Week
Eight – Introduction to Foreign Market EntryWeek
Eight – Introduction to Foreign Market Entry
The following are my comments on the various types of models that are regularly used for business entry into foreign markets. While this is a perfect fit in the context of 606, it should not be overlooked that these all can be utilized in domestic business expansion initiatives.
1. Turnkey Projects – these are usually large capital projects where ownership
is literally transferred when the “key is turned over” to the purchaser after
the facility is fully commissioned down to the toilet paper in the washrooms
and after payment is made. It is generally used for the likes of power plants
and other infrastructure projects, often in the third world. While long term
management and maintenance contracts can follow – a turnkey project is seldom,
if ever, looked upon as a business activity with a profit centre over time..
2. Licensing agreements – these abound in modern business and indeed this is
the model that Iogen wishes to use when our technology is fully matured. Besides
licensing our process technology we will also attempt to tie sales of our enzymes
into the same agreement. Payments can be a flat fee, royalties tied to output
or a combination of the two.
3. Franchising arrangements – these are also very common, particularly in the
service sector. From MacDonald’s to the big accounting firms such as Ernst
and Young, all use this approach to maintain and expand their international
market share. Besides the global reach, accounting and other professional service
providers become much better positioned to meet the needs of their multinational
clients. Banks are the very top of the food chain on this.
4. Joint Ventures can take on a variety of forms but basically the local company
provides a platform for the offshore company to expand their product line or
service. Generally both benefit in accordance to their commitment to the venture.
Real synergies can emerge from these often at modest incremental investment
and risk.
5. Wholly Owned Subsidiaries are more common in larger investments where the
parent company has a firm grasp on the local situation. For example General
Motors sees no reason to have any partners associated with their massive Canadian
investments but would be less prone to go it alone in markets like China. Sometimes
what starts out as a partnership can end up as a wholly owned subsidiary.
6. Strategic ventures – this is an added business model of mine but a useful
generic term that can capture some of the above and more. Often companies align
themselves but where there is no formal corporate linkage. Take Iogen and Monsanto
UK – we only had a secrecy agreement to share research on new types of wheat
as they entered wide spread planting. Although Monsanto got out of the wheat
business this venture enabled both companies to share complex research at little
incremental cost to either party.
7. Bulking –up- investments. Another add-on of mine. Banks do this quite frequently
by merging to gain a better global reach. Coors and Molson’s (a Canadian Brewery)
very recently joined forces recently to become the 5th largest brewery in the
world. Both family dominated businesses thought that together they had the
critical mass to be real players in the global beer market.
There are a host of permutations and combinations of the above that are being entered into all the time. For example MacDonald’s Russia is a wholly owned subsidiary of MacDonald’s Canada which, in turn has its parentage in the USA. Shell’s investment in Iogen as a minority shareholder in a strategic venture is unusual as the difference in size of the companies is so significant. They wanted access to our technology and we wanted their R&D support, global reach, and prestige ( yes mostly positive) associated with such an enterprise.
Yours,
Maurice Hladik