market entry strategies part 2

Market Entry Strategies- Part 2

Dhruv Sooddhruvmax@gmail.com

Licensing

DISNEY CASE STUDY

DISNEY PDF

• Licensing is an agreement that permits foreign company to use Its– Property – Patent , Trademark and copy rights – Technical Know how and Skills – Feasibility

studies , manuals , technical advice. – Licensor allows either manufacturing or sale in

different countries.

Licensing

Why License

• Trade barriers • When capital is scare • When import restriction discourages direct

entry • When country is sensitive to foreign

ownership.• Where transportation cost is very high

compared to product value .

Advantages:

• Quick and Easy way to enter the market.• It can Spread –R&D Costs and Investment cost • Will receive incremental income with only negligible expense • Protects company from expiry of the patent or trade mark

cancellation.• Company can avoid substantial risk and other difficulties with

licensing. Example Disney gets risk free royalties of $500 Million only from Disney Tokyo. Theme park is owned by Keisei Electric Railway and Mitsui.

– Disney Gets 10% of Gate revenue – 5% from Sales of food items and merchandise .

Disadvantages• With reduced risk come reduced profits . It may be

the least profitable as entry strategy.• Nurturing a competitor in Future – Some one who is

gaining technical and product knowledge. Texas instruments sued many Japanese Manufactures for Memory Chip

• When Licensee performs poorly ,it can be difficult to terminate the contact and may be difficult to enter directly.

• Inconsistent Product Quality can harm product world wide

• Loss of Prestige related to product when some times manufactured locally under a license.

• Licensing terms should be carefully drafted– Product & Territorial coverage– Length of contract – Quality control– Grant Back & Cross Licensing – Royalty Rate & Structure– Choice of Currency – Choice of law– Never Assign a Trade Mark to a licensor. – Never Over License : Example Pierre Cardin allowed 800 products– Under license leads profit being lost.

• Brand Licensing : Coca Cola has licensed its brand name to more than 3000 products which are marketed by 200 licensees in 30 countries .

• Licensing of services.• Licensing in Drug Industry Manufacturing.

Management Contract

Reasons for choosing an Accor management contract for your hotelWith more than 2000 directly-managed hotels (including owned, leased and managed hotels), Accor's experience in this sector is unique.Operational excellence that will guarantee that you enjoy the highest margins and earnings.Innovative and, above all, efficient distribution systems will bring more customers to your hotel and improve your average room rate, while reducing your agency commission costs.Le Club Accorhotels loyalty program, which has over 10 million members, will attract new customers and encourage existing customers to come back more often.A sales force that will let you position yourself in all market segments (leisure and business), attract all types of customer (individuals and key accounts) and operate in all high-potential markets specific to your hotel.Referenced suppliers who will guarantee a level of quality, price and delivery as if you were an Accor Group subsidiary.By choosing a management contract with Accor, you are choosing efficiency, quality and profitability.

Management Contract

• Operational control of an enterprise is vested by contract in a separate enterprise which performs the necessary managerial functions in return for a fee.

• Involve not just selling a method of doing things (as with franchising or licensing) but involve actually doing them.

• Can involve a wide range of functions, – technical operation of a production facility, management of

personnel, accounting, marketing services and training.

• MC is used as entry strategy with Minimum Investment and Minimum Political Risk .

• Management Contracts are common in Hotel Industry.

Manufacturing

• Ford In Russia : Open Ford Case .• Market Entry Strategy involving all or some

manufacturing in a foreign country• Helps keep prices down. Save on customs

Duty• Scale up as markets demand go up

• Central Europe became hub for manufacturing . Eastern Europe had lower wages compared to Western Europe.

• These countries attracted FDI to create JOBS • Some Countries gave Tax Holidays Like : Czech

Republic give 10 year Tax Holiday. Taiwan’s Foxconn Technologies Co. & China Sichuan Changhong TV manufacturer. They saved 14 Tariff imposed by EU on TV produced in China

Manufacturing – Sourcing

• Manufacturing operations in Host Country not to sell but Purpose of Exporting from Host Country.

• This can be done with Complete Manufacturing to Contract manufacturing to partial manufacturing

Backward Vertical Integration Strategy

• Vertical integration describes when a company purchases or starts a company that it either buys from or sells to and integrates this new business into its own. Backward vertical integration can be a part of a company's strategy due to the competitive benefits it provides.

• A Simple, Hypothetical Example• an ice cream company that buys a dairy farm. The company

requires milk to make ice cream and either can buy milk from a dairy farm or other milk supplier or could own the dairy farm itself. This ensures that it will have a steady supply of milk at its disposal and that it will pay a reasonable price. This can protect the ice cream maker in the event that there are several other buyers vying for the same milk supply.

• Freedom of Intercompany payments • Dividend Remittances • Import Duty Concessions • Tax Holidays • Guarantees against Expropriation

Labor Cost

• Manufactures should pay attention to Absolute as well as Relative Changes in Labor Costs.– Should consider factor as low wage– Should consider factor that wages increase is slow.– Consider Productivity of Labor Skilled or unskilled.

• But it is only one of the Factors. Need to consider the Mix and then conclude cost of production.

• Importance of Cheap , unskilled labor in Attracting Manufacturing Investments have been Diminishing .

Assembly Operations

• Part of Components are Produced in Various Countries to gain advantage of each country comparative advantage.

• Capital Intensive parts are produced in Advance nations . Labor intensive assemblies in less developed.

• Assembly operations allows company products to enter many markets without being subjected to Tariff and Quotas. But Countries have there Localization Norms. Like Italy : 45% product should be Produced Locally to be termed as “ Made in Italy”.

• Screwdriver assembly of imported parts : If products local content is less than half , then it is viewed as Imported Product and Subjected to Tariff and Quota restrictions.

Turnkey Operations

• Agreement between Seller to Supply a buyer with a facility fully equipped and ready to operate by BUYERS PERSONEL

• A turnkey business is a business that includes everything you need to immediately start running the business.

• A product or service which can be implemented or utilized with no additional work required by the buyer

Indirect Strategies Case Study: Coffee

Exporting

• Comparative Advantage• Without any marketing or production

organization overseas , exports product from Home Base.

• Advantage – Ease of Implementation– Minimal Risks – International Marketing efforts are at the lowest.– Most common approach for small firms.

Disadvantage If Product is not modified for the market , it can

become a problem. If home country currency is strong , export

become a problem. If currencies remain strong for long period of time can poses problems for exporting country.

1970 , Swiss Franc become very strong so couldn’t export to USA . Swiss companies had to resort to investing abroad.