Svend Hollensen

GLOBAL MARKETING4th Edition

Intermediate entry modes

Lecture by Ewa Baranowska-Prokop, Ph.D.

Hollensen, Global Marketing 4e, © Pearson Education 2008 10-2

Lysholm’s Linie Aquavit is exported to Sweden,

Norway, Denmark, Germany,

and the US

Source: http://linie-aquavit.com

Hollensen, Global Marketing 4e, © Pearson Education 2008 10-3

Lysholm Linie Aquavit:A case study

What are the advantages for Arcus of having distributors as part-owners?

What should be Arcus’ main criteria for

selecting new distributors or cooperation partners, for Linie Aquavit in new market?

Would it be possible to pursue an international branding strategy for Linie Aquavit?

Requires web access

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Learning objectives

Describe and understand the main intermediate entry modes

Discuss the advantages and disadvantages of the main intermediate entry modes

Explain the different stages in joint-venture formation

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Learning objectives (2)

Explore the reasons for the ‘divorce’ of the two parents in a joint-venture constellation

Explore different ways of managing a joint venture/strategic alliance

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Figure 11.1 Intermediate modes

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What is this?

_____ is the term used to refer to manufacturing which is outsourced to an external partner, one that specializes in production and production technology.

Contract manufacturing

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Factors encouraging foreign market production

Desirability of being close to foreign customersForeign production costs are lowTransportation costs may render heavy products

non-competitiveTariffs can prevent entry of an exporter’s

productsGovernment preference for national suppliers

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Benetton’s use of contract manufacturing

Benetton relies upon a contractual network of small overseas manufacturers

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What is this?

What term refers to the exchange of rights, such as manufacturing rights, to another in exchange for payment?

Licensing

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Rights that may be offered in a licensing agreement

Patent covering a product or processManufacturing know-how not subject to a

patentTechnical advice and assistanceMarketing advice and assistanceUse of a trade mark/trade name

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Components of royalty fees

Lump sum not related to output

Minimum royalty

Running royalty

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Other methods of licensing payments

Conversion of royalties to equityManagement and technical feesComplex systems of counter purchase

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Motives for licensing out (1)

Licensor firm will remain technologically superior in its product development

Licensor is too small to have financial, managerial or marketing expertise for overseas investment

Product is at end of product life cycle in advanced countries but stretching product life cycle is possible in less developed countries

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Motives for licensing out (2)

Opportunity for profit on key components Government regulations may restrict

foreign direct investment or, if political risks are high, licensing may be only realistic entry mode

Constraints may be imposed on imports

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Figure 11.2 Life cycle benefits of licensing

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What is this?

What term refers to the exchange of rights between a franchisor and franchisee, such as the right to use a total business concept including use of trade marks, against some agreed royalty?

Franchising

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Types of Franchising

Product and trade name franchising

Business format

‘package’franchising

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Business format ‘packages’

Trade marks/ trade names/ designs

Patents and copyrights

Business know-how/ trade secrets

Geographic exclusivity

Store design

Market research

Location selectionSource: http://www.kabooki.com/

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McDonald’s is among the best known

global franchise businesses

Source: http://www.mcdonalds.com/

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Interdependence between franchisor-franchisee

Franchisor-franchiseeFast growthCapital infusionIncome streamCommunity goodwill

Franchisee-franchisorTrade mark strengthTechnical adviceSupport servicesMarketing resourcesAdvertising

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Key success factors in the franchisor-franchisee relationship

Integrity of business system

Capacity for renewal of

business system

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What is this?

What term refers to an equity partnership between two or more partners?

Joint venture

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Reasons for using joint ventures

Complementary technology or management skills can lead to new opportunities

Firms with partners in host countries can increase speed of market entry

Less developed countries may restrict foreign ownership

Costs of global operations in R&D and production can be shared

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Figure 11.3 Joint ventures

Parent firm

A

Parent firm

B

Joint venture C

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Figure 11.3 Strategic alliances

Parent firm

A

Parent firm

B

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Types of value chain partnerships

Upstream-based collaborationDownstream-based collaborationUpstream/downstream-based collaboration

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Figure 11.4 Collaboration possibilities in the value chain

Research and development

Production Marketing Sales

and services

Upstream Downstream

Research and development

Production Marketing Sales

and services

Upstream Downstream

13

2

Source: Source: Adapted from Lorange and Roos, 1995, p. 16.

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What is this?

Which type of value chain partnership involves each partner contributing complementary product lines or services, with each partner taking care of all value chain activities within their own product line?

Y-coalitions

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What is this?

Which type of value chain partnership involves each partner in the value chain dividing the value chain activities between them?

X-coalitions

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Stages in joint-venture formation

1: Joint venture objectives

2: Cost/benefit analysis

3: Partner selection

4: Business plan development

5: Joint-venture agreement

6: Contract writing

7: Performance evaluationSource: Source: Adapted from Young et al., 1989, p. 233.

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Principle objectives for forming a joint venture

Entering new markets

Reducing manufacturing

costs

Developingand

diffusingtechnology

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Factors to consider during the cost/benefit analysis

Financial commitmentSynergyManagement

commitment

Risk reductionControlLong-run market

penetration

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Desirable partner resources

Development know-how

Sales and service expertise

Low-cost production facilities

Critical manufacturing capabilities

Reputation/brand equity

Market access/knowledge

cash

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Sources of potential conflict

Diverging goalsDouble managementRepatriation of profitsMixing cultures

Shared equityDeveloping trustProviding an exit

strategy

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For discussion (1)

Why are joint ventures preferred by host countries as an entry strategy for foreign firms?

Why are strategic alliances used in new product development?

Under what circumstances should franchising be considered? How do these circumstances vary from those leading to licensing?

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For discussion (2)

Do you believe that licensing in represents a feasible long-term product development strategy for a company? Discuss in relation to in-house product development.

Why would a firm consider forming partnerships with competitors?

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Marriott: A case study

What could be the main motives for Marriott in using franchising, compared to other entry modes and operation forms?

Identify several major categories of segmentation used by Marriott. For each, relate specific examples of hotel services tailored to various target markets.

Requires web access

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Skagen Designs: A case study

What screening criteria should Skagen Designs use in connection with its choice of new markets for its watch collection?

Which entry mode should Skagen Designs use on the chosen markets?

Skagen Designs has launched other product lines (e.g. sun glasses) with varying success. What should be the guidelines for including other product lines in the Skagen Designs collection?

Which criteria should SD use for its selection of future sponsor partners?