Exporting Essentials: Selling Products and Services to the World Successfully by Delaney Laurel J

Author:Delaney, Laurel J.
Language: eng
Format: epub
Published: 2014-11-20T16:00:21.478000+00:00

Disadvantages of the GSA

There are also some inevitable trade-offs of a GSA to consider:

Weaker management involvement or less equity stake in the larger company

The dreaded market insulation—an inability to see the realities of the market—due to the local partner’s presence

Less efficient communication within the company

Poor resource allocation

Difficult to keep objectives on target over time

Potential loss of control over such important issues as product quality, operating costs, employees, and customer service. For example, if you enter into a GSA with even a little less equity stake—say, 49 percent—you lose managerial control. You may end up with that equity percentage because the host government only allows up to 49 percent for an outsider, because you could only negotiate that amount, or because you were willing to accept a minority stake in exchange for gains (e.g., responsibility for R&D) that you thought important during the negotiation phase. Whatever the reason, what are you going to do if profits plummet, product quality deteriorates, or customers are dissatisfied? You do not have enough interest in the venture to take action. Your 49 percent can swiftly depreciate when it comes to exercising any control. In any partnership, the majority-interest holder tends to dominate, putting its needs first and its partner’s last. The ideal situation is a fifty-fifty partnership, which allows both parties to share the decision making. If you do settle for a minority interest, make sure you maintain enough control to accomplish your objectives in the target market.

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