Svend Hollensen

GLOBAL MARKETING
4th Edition

Lecture by Ali Agha MBA., MSc., MIET., MMAP.

Intermediate entry modes

Lysholms Linie Aquavit is exported to Sweden, Norway, Denmark, Germany, and the US

Source: http://linie-aquavit.com

Hollensen, Global Marketing 4e, Pearson Education 2008

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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

Hollensen, Global Marketing 4e, Pearson Education 2008

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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 customers Foreign production costs are low Transportation costs may render heavy products non-competitive Tariffs can prevent entry of an exporters products Government preference for national suppliers

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Benettons 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 process Manufacturing know-how not subject to a patent Technical advice and assistance Marketing advice and assistance Use 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 equity Management and technical fees Complex 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 selection
Source: http://www.kabooki.com/

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McDonalds is among the best known global franchise businesses

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

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Interdependence between franchisor-franchisee

Franchisor-franchisee Fast growth Capital infusion Income stream Community goodwill Franchisee-franchisor Trade mark strength Technical advice Support services Marketing resources Advertising

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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 collaboration Downstream-based collaboration Upstream/downstream-based collaboration

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Figure 11.4 Collaboration possibilities in the value chain

Research and development Sales and services

Production

Marketing

Upstream
1 Upstream

3 2

Downstream
Downstream

Research and development

Production

Marketing

Sales and services

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 evaluation
Source: 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

Developing and diffusing technology

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Factors to consider during the cost/benefit analysis

Financial commitment Synergy Management commitment Risk reduction Control Long-run market penetration

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Desirable partner resources

Development know-how
Sales and service expertise Critical manufacturing capabilities Low-cost production facilities Reputation/brand equity

Market access/knowledge
cash
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Sources of potential conflict

Diverging goals Double management Repatriation of profits Mixing cultures Shared equity Developing trust Providing 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?

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