PGBM

ASSIGNMENT

MADE BY:

APARNA SAPRA

MBA-IB (SEC-F)

ROLL NO. : 1610F51

MODES OF ENTRY INTO INTERNATIONAL MARKETS

The decision of how to enter a foreign market can have a significant impact on the results.

Expansion into foreign markets can be achieved via the following four mechanisms:

Exporting

Licensing

Joint venture

Franchising

Turnkey Operations

Wholly Owned Subsidiary

Mergers & Acquisitions

1. Export / Import

• Export

– Selling products and services in other markets of the world

• Import

– Buying products and services from other markets of the world

– Eg: Sony TV, Matsushita VCR, Samsung memory chips.

2. Licensing

Agreement where licensor grants rights to a firm (licensee) in host country to

produce or sell a product for a specific period of time & receives ‘royalty’

Low cost way to exploit foreign market

Licensing Arrangement

Responsibility of Licensor

Gives the license to use a patent, trademark or proprietary

information

Responsibility of Licensee

Pays royalty

Fuji-Xerox

Coca Cola-Logos on garments

AT&T licensed the technology to produce circuits to Texas Instruments.

3. Joint Ventures

• Joint Venture: two or more partners own or control a business

– Cross marketing arrangements

– Technology sharing agreements

– Production contracting deals

– Equity arrangements

• Types of Joint ventures

– Non equity venture : one group providing service for another

– Equity Venture : financial investment by MNC in business of local partner

4. Turnkey Operations

• Contractor agrees to handle every detail of project for foreign client and handover

the ‘key’ when ready for operation

• Advantages:

– Can earn a return on knowledge asset.

– Less risky than conventional FDI.

• Disadvantages:

– No long-term interest in the foreign country.

– May create a competitor.

– Selling process technology may be selling competitive advantage as well.

5. Wholly Owned Subsidiary

• In a wholly owned subsidiary, the firm owns 100 percent of the stock

Firms can establish a wholly owned subsidiary in a foreign market:

• setting up a new operation in the host country

• acquiring an established firm in the host country.

6. Mergers & Acquisitions

• Outright purchase of a running company abroad or an amalgamation with a

running foreign company

• Advantages

– Quick to execute – instant presence in foreign market

– Preempt the competitors

– Less risky than green field ventures

• Disadvantages

– Clash of interest

7. Franchising

• Franchising is basically a specialized form of licensing in which the franchisor not

only sells intangible property to the franchisee, but also insists that the franchisee

agree to abide by strict rules as to how it does business

• Example:

• Sony Ericsson

• Fuji Xerox

INDIA

The economy of India is the eleventh largest economy in the world by nominal GDP and

the fourth largest by purchasing power parity (PPP). Following strong economic reforms

from the socialist inspired economy of a post-independence Indian nation, the country

began to develop a fast-paced economic growth, as free market principles were initiated in

1990 for international competition and foreign investment. India is an emerging economic

power with a very large pool of human and natural resources, and a growing large pool of

skilled professionals. Economists predict that by 2020,India will be among the leading

economies of th India's large service industry accounts for 55% of the country's Gross

Domestic Product (GDP) while the industrial and agricultural sector contribute 28% and

17% respectively. Agriculture is the predominant occupation in India, accounting for

about 52% of employment. The service sector makes up a further 34%, and industrial

sector around 14%. The labor force totals half a billion workers. Major agricultural

products include rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes, cattle, water

buffalo, sheep, goats, poultry and fish Major industries include telecommunications,

textiles, chemicals, food processing, steel, transportation equipment, cement, mining,

petroleum, machinery, information technology enabled services.etc

PRODUCT BASKET

00 All industries27 Mineral fuels, oils, distillation products, etc71 Pearls, precious stones, metals, coins, etc72 Iron and steel84 Boilers, machinery; nuclear reactors, etc29 Organic chemicals26 Ores, slag and ash85 Electrical, electronic equipment73 Articles of iron or steel87 Vehicles other than railway, tramway62 Articles of apparel, accessories, not knit or crochet30 Pharmaceutical products52 Cotton61 Articles of apparel, accessories, knit or crochet10 Cereals99 Commodities not elsewhere specified39 Plastics and articles thereof

23 Residues, wastes of food industry, animal fodder89 Ships, boats and other floating structures63 Other made textile articles, sets, worn clothing etc74 Copper and articles thereof

Product – Whole bean coffee, Boxed tea, Made-to-order beverages, Bottled beverages, Baked goods, Merchandise, Frappuccino beverages and Smoothies

Example: PEPSICO

The Pepsi Cola company has began in 1898 by CALAB BRADHAM It became known as

Pepsico when it merged with FRITO LAY in 1965.

It is one of the American multinational company It’s head quarter is at Purchase, ,US It is

manufacturing and marketing a wide variety corbonated, non-corbonated formal drinks &

snacks Indra krishnamurthy Nooyi is the present C.E.O

ENTRY MODE : JOINT VENTURE- PEPSICO AND PUNJAB GOVT. (Punjab Agro

Industrial Corporation)

Pepsico entered into India in 1988 by creating a joint venture with the Punjab govt. and

it’s owned Punjab Agro Industrial Corporation(PAIC) & Voltas India Ltd This joint

venture marketed and sold Lehar pepsi until 1991,when the use of foreign brands was

allowed Pepsico bought out it’s partners and ended the joint venture in 1994.

A few Pepsico products in India:

PEPSI

MOUNTAIN DEW

AQUAFINA

7UP

SLICE

MIRINDA

TROPICANA

LAY’S

KURKURE

STRATEGY:

The choice of market entry depends on the organizations corporate strategy

and the extent , depth and geographical coverage of its present and intended foreign

operation . PepsiCo should first evaluate the political ,economic , social and technological

environment in determining whether it is viable to undertake any investment . Joint

venture allow sharing of cost risk , technology and expertise and generate high return

compared to licensing or franchising furthermore it can be used where outright take

over is not allowed . More over there is improved relation with the local

government . Therefore PepsiCo had use joint venture.

CHINA

The People's Republic of China is the world's second largest economy after the United

States by both nominal GDP and purchasing power parity. Although per capita output

remains at $6,567 or 98th in 2009, it touts itself as the world's fastest-growing major

economy, with an average growth rate of 10% for the past 30 years. As such, it remains

the world's second most attractive investment destination after the United States with

foreign direct investment projected to reach $100 billion this year while enthroning itself

as the fifth largest investing nation worldwide, the largest among developing nations.

The emerging economy is the second largest trading nation in the world and the largest

exporter and second largest importer of goods. decades to come, the GDP per capita

following and growing.

PRODUCT BASKET

00 All industries

85 Electrical, electronic equipment

84 Boilers, machinery; nuclear reactors, etc

61 Articles of apparel, accessories, knit or crochet

72 Iron and steel

62 Articles of apparel, accessories, not knit or crochet

73 Articles of iron or steel

90 Optical, photo, technical, medical, etc apparatus

94 Furniture, lighting, signs, prefabricated buildings

87 Vehicles other than railway, tramway

95 Toys, games, sports requisites

27 Mineral fuels, oils, distillation products, etc

39 Plastics and articles thereof

64 Footwear, gaiters and the like, parts thereof

29 Organic chemicals

89 Ships, boats and other floating structures

Product – Whole bean coffee, Boxed tea, Made-to-order beverages, Bottled beverages,

Baked goods, Merchandise, Frappuccino beverages and Smoothies

Example:

COCA-COLA: INTRODUCTION

Coca-Cola is a carbonated soft drink sold in stores, restaurants, and vending machines

internationally. The Coca-Cola Company claims that the beverage is sold in more than

200 countries. It is produced by The Coca-Cola Company in Atlanta, Georgia, and is often

referred to simply as Coke (a registered trademark of The Coca-Cola Company in the

United States since March 27, 1944). Originally intended as a patent medicine when it was

invented in the late 19th century by John Pemberton, Coca-Cola was bought out by

businessman Asa Griggs Candler, whose marketing tactics led Coke to its dominance of

the world soft-drink market throughout the 20th century.

The company produces concentrate, which is then sold to licensed Coca-Cola bottlers

throughout the world. The bottlers, who hold territorially exclusive contracts with the

company, produce finished product in cans and bottles from the concentrate in

combination with filtered water and sweeteners. The bottlers then sell, distribute and

merchandise Coca-Cola to retail stores and vending machines. Such bottlers include Coca-

Cola Enterprises, which is the largest single Coca-Cola bottler in North America and

western Europe. The Coca-Cola Company also sells concentrate for soda fountains to

major restaurants and food service distributors.

The Coca-Cola Company has, on occasion, introduced other cola drinks under the Coke

brand name. The most common of these is Diet Coke, with others including Caffeine-Free

Coca-Cola, Diet Coke Caffeine-Free, Coca-Cola Cherry, Coca-Cola Zero, Coca-Cola

Vanilla, and special editions with lemon, lime or coffee.

In response to consumer insistence on a more natural product, the company is in the

process of phasing out E211, or sodium benzoate, the controversial additive used in Diet

Coke and linked to DNA damage in yeast cells and hyperactivity in children. The

company has stated that it plans to remove E211 from its other products, including Sprite

and Oasis, as soon as a satisfactory alternative is found.

COCA COLA ENTRY MODE IN CHINA

Given China’s enormous population and relatively high growth rate of real GDP (about nine

per cent on average since 1979), the country has long been viewed as an important market

with great potential for many of the world’s giant MNCs, including the carbonated cola

producers Coca-Cola and Pepsi-Cola. To achieve unprecedented market accessibility, Coca-

Cola utilized different modes of market entry over three different stages of operation after

1979. A brief outline of these three stages is as follows.

During the first stage (1979-84), Coca-Cola sold concentrate to its franchised

Chinese-owned bottlers. Its local market agents were fully responsible for production

and distribution. Market agents were opportunistic in running the bottling business

because they wanted to focus on their bottom lines. This limited the expansion of

Coca-Cola’s market share.

During the second stage (1985-92), Coca-Cola bought equity shares in the bottling

businesses to reduce the effect of uncertainty and to restrict the opportunistic

behaviour of its local partners.

During the third stage (1993-present), Coca-Cola teamed up with two foreign bottlers,

the Kerry group and the Swire group, under a franchise agreement. Apart from

internalizing management control, Coca-Cola also internalized procurement

transactions and the labour section of its bottling business by localizing its

management team and upstream suppliers. The synergistic effect appeared to be high,

and it brought revenue-enhancing and cost-reducing benefits to the company.

In 1992, there were about ten Coca-Cola bottling plants in the form of JVs, in which

Coca-Cola only had minority shares. In eight years, eighteen new JVs were established.

Coca-Cola has majority stakes (directly or indirectly) in all twenty-eight bottling plants.

STRATEGY:

To expand themselves worlwide and as China has a large poplulation so it would be

profitable to enter into this market.

BRAZIL

The Economy of Brazil is the world's eighth largest economy by nominal GDP and ninth

largest by purchasing power parity. Brazil has moderately free markets and an inward-

oriented economy. Its economy is the largest among all South American nations and the

second largest in the western hemisphere. Brazil is one of the fastest-growing major

economies in the world with an average annual GDP growth rate of 5%. In Reais

(Brazilian currency), its GDP is estimated at R$ 2.9 trillion dolars in 2009. The Brazilian

economy has been predicted to become one of the five largesteconomies in the world.

PRODUCT BASKET

00 All industries

27 Mineral fuels, oils, distillation products, etc

87 Vehicles other than railway, tramway

26 Ores, slag and ash

84 Boilers, machinery; nuclear reactors, etc

02 Meat and edible meat offal

72 Iron and steel

12 Oil seed, oleagic fruits, grain, seed, fruit, etc, nes

85 Electrical, electronic equipment

17 Sugars and sugar confectionery

88 Aircraft, spacecraft, and parts thereof

99 Commodities not elsewhere specified

09 Coffee, tea, mate and spices

23 Residues, wastes of food industry, animal fodder

44 Wood and articles of wood, wood charcoal

47 Pulp of wood, fibrous cellulosic material, waste etc

76 Aluminium and articles thereof

39 Plastics and articles thereof

29 Organic chemicals

20 Vegetable, fruit, nut, etc food preparations

24 Tobacco and manufactured tobacco substitutes

41 Raw hides and skins (other than furskins) and leather

28 Inorganic chemicals, precious metal compound, isotopes

10 Cereals

64 Footwear, gaiters and the like, parts thereof

40 Rubber and articles thereof

15 Animal,vegetable fats and oils, cleavage products, etc

Product – Whole bean coffee, Boxed tea, Made-to-order beverages, Bottled beverages,

Baked goods, Merchandise, Frappuccino beverages and Smoothies

Example: PEPSICO – INTRODUCTION

PepsiCo, Incorporated (NYSE: PEP) is a Fortune 500, American multinational

corporation headquartered in Purchase, New York, with interests in manufacturing and

marketing a wide variety of carbonated and non-carbonated beverages, as well as salty,

sweet and cereal-based snacks, and other foods. Besides the Pepsi brands, the company

owns the brands Quaker Oats, Gatorade, Frito-

Lay, SoBe, Naked, Tropicana, Copella, Mountain Dew,Mirinda and 7 Up (outside the

USA).

PepsiCo offers the world's largest portfolio of billion-dollar food and beverage brands,

including 18 different product lines that each generate more than $1 billion in annual retail

sales. Our main businesses - Frito-Lay, Quaker, Pepsi-Cola, Tropicana and Gatorade - also

make hundreds of other nourishing, tasty foods and drinks that bring joy to our consumers

in over 200 countries. With more than $43 billion in 2008 revenues, PepsiCo employs

198,000 people who are united by our unique commitment to sustainable growth, called

Performance with Purpose

ENTRY MODE : ACQUISITION

PEPSICO aquires Amacoco Nordeste Ltda. and Amacoco Sudeste Ltda. (Amacoco),

Brazil's largest coconut water company.

The agreement is the most recent step in PepsiCo's strategic transformation of its

beverage portfolio and marks the company's entry into the fast-growing market for

coconut water, a source of natural hydration popular in Brazil and dozens of other

countries.

Amacoco makes and sells Brazil's top-selling coconut water brands, Kero Coco and Trop

Coco, which are highly regarded by consumers as healthy, refreshing hydration drinks.

Together they account for the bulk of packaged coconut water sales in the country, making

PepsiCo the category leader.

"We're delighted to welcome Amacoco into the PepsiCo family," said Massimo d'Amore,

chief executive officer of PepsiCo Americas Beverages (PAB).

STRATEGY:

Amacoco is an outstanding company that Pepsico have known and admired for a

long time. Amacoco will complement their current business and enhance the

growth prospects throughout Latin America and beyond. Even in the nascent U.S.

market, coconut water sales are enjoying extraordinary growth.

Combining Amacoco's expertise in naturally-healthy coconut water with PepsiCo's

strong brand portfolio and R&D capabilities creates the potential for very exciting

product innovation. This transaction also brings a process for ensuring a level of

product quality and consistency -- from raw coconut to finished product -- that

most other coconut water brands cannot match.

UAE

There are various deviating estimates regarding the actual growth rate of the nation’s

GDP, however all available statistics indicate that the UAE currently has one of the fastest

growing economies in the world. According to a recent report by the Ministry of Finance

and Industry, nominal GDP rose by 35 per cent in 2006 to $175 billion, compared with

$130 billion in 2005. Although the United Arab Emirates is becoming less dependent on

natural resources as a source of revenue, petroleum and natural gas exports still play an

important role in the economy, especially in Abu Dhabi. A massive construction boom, an

expanding manufacturing base, and a thriving services sector are helping the UAE

diversify its economy. Nationwide, there is currently $350 billion worth of active

construction projects. The UAE is a member of the World Trade Organization.

PRODUCT BASKET

00 All industries

27 Mineral fuels, oils, distillation products, etc

99 Commodities not elsewhere specified

71 Pearls, precious stones, metals, coins, etc

87 Vehicles other than railway, tramway

84 Boilers, machinery; nuclear reactors, etc

85 Electrical, electronic equipment

68 Stone, plaster, cement, asbestos, mica, etc articles

39 Plastics and articles thereof

54 Manmade filaments

73 Articles of iron or steel

72 Iron and steel

40 Rubber and articles thereof

33 Essential oils, perfumes, cosmetics, toileteries

76 Aluminium and articles thereof

25 Salt, sulphur, earth, stone, plaster, lime and cement

94 Furniture, lighting, signs, prefabricated buildings

88 Aircraft, spacecraft, and parts thereof

Product – Whole bean coffee, Boxed tea, Made-to-order beverages, Bottled beverages,

Baked goods, Merchandise, Frappuccino beverages and Smoothies

Example : STARBUCKS

Starbucks entered in UAE in licence with M.H. ALSHAYA CO. W.L.L.

The Alshaya Group is currently divided into four business divisions:

1. Real Estate Alshaya Retail covers a wide variety of sectors, including the latest and best

recognized names in Fashion, Footwear, Kid's clothing, Health and Beauty, Homestyle,

Casual Dining, Prescription Eyewear, Pharmaceuticals, Sports fashion and Office

Supplies.

2. Hotels : including the Kuwait Sheraton (www.sheraton-kuwait.com) and the Medina

Oberoi, Saudi Arabia

3. Automotive : includes the exclusive dealerships of Mazda and Peugeot, in Kuwait, as

well as distributing Michelin tyres and Mobil lubricants

Strategy:

1. Coffee has deep roots in many cultures of the Middle East and several GCC nations are

encouraging entrepreneurial diversification into food and beverage businesses to reduce

their future economic reliance on petroleum. This combination bodes well for the future of

specialty coffee in the region.

Eg- Organizers in Dubai are gearing up for the 2nd annual Middle East Coffee & Tea

Conference, which is also the site of the official UAE Barista Championship. Having

attended and presented at last year’s inaugural conference, I can say firsthand that the

event is an important educational opportunity and market linkage for the fledgling

specialty coffee industry in the Gulf region.

2. UAE residents’ unquenchable caffeine indulgence has undoubtedly shielded the

country’s coffee retail sector from the financially-crippling effects of the credit crunch,

industry sources told Alrroya.com.

In fact, coffee franchises and roasted coffee bean suppliers even saw their businesses

expand in 2009 – at a time when the penny-pinching trend had likely reached its peak as

consumers curtail their expenses amid looming job insecurity.

“We have made zero redundancies,” says Eric Hughes, General Manager of Costa Coffee-

UAE, who added that they poured substantial investments into recruitment and staff

training in order to continue providing “a great customer experience.”

US coffee chain giant Starbucks paid special attention to the UAE with regard to its

regional expansion plan, opening 17 of its 26 new Middle East stores last year in the

Emirates, a company spokesperson has confirmed.

Seattle’s Best also increased its UAE portfolio by nearly 50 per cent while a Dunkin'

Donuts executive said the takeaway and dine-in sales figures in their outlets did not

experience any slowdown in 2009.

Coffee bean suppliers to some of the country’s major restaurants as well as four- and five-

star hotels have also reported resilience to the downturn. Asked if the crisis had any effect

on their operations, Justin Clarke, CEO and founder of Orbis Coffee Roastery, said:

“None whatsoever.”

“We have seen a strong move away from imported coffees to high quality locally-roasted

produce. As we currently import from more than 20 countries, including Yemen and

Nepal, we have been able to find a roast to suit most palettes and businesses,” Clarke said.

Orbis currently supplies freshly roasted coffee to over 100 locations across the UAE.

RUSSIA

The economy of Russia is the twelfth largest economy in the world by nominal value and

the seventh largest by purchasing power parity (PPP). Russia has an abundance of natural

gas oil, coal, and precious metals. It is also rich in agriculture. Russia has undergone

significant changes since the collapse of the Soviet Union, moving from a globally-

isolated, centrally-planned economy to a more market-based and globally-integrated

economy. Economic reforms in the 1990s privatized most industry, with notable

exceptions in the energy and defense-related sectors. Nonetheless, the rapid privatization

process, including a much criticized "loans-for-shares" scheme that turned over major

state-owned firms to politically-connected "oligarchs", has left equity ownership highly

concentrated. The protection of property rights is still weak and the private sector remains

subject to heavy state interference.

PRODUCT BASKET

00 All industries

27 Mineral fuels, oils, distillation products, etc

99 Commodities not elsewhere specified

72 Iron and steel

31 Fertilizers

76 Aluminium and articles thereof

44 Wood and articles of wood, wood charcoal

84 Boilers, machinery; nuclear reactors, etc

75 Nickel and articles thereof

74 Copper and articles thereof

29 Organic chemicals

28 Inorganic chemicals, precious metal compound, isotopes

85 Electrical, electronic equipment

10 Cereals

87 Vehicles other than railway, tramway

73 Articles of iron or steel

40 Rubber and articles thereof

26 Ores, slag and ash

25 Salt, sulphur, earth, stone, plaster, lime and cement

48 Paper & paperboard, articles of pulp, paper and board

Product – Whole bean coffee, Boxed tea, Made-to-order beverages, Bottled beverages,

Baked goods, Merchandise, Frappuccino beverages and Smoothies

Example : MC DONALDS

ENTRY MODE: FRANCHISING

McDonald’s mode of entry in foreign Market and Expansion Strategy

McDonalds enter in the foreign market through direct selling its product in its private

outlets. It may be called as a specialty product producer. Product being produced, sold,

&promoted by its own self. This mode of entry requires McDonalds to have deep study of

the market in which it is planning to go.

McDonalds expands its operations through franchising. Franchising is a hybrid

manner of expanding and organizing the business by establishing a relationship of agency

with the franchisees. Franchising involves the convergence of a parent company and

several small businesses. The parent company sells to the smaller businesses the right to

distribute its products or use its trade name and processes. A contract governs the agency

relationship established between the parent company and the franchisees. The franchise

contract defines the conditions of the agency and the duration of the relationship.

Company Management and Marketing Strategies

Organizational culture is the concept that guides the operations of McDonalds.

McDonalds operates according to four values: quality, service, convenience and value.

Organizational culture is part of the knowledge and information transmitted by

McDonalds to the franchisees in other countries. Part of organizational culture is the

delivery of uniform quality of food and service wherever the branch is located. The good

reputation of the company and the expectation of an excellent service no matter which

branch people eat is a marketing strategy of Mc Donalds. McDonalds sets a standard

applicable to all its branches worldwide. However, the company also gives leeway for

innovation by allowing the branches to integrate culture into food and service increasing

market share.