Global Market Entry Strategies

Presenting

Franchising Foreign Direct Investment Licensing

Global Market Entry Strategy

Franchise

“A franchise operation is a contractual relationship between the franchisor and franchisee in which the franchisor offers or is obliged to maintain a permanent interest in the business of the franchisee in such areas as know-how and training; wherein the franchisee operates under a common trade name, format and/or procedure owned or controlled by the franchisor, and in which the franchisee has or will make a substantial capital investment in his business from his own resources.”

- Definition by International Franchise Association

Types of Franchises

Product distribution franchise.

Business format franchise. Management franchise.

A product distribution franchise model is very much like a supplier-dealer relationship.

Typically, the franchisee merely sells the franchisor’s products. However, this type of franchise will also include some form of integration of the business activities.

Product distribution franchises

Product Distribution Franchises

Business format franchising

In a business format franchise, the integration of the business is more complete.

The franchisee not only distributes the franchisor’s products and services under the franchisor’s trade mark, but also implements the franchisor’s format and procedure of conducting the business.

Business Format Franchises

Business format franchising

outlet in Sale, Australia

outlet in Marseille, France

Management franchise

A form of service agreement.

The franchisee provides the management expertise, format and/or procedure for conducting the business.

Management Franchises

Benefits of Buying a Franchise

Management training and support. Brand name appeal. Standardized quality. National advertising. Financial assistance. Proven products and business formats. Centralized buying power. Site selection and territorial protection. Greater chance of success.

Drawbacks of Buying a Franchise

Franchise fees and ongoing royalties. Strict adherence to standardized operations. Restrictions on purchasing. Limited product line. Contract terms and renewal. Less freedom.

Global Market Entry Strategy

Foreign Direct Investment

It refers to purchase or establishment of production facilities in foreign countries which represents a more direct involvement in the local economy and a long term relationship.

It can be :Establishing a wholly owned subsidiary or company.Acquiring share in an associated company.Though a merger or an acquisition of a company.Through an equity joint venture with a company or investor.

Example

Types of FDI

Three types of FDI: Horizontal FDI: Doing the same business in abroad. Vertical FDI: Different stages of business are added in

abroad. Conglomerate FDI: Unrelated business is added in abroad.

Example:

Inflow of FDI in Bangladesh

% of FDI in 2013 (Bangladesh)

FDI Inflows from Major Countries to Bangladesh

Advantages of FDI

Economic growth Create employment Improved product standard Access to global market

Disadvantages of FDI

Dominate the market Domestic uncompetitive firms may suffer Capital intensive technology Effect on environment

Global Market Entry Strategy

Licensing

A license is a contract through which one party grants another permission to use its patents, trademarks, copyrights, designs or trade secrets.

The organization receiving the license, or licensee, compensates the licensor by paying a flat fee, royalties or a combination of the two.

The agreement does not transfer ownership of the intellectual property.

Set-up, Control and Support

By licensing to third parties, small business owners can expand their businesses' reach and grow sales without having to invest in new locations or distribution networks, and risking failure.

Set-up, Control and Support

A licensing agreement can be drafted and completed in as little as a week.

In a licensing agreement though, the licensor usually does not retain much control over how the licensee may operate.

Unless otherwise specified, licensees can use the licensed property in whichever way they choose.

World’s Largest Licensor

Examples

Examples of licenses include a company using the design of a popular character, e.g. Mickey Mouse, on their products. Another example would be a clothing manufacturer like Life is Good licensing its designs and brand in a certain country to a local company. It can also apply to the use of software, e.g. a company using Microsoft Office on its computers.

Examples

Advantages

A license allows the licensee to use, make and sell an idea, design, name or logo for a fee. They are advantageous for licensors because they allow them to expand their business’ reach without having to invest in new locations and distribution networks.

Advantages and Disadvantages

Brand Recognition Revenue Competition Confidentiality

Things to consider

Anyone selling a license should ensure that their Intellectual Property is protected by law and specify what rights it grants the licensee.

Exclusivity and Competition

Licensors can sometimes license their intellectual property to two or more organizations operating in the same geographic region or market forcing licensees to compete directly with one another.