Joint Venture and Foreign Direct Investment

Joint Venture and Foreign Direct Investment

Joint Venture

Joint venture is an option for expanding into new markets. This allows Riordan to grow without establishing new facilities. Riordan needs to be aware of the risks and rewards of entering into a joint venture, such as not giving up more than they are receiving during the process. Often companies tend to get in over their heads and give too much of their own intellectual property just to expand and determining after-the-fact the expansion is not as profitable as expected or prevents growth into the new market.

Foreign Direct Investment

To expand its market base Riordan can acquire a small fan manufacturing facility in Vietnam and Mexico. By entering into each market either by acquisition or outright facility purchase Riordan minimizes market entry risk. However, before such an acquisition Riordan must assess the following to ensure it is the right fit. The company must determine the "nature and extent of control necessary for an operation outside China" and within that context it must also identify and assess those "factors for different types, sizes, and locations of operations" to determine risk, cost controls, political, economic, and cultural opportunities (Massoud M. F. & Raiborn, C.A., 2003, p. 41).

By purchasing other companies Riordan can improve its market position in several ways. First, it will move toward a 20% market share through company acquisitions that allow access to new markets. Second, the customer base becomes closer to distribution, which reduces shipping costs and back orders. Third, it increases manufacturing capacity through facility cross-coverage allowing larger, more customized orders. Foreign direct investment is not without risk. If due diligence is not performed by Riordan on the facility or facilities it looks to acquire, it could purchase a failing company with little market share and large debt that could turn a growth opportunity into a cash flow issue.