How to enter a new market Value chain decisions Partnership decisions

The value chain Devised by Porter (1980) to analyse what happens inside companies Kotler (1996) ‘competition today is not between companies but between networks of value-delivery systems … the winner will be the company that has the better network’ Terpstra ‘configuring the value-added chain’ - which activities to do yourself and which to pay someone else to do. ‘Make or Buy? ’

The Value Added Chain Terpstra and Sarathy Manufacture Assembly Retailing Design Components Distribution Marketing Where does your expertise lie? Where can you add most value to the product? Where can the activities be done the cheapest? Where can you sell at the highest profit Where are the gaps in the market?

Partnership Decisions (entry mode) Indirect export –sales in home market to foreign buyers –export management companies Direct export –foreign distributors –local sales agents –marketing subsidiary Foreign production –assembly –contract manufacturing –licensing –joint venture –acquisition –new ‘greenfield’ start-up

Licensing Any deal to allow exclusive rights to use knowledge, image, brand name, expertise e.g. recipe for food or drink character licensing e.g. Harry Potter

Franchise Licensing a business format ‘an agreed blue-print for the business’ Franchisor supplies Brand name Method of production or service Training Quality standards Franchisee supplies Capital to buy franchise and premises Management Ownership Reduces the risk of foreign operation Circumvents limits on foreign ownership Risk to reputation if quality standards not enforced Could train a future competitor

Management Contract International firm runs a locally-owned business Turn-key project International firm builds/sets up business then sells/leases it to a local operator

Which method to chose? (Kotler) Hollensen, S Global Marketing 2000 IndirectDirectContractualJointWholly-owned Commitment, risk, control, profit potential Externalised Export modes Intermediate Contractural modes Internalised Hierarchical Investment modes

Factors affecting choice of entry mode Internal factors –firm size, international experience –product complexity, advantages –‘tacit know-how’ (transferability of expertise) Policy preferences –reduce risk –retain control –flexibility (v commitment)

External factors Socio-cultural distance Country risk factors Market size and potential Direct and indirect trade barriers Intensity of competition Availability of intermediaries/partners

The Reebok case Draw a diagram of the value-added chain for trainers –who performs each activity? –what type of partnership? –where is it performed? –why? –where is the most value added? Why? Apart from the brand-owners and their contractors, who are the other stakeholders?

Who is responsible for the poor conditions of the workers? Who could do something about it? Why don’t they? What strategies could a Finnish shoe-maker adopt to compete with these global chains?

The value-added chain in leisure Draw a value-chain diagram for Disney theme parks a tour-operator Sony (music/film/software/hardware etc) a sports promoter What are the stages, how do they add value, who owns them?