Entry Mode

Topics: Subsidiary, Parent company, Corporation Pages: 6 (1890 words) Published: July 10, 2011
4. Entry Mode Screening:
Ultimately, the favored option for Krispy Kreme Doughnuts Inc. to penetrate into Singapore’s target market is the direct investment entry mode. Direct investment entails the firm undertaking the target product marketing task its self. This includes practices such as developing contracts, market research, target product marketing, handling legal issues and documentation and pricing. Direct investment, serves as an umbrella term for a number of entirely more specific examples of market entry, such as market investors, which also encompasses wholly owned subsidiaries. Since Krispy Kreme Doughnuts is a franchise throughout the world there are only certain entry modes that would be possible. As a group we decided that there are two possible modes, which are direct investment through wholly owned subsidiaries or joint-venture. The entry modes were tested on the following six criteria: Control

Initial Costs
Level of Risk
Profit Contribution
4a. Direct Investment: Wholly Owned Subsidiary:
Direct investment is when companies invest in foreign markets, and in Krispy Kreme’s case we want to penetrate local markets. Under direct investment, Krispy Kreme would choose to enter as a wholly owned subsidiary. A wholly owned subsidiary is when the parent company owns the company outright and there is no minority owners (Investopedia). Advantages to wholly-owned subsidiary are the significant amount of control and strong competitive advantage. Disadvantages include having a greater financial and management commitment because the owner is responsible for all the operations of the 14 company. Because the corporation is responsible for all the operations as well as the profits and losses the risk associated is very high, but so is the expected reward. Control

Since Krispy Kreme would be coming into Singapore with a direct investment via wholly owned, Krispy Kreme would have control over all operations in Singapore. Krispy Kreme is going to bring management over from the headquarters to set up and run the company for the first year giving Krispy Kreme complete control over the organization. Initial Costs

There will be high costs because Krispy Kreme would need to purchase a building, equipment, furniture for café area, etc. Krispy Kreme would need to purchase all necessary equipment to conduct a business. Additionally, when deciding to go into the Singapore market it is imperative that Krispy Kreme allocates ample resources in order to conduct a thorough investigation into the complete market potential and other profit related concerns within the Singapore market (Root, 126). Level of Risk

When entering the market in Singapore via wholly owned they would assume all potential risks for financial and organizational factors in the company. Risk is extremely high because we are bringing Krispy Kreme to Singapore in for the first time. Even though there are many successful donut shops in Singapore, the risk is still very high because the company is going in directly. Profit Contribution

All costs are assumed and all potential profits that are experienced within the target market will be allocated directly to Krispy Kreme because it is wholly owned company. Profits are dependent on the brand and management being successful in Singapore. Reversibility 15

The commitment of these resources solidifies a firm’s positioning into a certain market and hinders their ability to reverse their decisions and capital allocations. If unsuccessful in the Singapore target market, Krispy Kreme, would assume all risk and would suffer all financial losses and setbacks to their business reputation abroad. 4b. Joint-Venture:

Joint-venture is another possibility for Krispy Kreme to entry the market. Joint-venture is a partnership by which two or more firms that come together to create a product or service and have the responsibility to make important decisions about the company. One important decision...
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