Global Business Entry: Strategies and Alliances
Team: Global Integration
Greg Florey, Cherry Greene, Laurie Hackett, Clayton Mitchell, Ben Mosby, Tony Peralta University of Maryland, University College Dr. Monica Bolesta/AMBA 606D Spring 2006
2 Executive Summary Global expansion is the foundation to becoming a multinational firm. When attempting to enter into foreign markets, selection of the proper strategies and alliances play a critical role in determining company success. The purpose of this report is to review the possible modes of entry that the Tastykake Baking Company can select in order to successfully expand its operations. These entry options include: franchising, joint ventures, and outsourcing/off shoring. In this report there will be a discussion of each of these concepts that will include a review of their advantages and disadvantages along with how each of them apply to the expansion of the Tastykake Baking Company into the Brazilian and Turkish foreign markets.
Franchising in Brazil (Clayton Mitchell)
Defining Franchising Over the years, the Tastykake Baking Company has experienced tremendous growth. With annual sales reaching over $200 million, global expansion needs to be considered. The next possible mode of entry to be discussed is that of franchising. In the Hill text (20005), he describes it as being very similar to licensing and defines it as “a specialized form of licensing in which the franchisor not only sells intangible property (normally a trademark) to the franchisee, but also insists that the franchisee agree to abide by strict rules as to how it does business” (p.492). Typically, most companies that provide a service choose franchising as a way to enter foreign markets. The reason being is that this method is extremely cost effective and allows global identity to be established at a much faster pace. Some franchising examples include McDonald’s, Marriott Hotels Inc., Hilton Hotels Corp., KFC, and Wendy’s. The companies that stand the best chance with franchising are those with strong brand recognition, solid marketing techniques, and an easily transferable operations system.
Why Franchise: Advantages and Disadvantages
When selecting the best mode of entry, the advantages and disadvantages at hand must be identified. According to www.franchiseek.com, the advantages and disadvantages of franchising are as follows:
Advantages of Franchising Franchising enables your company to expand using capital raised through your franchises and, therefore, your own financial commitment is reduced.
Disadvantages of Franchising You do not own the branches, thus not earning the same as a company-owned chain.
Less exposure to the problems associated with conventional business, such as recruiting and retaining staff and the security of stock and cash.
You have less direct control over the network. You will however be able to terminate a contract with a franchisee who does not follow the system.
Less staff are required to run the head office and sales team than a conventional business.
Your rate of growth will depend on hour ability to attract new franchisees.
You do not have to rely on your business making enough money for you to open new branches.
Franchising is not a system to launch into to raise finance immediately.
After reviewing the advantages and disadvantages of this mode of entry, companies have to determine whether they have what it takes to become a successful franchisor. Equal pressure is placed on franchisees as well. It is a must that franchisees generate enough money to pay for the services provided by the franchisor or they will face a possible
5 termination of contract. In the case of Tastykake, expanding into Brazil presents tremendous opportunity given the demand for American goods by Brazilian consumers which means there will be a chance to earn an enormous amount of sales. Franchising vs. Licensing Franchising and licensing are...
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