1. Intermediate entry modes
Lecture by Ewa Baranowska-Prokop, Ph.D.
Intermediate entry modes

2. Lysholm’s Linie Aquavit is exported to Sweden, Norway, Denmark, Germany, and the US
Source:

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

4. 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

5. 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

6. Figure 11.1 Intermediate modes

7. What is this? Contract manufacturing
_____ is the term used to refer to manufacturing which is outsourced to an external partner, one that specializes in production and production technology.
There follows an explanation of some key terms:
Coordinate its marketing activities: coordinating and integrating marketing strategies and implementing them across global markets, which involves centralization, delegation, standardization and local responsiveness.
Find global customer needs: this involves carrying out international marketing research and analysing market segments, as well as seeking to understand similarities and differences in customer groups across countries.
Satisfy global customers: adapting products, services and elements of the marketing mix to satisfy different customer needs across countries and regions.
Being better than the competition: assessing, monitoring and responding to global competition by offering better value, low prices, high quality, superior distribution, great advertising strategies or superior brand image.
Contract manufacturing

8. 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 exporter’s products
Government preference for national suppliers

9. Benetton’s use of contract manufacturing
Benetton relies upon a contractual network of small overseas manufacturers

10. What is this?
What term refers to the exchange of rights, such as manufacturing rights, to another in exchange for payment?
There follows an explanation of some key terms:
Coordinate its marketing activities: coordinating and integrating marketing strategies and implementing them across global markets, which involves centralization, delegation, standardization and local responsiveness.
Find global customer needs: this involves carrying out international marketing research and analysing market segments, as well as seeking to understand similarities and differences in customer groups across countries.
Satisfy global customers: adapting products, services and elements of the marketing mix to satisfy different customer needs across countries and regions.
Being better than the competition: assessing, monitoring and responding to global competition by offering better value, low prices, high quality, superior distribution, great advertising strategies or superior brand image.
Licensing

11. 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

12. Components of royalty fees
Lump sum not related to output
Minimum royalty
Running royalty

13. Other methods of licensing payments
Conversion of royalties to equity
Management and technical fees
Complex systems of counter purchase

14. 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

15. 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

16. Figure 11.2 Life cycle benefits of licensing

17. What is this? Franchising
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?
There follows an explanation of some key terms:
Coordinate its marketing activities: coordinating and integrating marketing strategies and implementing them across global markets, which involves centralization, delegation, standardization and local responsiveness.
Find global customer needs: this involves carrying out international marketing research and analysing market segments, as well as seeking to understand similarities and differences in customer groups across countries.
Satisfy global customers: adapting products, services and elements of the marketing mix to satisfy different customer needs across countries and regions.
Being better than the competition: assessing, monitoring and responding to global competition by offering better value, low prices, high quality, superior distribution, great advertising strategies or superior brand image.
Franchising

18. Types of Franchising Business Product and format trade name ‘package’

19. 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:

20. McDonald’s is among the best known global franchise businesses
Source:

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

22. Key success factors in the franchisor-franchisee relationship
Integrity of
business system
Capacity for
renewal of
business system

23. What is this? Joint venture
What term refers to an equity partnership between two or more partners?
There follows an explanation of some key terms:
Coordinate its marketing activities: coordinating and integrating marketing strategies and implementing them across global markets, which involves centralization, delegation, standardization and local responsiveness.
Find global customer needs: this involves carrying out international marketing research and analysing market segments, as well as seeking to understand similarities and differences in customer groups across countries.
Satisfy global customers: adapting products, services and elements of the marketing mix to satisfy different customer needs across countries and regions.
Being better than the competition: assessing, monitoring and responding to global competition by offering better value, low prices, high quality, superior distribution, great advertising strategies or superior brand image.
Joint venture

24. 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

25. Figure 11.3 Joint ventures
Parent
firm A
Parent
firm B
Joint venture C

26. Figure 11.3 Strategic alliances
Parent
firm A
Parent
firm B

27. Types of value chain partnerships
Upstream-based collaboration
Downstream-based collaboration
Upstream/downstream-based collaboration

28. Figure 11.4 Collaboration possibilities in the value chain
Research
and development
Production
Marketing
Sales
and services
Upstream Downstream 3 1 2
Upstream Downstream
Research
and development
Production
Marketing
Sales
and services
Source: Source: Adapted from Lorange and Roos, 1995, p. 16.

29. What is this? Y-coalitions
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?
There follows an explanation of some key terms:
Coordinate its marketing activities: coordinating and integrating marketing strategies and implementing them across global markets, which involves centralization, delegation, standardization and local responsiveness.
Find global customer needs: this involves carrying out international marketing research and analysing market segments, as well as seeking to understand similarities and differences in customer groups across countries.
Satisfy global customers: adapting products, services and elements of the marketing mix to satisfy different customer needs across countries and regions.
Being better than the competition: assessing, monitoring and responding to global competition by offering better value, low prices, high quality, superior distribution, great advertising strategies or superior brand image.
Y-coalitions

30. What is this? X-coalitions
Which type of value chain partnership involves each partner in the value chain dividing the value chain activities between them?
There follows an explanation of some key terms:
Coordinate its marketing activities: coordinating and integrating marketing strategies and implementing them across global markets, which involves centralization, delegation, standardization and local responsiveness.
Find global customer needs: this involves carrying out international marketing research and analysing market segments, as well as seeking to understand similarities and differences in customer groups across countries.
Satisfy global customers: adapting products, services and elements of the marketing mix to satisfy different customer needs across countries and regions.
Being better than the competition: assessing, monitoring and responding to global competition by offering better value, low prices, high quality, superior distribution, great advertising strategies or superior brand image.
X-coalitions

31. Stages in joint-venture formation
1: Joint venture objectives
2: Cost/benefit analysis
3: Partner selection
Fundamentally, there are four ways of using information to create business value
(Marchand, 1999):
1 Managing risks. In the twentieth century the evolution of risk management stimulated the growth of functions and professions such as finance, accounting, auditing and controlling. These information-intensive functions tend to be major consumers of IT resources and people’s time.
2 Reducing costs. Here the focus is on using information as efficiently as possible to achieve the outputs required from business processes and transactions. This process view of information management is closely linked with the re-engineering and continuous improvement movements of the 1990s. The common elements are focused on eliminating unnecessary and wasteful steps and activities, especially paperwork and information movements, and then simplifying and, if possible, automating the remaining processes.
3 Offering products and services. Here the focus is on knowing one’s customers, and sharing information with partners and suppliers to enhance customer satisfaction. Many service and manufacturing companies focus on building relationships with customers and on demand management as ways of using information. Such strategies have led companies to invest in point-of-sale systems, account management, customer profiling and service management systems.
4 Inventing new products. Finally, companies can use information to innovate – to invent new products, provide different services and use emerging technologies. Companies such as Intel and Microsoft are learning to operate in ‘continuous discovery mode’, inventing new products more quickly and using market intelligence to retain a competitive edge. Here, information management is about mobilizing people and collaborative work processes to share information and promote discovery throughout the company.
4: Business plan development
5: Joint-venture agreement
6: Contract writing
7: Performance evaluation
Source: Source: Adapted from Young et al., 1989, p. 233.

32. Principle objectives for forming a joint venture
Entering
new markets
Reducing
manufacturing
costs
Developing
and
diffusing
technology

33. Factors to consider during the cost/benefit analysis
Financial commitment
Synergy
Management commitment
Risk reduction
Control
Long-run market penetration

34. Desirable partner resources
Development know-how
Sales and service expertise
Critical manufacturing capabilities
Low-cost production facilities
Reputation/brand equity
Market access/knowledge
cash

35. Sources of potential conflict
Diverging goals
Double management
Repatriation of profits
Mixing cultures
Shared equity
Developing trust
Providing an exit strategy

36. 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?

37. 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?

38. 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

39. 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?