Entry mode nyp

Table of Contents
Chapter 1 Factors Influencing the Choice of Entry Mode...........................................................3
Chapter 2 Entry Mode..........................................................................................................5
Bibliography.......................................................................................................................6

Chapter 2 Entry Mode
Chapter 1 Factors Influencing the Choice of Entry Mode
New York Pizza is a Dutch fast food chain specialized in pizzas and now has more than 125
takeaway and delivery locations. At the moment, its business is running based on the franchising
principle in the Netherlands and in Germany. As a result, the firm can be considered as a medium-
large enterprise. Based on the result of the screening process, the United Kingdom (U.K.),
classified as an A country, is the most potential and suitable country where New York Pizza should
expand to. Furthermore, in order to define the most opportune entry mode for the company, the
factors which influence the choice of entry mode will be analyzed.
Internal Factors
1. Product complexity
Compared to the main competitors, the New York Pizza has a wide gamma of products, besides
pizza, it includes pasta, hamburger, side dish, finger food and dessert. Since food is not
considered as a complex product, therefore the product complexity is not high.
2. Product differentiation advantage
According to the menu of New York Pizza, product differentiation, which is an effective way to
enhance customers' responsiveness by providing them with a vast array of products or services in
the market, is present. This also allows the company to cover the preferences and tastes of a wide
variety of customers.
3. International experience
Regarding to the internationalization, firms which lack of international experience would perceive
higher uncertainty, overestimate risks, high organizational and administrative costs and
underestimate returns in the host country. As New York Pizza is already operating in Germany, it
would not be a big challenge to enter the UK market where the fast-food culture is developed.
Desired mode characteristics
4. Risk averse
The New York Pizza is adopting franchising for its business. This choice can be lucrative. For
instance, it allows the company to tap into existing business models and expertise, reducing the
risk and having lower startup costs. Because most of the company scared off by the high initial
costs, risk, lack of knowledge of the market. Moreover, as distance between the host country and
the home country is not far at all, with franchising, it means the degree of management control is
not limited.
5. Flexibility
The flexibility is associated with the operational mode, as mentioned before, New York Pizza
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applies franchising (intermediate mode) which limits its ability to change or adjust the strategy
when market conditions change rapidly.
External factors
6. Sociocultural distance between home country and host country
In term of educational levels, in the U.K. and in the Netherlands, the average student scored more
than 500 in reading literacy, maths and sciences, higher than the OECD average of 497.
Additionally the average difference, between the students with the highest socio-economic and the
lowest socio-economic background is 96 for the U.K. and is 91 for the Netherlands. This suggests
the school system in both countries provides relatively equal access to high-quality education.
Furthermore regarding to the language and cultural characteristics, there are not vast differences.
For example, most of the Dutch people could speak fluently English, the eating habit is similar.
7. Country risk/demand uncertainty
As well as the U.K. political risk is low (Political stability scored of 9, its economy is expected to
continue to grow over the forecast period, and inflation is also expected to be low. All of these will
encourage stronger spending by consumers. As the pizza market is mature and pizza is a popular
food in the U.K., sales have increased over the past two years as pizza operators widen their
menus, this indicates that the demand is not uncertain.
8. Market size and growth
The U.K. is a huge potential market as the British pizza market is one of the largest in the world,
it is experiencing a steady level of growth and in particular the pizza fast food franchise industry is
one of the fastest growing sectors in the U.K..
9. Direct and indirect trade barriers
All EU members have a 1.0 percent average tariff rate. Although some non-tariff barriers exist,
the EU is relatively open to external trade. The U.K. generally treats foreign and domestic
investors equally. However, the industry reaches saturation, new entrants will need to differentiate
themselves in terms of service delivery or product in order to attract more consumers.
10. Intensity of competition
The intensity of competition is high. The main competitors of New York Pizza, which dominate the
U.K. pizza industry, are Pizza Hut, Domino's Pizza, Papa John's, Pizza Go Go.
On the basis of an analysis of the company - having analyzed these ten factors, the intermediate
mode should be the most suitable for the company. In particular, as the best-known global
franchise fast-food businesses, such as McDonald's, Pizza Hut, Subway, franchising would be the
best choice for the New York Pizza.
4

Intermediate mode, also known as contractual mode, consents the company to share control,
knowledge, skills and risk between the partners and to split the ownership. It consist of a variety
of arrangements, such as licensing, franchising, management contracts, joint ventures, contract
manufacturing, turnkey contracting, and leasing. As the name already suggests, these entry
modes are based on specific contracts between two or more different companies doing business.
Particularly, compared to licensing, franchising is more developed form and it involves the
franchisor providing business concept, branding, concepts, expertise, skills and knowledge that
are necessary to operate in an overseas market, to the franchisee. Consequently a compensation
which is called royalties will be charged. In addition, by adopting franchising system the company
could perceive different advantages and different disadvantages which is summarized in the
following table:
Advantages Disadvantages
• Rapid expansion of a distribution network
• Requires less amounts of capital to a
distribution system
• Access to better talent
• Reduces the cost of compliance related to
local legal requirements for operating a
retail business (tax)
• The risk of business failure is reduced
• Less control over managers, other
franchisees could give the brand a bad
reputation
• Overhead and ongoing administrative
costs can be a significant problem
• Not flexible over longer periods to adjust
when the environments change rapidly
• Harder to innovate
• Weak core community
Furthermore, franchising can be operate directly and indirectly. In the direct system, the
franchisor controls and coordinates directly the franchisees' activities in the host country. On the
other hand, in the indirect system, there is a master franchisee which is appointed to control and
assist its franchisees which are part of subsystem.
In the case of New York Pizza, the firm is operating with franchising system (with its advantages)
in the Netherlands and in Germany, therefore it is nature that in order to enter in a new market
successfully, franchising would be the most suitable choice for the company. Especially, the direct
franchising mode would be the best entry mode for New York Pizza. Due to the direct access to
local resources and knowledge, the company can monitor franchisees in the host country, and
subsequently it also has control over the foreign market operations. Furthermore, compared to
the master franchise system the franchisor can better evaluate and support the franchisees.
5

Bibliography
• Assignment 1 – Screening process for New York Pizza.
• S.Hollensen. (6Th
ed. 2014). Global marketing. Pearson
• Selden, Gipson, Parker. (3rd
ed. 2008). An Introduction to franchising. Briggs and Morgan.
• James Williams, Demand Media. Advantages and Disadvantages of Product Differentiation.
Retrieved from http://smallbusiness.chron.com/advantages-disadvantages-product-
differentiation-66126.html
• Domino's Pizza Homepage. https://www.dominos.co.uk/
• New York Pizza Homepage. https://www.newyorkpizza.nl/
• OECD Better life index. http://www.oecdbetterlifeindex.org/topics/education/
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