the full access to the foreign market. Besides, the foreign business will be
able to overcome many challenges and barriers that will be executed by the joint
venture. Similarly, the SPAR Group has been able to enter the Australian market and
compete effectively through the SPAR Australian joint venture. This foreign market entry
strategy has accrued SPAR Group with a lot of benefits such as reduction of the political
risks, overcoming import barriers, full access to the Australian market and others. On
the other side, the SPAR Australia joint venture has had challenges such as anti-
competitive behavior by some of the competitors as well lack of government regulation