Glo Marketing 9 - University of Northern Iowaschragec/GloMarketing 9.pdf · Global Marketing Chapter 9 9-1 Global Marketing Schrage 9 • Trade barriers are falling around the world

1

Market Entry

Strategies: Licensing,

Investment, and

Strategic Alliances

Global MarketingChapter 9

9-1Global Marketing Schrage 9

• 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

9-2

In 2006, Starbucks had 12,000 cafes in 35 countries and sales of $7.7 billion.

Global Marketing Schrage 9

9-3

Profit Potential

Risk


Which Which Strategy?Strategy?


LicensingLicensing

A contractual agreement whereby the licensor makes an asset available the licensee

9-5

PatentPatent

Trade Trade SecretsSecrets

Brand nameBrand name

Product Product formulationsformulations

Compensation, Compensation, Royalties, FeesRoyalties, Fees


LicensingLicensing

9-6

Advantages

Provides additional profitability with little initial investment

Provides method of circumventing tariffs, quotas, and other export

barriers

Attractive ROI

Low costs to implement

Disadvantages

Limited participation

Returns may be lost

Lack of control

Licensee may become competitor

Licensee may exploit company resources


2

Special Licensing Special Licensing TypesTypes

• Contract manufacturing• Technical specifications provided to a subcontractor or local manufacturer

• Allows company to specialize in product design while

contractors accept responsibility for manufacturing

facilities

• 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


Worldwide Franchise ActivityWorldwide Franchise Activity


Franchise Statistics� Franchising creates almost $2,000,000,000,000 (2 trillion) revenue every year --

worldwide. Enough to:- equal the 4th largest GNP in the world- blanket the State of Massachusetts (7,600 sq. miles)- circle the earth 6,500 times- stack 137,000 miles high (over 1/2 way to the moon)

�Franchise businesses account for about 50% of all retail sales in the United States. �Franchise businesses employ more than 15 million Americans.�More than 75 industries use franchising to distribute goods and services to consumers. �A U.S. department of commerce study conducted from 1971 to 1997 showed that during that time less than 5% of franchise businesses were closed each year. Compare that to a U.S. Small Business Administration study conducted from 1978 to 1998, which found that 62% of non-franchised businesses closed within the first 6 years of their existence due to failure, bankruptcy, etc. �1 out of every 12 businesses is a franchised business.

http://www.franchiseconsultantsinc.com/home.html

Franchising QuestionsFranchising Questions

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

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

•• Are your local partners financially sound and do Are your local partners financially sound and do they understand the basics of franchising?they understand the basics of franchising?


U.S. Direct U.S. Direct Foreign Investment Foreign Investment


United United

KingdomKingdom

16%16%

FranceFrance

16%16%

NetherlandsNetherlands

15%15%

JapanJapan

10%10%

GermanyGermany

10%10%

OtherOther

33%33%

FDI in the US FDI in the US --20062006

Bureau of Economic Analysis

InvestmentInvestment

• Partial or full ownership of operations outside of home country

• Foreign direct investment

• Forms

• Joint ventures

• Minority or majority equity stakes

• Outright acquisition

High FDI Potential

Low FDI Potential

High FDI Performance

FrontFront--runnersrunners

Above Above PotentialPotential

Low FDI Performance

Below Below potentialpotential

UnderUnder--performersperformers

Global Marketing Schrage 9 9-11

UNCTADUNCTAD

Joint VenturesJoint Ventures

9-12

Entry strategy for a single target country in which the partners share ownership of a

newly created business entity

Advantages

• Allows for sharing of risk (both 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

• Share rewards and risks

• Strong coordination needed

• Potential conflict

• Partner may become a competitor


3

InvestmentInvestment

• Start-up of new operations

• Greenfield operations or

• Greenfield investment

• Merger with an existing enterprise

• Acquisition of an existing enterprise


Global Strategic PartnershipsGlobal Strategic Partnerships

•• Possible termsPossible terms

•• Collaborative Collaborative agreementsagreements

•• Strategic alliancesStrategic alliances

•• Strategic international Strategic international alliancesalliances

•• Global strategic Global strategic partnershipspartnerships

9-14

The Star Alliance is a GSP The Star Alliance is a GSP made up of six airlines.made up of six airlines.


The Nature of The Nature of PartnershipsPartnerships

9-15

Independent Partners

Shared benefits and control

Continuous Contributions

Global Marketing Schrage 9 9-16Global Marketing Schrage 9

Partnership Attributes

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)

In markets not covered by alliance, participants

retain national and ideological identities

Success FactorsSuccess Factors


Asian Asian CompetitorsCompetitors

• 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


4

JapanJapan: Keiretsu: 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 one another’s boards, share information, and coordinate prices 9-19Global Marketing Schrage 9

South South Korea: Korea: ChaebolChaebol

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

• Samsung

• LG

• Hyundai

• Daewoo


Targeting Targeting the Digital Futurethe Digital Future

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

• Computers

• Communications

• Consumer electronics

• Entertainment


Beyond Strategic AlliancesBeyond Strategic Alliances

• Next stage of evolution of the strategic alliance

• Super-alliance

• Virtual corporation


Expansion Expansion StrategiesStrategies• Companies must decide to expand by seeking

• New markets in existing countries

• New country markets for already identified and served market segments


Narrow FocusNarrow Focus Country FocusCountry Focus

Country Country DiversificationDiversification

Global Global DiversificationDiversification

MarketMarket

ConcentrationConcentration DiversificationDiversification

ConcentrationConcentration

DiversificationDiversification

Country

Documents

Glo Marketing 9 - University of Northern Iowaschragec/GloMarketing 9.pdf · Global Marketing Chapter 9 9-1 Global Marketing Schrage 9 • Trade barriers are falling around the world