KEY ISSUES:
The main issue is that the vice president, Dennis Shaughnessy, for Corporate Development and general counsel for Charles River Laboratories (CRL) is ready to give a proposal to the board of directors of CRL on the joint venture of CRL withthe companyALPES S.A, a family owned company operating in the Mexican market.The purpose of this joint venture will be to create a state of art specific pathogen-free (SPF) egg farm and will require CRL to invest $2 million. This investment will help CRL to exploit the opportunities to improve its growth and to increase its share in SPAFAS market of the USA.
The proposal of the joint venture in the Mexican market has raised concerns about whether CRL should go for the venture or not. There are many issues which have developed these issues.Some concerns pointed out that ALPES may solely depend upon the capital of CRL and was not making its own investment. Some people are concerned about investing in a country like Mexico with an unstable currency,uncertain market conditions, corruption issues, economic instability and law and order situation.Lastly, CRL had never conducted its business successfully in Mexico and for this venture CRL may also become unsuccessful.
Analysis
Internal Analysis
SWOT analysis:
Strengths
In addition to this, the company has the ability to meet the demands of the customers. The other strengths of the company arethe high local market share and also, the high level of technological infrastructure with the company as compared to the other local competitors.
Weaknesses
The main weakness of the company is the failure to get success in managing business in Mexico as they do not have a good success record in the country this may be due to instable economic conditions of Mexico. There ishigh level of reliance from ALPESon the capital investment of CRL Companyin order to carry out the joint venture. The revaluation deficit of the company is another weakness due to the fact that the management has been failed to manage the non -current assets in an effective and efficient way.
Opportunities
The company has the opportunity to grow its sales by targeting more potential and un-served market segments as the demand of the customers are increasing.Moreover, many new vaccination companies are going for using SPF eggs that will be another opportunity for the company to enhance its market shares. The company is the only manufacturer of SPF eggs in Mexico that provides an opportunity to the company to expand its business operations by availing it effectively.
Threats`
The major threat for the company is fluctuation in the local currency, which can adversely affectthe proposed joint venture as there is high translation risk due to fall in currency value. The no past success record of investing in Mexico isanother threat as it may affect the future business opportunities in Mexico. Moreover, lossof resources that may result due to corruption and uncertainty within company may impact the growth of the company as well as proposed joint venture.
VRINE Analysis:
Value (High)
CRL has long term growth opportunity in the joint venture with ALPES as the demand of SPF eggs is increasing all over the world and in fact the demand is 5-10% higher than the supply of the eggs. It is valuable due to the high demand of SPF eggs from vaccination manufacturing companies all around the world. Finally, the value can also be observed by projected growth of sales in four years of time of the projected joint venture, the growth in sales is projected about $25 million and $5 million in operating net income.........
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