FDQ7

Wesley:

“Build it or Buy it” is common corporate debate with no right answer. There will never be a black-and-white answer for this common dilemma because each business needs to figure out what makes sense to them the most given the climate of their marketplace. Most of the time though the decision is reliant on venture capital and how much the organization or company actually has in their bank account. One of the largest and fastest-growing markets right now in the world is all-electric/self-driving vehicles. The reason that this market is going at such a quick pace is because of the change in consumers’ thoughts and spending habits, particularly regarding climate change and environmental advocacy. Because of this change, companies have had to change their priorities and to start to invest in this new technology that is quite expensive to meet this demand. One of the major companies that were doing this was Ford. Ford was investing heavily but knew that they needed to bring in outside help and expertise to speed up research, development, and production. Ford and Volkswagen decided to create a joint venture and as a result, “Volkswagen join[ed] Ford in investing in Argo AI, the autonomous vehicle platform company, at a valuation of more than $7 billion. Tie-up allows both automakers to independently integrate Argo AI’s self-driving system into their own vehicles, delivering a significant global scale,” (Ford, 2019). 

Both of these companies’ in-depth understanding of each other and automobiles and their knowledge of the importance of technology in the market, allowed them to set their differences aside to work together. With both of these major companies, there would be large amounts of money and resources that Ford could pull from to make sure that the technology that they make is superior to other companies. With this deal, the high start-up costs could be split between the two companies and less of a burden on each one especially if they are researching the same technology. Yet, this is one disadvantage when it comes to organic expansion as often companies don’t have the resources independently to be able to just start their own new product. Ford wouldn’t have had the capability on its own to make this product an international success.

Yet, another company that is working on this technology all by themselves and expanding organically is Tesla. Tesla is one of the leaders in this field and has been able to do it all by themselves, which is remarkable given that this often doesn’t happen. The company has five large investors that have been giving money to the company to make it a success (Reiff, 2020). Since Tesla isn’t working with anyone at the moment, a large advantage is that they can spend and move the company in any direction that is right for the company. If they want to spend money on making better self-driving vehicles or eco-friendly vehicles then the company can. Unlike the deal that Ford has with Volkswagen, Ford doesn’t have that latitude to do what it wants. It has to make sure that it runs its major projects by Volkswagen to make sure that they are ok with it. This advantage of being alone and organically growing means that the company only has to worry about the health of its company and no one else’s.

Ultimately having significant capital is what drives companies and their decisions.. Companies have to decide when they are expanding, on what scale they are expanding, if they want to do it with a partner or alone, and if they can see themselves lasting long-term. Companies might have to spend less money on projects if they work with another company, but will have to have both companies sign off on it. Other companies might work alone but will have to wait years until they have built up the capital to work on a specific project. It is all about priorities and what is important to the company. There isn’t just one answer to the “build it or buy it” debate and something that companies have to look at on a case by case basis. Thus, it becomes apparent that critical thinking skills are important, and having the correct leadership in place to help analyze and make the correct choice is of the utmost importance. 

 

Ford. (2019). Ford - Volkswagen Expand Their Global Collaboration to Advance Autonomous Driving, Electrification, and Better Serve Customers. Ford. Retrieved from

https://media.ford.com/content/fordmedia/fna/us/en/news/2019/07/12/ford-vw.html

Reiff, N. (2020). Top 5 Shareholders of Tesla. Investopedia. Retrieved from

https://www.investopedia.com/articles/insights/052616/top-4-tesla-shareholders-tsla.asp

Jarid:

Organic Expansion

Organic expansion mostly refers to a company's growth through its own internal means. This is reinvestment back into the company through several means like hiring more or better people, acquiring new locations, and expanding their product's reach. Organic expansions don't involve any compromises like the other examples. The company is in charge of its own decisions and it limits the number of stakeholders in their business decisions. However Organic growth is usually the slower method and takes time to reach its goals. Netflix is a company that used organic growth to go international. Promoting their platform in other countries, the only use for foreign help would have been understanding the legal standing of their show rights. However, Netflix was able to grow their company by expanding internationally while investing in foreign shows and movies to grow international appeal. In 2017 their International Revenue finally passed their domestic and they currently show no signs of slowing down (Brennan, 2018).

Merger/Acquistion

Another form of growth is through mergers or acquisitions. For international growth, this is when one company decides to partner or buy another company in order to expand its business into other countries. This is a newer tactic amongst tech companies who often look at copy cat competitors in other countries that follow similar strategies. Uber is well known for this and has recently bought a Middle-eastern Food-delivery app, Careem, similar to Uber eats for 3.1 million (Sommerville, 2019). They have since made Careem a subsidiary of the company keeping Careem brand intact and only adding a few of their own members to its board. Careem had also only been valued at 2 million at the time it was purchased. This displays some of the drawbacks of mergers and acquisitions. They tend to involve a compromise between the two companies, weakened control, and in the case of buyouts can be extremely expensive in comparison to their value. But like any investment, the hope that it's potential helps pay for its initial cost.

Joint Venture

Joint ventures can be similar to this but differ in some way. They are made up of two or more companies but instead of a merger, they form a new entity. This allows the companies to remain separated but have a similar investment. These companies can pool together resources and ideas. However, this can be an issue with some companies as they have to share technologies or what might have been long kept internal secrets. They also have less control than they would with a subsidiary and most constantly find compromises when making decisions with the company. An example of a successful joint venture would of Kelloggs and Wilmar International. This Singapore based company helped Kelloggs launch it's products to a Chinese market after a previous joint venture with a different company gave them major losses (Rueters, 2012). This Joint Venture help Kelloggs in an unfamiliar market and Wilmar International gained resources and knowledge that it was also able to use to full its own growth.

Licensing/Franchising

Another type of expansion is Licensing/Franchising. Both are different methods but are somewhat similar. A company sells its intellectual product for someone else to use in a market. In terms of licensing it tends to be short term and with singular products, were a Franchise is a longer-term. Franchising also tends to have a business model they follow from the main company as well as guidelines. The advantages to this is that the company has a low-risk opportunity for expansion. They are guaranteed the profit of the listening or franchise agreement and don't have to worry about costs. One of the drawbacks is that they are unable to control what the buyer does with this product. For example, if a clothing company wants to project the idea of a quality product but has a franchise that often turns out cheap products for profit they don't have any effective means of stopping them from ending the agreement. Netflix has also had licensing agreements in the past. Since China requires tech companies that what to expand into the region to work with a state-sponsored business partner within China. Recently Netflix had decided to not renew this contract, most likely because they felt the deal was better for their licensee than what they were able to get out of it.

 These are some of the bigger or more well-known forms of expansion for a company. They tend to be the focus of international growth as these methods offer low risk when moving into new markets. They can also be good building blocks as the company learns the new market and may decide to more fully commit once agreements are over. They can also be great for the local business as it tends to gain them a large investment as well as an advantage over other local competitors.

Works Cited

Brenna, L. (2018) How Netflix Expanded to 190 counties in 9 years. Retrieved from:  https://hbr.org/2018/10/how-netflix-expanded-to-190-countries-in-7-years

Somerville, H., Cornwell, A., and Azhar, S. (2019) Uber buys rival Careem in 3.1 Billion deal to dominate ride-hailing in Middle East. Retrieved from;  https://www.reuters.com/article/us-careem-m-a-uber/uber-buys-rival-careem-in-3-1-billion-deal-to-dominate-ride-hailing-in-middle-east-idUSKCN1R70IM

Reuters (2012). Kellogg in JV with Wilmar to expand in China. Retrieved from;  https://uk.reuters.com/article/uk-kelloggco-jointventure/kellogg-in-jv-with-wilmar-to-expand-in-china-idUKBRE88N0H720120924