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Chapter 9 Global Market Entry Strategies: Licensing

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Chapter 9 Global Market Entry Strategies: Licensing, Investment, and Strategic Alliances * * * Licensing is a contractual arrangement whereby one company (the ... – PowerPoint PPT presentation

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Title: Chapter 9 Global Market Entry Strategies: Licensing


1
Chapter 9 Global Market Entry Strategies
Licensing, Investment, and Strategic Alliances
2
  • 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.

3
  • 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.

4
  • 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.

5
  • 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

6
  • 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.

7
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.
8
Deciding How to Enter the Market
9
Which Strategy Should Be Used?
  • It depends on
  • Vision
  • Attitude toward risk
  • Available investment capital
  • How much control is desired

10
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

11
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

12
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?

13
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

14
Investment
  • Partial or full ownership of operations outside
    of home country
  • Foreign direct investment
  • Forms
  • Joint ventures
  • Minority or majority equity stakes
  • Outright acquisition

15
Joint Ventures
  • Entry strategy for a single target country in
    which the partners share ownership of a newly
    created business entity

16
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

17
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.
18
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

19
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

20
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

21
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

22
Beyond Strategic Alliances
  • Next stage of evolution of the strategic alliance
  • Super-alliance
  • Virtual corporation

23
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