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Global MarketingEntry Strategies

Lorna Valdes GlobalMarket 7/81

Lorna Valdes

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Global Market 7/8

Global Marketing

Market Entry Strategies

Session 6

Prof. Lorna Valdes

Global Marketing

Global Edition

Warren J. Keegan Mark C. Green

Global Market Entry Strategies: Licensing,

Investment and Strategic Alliances

Chapter 9

Copyright 2013, Pearson Education

Global Marketing

Global Marketing

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Learning Objectives

• Trade barriers are falling around the world

• Companies need to have a strategy to enter world markets

• Starbucks has used direct ownership, licensing, and franchising for shops and products In 2010, Starbucks had 12,000 cafes

in 35 countries and sales of $10.8 billion. Its goal is to reach 40,000 units worldwide.

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Investing Abroad

Enterprises seeking new new markets or protecting their supply chains:• Access to new clients

• Control of raw materials

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Investing Abroad

Enterprises seeking new new markets or protecting their supply chains:• Access to new clients


• Control of intermediaries

• Control of distribution

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Investing Abroad

Enterprises seeking new markets or protecting their supply chains:• Access to new clients


• Control of intermediaries

• Control of distribution

• Out-sourcing production



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Investment Cost of Marketing Entry Strategies

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Which StrategyShould Be Used?

• It depends on:

– Vision

– Attitude toward risk

– Available investment capital

– How much control is desired

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Licensing

• A contractual agreement whereby one company (the licensor) makes an asset available to another company (the licensee) in exchange for royalties, license fees, or some other form of compensation– Patent

– Trade secret

– Brand name

– Product formulations

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Advantages to Licensing

• Provides additional profitability with little initial investment

• Provides method of circumventing tariffs, quotas, and other export barriers

• Attractive ROI• Low costs to implement• License agreements should have cross-

technology agreements to inequities

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Disadvantages to Licensing

• Limited participation

• Returns may be lost

• Lack of control

• Licensee may become competitor

• Licensee may exploit company resources

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Special Licensing Agreements

• Contract Manufacturing – Companies provide technical specifications to a subcontractor or local manufacturer. The subcontractor then oversees production. Such arrangements offer several advantages. The licensing firm can specialize in product design and marketing, while transferring responsibility for ownership of manufacturing facilities to contractors and subcontractors.

• Franchising is another variation of licensing strategy. A franchise is a contract between a parent company-franchiser and a franchisee that allows the franchisee to operate a business developed by the franchiser in return for a fee and adherence to franchise-wide policies and practices.



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Licensing Harry Potter

• Warner Bros. and Universal signed a ten year licensing agreement to build a Harry Potter Theme Park in Orlando, Florida.

• J.K. Rowling rejected the proposal of Harry Potter being marketed by McDonalds through their Happy Meals.

• J.K Rowling only allowed The Coca-Cola Company licensing rights in agreement that they would donate $18 million to an American children’s literacy charity, and were not allowed any product placement during the HP films nor use any images of Harry Potter characters in promotions.

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Special Licensing Arrangements

• Contract manufacturing– Company provides technical specifications to a subcontractor or

local manufacturer

– Allows company to specialize in product design while contractors accept responsibility for manufacturing facilities

– Sales & marketing is performed by the domestic firm. ex. NIKE

• Franchising– Contract between a parent company–franchisor and a franchisee

that allows the franchisee to operate a business developed by the franchisor in return for a fee and adherence to franchise-wide policies ex. McDonald’s

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Strategic Entry Strategy

McDonald's relies heavily on franchises in more mature markets such as the United States and Europe, but has almost exclusively opened self-operated stores in China since entering the market two decades ago.

The company launched a pilot franchise program in China, but has so far limited it to three franchisees running six restaurants.

About 80 percent of McDonald's global outlets are operated by franchisees, requiring less capital than self-operated stores

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Franchising Questions

• Will local consumers buy your product? • How tough is the local competition? • Does the government respect trademark and

franchiser rights? • Can your profits be easily repatriated? • Can you buy all the supplies you need locally? • Is commercial space available and are rents

affordable? • Are your local partners financially sound and do they

understand the basics of franchising?

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Investment

• Partial or full ownership of operations outside of home country

– Foreign Direct Investment (FDI)08 • Forms

– Joint ventures– Minority or majority

equity stakes– Outright acquisition

• Start-up of new operations– Greenfield operations or – Greenfield investment

IKEA, with affordable furniture and housewares, spent $2 billion in Russia.

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Investment viaDirect Foreign Investment

• Merger with an existing enterprise• Acquisition of an existing enterprise• Examples: Volkswagen, 70% stake in Skoda Motors,

Czech Republic (equity), Honda, $550 million auto assembly plant in Indiana (new operations)

• Page 308



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Joint Ventures

• Entry strategy for a single target country in which the partners share ownership of a newly-created business entity

• Builds upon each partner’s strengths• Examples: Budweiser and Kirin (Japan), GM and

Toyota, GM and Russian government, Ericsson’s cell phones and Sony, Ford and Mazda, Chrysler and BMW

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Joint Ventures

• Advantages– Allows for risk sharing–

financial and political

– Provides opportunity to learn new environment

– Provides opportunity to achieve synergy by combining strengths of partners

– May be the only way to enter market given barriers to entry

• Disadvantages– Requires more investment

than a licensing agreement

– Must share rewards as well as risks

– Requires strong coordination

– Potential for conflict among partners

– Partner may become a competitor

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Starbucks in India Feb. 2012

• Starbucks said it would open its first outlets in India later this year in a joint venture with Tata, a giant conglomerate. Starbucks has coffee shops in almost all big countries, but had found India a tough market to break into.

• Starbucks is entering into a 50-50 partnership with Tata despite the recent easing of India’s convoluted investment rules that now allow for 100% foreign ownership of stores that sell just a single brand of goods.

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Examples of Market Entry & Expansion by Joint Venture

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Majority Stake

In one of its historically largest purchase operations, American retail giant Walmart bought 51% of South African retailer Massmart in May 2011 by paying US$ 2.4 billion. Massmart sells in 14 African countries, but the majority of its operations are in South Africa.

In the next 25 years, analysts believe the consumer market in Africa will take off. When it does, Walmart wants to be ready to seize the day.

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The Competition Appeal Court will release its judgment next Friday on the review of the Walmart-Massmart

merger.

The world's largest retailer, Walmart bought a 51% stake in Massamart after the S.A. Competition Tribunal approved the deal.

However, the Departments of economic development, trade and industry, objected, and appealed the merger sent it back to the tribunal for reassessment.

The government argued that the tribunal should have looked at whether the merger benefited local suppliers and job creation. 29 Feb. 2012



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Majority Stake

Wal-Mart will face challenges in the world’s poorest region. It will need to maintain a supply chain in a continent where roads and railways are unreliable, property rights are often weak and security isn’t guaranteed.

Poverty remains rampant in Africa, with 50 percent of the population living on less than $1.25 a day, according to the World Bank. And each of the continent’s 53 countries has its own tariffs, laws and regulations.

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Examples of Equity Stake

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Examples of Investmentto Establish New Operations

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Examples of Acquisitions

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Market Expansion Strategies

• Companies must decide to expand by:– Seeking new markets in existing countries

– Seeking new country markets for already identified and served market segments

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Location selection factors SWOT

Investment Incentives



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Trade & Investment

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Trade & Investment

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A.T. Kearney’s FDI Confidence Index • The index tracks how political, economic, and regulatory changes affect the

FDI intentions and preferences of the world's top 1,000 firms.

• Advanced economies in Western Europe, as well as Australia, Japan, and the U.S, possess high investor confidence.

• These locations are popular due to their relative size and business-friendly infrastructure.

• The advanced economies engage in substantial cross investments in each other's markets. For example, Europe and the U.S. are each others’ most important partners for FDI. Their transatlantic economy represents over $2.5 trillion in total foreign affiliate sales.

www.atkearney.com

Trade & Investment

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A.T. Kearney’s

FDI Confidence

Index

Trade & Investment

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Investment Incentives

Companies can obtain Financial & Logistical support from both sides of the transaction:

• Through export support from the “home” government

• Through inward investment incentives offered by the “receiving” government– Matching investment schemes– Infrastructure provision– Tax holidays or reductions– Employment incentives– Special regulatory or legal status or treatment– Start up assistance

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Investment IncentivesCountry

Often competition between Areas, Countries and Regions allows companies to arbitrage the various authorities for maximum incentiveWhen Disney wanted to establish a European park complexit looked at the U.K., Spain, the Netherlands and France.



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Disney wanted to establish a European park complex….• It looked at the U.K., Spain, the Netherlands and France.• The French government offered a wide range of incentives:

– Infrastructure provision– Tax holidays or reductions– Employment incentives & special regulatory or legal status or treatment– Start up assistance Lorna Valdes

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The complex was a subject of controversy during the periods of negotiation and construction, when a number of prominent French figures voiced their opposition and protests were held by French labour unions and others. A further setback followed the opening of the resort as park attendance, hoteloccupancy and revenues fell below projections. Partly as a result of this, the complex was renamed fromEuro Disney Resort to Disneyland Paris in 1995. In July of that year, the company saw its first quarterly profit.

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InvestmentIncentivesCountry/Region

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Georgia recognizes that foreign direct investments typically create more jobs per project and have a high dollar amount. Georgia has a dedicated FDI team that works to assist these companies in their location efforts, and we are proud to report the following results:

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Global Strategic Partnerships

• Possible terms

– Collaborative agreements

– Strategic alliances

– Strategic international alliances

– Global strategic partnerships

Page 312

The Star Alliance is a GSP

made up of six airlines. Lorna Valdes

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The Nature of Global Strategic Partnerships



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The Nature of Global Strategic Partnerships

• Participants remain independent following formation of the alliance

• Participants share benefits of alliance as well as control over performance of assigned tasks

• Participants make ongoing contributions in technology, products, and other key strategic areas

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Five Attributes of True Global Strategic Partnerships

• Two or more companies develop a joint long-term strategy

• Relationship is reciprocal

• Partners’ vision and efforts are global

• Relationship is organized along horizontal lines (not vertical)

• When competing in markets not covered by alliance, participants retain national and ideological identities

Page 314

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Success Factors

• Mission: Successful GSPs create win-win situations, where participants pursue objectives on the basis of mutual need or advantage.

• Strategy: A company may establish separate GSPs with different partners; strategy must be thought out up front to avoid conflicts.

• Governance:Discussion and consensus must be the norms. Partners must be viewed as equals.

Page 315

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Success Factors

• Culture: Personal chemistry is important, as is the successful development of a shared set of values.

• Organization: Innovative structures and designs may be needed to offset the complexity of multi-country management.

• Management:Potentially divisive issues must be identified in advance, and clear, unitary lines of authority must be established that will result in commitment by all partners.

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Beyond Strategic Alliances

• Next stage of evolution of the strategic alliance

– Super-alliance

– Virtual corporation

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Alliances with Asian Competitors

• Four common problem areas– Each partner had a different dream– Each must contribute to the alliance and each must

depend on the other to a degree that justifies the alliance

– Differences in management philosophy, expectations and approaches

– No corporate memory

Page 316



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Cooperative Strategies in Japan: Keiretsu

• Inter-business alliance or enterprise groups in which business families join together to fight for market share

• Often cemented by bank ownership of large blocks of stock and by cross-ownership of stock between a company and its buyers and non-financial suppliers

• Keiretsu executives can legally sit on each other’s boards, share information, and coordinate prices

Page 320

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Japanese Keiretsu

• A keiretsu is a grouping or family of affiliated companies that form a tight-knit alliance to work toward each other's mutual success. The keiretsu system is also based on an intimate partnership between government and businesses. It can best be understood as the intricate web of relationships that links banks, manufacturers, suppliers, and distributors with the Japanese government.

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Japanese Keiretsu

• IncludesBank Groups: Mitsui, Mitsubishi, Sumitomo, Fuyo, Sanwa, and Dai-Ichi Kangyo.

• Car and electronics producers: Toyota, Nissan, Honda--Matsushita, Hitachi, Toshiba, Sony

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Japanese KeiretsuA Tale of Two Auto Mergers

Mitsubishi with Daimler/Chrysler and Nissan with Renault.One merger failed. One triumphed. How come? The answer is a case study in corporate Japan's tendency to avoid unpleasant truths and shun radical solutions -- and a lesson in how important it is for outsiders to confront that tendency.

What undid Mitsubishi was the carmaker's strong partners inside the mighty Mitsubishi keiretsu. Daimler execs figured the deep-pocketed group, which included Bank of Tokyo-Mitsubishi, would help supply needed talent and capital. Instead, having such allies created a false sense of complacency. In addition, Mitsubishi was a company whose managers were so reluctant to relay bad news to higher-ups that they suppressed complaints about quality defects for decades to avoid costly product recalls

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Japanese KeiretsuA Tale of Two Auto Mergers

In contrast, Nissan and its suppliers belonged to a far weaker keiretsu that couldn't afford to rescue anyone. "We were a collapsing company" when France's Renault took a controlling interest in 1999, recalls Ghosn. With Nissan plants running at a money-losing 51% of capacity, Ghosn acted quickly, closing five of them, reducing the workforce by 23,000, and shifting production of more models to the U.S. Nissan reported a $6.2 billion loss in 2000 but quickly returned to profitability

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Cooperative Strategies in South Korea: Chaebol

• Composed of dozens of companies, centered around a bank or holding company, and dominated by a founding family– Samsung

– LG

– Hyundai

– Daewoo

– Pg. 323



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China's murky ownership rules: Who owns what?

OWNERSHIP is rarely straightforward in China. Eager investors and locals have found ways around the rules.

The most important is the creation of a complex investment vehicle called a “variable interest entity” (VIE).

It works like this: valuable Chinese assets are placed in a Chinese company. This entity, the VIE, must be run by a Chinese citizen. A series of contracts are then arranged, shifting the returns from the VIE first to a foreign-owned company registered in China and then to an offshore company, perhaps in the Cayman Islands.

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Twenty-first-century Cooperative Strategies: Targeting the Digital Future

• Alliances between companies in several industries that are undergoing transformation and convergence– Computers

– Communications

– Consumer electronics

– Entertainment

Page 323

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Investigue Abroad……The Steps towards Overseas Expansion

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FEASIBILITY

How difficult is it?

What INVESTMENT both managerial and financial will

be needed?

Categories of Evaluation Criteria for Assessing Investment Options

THE CRITERIA FOR ASSESSING PROPOSED INVESTMENTS

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FEASIBILITY


ACCEPTABILITY

How worthwhile is it?


be needed?



What RETURN in terms of financial

and performance improvement will it

give? Lorna Valdes

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FEASIBILITY


ACCEPTABILITY

How worthwhile is it?

VULNERABILITY

What could go wrong?


be needed?

What RETURN in terms of financial

and performance improvement will it

give?

What RISKSdo we run if things go wrong?



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