Answer the following question:

1. Discuss in brief the different modes of entering the global market.

(20 marks)
 An organization has a number of different entry modes to choose from when
it internationalizes its operations. What organizational circumstances, goals,
and objectives are best suited to the types of different entry modes should be
understood. Examples will also be given of organizations which have used
these different entry modes when going international. There is no one entry
mode that is superior to another, instead the organizations circumstances,
goals, and objectives will be best suited to a certain entry mode. An
organization’s internal resources and capabilities, and the environment of the
country of entry are other important considerations when choosing the
foreign entry mode.
Different modes of entering global market are:
1) Exporting
2) Licensing
3) Franchising
4) Contract manufacturing
5) Management Contracts
6) FDI without alliances
7) FDI with alliances
8) Joint Venture
1. Exporting
Exporting means shipping the goods and services out of the port of a country.
Seller is referred to as an "exporter".
Buyer is referred to as an "importer“.
 Forms of Exporting
• Indirect Exporting: Indirect Exporting means that the firm participates in
international business through an intermediary and does not deal with foreign
customers or markets. Indirect Exporting: Eg: Exporting of goods and services
through various home-based exporters, Manufacturers’ export agents, Export
commission agent, Export merchants and International firms.
• Direct Exporting: Direct exporting means that the firm works with foreign
customers or markets with the opportunity to develop a relationship.

2. Licensing
Licensing is when a firm, called the licensor, leases the right to use its intellectual
property, technology, work methods, patents, copyrights, brand names, or
trademarks to another firm, called the licensee, in return for a fee. The property
licensed may include:
-Patents
-Trademarks
-Copyrights
-Technology
-Technical know-how
-Specific business skills
Basic Issues in International Licensing
-Specifying the boundaries of the agreement
-Determining compensation
-Establishing rights, privileges, and constraints
-Specifying the duration of the contract
-Differences in laws and culture.
-E.g. Pepsi, Coke Bottling Plant

3. Franchising
-Under franchising, an independent organization called the franchisee operates the
business under the name of another company called the franchisor. In such an
arrangement the franchisee pays a fee to the franchisor. Franchising is a form of
Licensing but the Franchisor can exercise more control over the Franchisee as
compared to that in Licensing.
Franchising Agreements
-Franchisee has to pay a fixed amount and royalty based on sales.
-Franchisee should agree to adhere to follow the franchisor’s requirements
-Franchisor helps the franchisee in establishing the manufacturing facilities
- Franchisor allows the franchisee some degree of flexibility.
E.g.: McDonalds, Subway, KFC

4. FDI without alliances

Companies enter the international market through FDI, invest their money,
establish manufacturing and marketing facilities through ownership and control.
Greenfield strategy- the term Greenfield refers to starting of the operations of a
company from scratch in a foreign market.
E.g: Amazon.in

5. FDI with strategic alliances

Strategic alliance is a cooperative and collaborative approach to achieve the larger
goals.
Role of alliances:
 Many complicated issues are solved through alliances
 They provide the parties each other’s strengths
 Helps in developing new products with the interaction of 2 or more
industries
 Meet the challenges of technological revolution.
  Managing heavy outlay
 Become strong to compete with a multinational company.

FDI with strategic alliances

Modes of FDI through alliances are:
Merger: The combining of two or more companies, generally by offering the
stockholders of one company securities in the acquiring company in exchange for
the surrender of their stock.
Acquisition: When one company takes over another and clearly established itself
as the new owner, the purchase is called an acquisition.
Joint ventures: It is an entity formed between two or more parties to undertake
economic activity together. The parties agree to create a new entity by both
contributing equity, and then they share in the revenues, expenses, and control of
the enterprise.

6. Contractual Agreements
Contractual agreements are long term non equity associations between a company
and another in a foreign market. Contractual agreements generally involve the
transfer of technology, processes, trademarks or human skills. In short, they serve
as a means of transfer of knowledge rather than equity. Contractual agreements are
long-term, non equity associations between a company and another in a foreign
market
Approaches: – Licensing – Franchising – Contract manufacturing – Management
contracting
– Turnkey projects

7. Management Contracts
It is defined as “agreement between investors or owners of a project, and a
management company hired for coordinating and overseeing a contract”. A
business or an organization will hire a management company to perform specific
tasks. The management company will receive a compensation for the work. Your
organization might hire a management company to look after its marketing and
under the contract,the management company would perform marketing on your
company’s behalf and receive a fee for doing so. A management contract will
always consist of three core components. The three parts are the first things we will
need to specify when seeking out a management contract. The parts are:
i. The conditions of the contract – The lengthiest and most detailed part of the
management contract are naturally the conditions of it. The contract must
clearly identify the parties involved and the functions that are being
transferred to the management company. This includes the outline of the
rules and responsibilities both parties have and the extent which either party
can influence the operational functions once the contract starts. To avoid
confusion and conflict later on, the conditions must be clarified and the
functions and operational responsibilities outlined in detail.
ii. The duration of the agreement – The section specifies the duration for how
long the management company will be in charge of the enterprise or
department. The duration could range from a few months to years, and you
might have set specific conditions for the duration. For example, if certain
performance metrics are not met, the contract can be terminated sooner and
so on.
iii. The method of computing the management fees – The management contract
should also discuss the compensation method. As mentioned above, the
method for computing the management fee can range from a set percentage,
a set sum or a specified sum related to performance. An example fee could
be a % of total revenue and/or a % of gross profit.

8). Joint Venture

 Joint Venture is a business preparation in which more than two
organizations or parties share the ownership, expense, return of investments,
profit, governance, etc. To gain a positive synergy from their competitors,
 various organizations expand either by infusing more capital or by the
medium of Joint Ventures with organizations.
 A joint venture can be very flexible which can be in context to the
requirements of the organization. The agreement between the companies
should have detailed terms and conditions with respect to the activities that
will be carried by them. This aids in clarification and don’t allow any
ambiguity between the stakeholders. The agreement also helps to designate
the actual scope of work which either of parties has to conduct.
In regarding with the above case study of star bucks, Star bucks have used the
following modes of entering in Chinese global market:
1. Licensed agreement
Starbucks adopted the mode of licensing agreement to license its Chinese partner
with a wholesale distribution company to supply coffee beans to some selected
hotels and restaurants. Starbucks realized that local partners can have the best
understanding of local cultures customers and some related laws. and they have
already established good relationship with local government, so it was easy to
obtain the permissions and sanctions required to start and operate business in a
bureaucratic country like China. Moreover, Starbucks could also maintain a high
standard on the control of production, and achieve a ideal revenue in Chinese
market. So licensed agreement was a optimal option for Starbucks to enter into a
booming China’s market .
2. Joint venture
Starbucks formed a joint venture with different partners at different times when it
entered into Chinese market. Starbucks achieved considerable knowledge about the
Chinese market conditions and then began to open Starbucks stores in China. The
company adopted a strategy of having three different partners to enter different
regions in Chinese market. Starbucks entered China under a licensing agreement
with Beijing Mei Da Coffee Co.Ltd, which was as their first partner. In 2000,
Starbucks entered into a joint venture with Mei-Xin International Ltd, it also called
“Coffee Concepts Ltd”. It managed the operations in the region of Hong Kong,
Shenzhen, Macau, Guangzhou, and other parts of southern China.
 First of all, Starbucks choose a good local partner to form a joint venture
which can help it better understand the local laws and negotiate better with
 the authorities. It is beneficial for Starbucks to obtain required permissions
and sanctions so that it can be opened easily.
 Secondly, local partners know Chinese market condition better than
Starbucks; therefore, it is effective and efficient method for Starbucks to
adopt a few localization strategies to satisfy different regions of customers.
 Last but not least, joint venture is a good way for Starbucks to reduce
operation expenditure, and it also helps to reduce risks in Chinese market.
Therefore, No one entry mode is considered to be superior to one another. When
an organization is choosing to internationalize their operations, they will first need
to decide what its optimal levels of: commitment, flexibility, control, presence and
risk are in order to select the most appropriate entry mode. An organization’s
internal resources and capabilities are another important consideration when
choosing the foreign entry mode. The market of entry is also another important
consideration for the organization planning to internationalize their operations. A
PESTLE analysis of the foreign market will help the firm to gain a better
understanding of the market environment. The process for an organization to
internationalize their operations is often quite difficult, and so is the process of
choosing the foreign market entry mode. It’s for this reason that there is no
superior foreign market entry mode.

2. How did the entrance of Starbucks in China become successful? Explain in

detail. (20 marks)
 To promote Starbuck in China, the company chose a different way. It mostly
depended on the people to spread goodwill through word of mouth than
commercial advertisements and media products. Their knowledge, organized
way of business left a good impression on customers’ mind. The
Company’s formula for success is mainly based on the following:
1. Employees’ Approach:

 The key retail success of the Starbucks brand is determined by people’s

interaction with the Company’s experience, and the culture and values of

how they relate to customers.

  By investing and creating a unique relationship with the staff and getting

them to understand that first of all is the primary target to exceed the

expectations of the employees and then of the customers. People at

Starbucks are never viewed as commodities, but as business partners.

2. Core Competence and Visions: 

 The Company’s primarily role or responsibility is to ensure that the

organisational culture is compatible with the kind of people that they want to

attract and retain. Starbucks tries to create a sense of belonging and build a

sense of trust and confidence in what the Company stands for with the

employees and customers. The reason that their customers come back is the

quality of the coffee and the quality of the experience, and the experience

comes to life because of the employees.

 Starbucks believes in a good, competitive business strategy that is facilitated

by a devout passion for the product. A good leadership and management

approach of the Company has created a great success of the brand with a

clear vision of core competence. The Company’s motivation to develop the

 most recognisable brand was also based on the good planning and

positioning strategy.

3. Experimentation and Innovation:

 Starbucks is a disciplined innovator, and good management of its innovation

timeline is one of the primary reasons behind the Company’s success in

generating consistently high levels of same store sales. Customers can try

and taste various coffee brands in the store.

 The Company’s ability to roll out new initiatives and products relatively

quickly is a considerable competitive strength.

4. Promotional Patience:

 In a break from the norm, Starbucks has decided to shun what would be

regarded as traditional marketing strategies. By relying on cafés to market

themselves, there is the inevitable heavy dependence on a strong brand and

word-of-mouth to spread a positive reputation.

 The powerful marketing principles of the effective positioning of the

Starbucks environment create an experience that invites people to study, to

hang out and to read.

5. Promoting Ethics:

 Sound corporate governance is commanding much of the spotlight for

today’s businesses. The management levels of the Company are responsible

for ensuring Starbucks promotes equality and fairness in all of its business

dealings – whilst still sustaining its growth plans The Company is very

much concerned about ethical business practices and tries to get involved in

charity events and corporate social responsibility.

6. Command of a Premium Brand:

 Consumers are willing to pay higher prices for Starbucks’ coffee as they are

not only buying a beverage, but also making a social statement at the same

time. Consumers are buying an experience, a lifestyle and an attitude. Whilst

these intangibles can be extremely difficult to measure, Starbucks’

customers are making the job easier by swarming in their thousands.

7. Measured Expansion:

 Starbucks has adopted a slightly more cautious approach, particularly in its

foreign markets. In China, outlets have increased steadily from 8 in 1999 to

just under 70 in 2004. The Company is entering into new markets due to

emerging opportunities and their global established name.

8. Financial Resources:
  Starbucks is the world’s number one specialty coffee retailer, and as such it

has a greater financial reach than practically all of its competitors. Huge

financial resources enable the company to take advantage of market

opportunities, investments and expansion activities that are not available to

smaller firms with a reduced capital.

9. Localization
 China is a tea-drinking nation and Starbucks’ entry into the market was not
easy. Starbucks bridged the gap between the tea drinking culture and the
coffee drinking culture by introducing beverages China that was based on
local tea-based ingredients.
 Starbucks also introduced a highly localized menu of beverages and snacks
that are particularly customized to suit Chinese taste buds. The company
conducts extensive studies to understand the consumer profile to create
unique beverages that are “western” but still matches Chinese culture.

 Normally Starbucks follows a high standard technique to maintain its stores

worldwide. But in the case of China, it adopted some strategies influenced
by local culture and market conditions to gain Chinese people’s trust and
confidence.

 Small changes were made in the texture, menu and store layout just to match
with Chinese culture and food preferences. Within a few months of opening
the coffee stores. The company started observing that coffee culture is
different for Chinese people than in the US. Where people are very busy in
their daily lives and they just grab their coffee and leave.

10. Partnering with local players

 China is a complex and homogenous market. Within the country, culture and
demographics differ between regions. To counter this issue, Starbucks
teamed up with regional players to gain access to the Chinese consumer.
  In north China, it partnered with Beijing Mei Da, a regional coffee company
while in the east it teamed up with Uni-President, a Taiwan-based company.
To make its presence felt in South China, Starbucks worked with Maxim’s
caterers, a Hong-Kong based company. These partners provided Starbucks
insights into the tastes and preferences of Chinese consumers as well as
helped build on local expertise.

11. Positioning and demand creation

 Starbucks has literally created demand for coffee in China. Traditionally, a
tea drinking nation, Starbucks revolutionized how the young Chinese
consumer views coffee by adopting a unique branding and positioning
strategy.
 The company created the “Starbucks experience” that appealed to
consumers. Today, Starbucks has established itself as an aspiration brand
and is able to charge premium prices. Rather than advertising, it projected its
brand image by selecting high-visibility and high traffic locations.
Moreover, Having taken into account all the factors of international market
assessment which was done by Starbucks, we think that it was right decision to
enter that market. Despite of all the risks of Chinese economy and vacillating
attitudes toward The West culture, there is no doubt that consumption of coffee in
China will continue to grow. As a result Starbucks will benefit from it.

3. Does culture influence purchase decisions? Explain with some case study
example. (20 marks)
 Consumer purchase decision refers to the buying behaviour of the ultimate
consumer. Many factors, specificities and characteristics influence the
individual in what he is and the consumer in his decision making process,
shopping habits, purchasing behavior, the brands he buys or the retailers he
goes. A purchase decision is the result of each and every one of these
factors. An individual and a consumer is led by his culture, his subculture,
his social class, his membership groups, his family, his personality, his
 psychological factors, etc and is influenced by cultural trends as well as his
social and societal environment.

Consumer s purchase decision is influenced by four major factors:

 Cultural,
 Social,
 Personal,
 Psychological.

Each culture further comprises of various subcultures such as religion, age,

geographical location, gender (male/female), status etc.
1. Religion (Christianity, Hindu, Muslim, Sikhism, Jainism etc)

A Hindu bride wears red, maroon or a bright colour lehanga or saree whereas a
Christian bride wears a white gown on her wedding day. It is against Hindu culture
to wear white on auspicious occasions. Muslims on the other hand prefer to wear
green on important occasions.
For Hindus eating beef is considered to be a sin whereas Muslims and Christians
absolutely relish the same. Eating pork is against Muslim religion while Hindus do
not mind eating it.

A sixty year old individual would not like something which is too bright and
colorful. He would prefer something which is more sophisticated and simple. On
the other hand a teenager would prefer funky dresses and loud colours.
In India widows are expected to wear whites. Widows wearing bright colours are
treated with suspicion.

2. Status (Upper Class, Middle class and Lower Class)

People from upper class generally have a tendency to spend on luxurious items
such as expensive gadgets, cars, dresses etc. WE would hardly find an individual
from a lower class spending money on high-end products. A person who finds it
difficult to make ends meet would rather prefer spending on items necessary for
survival. Individuals from middle class segment generally are more interested in
buying products which would make their future secure.

3. Gender (Male/Female)
People generally make fun of males buying fairness creams as in our culture only
females are expected to buy and use beauty products. Males are perceived to be
strong and tough who look good just the way they are.

Let us now discuss about the cultural issued caused by launching KFC in INDIA:

KFC’s Entry in INDIA

 KFC was the first fast food multinational to enter INDIA , after the
economic liberalization policy of the Indian Govt. in early 1990s.
 KFC received permission to open 30 new outlets across the country &
Opened first fast food outlet in Bangalore in June 1995 by targeting upper
middle class population.

PepsiCo planned to open 60 KFC and Pizza Hut outlets in next 7 yrs in the
country.

Is s u e s:

 Understand the significance of cultural, economic, regulatory and ecological

issues while establishing business in a foreign country.
 Appreciate the need for protecting animal rights in developed and
developing countries like India
 Understand the importance of ethics in doing business
 Examine the reasons for protests of PETA(People for Ethical Treatment of
Animals )
 Identify solutions for KFC's problems in India

Problems for KFC

 Protests by farmers led by the Karnataka Rajya Ryote Sangha(KRRS) & the
farmers leader was Nanjundaswamy who used the term ‘junk food’ against
KFC.
 Protests by cultural & Economic activists.
 Protests by PETA in the late 1990s
 Support of celebrities in against of KFC

SWOT ANALYS IS FOR KFC IN INDIA:

STRENGTHS:
•UNDERSTAND THE CULTURE, REGULATORY& ECOLOGICAL ISSUES.
•UNDERSTAND THE IMPORTANCE OF ETHICS IN DOING BUSINESS
•EXAMINE THE REASONS FOR PROTESTS OF PETA
•IDENTIFY SOLUTIONS FOR KFC’S PROBLEMS IN INDIA

WEAKNESSES:
•NON ETHICAL BUSINESS PRACTICE
•PETA PROTEST
•KRRS PROTEST
•MSG FLAVOUR IN CHICKEN

OPPORTUNITY
•RETAIL BOOM IN INDIA
•INDIANS YOUTH ARE ADOPTING WESTERN CULTURE
•INDIAN ECONOMY
•COSMOPOLITAN RAPID DEVELOPMENT

THREATS
•MSG CHICKEN FLAVOUR
•PETA LIKE ORGANIZATIONS
•POLITICAL PARTIES PROTESTING FOR JUNK FOOD
Since its entry in India in 1995, KFC has been facing protests by cultural &
Economic activists and farmers. What are the reasons for these protests?
  Need for protecting animal rights
 Chicken they serve is full of chemicals(mono-sodium glutamate)
 It encourage farmers to shift production of crops to animal feeding
 Leaves poorer section of society with no affordable food.
Do you think in the light of fierce competition, it is justified for business
organizations not to give importance to ethical values at the cost of making profits?
Why or Why not?
No, in the light of cut throat competition, the co. should give importance to the
ethics rather than the making profit. Profit comes from customers.
 Customers have ethics.
 Customer is always right.
 As someone very rightly said, “customers are always right and if at any
point of time u feel that customer is wrong, and then you are wrong.”
Finally, we can understand from the case that every business organization should
understand the importance of ethics by understanding the culture, regulatory &
ecological issues in different countries. KFC should implement a farm level
guideline & audit program - a program which is industry leading in the areas of
poultry care and handling, mainly for their suppliers in the broiler industry.

4. Will COVID-19 have a lasting impact on globalization and international

marketing? Elaborate in detail.
 The outbreak of pandemic Covid-19 all over the world has disturbed the
political, social, economic, religious and financial structures of the whole
world. World’s topmost economies such as the US, China, UK, Germany,
France, Italy, Japan and many others are at the verge of collapse.
 Even in the U.S., where this crisis has only begun to make an impact,
the response may fall far short. There are some shortages of crucial
drugs and medical equipment, in part because China remains a critical
part of supply chains. Another worry: coronavirus has been swallowed
into election-year politics. President Trump, anxious to protect the
 stock-market gains that he believes will boost his chances of re-
election, has argued that Democrats are exaggerating the coronavirus
threat. Critics of the President warn that Trump will lean heavily on the
Fed for more cuts, less for the sake of U.S. economic resilience than for
the President’s political fortunes.
 In coming years, the coronavirus outbreak may be remembered as a
milestone moment on the road toward the end of the first phase of
globalization. Over the past few decades, markets have opened, supply
chains have gone global, middle classes have emerged, and new
connections have been made. More recently, a backlash against the
increasingly free flow of information, ideas, money, jobs and people
has created extraordinary political pressures. The result has been
tightened immigration rules, new barriers to trade and investment, a
shortening of supply chains, a technological decoupling and a new
emphasis on country-first politics.

Areas impacted by COVID-19:

More people seeking work
 Many people have lost their jobs or seen their incomes cut due to the
coronavirus crisis.
 Unemployment rates have increased across major economies as a result.
 In the United States, the proportion of people out of work has hit 10.4%,
according to the International Monetary Fund (IMF), signalling an end to a
decade of expansion for one of the world's largest economies.
 Millions of workers have also been put on government-supported job
retention schemes as parts of the economy, such as tourism or hospitality,
came to a standstill under lockdown.
 However, the data differs between countries. France, Germany and Italy
provide figures on applications, for example, whereas the UK counts
workers currently enrolled in the scheme.
Global shares in flux
 Big shifts in stock markets, where shares in companies are bought and sold,
can affect the value of pensions or individual savings accounts (ISAs).
 In response, central banks in many countries, including the UK, slashed
interest rates. That should, in theory, make borrowing cheaper and
encourage spending to boost the economy.
 Global markets have since recovered some ground as governments have
intervened. But some analysts have warned that they could be volatile until
fears of a second wave of the pandemic are eased.

Risk of recession
 If the economy is growing, that generally means more wealth and more new
jobs.
 It's measured by looking at the percentage change in gross domestic product,
or the value of goods and services produced, typically over three months or a
year.
 But the IMF says that the global economy will shrink by 3% this year. It
described the decline as the worst since the Great Depression of the 1930s.

Travel among hardest hit

 The travel industry has been badly damaged, with airlines cutting flights and
customers cancelling business trips and holidays.
 Many countries introduced travel restrictions to try to contain the virus.
 Data from the flight tracking service Flight Radar 24 shows that the number
of flights globally took a huge hit in 2020.
Oil price recovery
 Demand for oil all but dried up as lockdowns across the world kept people
inside.
 The crude oil price had already been affected by a row between Opec, the
group of oil producers, and Russia. Coronavirus drove the price down
further.
Consumer confidence
 Retail footfall also saw unprecedented lows as shoppers stayed at home in a
bid to stop the spread of Covid-19.
 Pedestrian numbers have since risen as lockdown measures have been rolled
back, according to research.
Vaccine hopes
 Governments around the world have pledged billions of dollars for a Covid-
19 vaccine and treatment options.
 A number of pharmaceutical firms are in a race to develop and test potential
drugs that could help nations get back to "normal".

 However the COVID-19 pandemic has sparked a rethink of globalization;

the fact that China is the focal point of many industries and an important
supplier of raw materials of a large number of industries such as electronics,
automobiles and pharmaceuticals has accelerated the disruption of supply
chains globally. In this context, it is necessary to introspect whether too
much globalization is necessary for the global order.
 The disruption of supply chains coupled with an unprecedented economic
disaster waiting for the world due to the pandemic, the pertinent question is -
has the time come for the world to have a rethink for globalization?
 In the coming years, the coronavirus outbreak may be remembered as a
milestone moment on the road toward the end of the first phase of
globalization. Over the past few decades, markets have opened, supply
chains have gone global, middle classes have emerged, and new connections
have been made. More recently, a severe backlash against the increasingly
free flow of information, ideas, money, jobs and people has created
extraordinary political pressures. The result has been tightened immigration
rules, new hurdles for trade and investment, a deliberate curtailing of supply
chains, a technological decoupling and a new emphasis on right-wing
nationalistic politics.
  The potential for instability is clear, both in demand and supply. We could
easily argue that a sharp upturn in demand will follow the end of the global
pandemic as projects return to work and construction restarts. However, we
could equally argue that a lack of liquidity could severely hamper any return
to normality. The structure of the industry could also change radically over
the next decade, as it did following the 2008 financial crash. In fact, the
economic impact could be considerably worse, and the restructuring might
be more fundamental. Even before the onset of the Covid-19 pandemic it
was apparent that the industry was beginning to form into two distinct
spheres of influence, the next few months might tell us how much further
this process is likely to go.

Therefore, Coronavirus has already forced travel restrictions, accusations between

governments and a series of xenophobic attacks in multiple countries. Depending
on the level of human and economic damage this virus inflicts around the world,
coronavirus may one day be considered an important turning point for the entire
global economy. The need of the hour is to try and save globalization. The steps
that need to be taken by nations can be in making the flow of ideas, jobs, working
of institutions more transparent and integrated. Promoting greater cooperation and
goodwill by promoting the spirit of brotherhood is necessary.