Modes of Entry into International Markets

PGBM
ASSIGNMENT
MADE BY:
APARNA SAPRA
MBA-IB (SEC-F)
ROLL NO. : 1610F51
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
Example: PEPSICO
The Pepsi Cola company has began in 1898 by CALAB BRADHAM It became known as
Pepsico when it merged with FRITO LAY in 1965.
It is one of the American multinational company It’s head quarter is at Purchase, ,US It is
manufacturing and marketing a wide variety corbonated, non-corbonated formal drinks &
snacks Indra krishnamurthy Nooyi is the present C.E.O
ENTRY MODE : JOINT VENTURE- PEPSICO AND PUNJAB GOVT. (Punjab Agro
Industrial Corporation)
Pepsico entered into India in 1988 by creating a joint venture with the Punjab govt. and
it’s owned Punjab Agro Industrial Corporation(PAIC) & Voltas India Ltd This joint
venture marketed and sold Lehar pepsi until 1991,when the use of foreign brands was
allowed Pepsico bought out it’s partners and ended the joint venture in 1994.
A few Pepsico products in India:

• PEPSI
• MOUNTAIN DEW
• AQUAFINA
• 7UP
• SLICE
• MIRINDA
• TROPICANA
• LAY’S
• KURKURE
STRATEGY:
The choice of market entry depends on the organizations corporate strategy

and the extent , depth and geographical coverage of its present and intended foreign
operation . PepsiCo should first evaluate the political ,economic , social and technological
environment in determining whether it is viable to undertake any investment . Joint
venture allow sharing of cost risk , technology and expertise and generate high return
compared to licensing or franchising furthermore it can be used where outright take
over is not allowed . More over there is improved relation with the local
government . Therefore PepsiCo had use joint venture.
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
61 Articles of apparel, accessories, knit or crochet
72 Iron and steel
62 Articles of apparel, accessories, not knit or crochet
90 Optical, photo, technical, medical, etc apparatus
94 Furniture, lighting, signs, prefabricated buildings
95 Toys, games, sports requisites
64 Footwear, gaiters and the like, parts thereof
89 Ships, boats and other floating structures
Example:
COCA-COLA: INTRODUCTION
Coca-Cola is a carbonated soft drink sold in stores, restaurants, and vending machines
internationally. The Coca-Cola Company claims that the beverage is sold in more than
200 countries. It is produced by The Coca-Cola Company in Atlanta, Georgia, and is often
referred to simply as Coke (a registered trademark of The Coca-Cola Company in the
United States since March 27, 1944). Originally intended as a patent medicine when it was
invented in the late 19th century by John Pemberton, Coca-Cola was bought out by
businessman Asa Griggs Candler, whose marketing tactics led Coke to its dominance of
the world soft-drink market throughout the 20th century.
The company produces concentrate, which is then sold to licensed Coca-Cola bottlers
throughout the world. The bottlers, who hold territorially exclusive contracts with the
company, produce finished product in cans and bottles from the concentrate in
combination with filtered water and sweeteners. The bottlers then sell, distribute and
merchandise Coca-Cola to retail stores and vending machines. Such bottlers include Coca-
Cola Enterprises, which is the largest single Coca-Cola bottler in North America and
western Europe. The Coca-Cola Company also sells concentrate for soda fountains to
major restaurants and food service distributors.
The Coca-Cola Company has, on occasion, introduced other cola drinks under the Coke
brand name. The most common of these is Diet Coke, with others including Caffeine-Free
Coca-Cola, Diet Coke Caffeine-Free, Coca-Cola Cherry, Coca-Cola Zero, Coca-Cola
Vanilla, and special editions with lemon, lime or coffee.
In response to consumer insistence on a more natural product, the company is in the

process of phasing out E211, or sodium benzoate, the controversial additive used in Diet
Coke and linked to DNA damage in yeast cells and hyperactivity in children. The
company has stated that it plans to remove E211 from its other products, including Sprite
and Oasis, as soon as a satisfactory alternative is found.
COCA COLA ENTRY MODE IN CHINA
Given China’s enormous population and relatively high growth rate of real GDP (about nine
per cent on average since 1979), the country has long been viewed as an important market
with great potential for many of the world’s giant MNCs, including the carbonated cola
producers Coca-Cola and Pepsi-Cola. To achieve unprecedented market accessibility, Coca-
Cola utilized different modes of market entry over three different stages of operation after
1979. A brief outline of these three stages is as follows.
• During the first stage (1979-84), Coca-Cola sold concentrate to its franchised
Chinese-owned bottlers. Its local market agents were fully responsible for production
and distribution. Market agents were opportunistic in running the bottling business
because they wanted to focus on their bottom lines. This limited the expansion of
Coca-Cola’s market share.
• During the second stage (1985-92), Coca-Cola bought equity shares in the bottling
businesses to reduce the effect of uncertainty and to restrict the opportunistic
behaviour of its local partners.
• During the third stage (1993-present), Coca-Cola teamed up with two foreign bottlers,
the Kerry group and the Swire group, under a franchise agreement. Apart from
internalizing management control, Coca-Cola also internalized procurement
transactions and the labour section of its bottling business by localizing its
management team and upstream suppliers. The synergistic effect appeared to be high,
and it brought revenue-enhancing and cost-reducing benefits to the company.
In 1992, there were about ten Coca-Cola bottling plants in the form of JVs, in which
Coca-Cola only had minority shares. In eight years, eighteen new JVs were established.
Coca-Cola has majority stakes (directly or indirectly) in all twenty-eight bottling plants.
STRATEGY:
To expand themselves worlwide and as China has a large poplulation so it would be

profitable to enter into this market.
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
02 Meat and edible meat offal
72 Iron and steel
12 Oil seed, oleagic fruits, grain, seed, fruit, etc, nes
17 Sugars and sugar confectionery
88 Aircraft, spacecraft, and parts thereof
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
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
Example:
PEPSICO – INTRODUCTION
PepsiCo, Incorporated (NYSE: PEP) is a Fortune 500, American multinational

corporation headquartered in Purchase, New York, with interests in manufacturing and
marketing a wide variety of carbonated and non-carbonated beverages, as well as salty,
sweet and cereal-based snacks, and other foods. Besides the Pepsi brands, the company
owns the brands Quaker Oats, Gatorade, Frito-
Lay, SoBe, Naked, Tropicana, Copella, Mountain Dew,Mirinda and 7 Up (outside the
USA).
PepsiCo offers the world's largest portfolio of billion-dollar food and beverage brands,
including 18 different product lines that each generate more than $1 billion in annual retail
sales. Our main businesses - Frito-Lay, Quaker, Pepsi-Cola, Tropicana and Gatorade - also
make hundreds of other nourishing, tasty foods and drinks that bring joy to our consumers
in over 200 countries. With more than $43 billion in 2008 revenues, PepsiCo employs
198,000 people who are united by our unique commitment to sustainable growth, called
Performance with Purpose
ENTRY MODE: ACQUISITION
PEPSICO aquires Amacoco Nordeste Ltda. and Amacoco Sudeste Ltda. (Amacoco),
Brazil's largest coconut water company.
The agreement is the most recent step in PepsiCo's strategic transformation of its
beverage portfolio and marks the company's entry into the fast-growing market for
coconut water, a source of natural hydration popular in Brazil and dozens of other
countries.
Amacoco makes and sells Brazil's top-selling coconut water brands, Kero Coco and Trop
Coco, which are highly regarded by consumers as healthy, refreshing hydration drinks.
Together they account for the bulk of packaged coconut water sales in the country, making
PepsiCo the category leader.
"We're delighted to welcome Amacoco into the PepsiCo family," said Massimo d'Amore,
chief executive officer of PepsiCo Americas Beverages (PAB).
STRATEGY:
• Amacoco is an outstanding company that Pepsico have known and admired for a
long time. Amacoco will complement their current business and enhance the
growth prospects throughout Latin America and beyond. Even in the nascent U.S.
market, coconut water sales are enjoying extraordinary growth.
• Combining Amacoco's expertise in naturally-healthy coconut water with PepsiCo's

strong brand portfolio and R&D capabilities creates the potential for very exciting
product innovation. This transaction also brings a process for ensuring a level of
product quality and consistency -- from raw coconut to finished product -- that
most other coconut water brands cannot match.
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
71 Pearls, precious stones, metals, coins, etc
68 Stone, plaster, cement, asbestos, mica, etc articles
54 Manmade filaments
72 Iron and steel
33 Essential oils, perfumes, cosmetics, toileteries
25 Salt, sulphur, earth, stone, plaster, lime and cement
94 Furniture, lighting, signs, prefabricated buildings
88 Aircraft, spacecraft, and parts thereof
Example : STARBUCKS
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
72 Iron and steel
31 Fertilizers
44 Wood and articles of wood, wood charcoal
75 Nickel and articles thereof
74 Copper and articles thereof
28 Inorganic chemicals, precious metal compound, isotopes
10 Cereals
25 Salt, sulphur, earth, stone, plaster, lime and cement
48 Paper & paperboard, articles of pulp, paper and board
Example : MC DONALDS
ENTRY MODE: FRANCHISING
McDonald’s mode of entry in foreign Market and Expansion Strategy
McDonalds enter in the foreign market through direct selling its product in its private
outlets. It may be called as a specialty product producer. Product being produced, sold,
&promoted by its own self. This mode of entry requires McDonalds to have deep study of
the market in which it is planning to go.
McDonalds expands its operations through franchising. Franchising is a hybrid
manner of expanding and organizing the business by establishing a relationship of agency
with the franchisees. Franchising involves the convergence of a parent company and
several small businesses. The parent company sells to the smaller businesses the right to
distribute its products or use its trade name and processes. A contract governs the agency
relationship established between the parent company and the franchisees. The franchise
contract defines the conditions of the agency and the duration of the relationship.
Company Management and Marketing Strategies
Organizational culture is the concept that guides the operations of McDonalds.

McDonalds operates according to four values: quality, service, convenience and value.
Organizational culture is part of the knowledge and information transmitted by
McDonalds to the franchisees in other countries. Part of organizational culture is the
delivery of uniform quality of food and service wherever the branch is located. The good
reputation of the company and the expectation of an excellent service no matter which
branch people eat is a marketing strategy of Mc Donalds. McDonalds sets a standard
applicable to all its branches worldwide. However, the company also gives leeway for
innovation by allowing the branches to integrate culture into food and service increasing
market share.

Modes of Entry into International Markets

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PGBM

5. Wholly Owned Subsidiary

6. Mergers & Acquisitions

• Franchising is basically a specialized form of licensing in which the franchisor not

A few Pepsico products in India:

The choice of market entry depends on the organizations corporate strategy

In response to consumer insistence on a more natural product, the company is in the

To expand themselves worlwide and as China has a large poplulation so it would be

PepsiCo, Incorporated (NYSE: PEP) is a Fortune 500, American multinational

ENTRY MODE: ACQUISITION

• Combining Amacoco's expertise in naturally-healthy coconut water with PepsiCo's

Starbucks entered in UAE in licence with M.H. ALSHAYA CO. W.L.L.

2. UAE residents’ unquenchable caffeine indulgence has undoubtedly shielded the

ENTRY MODE: FRANCHISING

McDonald’s mode of entry in foreign Market and Expansion Strategy

Company Management and Marketing Strategies

Organizational culture is the concept that guides the operations of McDonalds.

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