Chapter 9 Global Market Entry Strategies: Licensing

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Chapter 9 Global Market Entry Strategies
Licensing, Investment, and Strategic Alliances
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• Central Banks Cut Rates World-Wide
• By SUDEEP REDDY and JOELLEN PERRY
  WSJ - -OCTOBER 8,
  2008, 1050 A.M. ET
• With unprecedented global coordination, six
  central banks including the Federal Reserve and
  European Central Bank cut interest rates sharply
  Wednesday in an emergency move designed to offset
  the economic damage from a deepening financial
  shock.
• The half-point rate cut, which includes action by
  central banks in the U.K., Canada, Sweden and
  Switzerland, came as stock markets around the
  world tumbled and troubles in the U.S. continued
  to infect foreign economies. The global move,
  after more than a week of speculation, came
  alongside separate rate cuts by central banks in
  China, Hong Kong and Australia over the past day.
• The Fed's reduction brought its interest-rate
  target down to 1.5, ahead of its regularly
  scheduled meeting October 28-29, as the U.S.
  economy faces the prospect of deteriorating
  significantly in the coming months due to
  credit-market turmoil.

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• Football Tries a New Play to Score Overseas
• NFL Passes the Ball to a Fictitious Online Coach,
  Hoping to Inspire Non-Americans to Take Up a Game
  Most of Them Don't Get
• By MATTHEW FUTTERMAN
  
  WSJ 09-)ct-2008
•  
• With 90,000 fans set to pack London's Wembley
  Stadium for a game between the New Orleans Saints
  and the San Diego Chargers Oct. 26, the National
  Football League might appear to be on a major
  upswing abroad. The New York Giants played the
  Miami Dolphins in last year's NFL game at
  London's Wembley Stadium.
• In fact, NFL officials say they have reached a
  crossroads in their international business, and
  are embarking on a major shift in strategy. After
  nearly two decades of losing millions of dollars
  trying to export American football, the league
  thinks it has identified its main problem
  non-Americans still don't get the game.
• "We've struggled for a long time to work out how
  you get people engaged in our game when they
  don't play it and don't understand it," said Mark
  Waller, the NFL's senior vice president for
  international affairs.
• Enter "Coach Stilo."
• Part online seminar, part situation comedy, part
  highlight film, Coach Stilo is the NFL's latest
  attempt to teach the basics of a game as foreign
  and complex to those outside the U.S. as cricket
  is to Americans.
• If non-Americans don't get football, it's
  unlikely they will buy a Tony Romo jersey, or
  even sign up for the broadcast or Internet
  packages of live games the NFL is trying to
  peddle abroad. The league doesn't release its
  international sales figures, but with a nearly
  saturated U.S. market, the foreign market is
  undoubtedly its main opportunity for growth.

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• Football Tries a New Play to Score
  Overseas
• Enter "Coach Stilo."
• Part online seminar, part situation comedy, part
  highlight film, Coach Stilo is the NFL's latest
  attempt to teach the basics of a game as foreign
  and complex to those outside the U.S. as cricket
  is to Americans.
• If non-Americans don't get football, it's
  unlikely they will buy a Tony Romo jersey, or
  even sign up for the broadcast or Internet
  packages of live games the NFL is trying to
  peddle abroad. The league doesn't release its
  international sales figures, but with a nearly
  saturated U.S. market, the foreign market is
  undoubtedly its main opportunity for growth.

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• Wary Consumers Pinch Firms in Asia, Europe
• By LEOS ROUSEK in Prague, DAN MICHAELS in
  Brussels, ED TAYLOR in Frankfurt, ANDREW OSBORN
  in Moscow and SKY CANAVES in Hong Kong

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• Central Banks Cut Rates World-Wide
  continued
• The action also marks a sharp turnaround for the
  European Central Bank, which had held its key
  rate target steady at 4.25 due to inflation
  concerns.
• The ECB's single mandate is keeping euro-zone
  prices steady, and annual inflation across the
  bloc was 3.6 in September, nearly double the
  ECB's target of just below 2.

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Introduction

• Companies need to have a strategy to enter world
  markets
• Starbucks has used direct ownership, licensing,
  and franchising for shops and products

In 2006, Starbucks had 12,000 cafes in 35
countries and sales of 7.7 billion.
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Deciding How to Enter the Market
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Which Strategy Should Be Used?

• It depends on
• Vision
• Attitude toward risk
• Available investment capital
• How much control is desired

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Licensing

• A contractual agreement whereby one company (the
  licensor) makes an asset available to another
  company (the licensee) in exchange for royalties,
  license fees, or some other form of compensation
• Patent
• Trade secret
• Brand name
• Product formulations

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Special Licensing Arrangements

• Contract manufacturing
• Company provides technical specifications to a
  subcontractor or local manufacturer
• Allows company to specialize in product design
  while contractors accept responsibility for
  manufacturing facilities
• Franchising
• Contract between a parent companyfranchisor and
  a franchisee that allows the franchisee to
  operate a business developed by the franchisor in
  return for a fee and adherence to franchise-wide
  policies

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Franchising Questions

• Will local consumers buy your product?
• How tough is the local competition?
• Does the government respect trademark and
  franchiser rights?
• Can your profits be easily repatriated?
• Can you buy all the supplies you need locally?
• Is commercial space available and are rents
  affordable?
• Are your local partners financially sound and do
  they understand the basics of franchising?

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Direct Foreign Investment and the United States

• Top Foreign Countries
• Investing in the United States
• United Kingdom
• Japan
• The Netherlands
• 2000 investment by foreign companies in U.S.
  1.2 trillion as well

• Top Target Countries
• for U.S. Investment
• United Kingdom
• Canada
• The Netherlands
• 2000 cumulative total by U.S. companies 1.2
  trillion

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Investment

• Partial or full ownership of operations outside
  of home country
• Foreign direct investment
• Forms
• Joint ventures
• Minority or majority equity stakes
• Outright acquisition

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Joint Ventures

• Entry strategy for a single target country in
  which the partners share ownership of a newly
  created business entity

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Joint Ventures

• Advantages
• Allows for sharing of risk (both financial and
  political)
• Provides opportunity to learn new environment
• Provides opportunity to achieve synergy by
  combining strengths of partners
• May be the only way to enter market given
  barriers to entry

• Disadvantages
• Requires more investment than a licensing
  agreement
• Must share rewards as well as risks
• Requires strong coordination
• Potential for conflict among partners
• Partner may become a competitor

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Global Strategic Partnerships

• Possible terms
• Collaborative agreements
• Strategic alliances
• Strategic international alliances
• Global strategic partnerships

The Star Alliance is a GSP made up of six
airlines.
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The Nature of Global Strategic Partnerships

• Participants remain independent following
  formation of the alliance
• Participants share benefits of alliance as well
  as control over performance of assigned tasks
• Participants make ongoing contributions in
  technology, products, and other key strategic
  areas

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Alliances with Asian Competitors

• Four common problem areas
• Each partner had a different dream
• Each must contribute to the alliance and each
  must depend on the other to a degree that
  justifies the alliance
• Differences in management philosophy,
  expectations and approaches
• No corporate memory

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Cooperative Strategies in Japan Keiretsu

• Inter-business alliance or enterprise groups in
  which business families join together to fight
  for market share
• Often cemented by bank ownership of large blocks
  of stock and by cross-ownership of stock between
  a company and its buyers and non-financial
  suppliers
• Keiretsu executives can legally sit on one
  anothers boards, share information, and
  coordinate prices

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Cooperative Strategies in South Korea Chaebol

• Composed of dozens of companies, centered around
  a bank or holding company, and dominated by a
  founding family
• Samsung
• LG
• Hyundai
• Daewoo

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Beyond Strategic Alliances

• Next stage of evolution of the strategic alliance
• Super-alliance
• Virtual corporation

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