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Trouble in Paradise Analysis

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Submitted By crackatkyle
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A. Executive Summary: The Zhong-Lian Knitting Company Chinese Joint Venture (JV) is facing trouble among its two owners that have different objectives. American based Heartland Spindle is looking for higher profits and a move to higher quality clothing markets in the USA while Suzhou First Textile Company, the Chinese partner, is looking to enter the domestic Chinese market and expand its manufacturing capacity through job growth, in line with local government pressures. My recommendation is to first focus on what is best for the JV given its situation and opportunities – which is to grow through acquisition and focus on expanding its current clothing products into the Chinese Domestic market. From that analysis with the implied 4% ROI, Heartland should to exit the JV and invest in entities that better meet its needs and expectations in countries that are more attractive to its needs. Finally in the future Heartland should be more careful when entering into JV agreements so that all parties have an appreciation for cultural differences, a common understanding of objectives and directions that are embedded in the JV agreement.
Note – the Executive Summary is one area that is repetitive of other sections given its nature.
B. Industry Dynamics: The Zhong-Lian Joint Venture (JV) is currently manufacturing clothing for the US mass market, a strategic group within the overall apparel industry (versus high end fashion brands). Their clothing is sold through retailers such as Walmart and Target. Customer value must be provided to the retailers through reasonable quality goods at low prices. Profits are made through low cost manufacturing processes and scale. If the company pursues the higher end fashion group, then the appeal of the garments becomes key, building brand awareness and appealing to customers’ image drives the value proposition. Advertising and endorsements

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