Global marketing, licensing,_strategic_alliance,_fdi


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Global marketing, licensing,_strategic_alliance,_fdi

  1. 1. McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
  2. 2. Chapter 6 Licensing, Strategic Alliances, FDI
  3. 3. OutlineThe non-exporting modes of entryThe Licensing Options, including FranchisingStrategic Alliances, including Joint Ventures.FDI and Wholly Owned SubsidiariesMarketing Strategy and Optimal Entry ModeForeign Expansion and Cultural DistanceWaterfall and Sprinkler StrategiesTakeaways 6-3
  4. 4. Non-exporting modes of entryThree main non-exporting modes of entry Licensing (including franchising) Strategic Alliances Wholly owned manufacturing subsidiaries 6-4
  5. 5. Three modes of entry LICENSING Host Country Home country Blueprint : “how to do it” Host CountyWHOLLY-OWNED SUBSIDIARY STRATEGIC ALLIANCE (J.V.) A replica of home A “joint effort” 6-5
  6. 6. The Impact of Entry BarriersThe non-exporting modes of entry basically representalternatives for the firm when entry barriers to a foreignmarket are high.These entry barriers involve not only artificial barrierssuch as tariffs, but also involve lack of knowledge of theforeign market and a need to outsource the marketing tolocal firms with greater understanding of the market. 6-6
  7. 7. LicensingLICENSING refers to offering a firm’s know-how or otherintangible asset to a foreign company for a fee, royalty,and/or other type of payment Advantages for the new exporter The need for local market research is reduced The licensee may support the product strongly in the new market Disadvantages Can lose control over the core competitive advantage of the firm. The licensee can become a new competitor to the firm. 6-7
  8. 8. FranchisingDefinition: franchising is a licensing option where thefranchisor offers a local franchisee the use of thebusiness model.The local franchisee: raises the required capital to establish the business, obtains real estate and capital investment hires local employees, and establishes a place of business.The franchisor: offers the use of a well-known brand name, contractual promises of co-op advertising and promotion, assistance in finding and analyzing promising locations, 6-8 training and a detailed blueprint for management.
  9. 9. Franchising pros and consThe Franchisor:Pro: The franchisor typically gets income as a royalty on gross revenues.Con: The franchisor needs to establish controls over the use of the brandname and the level of quality provided by the local operation.The Franchisee:Pro: The franchisee can start a business with limited capital and benefitfrom the business experience of the franchiser.Con: The franchiser’s ability to dictate many facets of business operationlimits local adaptation. 6-9
  10. 10. Close-up: Fast Food Franchising E.g. McDonalds, Wendy’s, Dunkin Donuts, Yum (Pizza Hut, KFC, Taco Bell)• Has been growing in the last two decades• Mitigates risk of financial exposure in othercountry markets• Common method of penetrating newmarkets, leveraging existing brand names• Firms provide pre-planning tools to enticelocal investors, including location advice.• Coop advertising of the brand name 6-10
  11. 11. Franchising a la McDonalds: Pros and ConsAdvantages The basic “product” sold is a well-recognized brand name (50-50 split on advertising costs). The franchisor provides various production and marketing support services to the franchisee (potatoes in Russia). The local franchisee raises the necessary capital and manages the franchise (not in Moscow).Disadvantages Careful and continuous quality control is necessary to maintain the integrity of the brand name (Paris problem). 6-11
  12. 12. Licensing: OEMOriginal Equipment Manufacturing (OEM) A company enters a foreign market by selling its unbranded product or component to another company in the market country Examples: Canon provides cartridges for Hewlett-Packard’s laser printers Samsung sells unbranded television sets , microwaves, and VCRs to resellers such as Sears, Amana, and Emerson in the U.S. 6-12
  13. 13. Strategic AlliancesStrategic Alliances (SAs) Typically a collaborative arrangement between firms, sometimes competitors, across borders Based on sharing of vital information, assets, and technology between the partners Have the effect of weakening the tie between potential ownership advantages and company control 6-13
  14. 14. Equity and Non-Equity SAs Equity Strategic Alliances – Joint VenturesNon-equity Strategic Alliances: – Distribution Alliances – Manufacturing Alliances – Research and Development Alliances 6-14
  15. 15. Equity Alliances: Joint VenturesJoint Ventures Involve the transfer of capital, manpower, and usually some technology from the foreign partner to an existing local firm. Examples include Rank-Xerox, 3M-Sumitomo, several China entries where a government-controlled company is the partner. This was the typical arrangement in past alliances – the equity investment allowed both partners to share both risks and rewards. Today non-equity alliances are common. 6-15
  16. 16. Rationale for Non-Equity Alliances • Tangible economic gains at lower risk • Access to technology • Markets are reached without a long buildup of relationships in channels • Efficient manufacturing made possible without investment in a new plant SA’s allow two companies to undertake missions impossible for one individual firm to undertake.• Strategic Alliances constitute an efficient economic response to changed conditions. 6-16
  17. 17. Distribution AlliancesAlso called “piggybacking”, “consortium marketing”Examples SAS, KLM, Austrian Air, and Swiss Air STAR Alliance (United Airlines, Lufthansa, Air Canada, SAS, Thai Airways, and Varig Brazilian Airlines) Chrysler and Mitsubishi Motors 6-17
  18. 18. Pros and Cons of Distribution AlliancesAdvantages Disadvantages Improved capacity load Time arrangement can Wider product line limit growth for the Inexpensive access to a partners market Can hinder learning more Quick access to a market about the market, creating obstacles to further inroads Assets are complimentary Each partner can concentrate on what they do best 6-18
  19. 19. Manufacturing AlliancesShared manufacturing examples Volvo and Renault share body parts and components Saab engines made by GM EuropeAdvantages Convenient Money savingDisadvantages The organization must deal with two principals in charge of production, harder to communicate customer feedback Can put constraints on future growth 6-19
  20. 20. R&D AlliancesR&D Alliances Provide favorable economics, speed of access, and managerial resources and are intended to solve critical survival questions for the firm Used to be seen as particularly risky, since technological know-how is often the key competitive advantage of a global firm The risk of dissipation has become less of a concern, however, as technology diffusion is growing ever faster anyway. 6-20
  21. 21. Manufacturing SubsidiariesWholly Owned Manufacturing Subsidiaries Undertaken by the international firm for several reasons To acquire raw materials To operate at lower manufacturing costs To avoid tariff barriers To satisfy local content requirements 6-21
  22. 22. Manufacturing Subsidiaries ADVANTAGES DISADVANTAGES• Local production lessens • Higher risk exposuretransport/import-related costs,taxes & fees • Heavier pre-decision information gathering &• Availability of goods can be research evaluationguaranteed, delays may beeliminated • Political risk• More uniform quality of product • “Country-of-origin” effectsor service can be lost by manufacturing elsewhere.• Local production says that thefirm is willing to adapt products &services to the local customerrequirements 6-22
  23. 23. FDI: AcquisitionsInstead of a “greenfield” investment, the company can enter byacquiring an existing local company.Advantages Speed of penetration Quick market penetration of the company’s productsDisadvantages Existing product line and new products to be introduced might not be compatible Can be looked at unfavorably by the government, employees, or others Necessary re-education of the sales force and distribution channels 6-23
  24. 24. Entry Modes and Local Marketing Control The local marketing can be controlled to varying degrees, quite independent of the entry mode chosen. The typical global firm maintains a sales subsidiary to manage the local marketing. Examples: marketing controlmode of entry independent agent joint with alliance partnerown sales subsidiaryexporting Absolut vodka in the US Toshiba EMI in Japan Volvo in the USlicensing Disney in Japan Microsoft in Japan Nike in Asiastrategic alliance autos in China EuroDisney Black&Decker in ChinaFDI Goldstar in the US Mitsubishi Motors in US P&G in the EU 6-24
  25. 25. Optimal Entry Mode MatrixCompany Product/Market Situationstrategic posture Emerging High-growth Mature ServicesIncremental Indirect Indirect exports Direct exports Licensing/ exports AllianceProtected Joint venture Indirect exports Alliance/ Licensing LicensingControl Wholly Acquisition/ Wholly owned Franchising/ owned Alliance subsidiary Alliance/ subsidiary Exporting 6-25
  26. 26. Illustrative Entry StrategiesCompany Product/Market Situationstrategic posture Emerging High-growth Mature ServicesIncremental Supervalu North American Rossignol Dialogue to to Russia fish to Japan skis to U.S. EuropeProtected Pharmaceuticals Sun Energy Coca-Cola Disneyland in China technology to bottling; in Japan Europe Toyota-GM tie-upControl New FDI Matsushita in IBM Hilton, in India U.S. TV market Worldwide; Sheraton; autos in U.S. McDonalds 6-26
  27. 27. Export Expansion and Cultural DistanceCultural Distance and Learning The “Cultural Distance” Effect: Firms tend to enter countries close to home culturally and geographically. Create very natural “biases,” which are not necessarily counterproductive The International Learning Curve: As firms enter markets further away culturally, managers learn more about how to do business internationally. One rationale for choosing countries to enter 6-27
  28. 28. Cultural Distance and Learning AMOUNT Gradual Late Entry OF EntryLEARNING Early Entry Learning More and Some learning learning unlearning SIMILAR LESS SIMILAR DISTANT CULTURAL COUNTRIES MARKETS MARKETS DISTANCE 6-28
  29. 29. The Internationalization StagesInternationalization Stages Stage 1 – Indirect exporting, licensing Stage 2 – Direct exporter, via independent distributor Stage 3 – Establishing foreign sales subsidiary Stage 4 – Local assembly Stage 5 – Foreign productionBorn Globals Firms that form the outset view of the world as one market Typically small technology-based businesses 6-29
  30. 30. Export Expansion StrategiesWaterfall Strategy The firm gradually moves into overseas markets Advantages of this strategy are that expansion can take place in an orderly manner and it is relatively less demanding in terms of resource requirements Disadvantage of this strategy: it may be too slow in fast- moving market 6-30
  31. 31. The Waterfall Gradual Expansion Home CountryOther country markets 6-31
  32. 32. Export Expansion StrategiesSprinkler Strategy The firm tries to enter several country markets simultaneously or within a limited period of time Advantages of this strategy are that it is a much quicker way to market penetration across the globe and it generates first-mover advantages Disadvantage of this strategy is the amount of managerial, financial, and other resources required. 6-32
  33. 33. The Sprinkler Simultaneous Expansion Home Country Other country markets 6-33
  34. 34. TakeawayTrade barriers will typically force the firm to un-bundle its value chain & engage in non-exporting modes of entry, such as licensing or strategic alliances - - or invest in a wholly owned manufacturing subsidiary. 6-34
  35. 35. Takeaway Licensing & strategic alliances may dilute firm specificadvantages through transfer of know-how, but the need for partners with local knowledge and the need to reduce a firm’s risk exposure offsets this. 6-35
  36. 36. TakeawayThe optimal mode of entry is to find a way over entry barriers, then to make trade-offs between strategic posture and the product/market situation. 6-36
  37. 37. Takeaway In the past, foreign expansion started with culturallysimilar countries leveraging existing know-how in similar markets.Now, with a higher commitment to international markets,we observe firms that are “born global”. These firms sell abroad from the start. 6-37
  38. 38. Takeaway When rapid entry into several countries is important, firms follow a “sprinkler” strategy, entering countries simultaneously.Past patterns followed a less risky but slower “waterfall” strategy where firms gradually expand from country to country. 6-38
  39. 39. TakeawayControlling the local marketing effort: • By establishing a sales subsidiary in the market country, the firm can control the local marketing effort quite independent of which particular mode entry mode has been chosen. 6-39