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Prague Venture Group Case Solution

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1189 2980 Words (9 Pages) Harvard Business School : A05-00-0012
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Prague Venture Group accounts for an endeavor by an American business person to begin a funding speculation firm in post-socialist Eastern Europe. Thomas Renton being the managing partner of the firm tried hard to change the situation of the company by initiating a step towards the capitalist business structure. In order to show the practicality of obtaining and turning around previous state-possessed organizations, the hero structures a manage an optics assembling firm, just to discover that the association's Czech possessors have no aim of permitting Prague Venture Group to addition control. After this setback, the hero thinks that it is challenging to recapture energy. The case outlines the issues natural to working together in developing market situations where legitimate frameworks are undeveloped, and business standards are dependent upon non-market philosophies. It likewise acquaints scholars with the social legacy of socialism in countries; for example, the Czech Republic. The case study highlights the issues relating to post-communist markets, which should be converted into capitalist market systems with the passage of time. An informal way of doing business and defying the laws of economics are some important issues discussed in this study. Thomas Renton is the main character of this study that is responsible for the diversion strategy recommendation of the company.

Following questions are answered in this case study solution:

  1. Abstract    

  2. Introduction and Problem Statement

    i. Strategic Alternative 1

    ii. Strategic Alternative 2

  3. Recommended Action Plan

Case Study Questions Answers

2. Introduction and Problem Statement

Western onlookers have by and large proclaimed the monetary "marvel" inside the Czech Republic, which as of now gloats an adjusted national plan, the least expansion and unemployment rates in post-comrade Central and Eastern Europe. An expansive lion's share of World Bank delegates studied in promptly 1994 recognized the Czech Republic as the most guaranteeing post-socialist nation for remote speculation, and the European Bank for Reconstruction and Development (EBRD) evaluated the Czech Republic in 1993 and 1994 as fulfilling more investment criteria for participation in the European Economic group than some of its present members. The Czech Republic's budgetary conversion since 1990 has been out and out striking and the accompanying areas talk about the macro and micro-financial government arrangements and business sector powers filling this budgetary change, the effect of these variables on the resurgence of the Czech little business division, and a percentage of the post-comrade tests confronting little business improvement as uncovered in meetings with thirty Czech little business ambitious people in August 1993, supplemented by November 1994 meetings with two Czech counselling customers and business and matters in profit-making personnel of the Czech Management Centre. The Czech Republic includes Bohemia in the western and Moravia in the eastern parts of the nation. Before January 1993, the Czech Republic was unified with Slovakia and the totality is alluded to as Czechoslovakia. Not many Czech authorities might concur with labelling the nation as post-socialist, and most accept they have defeated any comrade legacy. However, this is just halfway accurate. Case in point, the belief systems of the fundamental political gatherings hail from different post-socialist quirks. Three of these are particularly imperative for Czech observations of the EU. The transformation had several disadvantages also. Firstly, confidence in free markets and the belief system neoliberals have taken profound establishes in the Czech Republic, filling in the ideological vacuum which emerged after socialism was ruined. The Czech neoliberal point of view on the EU is ambiguous. Moreover, the EU has improved vital political skills. Furthermore, Czech governmental issues have a nonconformist convention, depicting legislative issues as a crash between exceptional and underhanded, taking after the overall secured desultory model of the crash between dissenters and the socialist administration. At last, the comrade encounter still instils a doubt towards left-wing arrangements in the Czech Republic.

Thomas Renton, the managing partner of Prague Venture Group, tried to take advantage of the time and invest in the Czech Republic. He planned to take the company to the new form of the economy where the country’s future lied. His view was to start a venture capital from American investors and initiate a successful plan in the Czech Republic named as Prague Custom Optics with a partnership with Verizon. Verizon had debt related issues which proved it to be a costly partner in the business. However, its higher valuation by the government of the Czech Republic caused the deal to be jeopardized. Renton, then tried the Czech to fulfil the requirement of business initiation. They were also reluctant to show their interest in the project due to their lack of trust in the western businessmen. They demanded underwriting of a Czech Republican in order to gain the trust in totality. Hence, Renton was facing a problem in obtaining funds due to the lack of a proper economic structure, lack of trust in western businessmen and complex rules/regulations of the country. He had to find a strategic alternative which would enable him to face all the above-mentioned problems effectively.

i. Strategic Alternative 1

Thomas Renton has the opportunity to build a partnership with Verizon, a Czech based glass manufacturing company. The Czech Republic has been famous for its glass manufacturing throughout the globe. The version produced high-quality glass and started its business with the production of high-quality periscopes specifically made for the Belgian and French armed personals. During the German era of 1939 to 1945, this company was responsible for making telescopes and high-end camera lenses for the German Army. Binoculars and other military visual aids were also made by this company as it played an important part in the history of the Czech Republic. In the process of privatization, Vertikon was bought by its own senior employees at the cost of $, 1000,000. This amount was taken in the form of a loan from a local bank of the country. The company had a steady growth pattern after the process of privatization. It established contracts with western companies and Dutch armies. Swedish negotiations were also in the plans of the company. Hence, it was going in the forward direction, so a partnership with the company would prove to be a cost-effective solution for Renton as it would help in avoiding the huge start-up cost of the lenses business.

The version had an additional benefit for Prague Venture Group in the form of its owners. The co-owners are highly experienced personals who know the business and were able to sustain the company even in bad times. These men have the market knowledge, and expertise to run the company and the company has the potential to cover all the expenses done on it and prove to be profitable. According to analysts at Prague Venture Group, Vertikon just needed the required amount of investment in order to run in its full potential. The company can prove to be a highly profitable asset for the group as the demand for high-quality lenses is going to increase with time. The experience of Vertikon’s co-workers was an added advantage for the company. Three out of the total number of co-workers i.e. four were experts in the field of optical instruments manufacturing. The fourth partner has an experience of 20 years in the field of sales and marketing of products related to optics. The salaries taken by these workers were of the same level as they were in times of the communist regime, which was a plus point for Prague venture capital and Renton. The workers were mature and experienced which would have made it easier for Renton to train them in operating under a capitalist regime. Renton could easily use the human resource and the assets available in the company to lay off the huge debt of the company and link the company with more than one strategic partner in order to expand the business and distribution of the products made by Version. The company could then be able to supply its production into North American market increasing its profit by a huge amount. Modernization of Vertikon shall be the responsibility of the strategic partnership which would also assist the company in technical terms.

The product life cycle of lenses produced by the combined efforts of PVG and Vertikon can be explained in four steps described in the theory of Product life cycle. The introductory stage is the initial stage of product development when the product is unknown to the customers. In the current case, the product is already known to the customers giving an added advantage to the company. In this stage, wholesalers and distributors are hesitant and reluctant in taking a risk, but with the help of PVG, Vertikon can increase its credibility in the wholesale market and increase its distribution in the stage. The next stage is the growth stage, in which the two partners will experience huge profits and will cover the swollen debt of Version. Market penetration will be done in this stage and Renton will try to cover the market of North America and meet the military demands of Dutch and other armies. Competition may also be faced in this stage which will be a great concern for the partners of this venture. At the maturity stage growth of the company will become flat as the market will be saturated by the products made by Version. Renton would be required to use market penetration and market diversification in order to extend the growth stage. Verizon would have to work in the direction which would enable the company to avoid the decline stage for as long as possible in order to maintain their position in the market.

ii. Strategic Alternative 2

Renton had the option of excluding Vertikon and forming a new business plan in the same field of business i.e. Optics manufacturing. There are a number of advantages of setting up a new business instead of the acquisition of another. With different routines for entering into operations, for example, acquiring an existing business or an establishment, the company may be obliged to use a lot of capital to obtain the business.

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