blockbuster video & bata case
TRANSCRIPT
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Submitted to: Mrs. Salma Akter
Subject: International Business
Subject Code: ITB301
Section: 03
Submitted by: Quazi Aritra Reyan
ID: 2010-1-10-145
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Blockbuster Video
Q.1 Why do you think Blockbuster has used various operating forms
( company=owned operations, joint ventures, and franchises) for the
different foreign markets it has entered?
Ans.
Blockbuster used various operating forms such as company-owned
operations; joint ventures, and franchises for their different foreign
markets. The operation they used depends upon the place they entered.
They need to use strategy that applies to that certain country. Like for
example, in the British market, the operating form they used was the
company owned operation. This is because franchising was not yet
developed in the United Kingdom video store market. While in Japan,
the company planned to expand in this country through franchising its
outlets and expected to have a thousand store by the year 2000.
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Another reason why they need to use various operating forms is that
they get different benefits from the different operations. Joint venture
refers to a cooperative effort among two or more organizations who
share a common interest in a business enterprise or undertaking. In
this case, Blockbuster made a cooperative effort with Cityvision in the
United Kingdom as a springboard for their expansion into France,
Germany, and Italy via joint ventures. The company also made a
50/50 joint venture with a Japanese partner, Fujita Shoten. The
benefits they get from having a joint venture are: First, the tax benefits
that some nations extend to companies with local partners or a lack of
finances, personnel, or local marketing expertise. The second benefit
is a matter of policy so as to reduce investment.
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Q.2 What are the advantages & disadvantages of Blockbuster
expanding abroad rather than concentrating on the U.S. market?
Ans.
Advantages:
Faster growth: Firms that have operate internationally tend to
develop at a much quicker pace than those operating locally &Blockbuster also made quite a quick growth in U.K., Japan, France,
Germany , Italy.
Access to cheaper inputs: Operating internationally enabled
Blockbuster to source raw materials or labor at lower prices
Increased quality and efficiency: Exposure to foreign competition
increased Blockbuster’s efficiency. Doing business in the international
market allowed Blockbuster to improve the quality of their product in
order to gain a competitive advantage.
New market opportunities: International business presents firms
with new market opportunities. These new markets provide more
opportunities for expansion, growth, and income. A bigger market
means more customers, increased revenue, a larger profit margin, and
allows the business to realize economies of scale.
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Diversification: As the firm diversifies its market, it becomes less
vulnerable to changes in local demand. This reduces wild swings in a
company's sales and profits.
Disadvantages:
Increased costs: There are increased operating expenses including the
establishment of facilities abroad, the hiring of additional staff,
traveling of personnel, specialized transport networks, information and
communication technology.
Foreign regulations and standards: The firm may need to conform
to new standards. This may require changes such as in the production
process, inputs and packaging, incurring additional costs.
Delays in payments: International trade may cause delays in payments, adversely affecting the firm's cash flow.
Complex organizational structure: International business usually
requires changes to the firms operating structure. Training/retraining
of management may be necessary to facilitate restructuring.
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Q.3 Blockbuster’s earliest & primary foreign thrust was into the
British market. Do you agree with this expansion theory?
Ans.
Blockbuster entered British market in 1990 & by the end of 1991 had
built fifteen stores. Blockbuster had good reason for entering British
market & I agree with their expansion theory.
They expanded because-
• U.S. markets matured in the sell of V.C.R.
• Blockbuster faced increased competition from rivals (example:
pay-per-view movies)
• One of the most important reasons that caused Blockbuster to
expand was the growth of retail sales of video tapes for home use
which paled the idea of movie rentals as customers could keep
the movie.
• More importantly sell through markets like K-mart could get
sell-through tapes for $14 from distributors whereas Blockbuster
bought rental tapes for $65. As a result many retailers competed
against Blockbusters for tape sales rather than tape rentals.
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• By expanding to UK, Blockbuster took the 1st step to
international business which is obviously a good step for any
company & Blockbuster also tested out the country similarity
theory through this.
• By entering U.K. market, Blockbuster became more experienced
& stronger in business through joint venture with in the absence
of franchising.
•
Furthermore by Blockbuster’s business in U.K. becamespringboard for the company’s expansion to France, Germany &
Italy through jointventure.
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Q.4 Blockbuster bought video store chains abroad that already had
well-known names. Why should the company change these stores to
Blockbuster stores?
Ans.
Why should the company change these stores to Blockbuster stores
because –
• For best customer recognition and brand power
• By converting to Blockbuster stores, the stores were later used as
a springboard to expand to other countries via joint-venture.
• By conversion, Blockbuster gained additional ecomoies of scale.
For example: in Canada Blockbuster used this strategy toadvertise themeself to Canadian people who are out pf cable
range.
• Blockbuster acquired a new brand beforeit started renaming
brands. During the brand transition phase, at first Blockbuster
kept the name of the acquired company’s name and logo & later renamed it to Blockbuster as a part of redeveloping the online
and advertising strategy.
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• The stores were converted to Blockbuster stores also because,
Blockbuster was developing an acquisition message for
stakeholders – clients, employees, analysts, prospects, investors,
and media. This message also addressed when the acquired
brand would be retired and how “business as usual” would be
handled.
• A name change was necessary for employees of acquired
comapny to get used to with new management.
• A name change was necessary as Cityvision took a major
economic hit just before Blockbuster video bought it. It is a
common trait in business to change names after something
disastrous happen.
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Q.5 What factors other than those presented in the case might inhibit
Blockbuster’s expansion into lower income countries?
Ans.
Blockbuster’s expanded into lower income countries may be because -
• It wanted to be a market dominator in another country.
• Poorer countries may have no rival at all, so Blockbuster maybe
able to do monopoly style business.
• Poorer countries have cheap factors of production which will
save money.
• Poorer countries have less restrictions & regulations for foreign
investors, so gaining a new market will be a lot easier.
• Tax might have been low Blockbuster in the poor countries.
• Blockbuster might expand to poor countries for an additional
source of money which can be used for further expansion or
supporting business in home country.
• Blockbuster’s true intention maybe was to expand to other rich
neighbouring countries around the poor country. The poor
country can be used as a route to those countries as the
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transportation cost will be low. The poor country could be used
as a base.
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Q.6 Why would many Cityvision stockholder sell for cash rather than
Blockbuster stock?
Ans.
Many Cityvision stockholder sell for cash rather than Blockbuster
stock because –
In cash transaction acquiring shareholders take all the risk that the
expected synergy value embedded in the acquisition premium will not
materialize, where as when we deal is stock the risk is spread and
shared with the acquired shareholders too.
In a cash deal it is pretty clear who is acquirer and who is acquired,when it comes to stocks and the stock value can change at any time.
A really confident acquirer will tend to pay for the acquisition by cash
and the markets historically have been rewarding this confidence by
responding through rise in share value, a stock buy out could (almost
certainly) take the opposite direction if they sense that the stock isovervalued. In about 75% of the cases, the stock value of acquirer has
taken a dip soon after the deal is announced. The cash buyout also
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makes sure that its shareholders do not give up any merger gains to the
acquired companies shareholders.
The more sensitive the acquired companies compensation is to
changes in acquirer’s stock, the less favorable the response from the
market. There are many tools and frameworks that one can use to
arrive at the SVAR (Shareholder value at risk) and then make a
decision on the best mode.
In conclusion I would say that this is not an easy decision , there are
several macroeconomic factors that drive this and also this should
come out as a result of your strategic due diligence done upfront.
These need not be all cash or all stock, people that’s why Blockbuster
Video used a % of both, the deal structure and tax issues will drive alot of this.
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Bata
Q.1 Evaluate the different ways in which Bata has interacted with
foreign political systems in its investments & operations abroad.
Ans.
Bata's effective organizational structure and managing style:
With activities in 60 countries, Canada-based Bata Shoe Organization
has much operational experience both in developed countries and
developing countries and can deal with different political systems. It
has an effective organization structure, which consists of
o Bata Limited located in Toronto, Canada, acts as headquarters of
the operating companies. Regional offices exist in Toronto,
Mexico City, Singapore, Paris, Calcutta and Harare.
o The International structure: a decentralized organization,
where operating companies are independent businesses,
supported by a global management team.
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o Private Ownership: Bata shoe organization companies have
also entered into a number of joint ventures, retail
franchising and brand licensing agreements.
By and large Bata's operations are independent units established in
each country where the firm does business. As such, Bata is able to
decentralize control of its political strategy--giving subsidiaries
significant autonomy in managing relations with their respective
government.
For example, although Bata prefers not to export production, in the
countries where the governments does not like it only imports raw
materials but does not export, Bata adjusts to the local laws. Since
important issues will vary from country to country, Bata must allow
subsidiaries to identify the appropriate issues (step one of political
strategy formulation) themselves. The strategies that are formulated to
deal with those issues are likely to be subsidiary specific as well .
Different ways interacting with different political and legal
environment:
Bata's presence in dozens of countries complicates its political
strategy. For the company to succeed, its management must carefully
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analyze whether its corporate policies will fit a desirable political and
legal environment. According to the different governments' demand of
organizational ownership, Bata opens the global possibilities through
partnerships, licensing arrangements, consulting, technical assistance,
franchising, or direct ownership and management of subsidiaries in
different countries or even being nationalized .
Bata has showed its ability to operate in countries with different
political systems. Besides its successful investments in democratic
countries that have more freedom such as the United Kingdom and the
U.S.A., Austria, Bata also operates under the totalitarianism countries.
Its manufacturing units' shifting to the communistic country---China,
where the economy has changed to market-driven is a good example.
And Bata realizes that the wisest way is to remain silent in sometotalitarian countries. When its local operation in Uganda was
nationalized and denationalized reiteratively, Bata continued to
operate as nothing has happened .
A mentionable issue is rebuilding the organization in Eastern
European countries that have moved away from communism to
various degree democracies. After the Second World War, communist
dominated governments nationalized Bata's operations not only in the
former Czechoslovakia, but also in Poland, Yugoslavia and East
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Germany. But after that special period, Bata successfully proved to the
Communists that they could rebuild organizations in the economic
restructuring of countries that used to be behind the Iron Curtain.
Take the investment in Czech republic for example, during the Second
World War, Bata had to leave the former Czechoslovakia where its
operations started because the political situation had worsened. After
many years communists took power in Czechoslovakia and
confiscated Bata. However, following the "velvet divorce" of the
former Czechoslovakia, the Czech Republic rushed into a market
economy with entrepreneurs being agents of social change. After
negotiating with the government over conditions surrounding the
organization's investment in Czech Republic, Bata successfully got the
ownership of the company in Czech Republic again and operated profitably.
Opposite to its reinvestment in Czech Republic mentioned above, Bata
faced considerably more government intervention in Slovakia. There
is likely to be more political instability in Slovakia and Slovakia does
not have a very positive attitude toward foreign investment (despite
Bata's roots in the region). Bata's battle for restitution in Slovakia
courts may be a long and expensive process .
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Q.2 Do you think Bata made the correct decision to pull out of south
Africa? How do you think the political events in South Africa in the
past few years might change Bata’s strategy for South Africa? How
should Bata formulate a strategy for determining whether or not to re-
enter South Africa?
Ans.
However, apart from its successful foreign investments in some
countries, Bata should be also censured for critical operations under
the authoritarian totalitarianism like Chile under Pinochet and South
Africa during the apartheid period .
Apartheid was a system of laws and measures designed to oppress the
rights of blacks while maintaining white supremacy within the ranks
of the government as well as society. African Black labors that lost
their jobs would not simply join the ranks of the unemployed; they
could lose their residential rights as well, and be removed from the
urban labor market to the underdeveloped homelands. In the latter
case, while some foreign companies and governments supported the
political reforms such as the United States Congress involved itself in
the South African on-goings by supporting the abolishment of the
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apartheid, encouraging peace and establishing a democracy in South
Africa, whereas Canada showed negative attitude. Canada's
government issued very conservative voluntary guidelines on new
investments in South Africa. And Bata fallaciously accorded with its
home-government 'tacitly supporting the white minority political
regime.' Finally, Bata gave up their investment in South Africa.
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Q.3 What are the advantages & disadvantages to both Bata & the
republic of Slovakia of having Bata take over his former operations?
Why do you think the Czec Republic allowed Bata to re-enter the
market, but Slovakia had no as of the end of 1995? Why do you think
Bata is appealing for a political solution to his problems rather than go
through the courts to get back his property? What type of political
system do the Czec Republic & Slovakia have? How might that help
explain Bata’s problem?
Ans.
The advantages to Bata:
Because it is a Czech-originated company, from a nostalgic point of
view, Bata will be able to return to the home country. Besides this,there are other advantages:
• Access to Eastern Europe market
Companies may undertake foreign direct investment (FDI) to expand
foreign markets, to gain access to suppliers of resources or finished
products, and to reduce their operation risks. By taking over the
manufacturing operations in Czech Republic, Bata can gain access to
large facilities and a huge market in Eastern Europe and the former
Soviet Union where FDI from the developed market economies is
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perceived as a key part of the reconstruction of the economies.
• Easy to control
Wholly owning foreign operations assures the most extensive
management control. The parent and subsidiary usually share a
common corporate culture; Bata can use its own managers, who
understand its objectives and the nature of the sometimes difficult-to-
teach processes that it wishes to transfer. The company can also avoid
protracted negotiations with another cooperative company or even the
Czech government and can avoid problems of enforcing an agreement.
The control inherent in Bata may also lower the company's operations
costs and increase its rate of technological transfer. Furthermore, it is
beneficial to build the whole organization culture.
• Local production serving local market
The prices of some products increase too much if they are exported.
Therefore, foreign production is often necessary to tap foreign markets
because it skirts import barriers and reduces transportation costs, so is
Bata. By wholly owning the operations in Czech, Bata can use local
production to serve local market instead of exporting shoes to Czech.
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The disadvantages to Bata:
The disadvantages to Bata are reflected as facing more risks,
confronting more difficulties in cross-cultural management, and
relatively higher capital requirement and start-up costs.
• Facing more investment risks
Compared with other entry strategies, wholly owning subsidiary in
Czech brings Bata more risks. After separating from the former
Czechoslovakia, Infrastructure availability, insufficient openness to
trade and instability politics of Czech Republic all have negative
impact on the Bata's operations, even recently the Czech Republic has
only removed controls on capital outflows. Besides these, hostility
generating from host-country citizens and politicians also increaseBata's investment risksthere may be a tendency for people to be
protectionist and to 'buy local'.
• Confronting more difficulties in cross-cultural management
Although Bata was initiated in the former Czechoslovakia, after
migrating Canada for more than fifty years, the organizational
cooperative culture has merged with Canadian culture. The cultures of
host country and home country are very different. So Bata has more
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difficulties in dealing with the cross-cultural management.
The advantages to Czech Republic:
Bata's direct investment provides the Czech Republic with capital,
technology, employment and managerial skills, and therefore
accelerates its economic growth and development.
• Supplying Capital
International companies like Bata, by virtue of their large size and
financial strength, have access to financial resources not available to
host-country firms. The Czech Republic might be able to get Bata to
invest significant capital into the plant to get it up to world-class
standards.
• Bringing product and process innovations
Less developed nations lack the research and development resource
and skills required to develop their own indigenous product and
process technology. Such countries must rely on foreign direct
investments for much of the manufacturing technologies and
marketing expertise required to stimulate economic growth. Related to
the case, by Bata taking over the operations, the Czech Republic can
gain access to Bata's global design, advanced production technology,
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and marketing expertise. They will be able to design better, more
fashionable, and more reasonably priced shoes.
• Bringing managerial skills
The Bata 's advanced managerial skills may also produce important
benefits for the host country--Czech. Beneficial spin-off effects arise
when local personnel who are trained to occupy managerial, financial,
and technical posts in the Czech subsidiary. Similar benefits may arise
if the superior management skills of Bata stimulate local suppliers,
distributors, and competitors to improve their own management skills
• Creating new jobs
Bata will create new jobs for Czech workers both directly and
indirectly. Direct effects arise when Bata employs a number of host-
country citizens. Indirect effects arise when jobs are created in its
local suppliers and other support departments.
• Increasing competition
Bata can help to increase the level of competition in the Czech
markets by increasing the consumer choices of shoes. Increased
competition can stimulate both Bata and its rivals to increase
productivity, innovate product and process, and finally achieve the
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greater economic growth.
The disadvantages to Czech Republic:
While recognizing the benefits that Bata brings to the host country-
Czech, it must be realized that the socio-economic impact of Bata is
not always be positive. Bata also has potential dangers for Czech, as it
may create problems for technological dependence, cultural change or
even thwarting the passage of laws that constrain socially undesirable
practice such as pollution regulation.
However, there are more criticisms that focus on the disadvantages to
the economy of Czech Republic, such as it may lead to the creation of
monopolies in the shoe market of Czech; it may impact on the balanceof payments of Czech and even on the ability of the government of
Czech to manage the local economy. Take the adverse effort on
competition for example, although we have just outlined in the
previous section how Bata can boost competition, there is worry about
the subsidiary of Bata may have greater economic power than the
Czech indigenous competitors. It could drive indigenous companies
out of business and monopolize the market. Once the market was
monopolized, Bata could raise prices above those productions that
would prevail in shoe markets, with harmful effects on the economic
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welfare of the Czech Republic.
Bata reentered the Czech Republic and not Slovakia
because the two countries have very different economic environments.
The Czech Republic is moving more quickly than Slovakia toward a
free market system.
Bata is appealing for a political solution to his problems rather than go
through the courts because Slovakia is being run by Communists &
there is no democracy. As in communism there is no right for personal
property & everything belonged to the government, so Bata couldn’t
go to court to retrieve property. Thus Bata went for political solution.
Slovakia has Communism where one party rules the
country & Czech Republic has Parliamentary government.
This helps in explaining Bata’s problem as we see that Bata was able
to do business in Czech Republic because of political system but was
not able to do business in Slovakia.
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Q.4 Check the web for country pages, the CIA factbook, or other
sources of information on South Africa, the Czech Republic, or
Slovakia that will help you understand more about the changing
political & economic climates in those countries.
Ans.
Political & economic climate of Czech Republic: Czech Republic
has a parliamentary government system. It has civil law system based
on former Austro-Hungarian civil codes and socialist theory; note -
legislation is actively modernizing the legal system.
The Czech Republic is a stable and prosperous market
economy, which harmonized its laws and regulations with those of the
EU prior to its EU accession in 2004. While the conservative, inward
looking Czech financial system has remained relative healthy, thesmall, open, export-driven Czech economy remains very sensitive to
changes in the economic performance of its main export markets,
especially Germany. When Western Europe and Germany fell into
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recession in late 2008, demand for Czech goods plunged, leading to
double digit drops in industrial production and exports. As a result,
real GDP fell 4.1% in 2009, with most of the decline occurring during
the first quarter. Real GDP, however, has slowly recovered with
positive quarter-on-quarter growth starting in the second half of 2009
and continuing throughout 2010. The auto industry remains the largest
single industry and, together with its suppliers, accounts for as much
as 20% of Czech manufacturing. The Czech Republic produced more
than a million cars for the first time in 2010, over 80% of which were
exported. Foreign and domestic businesses alike voice concerns about
corruption, especially in public procurement. Other long term
challenges include dealing with a rapidly aging population, funding an
unsustainable pension and health care system, and diversifying away
from manufacturing and toward a more high-tech, services-based,
knowledge economy.
Political & economic climate of Slovakia: Czech Republic used to
have a Communist government system but now it has a parliamentary
democratic system. It has civil law system based on Austro-Hungarian
codes; note - legal code modified to comply with the obligations of
Organization on Security and Cooperation in Europe and to expunge
Marxist-Leninist legal system
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Slovakia has made significant economic
reforms since its separation from the Czech Republic in 1993.Reforms to the taxation, healthcare, pension, and social welfare
systems helped Slovakia consolidate its budget and get on track to join
the EU in 2004 and to adopt the euro in January 2009. Major
privatizations are nearly complete, the banking sector is almost
entirely in foreign hands, and the government has helped facilitate a
foreign investment boom with business friendly policies. Slovakia's
economic growth exceeded expectations in 2001-08 despite a general
European slowdown. Unemployment, at an unacceptable 18% in
2003-04, dropped to 7.7% in 2008 but remains the economy's Achilles
heel. Foreign direct investment (FDI) accounted for much of the
growth until 2008. Cheap and skilled labor, low taxes, a 19% flat tax
for corporations and individuals, no dividend taxes, a relatively liberal
labor code and a favorable geographical location are Slovakia's main
advantages for foreign investors. Foreign investment in the automotive
and electronic sectors has been especially strong. To maintain a stable
operating environment for investors, the European Bank for Reconstruction and Development advised the Slovak government to
refrain from intervening in important sectors of the economy.
However, Bratislava's approach to mitigating the economic slowdown
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has included substantial government intervention and the option to
nationalize strategic companies. RADICOVA's government, in power
since July 2010, has allowed the budget deficit to rise slightly, to 7.9%
of GDP in 2010. GDP fell nearly 5% in 2009 before gaining back 4%
in 2010, and unemployment rose above 12% in 2010, as the global
recession impacted many segments of the economy.
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Q.5 Why do you think Tom Bata, Sr. has joined the list of
entrepreneurs who cannot bear to loosen their grip on businesses theystarted? What is the risk to the Bata Shoe Organization if Thomas J.
Bata cannot find a way to retire?
Ans.
Having “grown” a business, it is often hard to turn it over to others
who may have different ideas about how the firm should be managed.
However, a mature, established business requires a different set of
leadership and administrative skills than are needed by a young,
growing firm. Thomas J. Bata led his firm through a period of great
turbulence and growth—but both the world and the company are now
very different than they were in the 40s, 50s, 60s, and 70s.
The biggest danger facing Bata Shoes is the lack of a clear
succession plan for the time when Thomas J. Bata either retires or
dies. He needs to be laying the framework to provide as smooth a
transition to another chief executive as possible. If a successor were being groomed the timing of Thomas J. Bata’s departure would not be
as important, since there would already be someone in place making
increasingly important decisions and ready to step in effectively when
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the time came.