For the past 7 years, Zip-6 has been produced and sold in South Korea through a licensing agreement with the Korean beverage firm Lotse Tsangsung through its Chang Dow Trading Co. subsidiary. Mr. Jung Park, Lotse Tsangsung CEO recently visited Ravi and Keith in Atlanta and revealed that his firm was about to acquire its leading rival in the Korean mhttps://mail.google.com/mail/u/1/#sent?compose=15b8563609d87613arket and as a result, wants to sell its Chang Dow unit. Mr. Park has approached Ravi and Keith with two proposals. First, Lotse Tsangsung is willing to sell Zip-6 its Chang Dow subsidiary. This would represent an acquisition for Zip-6 in the Korean market. Second, if the two firms cannot agree on terms for a purchase of Chang Dow, Lotse Tsangsung is willing to sell its licensing agreement back to Zip-6, which will effectively allow Zip-6 to formulate a new strategy for Zip-6 in Korea. Based on your reading of Where to Produce in the Hill text on pp. 415–422, your Assignment is to address the following in your informative essay: Checklist: Compare the advantages and disadvantages of acquiring the existing firm and continuing production in Korea through acquisition for Zip-6. Compare the advantages and disadvantages of re-purchasing the licensing agreement and either establishing a Zip-6 subsidiary through Greenfield venture and producing Zip-6 in Korea, exporting the product to Korea, franchising to another firm, or re-licensing to another firm. State your choice of options to pursue and your reasons for this choice.
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Business: Zip-6 Strategy in Korea
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Zip-6 Strategy in Korea
The choice by Zip-6 to employ acquisition as an investment strategy in Korea offers some advantages and disadvantages. The acquisition of an existing firm offers the added advantage of business goodwill. Starting business in a new business environment can be demanding as there is the cost of market research, creation of a brand name and cultural implications, which are tied to the goodwill of an existing business (Hill, Cronk & Wickramasekera, 2013). Acquiring an existing firm will allow Zip-6 to acquire the already existing customer base, which rids the company of the massive capital outlay on market research and brand establishment.
Relationship building in Asian countries is a key business strategy. Acquiring an existing firm will allow the company to acquire the existing suppliers, who have a better understanding of the local market needs. In addition, it has the advantage of reducing the costs of establishment of a plant, acquisition of workforce and regulatory costs, which may be complex and expensive for a foreign company that is new to a country’s business regulation. Although acquisition offers many advantages, there are demerits to the strategy. According to (Hill, Cronk & Wickramasekera, 2013), acquisition makes it difficult to draw the non-compete clause with the acquired company. Since has been in production of the energy drink in the country for long, they have a great understanding of the ingredients that make the product successful. This would make it difficult to draw………………………..……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………….
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