In this paper we project a scenario to examine the impact of diversification and foreign expansion on Brazilian Mobile Services business. While prior papers have examined the strategy in the local environment this paper provides empirical validation of how external moves such as diversification and international expansion can could greatly increase shareholder value while spreading risk and increasing sales.
The first part presents the diversification strategy for Brazilian Mobile, based on the theory of Steiner (1964) diversification is defined while Cope’s Law supports the idea that the company must diversify or die. Further, the strategy of diversification on related business is presented where it is assumed that the company has very high technologic resources which could be used into leverage a cross-business value chain relationship strategy.
In the second part the foreign market penetration strategies of multicountry strategy defined by to enhanced potential and to build a global brand name with significant power in the market place. In sequence the challenges to invest in a foreign market are discussed, the differences between traditional industry and the industry where Brazilian Mobile is inserted are pointed out. Based on Freeman (et al, 2012) theory the paper suggests actions that could minimize the impact of these challenges.
In the third part, a scenario for both diversification and expand to foreign market is drawn up. After reviewing the pros and cons, expanding in to a foreign market was considered too risky for the company. Therefore diversification would be the best strategy to greatly increase the company’s shareholder value.
Finally the paper describes how the business’ ethical environment is extremely important for the company to maintain profit and increase value in the market. Based on the studies of Prakash & Sama (1998) the paper assesses how the company can create a business environment conducive to ethical behavior.
According to Steiner (1964 pg. 11) diversification means: “entry into new product lines, processes, services, or markets” and its activity by a company in two or more of those classes. The range of diversification may be from new products or services in new markets to the extension of existing products into new markets. The fact is that diversification is as old as business history, since the eighteenth century with the great trading companies. However, the phenomenon has assumed striking dimensions in recent years and, unless impeded by applications of the antitrust laws, is likely to continue at a rapid pace. Cope's law (La Barre, 1954) assumes that business firms must diversify or die. This is because in the course of market evolution some companies concentrated too much on one characteristic to exploit a given environment. It resulted in their undoing. When the environment changed the animals could not adjust. Therefore they must, diversify to permit adaptation to new environments. If they do not, they will become extinct like dinosaurs.
Brazilian Mobile Service is inserted in a rapid change environment principally because of lightning fast technological development and advancement. In this environment the threat of product obsolescence drives company to improve present products and to develop new products to assure sales and profit stability. Therefore, as the sports application life cycles are completed, new life curves with other applications must be started. Additionally the company is experiencing growth and effective use of new managerial techniques which facilitate the development of, and planning and control in, multiproduct.
Due to the fact that Brazilian Mobile Services already has very high technological resources the company could use this expertise to leverage a cross-business value chain relationship strategy. With this strategy the company will diversify into related business with important value chain, gaining more competitive advantage potential than companies that diversify into business whose value chains are totally unrelated (. Then Brazilian Mobile Services can transfer skills and technology from the applications with soccer teams to applications for another sport such as volleyball or just games in general. In this way the company could reduce costs via sharing use of common facilities and resources, and utilizing the company’s well know brand name and distribution muscle to grow sales.
Once Brazilian Mobile diversifies into new applications the strategy will fit in to R&D and technologic activities with great potential for cost savings from economy of scale in R&D and potentially reducing the time of getting new product to market. In addition technology advances in the new applications will lead to increase sales for both the new and the existing products.
Foreign Market Penetration
Since Brazilian Mobile Services is already inserted in South America the company should enter in one of the neighboring countries, especially countries like Argentina, Uruguay and Chile which are experiencing real GDP growths rate of 8%, 6% and 7% in the few last years and probably are going to maintain in the next few years (CIA, 2011). Additionally they also have very strong and well established soccer teams such as Boca Juniors in Argentina and Universidad in Chile, which can make it easier for Brazilian Mobile to transfer its business model. The strategy to be used would be a multicountry strategy (, where the company would vary a little in the company’s strategic approach in response to differing local market, competitive conditions and local preferences.
With the whole business based on online applications, by entering in a foreign market Brazilian Mobile Service will be able to coordinate activities across different countries and therefore build competitive advantage. For instance, the Brazilian plant will still be the main developer of the product applications and can quickly communicate via internet with the other plants to coordinate the product schedule and adaptability. Additionally knowledge accumulated in marketing the company’s products in Brazil can easily be exchanged with company personnel in Chile, Argentina or Uruguay.
Furthermore, as Brazilian Mobile Service becomes a multinational company by consistently incorporating the same differentiating attributes in its products worldwide the company will be able to enhance the potential to build a global brand name with significant power in the market place (. Actually the reputation for quality mobile applications established in Brazil and further in three other strong countries in South America can be the first step for Brazilian Mobile Service to reach the whole Americas inclusive of the United States.
Foreign Market Challenges
Brazilian Mobile Service operates in dynamic markets where the windows of opportunity open and close rapidly. The company’s very survival and success is determined by how quickly, efficiently and holistically they anticipate, and then act upon, foreign opportunities (Nordman and Melen 2008). Unlike other firms, Brazilian Mobile Service as a software company faces unique challenges in discovering and exploiting foreign market opportunities. Although language, different culture and preferences still have an impact because of company’s short history and accelerated pace of internationalization and technology development the company faces more difficulties and more competition. In fact, while the traditional companies entry in to foreign market emphasizes the importance of international knowledge (Johanson and Vahlne, 2006), software companies emphasize the importance of technological knowledge for foreign entry in order to be ahead of the competition (Nordman and Melen 2008).
Another important challenge is the regulatory environment. Nowadays Brazil, Argentina Chile and Uruguay are under the Mercosul agreements which can pave the way for Brazilian Mobile Service to enter these countries. However, any changes in the future can make the company rethink their skills and capabilities and subsequently move into other markets which offer fewer barriers.
In order to minimize the impact of these challenges the company should focus on the internal development of firm knowledge and other resources, in which merger or acquisitions to a local company could also help the company’s relations to that market. According to Freeman et al (2012) theoretical examination integration with local companies will serve to increase understanding about the chosen foreign market. First with respect to establishing a network and second with regards to the use of market assets such as knowledge of local competition and market conditions.
Scenario: diversify or expand into a foreign market.
Expanding to other markets or diversification can be very challenging, unpredictable and a very high-stakes game, in fact there is little conventional wisdom to guide managers as they consider a move that could greatly increase shareholder value or seriously damage it. Although by expanding Brazilian Mobile Services to foreign markets the company might be able to enhanced potential to build a global brand name with significant power in the marketplace, this scenario seems to be much more risky than diversification. In fact changes in foreign politics, taxations and increase competition can have dramatic consequences in the business, especially if the company is not prepared to spread the risk among other business.
Therefore diversification seems to be the better strategy to achieve a sustainable advantage which can result in the creation of enormous shareholder value. This is because Brazilian Mobile strengths allow the company to create something unique. By identifying company’s unique and unassailable competitive strengths the company can move beyond a business-definition approach and instead launch a diversification effort based on its strategic assets (Markides, 1997). Considering Brazilian Mobile’s main strategy concerns “sports and entertainment” the company can build on their excellent skills in technology and flexible payments to start new applications in games and launch similar applications for other sports. In this way the company will not be so dependent of the soccer teams and can consolidate their position in market before expanding into foreign markets.
Ethical behavior in the business environment
Ethics in the business environment is clearly extremely important. However, the given nature of the activity in which the business is engaged would temper and define the outer limits of ethical behavior and the mode in which it manifests itself, on the part of business institutions and their managers. Even knowing that the company is inserted in a highly competitive industry which according to Prakash & Sama (1998) also creates greater opportunities for unethical behavior, the company must behave ethically.
But the question is how? Given the existence of opportunities in order to create a business environment conducive to ethical behavior the company must be engaged in ethical behavior in the marketplace and these attitudes must flow from the top level managers to the low level. In fact, managers’ ethical values serve as example to influence each employee’s choice of ethical/unethical behavior, while corporate culture supports each decision as the right thing to do.
Additionally the company must develop a minimum level of ethical business conduct such as norms and minimal conduct behaviors. It must consider a business conduct for the organization to conform to the prevailing societal norms, traditions, and culture of the relevant environment especially if the company decides to expand into foreign markets. For instance, as a Brazilian company their managers are likely to vary in their adherence to this level of ethical business conduct in response to external, competitive-economic factors, organizational imperatives, e.g., corporate culture, and institutionalized standards and values. Finally to create a business environment conducive to ethical behavior it is necessary to extend higher ethical standards of fairness (Prakash & Sama, 1998) through the way the corporation and its managers interact with its stakeholders in Brazil or around the world.
This paper addresses the question of how diversification or expansion to foreign market can impact the firm’s performance. The hypotheses are tested through scenario analysis employing various studies to support the ideas. This particular study about diversification reveals that the company can save money in research and development expenditures which could increase firm’s performance. Also the fact that the company can spread the risk with diversification looks like the biggest advantage for Brazilian Mobile now, especially because now the company relies heavily on one customer. Therefore diversification was chosen as the best strategic move for the company at the current time.
On the other hand the study of scenarios showed that expanding to foreign market can lead to a great competitive advantage. However it was consider that the company is still not well enough established in the market therefore going global could represent too much risk. Although expanding to foreign markets provides a lot of opportunities that are attractive to the firm, to engage in global markets there are still multiple challenges to be deal with which it was consider created too much risk.
The determinants of diversification or foreign expansion are still an issue to be studied further and more comprehensive real perspectives should be developed for a better understanding. In addition, casting different approaches and data from various disciplines would strengthen the insights derived from the scenario. To sum up, whatever the company decides there are risks and rewards, it will depend on the management decisions to take the right approach in order to lead to success or failure.
Finally independent of any issues for management team to bear in mind, the company must commit themselves to ethical behavior. While in Brazil or around the world the company must be engaged in ethical business conduct in their decisions in order to keep their image and consequently their profitability.
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