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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 industries
27 Mineral fuels, oils, distillation products, etc
71 Pearls, precious stones, metals, coins, etc
72 Iron and steel
84 Boilers, machinery; nuclear reactors, etc
29 Organic chemicals
26 Ores, slag and ash
85 Electrical, electronic equipment
73 Articles of iron or steel
87 Vehicles other than railway, tramway
62 Articles of apparel, accessories, not knit or crochet
30 Pharmaceutical products
52 Cotton
61 Articles of apparel, accessories, knit or crochet
10 Cereals
99 Commodities not elsewhere specified
39 Plastics and articles thereof
23 Residues, wastes of food industry, animal fodder
89 Ships, boats and other floating structures
63 Other made textile articles, sets, worn clothing etc
74 Copper and articles thereof

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


beverages, Baked goods, Merchandise, Frappuccino beverages and Smoothies
Eg- Starbucks alliance with Jubilant foodworks.
Starbucks, the world’s largest retailer of coffee, has revived its plans for India and has
begun talks with Shyam and Hari Bhartia-controlled Jubilant Group for a possible
alliance, two persons familiar with the development said. Jubilant Foodworks, part of
Delhi-based Jubilant Group, is the India franchisee for Domino’s, the pizza chain. The
group’s flagship is Jubilant Organosys, a leading contract manufacturer of
pharmaceutical products.

Strategy:
Organised coffee retailing is a niche but growing segment in India. Industry officials
said the size of the segment, which is dominated by unlisted companies, is around Rs
500-600 crore.

The major players in India include two franchisees of overseas coffee retailers. These
are Barista owned by Italian chain Lavazza that bought a controlling stake in the
coffee retailer from C Sivasankaran, the Chennai-based entrepreneur and UK-based
Costa Coffee for which RJ Corp — owned by Pepsi bottler Ravi Jaipuria — is the
exclusive licensee.

India allows foreign investors to own 51% in single-brand retail which would
encompass coffee chains such as Barista. Lavazza’s exact equity holding in Barista is
not in the public domain.

Cafe Coffee Day, owned by entrepreneur VG Siddhartha and which has PE firms
among its shareholders, is another major player in this segment.

These chains have been thriving on rising demand from India’s increasing upwardly
mobile middle class and youth, for whom hanging around in a coffee shop is still
aspirational.
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

Eg: Starbucks: License with Mai da coffee co. in Beijing (china)


In Shanghai, Starbucks joint venture with shanghai president coffee co. with 5%
stake.

1. Mai da coffee co.


Founded in 1995, Beijing Meida Coffee Co., Ltd. is a Sino-Foreign joint venture
company. It is the authorized licensee in Beijing and Tianjin for Starbucks Coffee
International Co.,Ltd.,
2. Shanghai president coffee co.
Shanghai President Coffee Co. engages in the ownership and operation of restaurants.
The company was founded in 2000 and is based in Shanghai, China. Shanghai
President Coffee Co. is a subsidiary of Starbucks Coffee International, Inc. and Uni-
President Group.
Strategy:

1. Coffee is Chinese medicine : A HEALTH BEVERAGE

2. Total volume sales of coffee in China grew by nearly 90% between 1998 and 2003,
to 6,504.5 tonnes. Domestic production of coffee beans also expanded rapidly.

3. Coffee consumption - a cosmopolitan lifestyle


Coffee is a Western concept to most Chinese consumers, who associate it with
Western lifestyles. Unsurprisingly, coffee consumption in China is highly
concentrated in large cities such as Beijing, Shanghai and Guangzhou. Coffee
appeals to adventurous, open-minded, young, affluent, urban consumers. These
consumers are more exposed to Western influences and tend to look up to
Western lifestyles. Manufacturers have targeted Westernised young professionals
as the main target market for coffee. The key issue is how to convince these
consumers that coffee is a beverage to be drunk regularly rather than just a
passing fad.

4. Another large consumer group, which influences the coffee consumption, is


returnees. China has seen an influx of returnees (mainland Chinese students
returning from Western countries) over the last five years. Many of these
returnees have lived in Western countries for a decade and they have become
accustomed to the coffee culture.

5. China doubled its on-trade coffee consumption between 1998-2003. This is a


mostly urban phenomenon with most rural areas largely untapped. On-trade sales of
coffee mainly go through three types of establishments: coffee shops/cafés
(independent and chained), Internet cafés and fast food restaurants. Euromonitor’s
figures show that chained coffee shops, such as Starbucks and Manabe (Japanese style
café), saw spectacular growth in unit sales, up by 814% between 1999 and 2003.
Starbucks stands as a statement of modern lifestyles and affluence in today’s China.
The company has opened over 90 outlets in the country.

However, Starbucks faces increasing competition from other foreign players. China’s
accession to the WTO has led to the gradual relaxation of the policy governing
foreign owned retail outlets, and will lead to more foreign investment and new market
entrants. The reduction of import tariffs on coffee will also encourage foreign
investment in coffee.
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
Eg: Starbucks Brazil through the acquisition of Cafés Sereia
Starbucks Corporation announced today that it has assumed 100 percent ownership
and operating control of Starbucks Brazil through the acquisition of Cafés Sereia do
Brasil Participações S.A. Converting the market to a company-operated business
allows Starbucks to focus on the enormous opportunity in Brazil .

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

Eg: 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

Eg: License with Mega Khimki in Russia


In September 2007, Starbucks successfully entered the Russian market through
its opening first Starbucks at shopping center "Mega Khimki" in Moscow. Second
location was opened in December, 2007 in the historical center of the city on Arbat
street.
The layout and atmosphere of Starbucks stores is specifically designed to be cosy and
intimate, while at the same time providing people with their own personal space to
use as they wish. The combination of sofas, armchairs, coffee tables and chairs, bars
and stools, and meeting room tables means that there is something for everyone.

Strategy:

1. This boom in coffee shops has exposed Russians to the coffee-drinking culture,
which is expected to stimulate retail sales for fresh coffee, as consumers look to
recreate the coffee shop experience at home. Seeing this trend, producers of instant
coffee are holding back plans to establish new manufacturing facilities in Russia.
Initially, a few manufacturers built production lines in Russia in order to reduce the
import costs associated with instant coffee. However, the burgeoning fresh coffee
trend has encouraged many to revise their plans to establish their own local
production facilities.

2. Euromonitor International forecasts great potential for fresh coffee in Russia in the
next five years. Currently, per capita retail volume sales stand at a modest 100 grams
in Russia, whereas in the UK per capita volume sales are 200 grams and in France,
2900 grams.

Euromonitor International’s research forecasts that the fresh coffee industry will
grow by an impressive 36% in volume terms and 41% in value terms between 2004
and 2009. Key drivers of this growth are expected to be the positive impact of the
continued expansion of the coffee shop industry and increasing consumer awareness
of fresh coffee. As the foodservice industry in the largest cities is already established,
foodservice entrepreneurs are now looking for opportunities in the provinces, which
could translate into growth on an even larger scale.