WHY COMPETE INTERNATIONALLY?

WHY DO COMPANIES EXPAND INTERNATIONALLY?

Expand Markets and Increase Sales

●  By increasing sales a company can

potentially increase profit. o  Ex: M.A.C. make-up went into the U.S.

market to expand.

●  Some companies expand markets by acquiring other companies

o  Example: Estee Lauder bought 51% of interest in M.A.C.

WHY DO COMPANIES EXPAND INTERNATIONALLY?

Control Expenses

●  Companies search beyond borders to decrease their costs (better labour rate, more efficient technology, less expensive tax structures, closer proximity to natural resources etc…)

WHY DO COMPANIES EXPAND INTERNATIONALLY?

Diversification (investing in different markets) ●  By appealing to different markets, a company can increase

their sales.

●  Geographically diversifying can decrease the risk of operating in only one area (Example: one plant in California and one in France – what happens if there’s a

massive earthquake in California?)

WHY DO COMPANIES EXPAND INTERNATIONALLY?

Competitiveness ●  If the competition is operating abroad, then other companies

must follow suite in order to maximize profits.

HOW TO EXPAND INTO THE GLOBAL MARKET?

METHODS OF ACHIEVING A GLOBAL PRESENCE

Licensing Agreement: A patent or copyright owner allows another organization (person,

govn’t or company) to use their idea or invention for a fee or royalty

METHODS OF ACHIEVING A GLOBAL PRESENCE

Franchise: A type of business in which a company authorizes a group or an

individual to sell its goods or services.

METHODS OF ACHIEVING A GLOBAL PRESENCE

Establishing A Subsidiary: A company holds the majority share in another company (so “controls” it). The other company often operates under another name and might be a completely different kind of business

METHODS OF ACHIEVING A GLOBAL PRESENCE

Purchasing in Foreign Markets:

The purchasing of parts or materials from other countries for manufacturing in the home market. This is common in industries with many components: i.e. a cell phone company could get parts

from Southeast Asia.

JOINT VENTURE VS STRATEGIC ALLIANCE

Joint Ventures •  2 companies invest their money and create a 3rd, jointly owned company (a

separate legal entity) •  The joint venture can access all of the assets, knowledge, and funds from

both the companies that make it up. It can combine the best features of those companies without altering them.

•  It is a business in itself that is owned by the other two companies •  This allows companies to start a new line of business or type of product

with less of a risk; if it fails, they just bankrupt the joint venture but it doesn’t actually impact the “parent” company itself (the two “parents” that started the joint venture)

JOINT VENTURE VS STRATEGIC ALLIANCE

Strategic Alliance •  This happens when 2 companies agree to work together (plan, manage,

create) in order to achieve long-term objectives

•  Great idea when companies want to take advantage of high growth markets they don’t currently participate in and don’t have the money to acquire another company that currently is

•  This alliance comes with term agreements – only for a certain amount of time

•  Example: Facebook and Skype – Skype had been acquired by Microsoft, so now Microsoft has access to social networking and Skype got access to a huge number of users. For Facebook, it brings video calling to their site

HOW MUCH DOES IT COST TO OPEN A FRANCHISE?

Let’s say you wanted to open a Subway franchise in England… how much do you think it would cost? Take a guess… Link

FRANCHISE ACTIVITY

With a partner, pick a franchise and a country (outside of the franchise’s “base”) you would want to open it in

Research information on opening the franchise. How much would

it cost? Does it seem easy or hard? Are there any caveats (term agreements, down payments, require hands on experience or a

partnership, want it all in cash, etc)? Any insight into the country itself and how hard/easy it might be to open one there?

If you can, compare this information to opening the same

franchise in a different country. Does one country appear to be easier (or less expensive) to open in?