Fairchild Water Technologies, Inc.

Short Brief of:

Fairchild Water Technologies, Inc.

I.        Major Issue / Problem

What mode of market entry should Fairchild Water Technologies, Inc. (FWT) utilize in order to break into the Indian market?

1. Alternative Courses of Action

1. Form a joint working arrangement with a licensee.

• Advantages:

1. The financial risks associated with entering the Indian market are significantly lowered.

1. There is currently no dominant water purifier manufacturer in India.

1. FWT can gain market knowledge from the licensee.

1. There will be a substantial decrease in future annual fixed costs after an Indian national is left in charge.

• Disadvantages:

1. FWT will have no control over the licensee’s operations.

1. The licensee’s royalty are the only profits FWT will earn.

1. FWT will have to learn and adapt to a new environment and culture.

1. No available resources for further expansion or growth.

• Quantitative:

1. The licensee's payment to Fairchild will offset the initial financial investment of $35,000 resulting in costs of only about $65,000 for the first year- the initial annual fixed cost of $40,000 plus the field test cost of $25,000 (Exhibit 1).

1. Fairchild will make a profit of about $3,620,714 and will need approximately 7,583 units in order to break-even (Exhibit 1).

1. The break-even market share for the first year will be approximately 1.76% (Exhibit 1).

1. Form a joint venture using a skimming price strategy.

• Advantages:

1. There is currently no dominant water purifier manufacturer in India.

1. FWT can gain market knowledge from a foreign partner.

1. The financial risks associated with entering the Indian market will be shared between FWT and its foreign partner.

1. FWT will earn 50% of profits as opposed to just royalty.

1. FWT’s product (Delight) will be considerably superior to competitors’ products.

• Disadvantages:

1. A higher financial risk is involved.

1. FWT’s success will depend on the success of its selected partner.

1. No resources available for further expansion or growth.

1. FWT will have to learn and adapt to a new environment and culture.

1. Higher priced product from skimming strategy may hinder the acceptance rate of the target market to the product.

• Quantitative:

1. Using the dealer channels of distribution, approximately 7,500 units (or Rs. 4,875,000 / US $139,286) will need to be sold to break-even when operating in two regions. Approximately 12,885 units (or Rs. 8,375,000 / US $239,286) will need to be sold to break-even when operating in four regions. Approximately 55,192 units (or Rs. 35,875,000 / US $1,025,000) will need to be sold to break-even on a national operational scope. Break-even market share in the first year would range from 11.71% - 13.64% depending on the operational scope (Exhibit 2).

1. Using the direct sales force distribution channel, approximately 12,950 units (or Rs. 6,475,000 / US $185,000) will need to be sold to break-even when operating in two regions. Approximately 23,750 units (or Rs. 11,875,000 / US $339,286) will need to be sold to break-even when operating in four regions. Approximately 119,750 units (or Rs. 59,875,000 / US $1,710,714) will need to be sold to break-even on a national operational scope. Break-even market share in the first year would range from 21.59% - 27.85% depending on the operational scope (Exhibit 3).

1. Form a joint venture using a penetration price strategy.

• Advantages:

1. There is currently no dominant water purifier manufacturer in India.

1. FWT can gain market knowledge from a foreign partner.

1. The financial risks associated with entering the Indian market will be shared between FWT and its foreign partner.

1. The lowering of the selling price of Delight may result in higher sales volume.

• Disadvantages:

1. A higher financial risk is involved.

1. FWT’s success will depend on the success of its selected partner.

1. No resources available for further expansion or growth.

1. FWT will have to learn and adapt to a new environment and culture.

1.  Lowering the selling of price of Delight may cause consumers to view it as a low quality product.

• Quantitative:

1. Using the dealer channels of distribution, approximately 16,250 units will need to be sold to break-even when operating in two regions. Approximately 27,917 units will need to be sold to break-even when operating in four regions. Approximately 119,750 units will need to be sold to break-even on a national operational scope. Break-even market share in the first year would range from 25.38% - 29.55% depending on the operational scope (Exhibit 4).

1. Using the direct sales force channel of distribution, approximately 32,375 units will need to be sold to break-even when operating in two regions. Approximately 59,375 units will need to be sold to break-even when operating in four regions. Approximately 299,375 units will need to be sold to break-even on a national operational scope. Break-even market share in the first year would range from 53.98% - 69.62% depending on the operational scope (Exhibit 5).

1. Recommended Course of Action

I recommend Fairchild Water Technologies, Inc. form a joint working arrangement with a licensee, for the following reasons:

1. FWT will incur the least amount of financial risk and commitment through this market entry strategy.

1. This strategy will allow FWT to break even much more quickly than it would if it pursued a joint venture entry strategy.

1. Summary

Based on the facts listed above and the given information, FWT should form a joint working arrangement with a licensee by actively communicating with the licensee in order to leverage his/her marketing knowledge. FWT should also remain aware of operations and once it has been successful in this entry strategy, it will gain more opportunity to move to a joint venture or direct investment in the Indian market.

Appendix

Exhibit 1 – Calculations for joint working arrangement with a licensee

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