1. What are the other alternatives that LastMile could look at that would create
ID: 399716 • Letter: 1
Question
1. What are the other alternatives that LastMile could look at that would create a working relationship between Midwest Technologies and LastMile?
2. What are the advantages and disadvantages of these alternatives?
3. What are the objectives that LastMile would like to accomplish out of such parternship?
4. What counter proposal(s) would you recommend? LastMile Corporation II: Choosing a Development Partner struggle. The effort paid off and the company s CEO is on its own in its own facilities for two years, to partner with for was a pioneer in technology for wireless broad- In this hypothetical case, LastMile development and launch of LastMile's product. LastMile has two offers on the table and is trying to decide how to proceed. band access. They were very proud of their However, Tom realized that now, in 2005 l be asked to determine the company might do better with closer ties to a new achievements In this case, you will to determine er company with more resources and com- plementary technology products. The business environment is fast changing and new techno- logies are coming up much faster than in the that had just earlier years. The gestation period for new tech- president and CEO nology has been rapidly cut down. The market s reviewing the environment was promising, with money pouring New companies were spring directors and executives, ing up and more and more players were entering for LastMile's strategy the wireless communications industry. Being a two proposals on the table for privately held, small company, LastMile did not proposed have the financial resources to invest enough in the best approach, given the company's situation. LastMile's Dilemma Stepping out from a meeting main points discussed. This was a meeting with internal LastMile into new ventures. technology licensing agreement from Midwest defense contractor and advanced technology supplier to many industries. The second offer was an acquisi its future technological developments. LastMile was "at the chasm," the company unable to respond as rapidly as the market growth opportunities. The company was facing financial problems, roposal by ANZ Investment Group. a which needed to be addressed immediately Industry analysts predicted that the broad- band wireless communication industry would experience a growth rate in the next couple of years that would be four times the present rate clusions but raised a number of issues pertinent This was largely attributed to the exponential . The make. Tom, who as CEO was a broadband wireless communication technology s is relatively inexpensive and quick to instal medium-sized venture capital firm and incuba- tor, who offered LastMile substantial funding in exchange for a significant ownership share LastMile. The meeting had reached no con- to the decision the would have to whole board of directors growth of the Internet and e-business member of the board, was trying to make up hi the position he would take tomorrow when the entire board would next meet in a with a high data transmission rate, more than 2,700 times faster that the fastest dial-up modem used in personal computers. The trans- on. Tom still remembers the early days of ceiver technologies for broadba systems are also used for wireless infrastructure rented cubicles in a technology incubator, had connectivity in cellular networks. As the density ues to increase, broad communications promises to be a n he and seven others, working in given an idea a definite shape, which resulted in of cellular users contin what the company is today. They had come a band wireless c long way since those endless hours of constant strong growth area.
Explanation / Answer
Ans 1:
There is a range of possibilities for working with a large partner, rather than licensing the technology to them. LastMile could arrange a contract to provide finished product to Midwest, on an OEM basis. Another alternative would be for LastMile to provide product components to Midwest, who would use the components within their own finished products. A third alternative would be to license the technology but to obtain financing from Midwest to fund the development and engineering of the products. If control over the technology and the market direction are important issues, a joint venture may be appropriate. A joint venture provides each party with an opportunity to limit risk to specific assets (Midwest–money and market access, LastMile–technology) while exploiting the strengths of the combination. An extreme alternative would be for LastMile to become acquired by Midwest, which would provide funding for product development in-house.
Ans 2:
The advantages and disadvantages of the licensing-only option are spelt out in the case. So, too, are the advantages and disadvantages of receiving funding from ANZ.
OEM Contract: For the OEM contract, the advantages are that LastMile would retain the rights to the technology and would have the opportunity to develop the technology and products based on it in the future. LastMile could also market the products to other companies in the market or in related markets. The disadvantages are that development financing would be restricted. They could probably secure venture funding based on having the contract with Midwest. However, this would probably be very expensive money, requiring short-to-mid-term payback and at the cost of a significant portion of the company. Also, whether they build finished products or components, LastMile will have to outsource their manufacturing to be able to meet the needs of Midwest. This may drive costs above an acceptable level.
Licensing: With development funding from Midwest, licensing has some attraction to it. LastMile would get the funding needed to “productize” the technology. However, the funding would not extend to marketing and may indeed have covenants requiring exclusivity in the partnership. LastMile would retain ownership of the technology but would have limited growth potential.
Joint Venture: If a joint venture is considered, LastMile should recognize the need to continue to push the technology envelope independent of the venture. Unless the venture could produce the cash to make this possible, this has some of the same financing difficulties as other alternatives.
Acquisition: In an acquisition, LastMile would lose a good measure of control over the direction of the technology. However, the money obtained would be substantial and a degree of autonomy for the LastMile organization might be built into the arrangement. The upside potential of LastMile would be subsumed within Midwest. Also, the profit stream would substantially go to Midwest, to be used as Midwest management saw fit. Lastly, both organizations would need to think about the problems in melding two distinctly different cultures. Midwest management will see LastMile as being too loose; LastMile will see Midwest as bureaucratic.
Ans 3:
LastMile is looking to grow fairly rapidly. To be a player in this emerging market, they will need to achieve a larger size than they are now. LastMile needs to acquire access to markets. The marketing resources of a large organization are thus attractive. To continue to develop new technology, a degree of stability is probably a desirable state to achieve. The people of LastMile would appear to be interested in continuing to develop the technology and develop it to its fullest potential. It’s “their baby.” LastMile has some longevity already. Tom Sherman probably has a bond with his employees. It is likely that one important objective for him will be to “take care of his people.” This means financial advancement for them, stability and probable retention of as much of the culture as he can manage.
Ans 4:
I would recommend that LastMile uses the current offers of ANZ and Midwest to leverage a deal with current partners to ensure that the company stays independently owned and free to do business with their current markets.
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