Blockbuster Video

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Submitted to: Mrs. Salma Akhtar Subject: ITB301 Section: 03 Submitted by: Quazi Aritra Reyan ID: 2010-1-10-145

Transcript of Blockbuster Video

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Submitted to: Mrs. Salma Akhtar

Subject: 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.

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

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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. became

springboard 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 to

advertise 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 is

overvalued. 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 a

lot 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 some

totalitarian 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 increase

Bata'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

difficulties in dealing with the cross-cultural management.

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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,

and marketing expertise. They will be able to design better, more

fashionable, and more reasonably priced shoes.

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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

greater economic growth.

The disadvantages to Czech Republic:

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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 balance

of 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

welfare of the Czech Republic.

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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, the small, 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 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

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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

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

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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 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.

Q.5 Why do you think Tom Bata, Sr. has joined the list of

entrepreneurs who cannot bear to loosen their grip on businesses they

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started? 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

the time came.

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