Edgar Bruning left his job at a major computer manufacturing firm and started his own business five years ago in the United States, naming it Bruning IT. Since then, Edgar has secured five patents for IT-related equipment. His latest is a computer chip that can increase the speed of most personal computers by 35 percent. The cost of one of these computer chips is only $8, and the unit wholesales for $135. As a result, Bruning’s profits have mushroomed. Realizing that everything he developed can be copied by foreign competitors, Edgar entered into contractual arrangements with three European firms to market his product. These three firms have predetermined sales areas that cover all of Europe and the Middle East. Bruning ships 50 percent of its production output to these three firms, while the rest is sold to companies in the United States. Edgar recently has been thinking about increasing his production facilities. He is certain he could sell 40 percent more chips if he were able to make them. Last week Edgar had a visit from the chief executive of a Japanese firm. The company has proposed a partnership between itself and Bruning, which would work this way: Bruning would ship the company as many chips as are currently sent to the three firms in Europe. These chips would be paid for on a 90-daybasis.The Japanese firm would act as Bruning’s Far East sales representative during this part of the agreement. Then within 90 days, the Japanese firm would create a new entity to purchase manufacturing equipment that would allow it to make the chips in Japan. “This will save us both labor and shipping costs,” the Japanese executive pointed out. “And all profits will be divided on a 50/50 basis. Your only expenses will be your share of the manufacturing equipment, and we will apply your profits against those expenses. So you will have no out-of-pocket expenses.” The idea sounds very profitable to Edgar, but he is not sure he wants to give someone else the right to produce his product. “Technological secrecy is important in this business. It’s the key to success,” he noted to a colleague. On the other hand, Edgar realizes that without having someone to sell his product in the Far East, he is giving up a large potential market. Over the next 10 days, Edgar intends to make a decision about what to do.

What type of arrangement is Edgar using in his business dealings with the European firms? 

 Is the Japanese business proposal a joint venture? Why or why not? Would you recommend that Edgar accept it? Why or why not? 

If Edgar were looking for an alternative approach to doing business with the Japanese, what would you suggest? Defend your answer.