Introduction to Modes of Entry Research Paper

Introduction to Modes of Entry Research Paper

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Introduction to Modes of Entry Research Paper

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Companies that want to expand outside of its domestic market for various reasons, including a) to gain access to new customers, b) to lower costs through economies of scale, c) to gain access to low-cost materials, d) to build on its core competencies and e) to gain access to resources in foreign markets.

Those companies that wish to expand globally, adopt methods that are known as “modes of entry”, which are 1) Produce within home-country and export goods to foreign markets, 2) License firms to produce the products on behalf of the company in overseas markets, 3) Adopt a franchising strategy for expanding into global markets, 4) Incorporate subsidiary firms in foreign countries via acquisition and 5) rely on strategic alliances or joint ventures. (Thompson, Gamble, Peteraf, & III, 2022)

What was Netflix’s mode of entry?

A media giant such as Netflix, that has expanded to 190 countries in 7 years, adopts many modes of entry depending on the country it enters and the situational aspects of its entry. For this discussion, we will take some specific examples and attempt to generalize based on some of the most commonly used modes of entry. The most commonly used mode of entry by Netflix is to rely on strategic alliances or joint ventures.

Netflix is into online streaming industry, whereby its customers are able to sign up for its online services and watch movies, documentaries, and television shows from the comfort of their homes. In a highly competitive market where Netflix has to content with companies like Amazon Prime, Hotstar, and local streaming providers, it is important for Netflix to establish its differentiation in order to succeed. Louis of Harvard notes, “The company has partnered with key local companies to forge win-win relationships” (Brennan, 2018).

Netflix understood the need to add more local language content, including subtitles, expanding its support for range of devices and payment partnerships. Partnership with local cellphone and cable operators was critical to make Netflix more reachable to their target audience. According to Louis, “when Vodafone launched a TV service for its customers in Ireland, it included a dedicated Netflix button on its remote controls” (Brennan, 2018)

What was the entry designed to achieve?

Netflix’s entry with strategic alliances and joint ventures was designed to deliver a superior local advantage over its competition. By signing content deals with major studios on a regional or local basis, Netflix has increasingly pursued global licensing deals so that it can provide content across all of its markets at once. Netflix has also begun to source regionally produced content, providing a win-win for these producers, whose local content can find a global audience.

Aaron explains, “Finding out that local competitors had an advantage content-wise, Netflix began to partner with local production companies to create originals that would appeal to their new user base” (Aaron, 2020). Exclusivity of broadcasting rights is one of the key factors in gaining regional importance, as the audience would be attracted towards subscribing to Netflix services.

Advantages and Disadvantages of strategic alliances mode of entry

Advantages

Strategic alliances have many advantages, including a) access to unfamiliar or untapped markets, b) risk sharing, c) economies of scale and d) decreased costs. Louis of Harvard states that “Understanding local cultures ensured that Netflix could be sensitive to and respond to their differences” (Brennan, 2018). Establishing partnerships, strategic alliances and joint ventures with local experts helped Netflix quickly gain insights into the sensitive cultural aspects of each of the foreign markets.

Disadvantages

Some of disadvantages of Global Strategic alliances are a) weaker management involvement or less equity stake, b) less efficient communication, c) poor resource allocation, d) difficult to keep objectives on target over time and e) fear of market insulation due to the local partner’s presence. The lack of control when you align with another firm, is one of the bigger concerns in strategic alliances.

References

Aaron. (2020, Mar 11). The Secret Behind Netflix’s International Expansion. Retrieved from Day Translations: https://www.daytranslations.com/blog/netflix-international-expansion/

Brennan, L. (2018, Oct 12). How Netflix Expanded to 190 Countries in 7 Years. Retrieved from Harvard Business Review: https://hbr.org/2018/10/how-netflix-expanded-to-190-countries-in-7-years

Dixon, C. (2013, Jan 28). Netflix International Strategy: Facts, Strategy & Motivation. Retrieved from NScreenMedia: https://nscreenmedia.com/netflix-international-strategy-facts-strategy-motivation/

Thompson, A. A., Gamble, J. E., Peteraf, M. A., & III, A. S. (2022). Crafting and Executing Strategy: Concepts and Cases. New York: McGraw Hill.

Mukhesh Work:

Company         —          NIO                 International Market entry – Norway

NIO established itself as a premier electric vehicle company with an ecosystem of products and services that differentiates it from other electric car companies. The ecosystem includes Battery as a Service, NIO House, NIO Power, NIO lifestyle products, Battery swap stations. In the automobile industry, the growth continues only when the company establishes its presence globally.

After a successful entry into the Chinese market NIO targeted Norway as its first place in their global expansion plan. NIO’s mode of entry into Norway is to export cars manufactured in China. With an export-based entry strategy, a manufacturer can limit its involvement in foreign markets by contracting with foreign wholesalers experienced in importing to handle the entire distribution and marketing function in their countries or regions of the world (Thompson et al., 2021).

Norway became a hotspot for EV companies with its highest adoption rate. Norway has served as an example for widespread EV adoption, achieved through a combination of aggressive incentives, robust charging infrastructure, and favorable local conditions, including short average trip distances.

Battery-electric vehicles made up 54% of light-vehicle sales in Norway in 2020, compared to less than 2% for the United States (Edelstein, 2021). It is a great decision to enter into a market where the product has huge demand and create a base to expand operations to nearby countries. As the vehicles got certified for all EU countries, Norway provides a gateway for product testing with customers and builds the necessary charging and service infrastructure.

The advantages of the decision to export cars rather than manufacture in Norway are

• Protection of capital to build the swapping stations and service network as they are more important to gain market share.
• Streamline the increased production from the recently expanded home base to keep the supply and demand balance.

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The disadvantages would be

• Norway’s heavy push for EV’s resulted in a huge loss of revenue due to subsidies. They are planning to increase taxes and tariffs on imported high-end EV’s. NIO’s cars will fall under the high-end category.
• The Chinese government has huge control over every business in the country and a trade dispute could disrupt the supply chain.

References:

Edelstein, S. (2021, February 7). Because of EV adoption, Norway nearly leads the world in per-capita electricity use. Green Car Reports. Retrieved September 24, 2021, from https://www.greencarreports.com/news/1131201_because-of-ev-adoption-norway-nearly-leads-the-world-in-per-capita-electricity-use.

Thompson, A. A., Peteraf, M. A., Gamble, J., & Strickland, A. J. (2021). Crafting & Executing strategy: The quest for competitive advantage: Concepts and cases. McGraw-Hill.

Introduction to Modes of Entry Research Paper

Introduction to Modes of Entry Research Paper

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