Government or legal requirement. Sharing Costs and Risks

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Questions and Answers

Explain how a government requirement for foreign businesses to partner with domestic operators can protect local businesses.

Mandating partnerships ensures that benefits like income, exports, and employment are shared, and it can prevent foreign dominance, thus safeguarding local businesses.

Describe two potential benefits for a company that engages in a cross-border partnership to develop a new market.

The company can share costs and risks associated with entering an unfamiliar market, and gain local expertise or resources held by the partner.

Why might a government favor a foreign company's new venture if it is planned in partnership with a local company, even without formal legal requirements?

The government is more likely to approve the venture if the benefits, such as income and employment, are shared with domestic companies, promoting local economic growth.

Explain a potential trade-off a business might face when choosing to enter a new market through a joint venture instead of independently.

<p>While it reduces costs and risks, it might also reduce potential profits due to the need to share them with the partner.</p> Signup and view all the answers

Based on the examples provided text, give a reason why SSP Group plc might partner with Travel Food Services Private Limited (TFS®) to operate in India.

<p>TFS® likely has existing knowledge, infrastructure, and relationships within the Indian travel food and beverage market, making them a valuable partner for navigating the local business environment.</p> Signup and view all the answers

Flashcards

Cross-border partnership

When foreign firms collaborate with local businesses to enter a new market.

Government partnership requirements

Governments require foreign firms to partner with domestic operators, protecting local businesses by sharing benefits like income and employment.

Sharing costs and risks

Venture where firms pool resources and divide potential losses. It reduces the impact on any single company.

Joint Venture

A collaborative project between two or more companies, often from different countries, for a specific business purpose.

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Developing foreign markets

Expanding into new regions, involving possible instability due to unfamiliarity with the area.

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Study Notes

Governments may require foreign businesses to partner with domestic operators to protect local businesses from being dominated.
This ensures benefits like income, exports, and employment are shared with domestic companies.
Even without legal requirements, governments favor foreign companies that partner with local companies.

Firms enter cross-border partnerships to share the costs and risks of business ventures.
Developing foreign markets is risky due to their unfamiliar nature.
Sharing costs and risks reduces potential profits but also reduces potential losses.
Examples of joint ventures in 2017-18:
- BMW® (Germany) and Great Wall Motors® (China) to make plug-in electric Minis® in China
- AirAsia® (Malaysia) and China Everbright Group (Hong Kong) to set up a low-cost carrier in China
- SSP Group plc and Travel Food Services Private Limited (TFS®) to operate food and beverage outlets in travel locations in India
- Pepsi (US) and Suntory Beverage & Food (Japan) to expand soft drink sales in Southeast Asia.
These ventures help businesses share the risks and costs of business development in new markets.

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Governments often require or favor foreign businesses to partner with local companies. This protects domestic businesses and ensures shared benefits. Firms also enter partnerships to share the costs and risks of developing unfamiliar foreign markets.