Evaluation of Strategic Options of Kelley Blue Book (KBB)

The strategic options available for Kelley Blue Book (KBB) include: Foreign Direct Investment (FDI), Exporting and Diversification. The author uses the transaction cost theory to explain the suitability of foreign direct investment and export strategy. If transaction costs in the home country are higher than those of foreign country, it is better to use FDI than exporting strategy because it involves shifting production to the low-cost foreign country. On the other hand, if domestic costs are low, then it is more effective to produce locally and export internationally (Saloner et al, 2001). With a leading market share in Malaysia, it is clear that the company has an advantage producing at home.

Establishing new production plants in foreign countries would also face problems of entry due to restrictions. However, this is not a major issue because most countries in Middle East have liberalized their markets. The markets of New Zealand and Australia are also open to foreign investors. Foreign Direct Investment is suitable for companies producing food products compared to exporting.

The food produced in Malaysia may not meet the local demands in foreign countries. Foreign direct investment ensures that the company produces the right products that meet the local demand (Hitt et al, 2009). It is also clear that cultural diversity is a hindering factor for business expansion in Asia and Middle East. Foreign Direct Investment can solve this problem because it ensures that the company uses the local cultural diversity and its core competences to produce superior products that meet the local tastes and preferences of consumers.

Diversification can also be another option. Instead of expanding its markets, the company may also expand its products by producing new lines of products. The case study proposes the production of hot and cold beverages focusing on middle and low income earners. Producing new products for a specific market segment is an important diversification strategy that enables the company to minimize risks and meet different tastes and preferences of customers (Saloner et al, 2001). Another advantage of diversification is that the company does not have to start a new production plant and incur foreign transaction costs. However, diversification may not allow the company to take advantage of the growing demand from the middle class societies of Asia and Middle East.

KBB is well established in its domestic market with a leading market share. Therefore, diversification may not be an appropriate strategic option because it already has a large market for the current products in the local market. Its option should be to internalise. Choosing between exporting and foreign direct investment should consider the advantages and disadvantages of both strategies. Foreign direct investment is suitable for KBB because the company deals with food products which are sensitive to local cultures, tastes and preferences. Considering cultural diversity of Asia and the Middle East, the company should use foreign direct investment to establish new plants in foreign markets and produce products that meet local demands.

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