Dennis Shaughnessy the senior vice-president for Corporate Development and general counsel for Charles River Laboratories (CRL) is facing many problems trying to implement a joint venture with ALPES a SPF egg producer in Mexico. The proposal is to invest $2 million into a joint venture located in Mexico to capitalize on the expected growth margin of Specific Pathogen Free eggs (SPF Eggs). Revenues are forecasted to be high, and profit margins are expected to reach 30% a year after start up. Below is an analysis of key issues, the internal/external environments, alternatives and an implementation plan.
Problem Analysis: Key Issues
Below are the key problems identified in the case.
Investing in a joint venture in Mexico is risky due to high political instability
Lack of control over operations
Risk of contamination regardless of a new facility
CRL has never conducted successful business in Mexico
lack of senior management support for biosecurity and operations (management only holds one formal meeting per year)
long term planning does not coincide with the current strategy
differences in management styles and importance of formality
CRL produces and supplies laboratory animal models for use in discovery research and the development and testing of new pharmaceuticals. CRL's strategic growth objective is to grow existing business by between 12 per cent and 15 per cent annually and its entire business by 20 per cent. By going forth with this venture by spending 2 million dollars today, CRL will be bringing in an average profit of approximately 500,000 dollars annually. Making back the capital in 4 years. InterVet purchases 80% of the SPF eggs that APLES produces. The majority of the remaining product is purchased by Anchor. These two companies have expanded creating new plants near Mexico City to meet growing demand. InterVet projecting doubling its need for the SPF eggs in the first year. This would expand capacity to 4 million units annually. InterVet is long time customer and friend of the Romeros.
CRL may not be able to control the economy in Mexico but they are able to see the day to day operations of ALPES, and this is also a cause for concern. ALPES has been in business since 1974, and still have no formal hierarchy or set business practices. They only hold formal board meetings once a year, and the board consists of family members and friends. There is no set budget, or any specific strategy in place. ALPES has no formal lines of communication therefore having coordination among strategic partners very difficult.
CRLs strategic growth objective is to grow existing business by between 12 per cent and 15 per cent annually and its entire business by 20 per cent. By going forth with this venture by spending 2 million dollars today, CRL will be bringing in an average profit of approximately 500,000 dollars annually....