PP5/6

• Profitable (economically affordable) product

  • Positive contribution margin per single unit
  • Creates volumes that cover any traceable fixed cost and offer a further contribution to cover common fixed costs
• Contribution margin

  Price - Variable cost per unit
• Contribution margin < 0

  Shut the business down
• Contribution margin < fixed costs

  Reduce size or increase price
• Ways of entering a market based on risk

  • Exporting
  • Licensing
  • Joint venture/strategic alliance
  • Franchising
  • Wholly owned subsidiary
• Ways of entering a market

  • From lower risky to higher risky
  • The greater the risk, the greater the advantages can be but also possibility of failure
• Exporting

  • Action taken by a firm to send produced goods and service from the home country to another country
  • Most frequent method of internationalisation and simple and common
  • Reason: firms need experimental knowledge and to expand their sales in order to create economies of scale by scaling up
• Exporting

  • Direct exporter
  • Indirect exporter
• Top 10 exporters in the world

  • 3 are in the automotive industry: Toyota, BMW, Tesla
• Licensing

  • A contractual mode of entry where a company grants a foreign one the right too use some or all of its intangible properties
  • The licensor is paid by royalty fees, lots has to do with bargaining power and its easy way to enter a market
  • Same reasons for licensing as exporting
• Licensing

  • Speedy way to enter a foreign market
  • Marketing of the brand
  • Can be used as a halfway step to a harder entry
  • Difficulties in monitoring the presence
  • Limited knowledge of the culture
  • Essential to have a great amount of bargaining power
• Franchising

  • A franchisor is a firm that undertakes to transfer a business concept that is has developed, with corresponding operational guidelines, to a non domestic party, for a fee (the franchisee)
  • Responsible for improving the product, has little or no power to modify the concept, high level of trust between the parties, they're gonna do a background check
• Franchising

  • Speedy way to enter a foreign market
  • Requires moderate resources commitment
  • Setting up policy that are usually non negotiable
  • If mismanaged, can damage the reputation
  • Sometimes it's hard to control, as you don't own the business
  • Essential to have a great amount of bargaining power
• Joint venture

  • An enterprise formed by two companies, with an entity operating toward its wish to broaden its activity for the purpose of creating a new profit-motivated permanent business
  • Commonly used as a mean to compete in multi-domestic product, exploiting the cultural knowledge of one party and the financial stability of another party
  • It allows small businesses to be competitive with bigger businesses
• Joint venture

  • Reduce political risk
  • Technology transfer
  • Access to different technologies
  • Resources and market
  • Competitive advantage
  • Actors are able to learn from one another
  • Actors still limit access to own proprietary skills
  • Share the risk of the entire operation
  • Two different subjects with two different objectives
  • Performance ambiguity: how to split the pie?
  • Principal-agent theory
• Wholly owned subsidiary

  • A company entirely owned by its parent in a foreign country
  • Most expensive method to enter a market, most lucrative
  • Requires the greater commitment, a riskier
  • Two options: Greenfield investment (entirely building up a new subsidiary) or Acquisition (acquisition of a local asset)