Case Study 6: The Foley Company

Written By: Curtis Hicks, Jessica P. Gutierrez, Jennifer Gonzalez, Bibiana Enriquez, Michael Robledo, and Humza Khan

The Foley Company is a company that manufactures soybeans harvesters and has been doing very well in the market over the years through exporting. Now a Brazilian firm has jumped into the market and also is manufacturing soybean harvesters. In order for Foley to maintain its share in the market it will have to manufacture locally. Foley does not want to lose out in the market, but the problem is that it does not have any experience with foreign manufacturing operations and no one has any experience in Brazil. This paper will discuss all available options the Foley Company has, discuss the advantage and disadvantage to each, and provide the best form of action that Foley should take. Option 1: Strategic Alliance First, Foley could form a strategic alliance with the Brazilian firm. A strategic alliance is a cooperative agreement between potential or actual competitors (Ball). With this alliance one of the benefits for Foley will be that it can learn how to manufacture in Brazil with the help of the Brazilian firm. Both companies can learn from each other and or develop new ideas off one another. Cost will be reduced because it will be shared between both companies (Ball). Both companies will retain their independence while attaining the same goal. Most importantly, it is a good way to secure access to foreign markets. The drawbacks to this alliance to consider is that Foley is going to have to give up some control (Ball). They also could be strengthening the Brazilian firm with technology transfers, management practices, operating procedures and anything else the Brazilian firm learns and or gathers from Foley. With these resources the

Brazilian firm could become a future threat to Foley. Option 2: Joint Venture Next, both companies have the option of becoming a joint venture, this is very similar to an alliance. This is a corporate entity formed by an international company and local owners through a legal partnership (Ball). A joint venture can help Foley evade making costly investments on their own, also at the same time, avoid dangerous competition with another company. Both companies can combine whatever their best features are and put them into the new company without changing their own separate companies.The new company formed by the joint venture will serve as its own entity and the profits will be owned by both companies. If the new company goes bankrupt both companies will be safe except when it comes to investments, a joint venture protects both parent companies if failure occurs for whatever reason (Marzec). If the Brazilian government ever required that companies have some local participation in order to do business Foley will be secure. Foley will be able to obtain expertise, special tax benefits that may be extend to companies with local partners, and additional capital and experienced personnel (Ball). The drawback of joint ventures is loss of control. Foley Company may not have equity based control if the Brazilian law does not allow the foreign investor to have no more than 49 percent participation (Ball). This will be a problem when comes to voting on operations of the company. Many companies feel that they must have full control, thus, this is the reason many companies resist engaging in joint ventures. The Brazilian firm may be able to exercise some control through supermajority voting where you need 51 to 49 percent split in order for decisions to get approved (Ball). It can take time for both companies to trust each other because of the different work cultures and management differences. There is a risk of conflicting objectives

between both companies. Option 3: Subsidiary The last option for Foley would be a wholly owned subsidiary. This means that they would have to build a new plant in Brazil to start over fresh there, or they could obtain a going concern (Ball). The advantage to this is that The Foley Company would be completely independent of the Brazilian company. However, the disadvantage to this is that they would not be able to tap into the knowledge or insight of the Brazilian company. Understanding the culture of Brazil, knowing the ins and outs, and being able to relate to the Brazilian people would be a major advantage and factor of succeeding in Brazil, and this option does not allow them to reap these benefits. There are also considerable legal blocks that a company has to consider when entering Brazils market. Challenges Whether The Foley Company chooses to part take in a strategic alliance or a joint venture with the Brazilian company, both companies need to be clear with each other about their motives and expectations and be honest with each other. With that being said the best form of action that the Foley Company should take in order to prosper in the Brazilian market would be to create a joint venture with the Brazilian firm. Since Foley has no expertise let alone experience in Brazil forming a wholly owned subsidiary would be out of the question. The key factors that the joint venture has over the strategic alliance is that if the new company formed through the joint venture fails it will not affect either company except through investment (Marzec). Also if the Brazilian government requires that citizens have some control in order to do business then the joint venture is best. Experts claim that joint ventures are most likely to fail because of misaligned interests

between companies. To avoid this, Foley will have to build a personal relationship with their partners in a joint venture and be clear with each others objective from the beginning. In addition to this, it would be better for them to construct an amicable exit strategy, something of a corporate prenup, in the event that they ever decide to part ways. With this kind of insurance, Foley would be able to operate in Brazil under this joint venture and learn a considerable amount about the culture, and if the joint venture was to fall through, they would benefit not only from the very isolated consequences due to the structure of the joint venture, but also the knowledge they will gain through operating as a joint venture. So, while a joint venture does have its downfalls, these can be turned into benefits if Foley operates strategically. Marketing No matter the direction the Foley Company would like to take their business, it is important to consider the differences in marketing they will have to take. Brazil has a very distinct culture that should be kept in mind before moving forward with any sort of venture. Brazil should not be underestimated when it comes to their economic power. It is now the seventh(7th) largest economy, has a growing business class and therefore a major opportunity for the Foley Company to expand their business wisely. Another important fact to consider is that Brazil is now the worlds 2nd biggest user of Facebook, behind the United States. One particular company who has achieved success utilizing this resource is Nissan when they launched a youtube campaign in Brazil that helped double the vehicle registration in the country the year it was launched (UK Trade & Investment). One note to consider is that outdoor advertising in most areas of Brazil is strictly forbidden which could be why many companies have turned towards digital advertising. Hofstede Analysis

Using Hofstedes five dimensions we will examine each dimension that equates to Brazil and the culture of its people so that the workers and managers who go to Brazil will know what to expect in order to become successful in Brazil. The power distance dimension is the extent to which members of a society expect and accept power to be distributed unequally (Ball). Brazil power is hierarchy and is respected, also there is inequality amongst the people. When it comes to business there is one boss and that boss takes complete responsibility (Hofstede). The individualism collectivism dimension measures the degree to which people in the culture are integrated into groups (Ball). People of Brazil belong to strong cohesive groups that protects its members in exchange for loyalty. When it comes to the working environment the older power family member like a father or uncle will help his son or nephew obtain a job in his own company. Long lasting and trustworthy relationships are important in doing business in Brazil, general conversation is started so people get to know each other first before engaging in business (Hofstede). The Foley Company will have to figure out how to integrate this core value into their marketing and brand as a whole. One suggestion would be to create a family-like environment in the workplace and invest time into the people they are working with before engaging solely on business. Uncertainty avoidance dimension deals with how society handles the fact that the future is unknown. In Brazil people depend highly on rules and legal systems in order to have a structured life. Chatting with colleagues, enjoying long dinners and dancing with friends are important because Brazilians need good and relaxing moments in their lives. They are highly emotional and passionate people and that can be seen through their body language (Hofstede). Brazilians are very proud of their country and culture so foreign employees with a good grasp on Portuguese should be the ones considered when flying them down to do business. It would be

beneficial to keep the strong Brazilian pride mentality in mind when marketing as well. This could be accomplished by displaying the Brazilian flag prominently on the product or by featuring a regional event in any advertisements created. The masculinity/femininity dimension is if a society is masculine where society is driven by competition, achievements, and success. Or feminine where society is caring for others and the quality of life equals success (Hofstede). Considering Brazilians are family and friendly oriented people represented by groups they are most likely to be more of a feminine culture. Finally, Brazil is a long term orientation society. This means that Brazilians value their actions and attitudes that affect the future. They have the following characteristics: social order, hierarchical relationships, collective face saving, long term planning, thrift centered, and long term outcomes (Ball). Brazilian Society To be able to succeed, the expatriate managers of the Foley company will need to know the work culture in Brazil. When it comes to blue collar workers there is one important aspect they look for in managers. Blue collar workers favor managers that can circumvent rules and bureaucracy (Perez-Floriano, Gonzalez). The new policies or procedures that come with a joint venture will not phase them because they trust that managers will be able to maneuver the new changes and get projects done. When working with Brazilian managers, expatriate managers should keep in mind that they consider themselves to be part of the elite (McMillan). On the other hand, as a society, American managers view themselves as part go the middle class. To be able to work and develop relationship outside of the workplace, American managers will need to be familiar with the culture and customs of the elite class. The Foley Company has many options in dealing with the rising Brazilian firm. The best

option, if performed correctly, would be to form a joint venture with the Brazilian firm. The Brazilian company will benefit from the resources and technology that Foley can bring. While Foley, will benefit by gaining a better understanding of the process of doing business in Brazil. The experience will benefit Foley and could lead to further expansion into the market or even one similar to that of Brazil.

Work Cited

Marzec, Evangeline. "What Is the Difference Between a Joint Venture & Strategic Alliance?"Small Business. Houston Chronicle, n.d. Web. 14 Mar. 2014. Ball, Donald A. "13 Entry Modes." International Business: The Challenge of Global Competition. 13th ed. New York: McGraw Hill Irwin, 2013. 321-37. Print. UK Trade & Investment. "Doing Business In Brazil." Market Entry and Start-Up Considerations. Ima, 2014. Web. 19 Mar. 2014. JMI. "Modes Of Entry." Modes Of Entry. N.p., 26 Nov. 2009. Web. 14 Mar. 2014 McMillan Jr., Claude. "The American Businessman In Brazil." International Executive 5.3 (1963): 7-8. Business Source Complete. Web. 21 Mar. 2014. Perez-Floriano, Lorena R., and Jorge A. Gonzalez. "Risk, Safety And Culture In Brazil And Argentina: The Case Of Transinc Corporation." International Journal Of Manpower 28.5 (2007): 403-417. Business Source Complete. Web. 21 Mar. 2014. Geert Hofstede, Gert Jan Hofstede, Michael Minkov, Cultures and Organizations: Software of the Mind. Revised and Expanded 3rd Edition. New York: McGraw-Hill USA, 2010
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Geert Hofstede, Cultures Consequences: Comparing Values, Behaviors, Institutions, and Organizations Across Nations. Second Edition, Thousand Oaks CA: Sage Publications, 2001 "Brazil in Comparison with the United States." The Hofstede Center. N.p.. Web. 24 Mar 2014. <http://geert-hofstede.com/brazil.html>.

USEFUL LINK about information on doing business in brazil http://export.gov/brazil/doingbusinessinbrazil/index.asp http://www.agn-csa.org/csa_publications/brazil2010.pdf