Hey there, fellow marketers.
Professor Wolters here, and today we're here outside the
Volcano National Park here in Rwanda.
Actually, if you look over my right shoulder, you might see
the volcanoes, one of them peeking through the clouds.
It is gorgeous here, and as I've been here in Rwanda, I've seen
Coke and I've seen Pepsi and I've seen, you know, Skol beer,
a Brazilian beer, I've seen Jeeps, and stuff like that.
I've seen products from all over the world here in Rwanda that
aren't necessarily made here, and it got me thinking.
Hey, how is it that companies decide how they should go abroad?
Like, what is their global market entry strategy?
Like do-do we export our products, just make it at home
and send it there?
Or, or do I franchise it out or lease it?
Or do we set up a joint venture together?
Or do I direct investment, put all my money in one spot, and
take care of all the controls?
It really got me thinking, seeing all these things, and so,
today what this video is about is some of the more common ways
that companies do go global, okay?
How do I get my products in a foreign market, and a lot of
that will depend on how much control companies want to have, right?
I mean, if you're a tech company or a pharmaceutical company, you
want to have all the control possible because you don't lose
your secrets, right?
Versus the amount of risk they're willing to take.
So, the more you're investing in that other country, the more
money you're spending, right?
The more risk you're taking on, okay?
So these two kind of facets are really important when you're
looking to go abroad.
Alright, so what we're gonna go through is we're gonna go
through five or six different market entry strategies, well,
global market entry strategies in this video, to give you an
idea of some of the advantages and disadvantages of each one,
and see how certain companies use them to their advantage
because sometimes just exporting your product is fine.
Other times, I need to have my boots on the ground, I need to
have my own stuff there, my own people there, and companies have
to make those decisions.
Now, the first way that most companies go abroad, and
Exporting
probably the most popular way companies go abroad, definitely,
usually, the first way they go abroad, is exporting.
That's when you use your current production facilities and your
home market, and you make your product there, and then you just
ship it to another country.
So Jeep, they might be making their products in the U.S., and
then they ship their Jeeps here to Rwanda, so when we go on our
cool Jeep tours here in our open top Safari things, we can have a
great time here, but they're not making it here.
They're just exporting it to here in Rwanda.
Now, the advantages of actually exporting.
One thing is you already have the production facilities, so
you don't have to spend any money on that, so that makes it
lower risk because lower money.
Therefore, we already have our- our learning curves.
We've already learned all these things there.
Also what's cool about exporting is what's the worst case
scenario with our exports.
If it's on a ship and the ship sinks, we're only out the money
of the Jeeps that sank with the ship, right?
So there's no other kind of risk involved.
That's why this is the least amount of risk.
This is why a lot of companies do it at first, like I just want
to test out globally, so I'll just send some my products over
to that country, okay?
So you have that.
Now, the thing is, since a lot of companies start off with
this, you're like, well, why do they stop?
Well, there are some disadvantages to it.
I mean, think about it.
One thing is, if I'm just shipping it to that market, I'm
shipping 100 Jeeps to Rwanda, what happens if tourism just
booms here in Rwanda as it should, because this place is
awesome and they needed 200 Jeeps?
Well, we can't make any more money.
Our return in investments limited to what we sent over there.
I can't take advantage of when my-my product gets popular or
anything like that, because it's limited.
Also, it's a little more difficult for me to earn scale
economies when I'm exporting, because I'm exporting such small
amounts to these countries, you know, because I'm not sure
what's going to work, so that might limit some of the things there.
You're also, you're not learning about that market, so you might
be missing out, like I didn't know,
oh, here in Rwanda usually you want to have an eight seat
because you have groups that like to go on a travel and
because more cost effective for the tour guides.
Oh, I didn't know that.
Yeah, because you're not in the market.
You're just exporting your product there.
That's why when you're exporting, it's always important to have a good
distributor in that foreign market, so you can learn from
them and they're sharing information with you, okay?
Now, the thing is, though, like I said, this one you have the
least control over your- over your products because once you
ship it, it's done.
It's in their hands.
I can't do anything.
But what's cool is my financial risk is actually the least as
well, so that's why a lot of companies kind of do this.
Now sometimes, though, you want to make sure you're controlling
a little bit more like, I don't wanna take on a ton of risk, but
I do want to have some more control.
Like, I want to make sure my brand isn't ruined when it goes
abroad and so will happen is some companies will do what's
called a franchise agreement, or a leasin- a leasing agreement or
a licensing agreement.
For example, last night, I was here in my-my-my hotel here in
Rwanda, and I'm drinking Skol beer.
Skol is a Brazilian beer and what they did is they licensed
it to a brewery here in Rwanda, so they're brewing it here, okay?
Franchises
Another one you might see is McDonald's.
McDonald's has franchisees all over the world.
McDonald's doesn't own every single McDonald's.
That would be too expensive.
They have people that invest and buy a franchise and they set up
a franchise agreement and they do it for them, okay?
So what's cool about this franchise agreement is hey, look.
If I'm a comp-if I'm an investor, if I'm a franchisee,
okay, I'm gonna buy a McDonald's,
I get all McDonald's secrets.
I get to go to Hamburger U and learn how to make burgers and
and run my stores and all this kind of stuff, and it's really
kind of cool, because you're sharing all this information.
Awesome.
Helping them set up organizational structure and
marketing structure, all these kind of things, so the brand can
actually work the same way in all these different countries,
where people don't realize is McDonald's Germany and
McDonald's, you know, U.S., McDonald's China are all
different companies, but they're all kind of doing the same
thing, so we're all kind of working together.
Also, what helps these franchise agreement is, since those
franchisees, the ones that are buying a McDonald's franchise,
they're investing in, so for McDonald's, it's really cool,
because hey, we get money from them.
Also, those franchisees, most likely they know that market
better, right?
They know what's going on there, so they know that, hey,
McDonald's will probably work here.
Skol Beer will probably sell here and so you get their kind
of knowledge, which is really cool.
Also, they're taking on a lot of the risk.
So yo-you have a little more risk now, because you're doing a
little bit of stuff, but hey, i-it-it's still pretty low on the
risk scale and we're looking at global expansion, right?
But the thing is, is franchise agreements and franchising isn't
always, you know, the best thing, you know, there are some
disadvantages to it.
One thing is you're limited on your control.
You can only tell them to do what's in the franchise
agreement, because if you try to tell them do something that's
not the franchise agreement, they're like, hey, sorry.
We don't have to ca-carry your fish nuggets, because it doesn't
say in the franchise agreement, we have to carry fish nuggets, okay?
So that's why it's really important to have a really good
franchise agreement that covers different stuff from like
McDonald's probably has it where it talks about the food they
have to have, how they advertise, probably how clean
the bathrooms are, these kind of things all go into that, all right?
Also a disadvantage, you're only limited to a certain percentage
of the income.
So let's say McDonald's China just gets huge, it gets bigger
than McDonald's America, but McDonald's Corporation is only
limited that, what, 10% or something like that, that they
get from the revenue, so man, we could be making so much more
money, but again, we're limited to what the contract says.
And another issue that you might see, it doesn't have a lot of
times, but it can happen is actually by having this
franchisee, they could actually develop in that market become
bigger and more powerful than you, so you can actually develop
your own competition.
So, so that could be a thing.
Now, sometimes companies also want to go a little bit farther, okay?
Now I want to, I want to put a little bit more risk out there
and r-really invest a little bit more money, because I wanna
have a little bit more control, a little bit more saying what's
going on, and the next step up on the scale here is what we
call a strategic alliance.
This is when two companies agree to work together, two
organizations agree to work together.
Now, they're not invested in each other.
They're not making a new company, but they're kind of
like we're agreeing to work with each other. It's kind of like, hey.
We're boyfriend and girlfriend, right?
Now you keep your apartment, I have my apartment, but we agree
that we're dating, right?
So it's kind of like that kind of feel, and I see this a lot in
study abroad programs between universities.
So my university an-and the Vie-the University of Vienna,
they have a strategic alliance.
We'll send our students to you, and you send our students to us,
and we'll work together.
Now, what's good about these things is one, hey, I'm getting
to learn from that local market.
They're teaching us about Vienna, but also we we're
teaching them about the U.S. when they're when they're studying
Joint Venture
there, and we're really helping each other's business, which is
a really nice thing.
Now, the disadvantage is this.
I mean, think about it.
Have you ever dated someone and and they do things that you
don't want them to do?
Well, yeah, you have no contracts to stop them from
doing anything.
It's just that we're promising to work together.
I didn't write it down.
We're just promising to work together, and with all that
information sharing, which is a good thing, sometimes you might
lose some of your intellectual property, so that could be a
promise strategic alliance.
Also, if you're helping out a lot with a strategic alliance,
sometimes you might be also creating a competitor, and you
know how things are in any friendship, a lot of times, some
person is giving more, and other people are taking more and
things like that. So you have those issues.
With any kind of alliance, you have to think about those
things, and so in order to kind of control better, what a lot of
companies end up doing is what's called a joint venture.
So joint venture, we're getting a bit more control, and we're
also taking out a bit more risk and in a joint venture, the two
companies, instead of just agreeing to work together, we
actually financially come together.
Okay, well, we maybe we set up a partnership, working together a
joint venture, where we're both investing our money and it's all
of a sudden now things get more real.
Now we're contractually linked together.
It's the change from being boyfriend, girlfriend, to being
spouses, right?
And so you have those kind of things like that's the next
level, like putting the ring on it, that's next level kind of
stuff, right?
So that's a joint venture.
As your parents might say, we combined our CD collection, alright?
So this is like you're, you-you're getting married, you've
been married, you're living together, I mean, it's a lot
more of a commitment this way, all right?
And so what's cool is you're still splitting the risk, and
Splitting the Risk
you try to make it a 50-50 joint venture, so we're splitting the
risk, equally, the financial risk and stuff like that we're
splitting the control, we're gaining those local insights
from our joint venture partner, and it really shows that we're
committed to each other to work together, and another thing I
should add in here, though, with joint ventures is some countries
actually require you to do a joint venture, depending on
maybe the industry you're in or the country you're going to,
these kind of things, it might be required that way.
Now, some of the disadvantages of those joint ventures, which
you have to realize that any joint venture, you know, you try
to make it a 50-50 split, but a lot of times you'll see is one
partner will dominate the other partner, so that can be an issue there.
Also, you could be losing your intellectual property because
you're sharing your stuff with them.
You could also eventually be creating a competitor because
they're sharing so much stuff with them, so there are issues
when it comes to joint ventures.
That's why some companies just say, you know what, I will take
all the risk because I need to have 100% control.
I mean, think about it.
If you have intellectual property that you cannot share,
I mean, I have figured out the best algorithm ever, I filled
out figured out the cure for cancer or something like that, I
don't want any other companies knowing this.
I don't want to share this information, I want to control
it all myself, well, then you know what, maybe direct
investments going to be the best thing for you because that way
you have 100% control in the new market, but with 100% control,
you have 100% of the risk.
You have so much more money laid out, that could just collapse
and be lost, okay, because think about it.
Building up that supply chain network, building up the
factories, building up the-the distribution networks, all this
kind of stuff, costs a lot more than just putting some cars on a
ship and sending it abroad, okay?
So you have that, but the thing is cool is you really do
maintain control of your intellectual property.
That's the key thing.
Also, you get to learn about that country, and you're
learning yourself.
You're getting all those learning curve effects.
You can get your economies of scale in that market, so you're becoming
a big part of that market.
Also, it shows a commitment to the market, because hey, if
they- if that country sees that you're investing big money in
there, you're going to be getting jobs in there, they
might be-it might be more advantageous for your business
in that country, but the thing is, it's not all perfect here.
Because remember, this is one of the disadvantages is really that
this is the highest financial outlay, which means this is the
highest risk way of going abroad, so you gotta be careful
with that and the thing is, just because you go abroad doesn't
mean you understand the market.
So you're going to have to do a lot more research, you have to
allot more time, like making sure it's just the right place
for us to be?
Where do we put our store?
Where do we-how do we set up our distribution?
Who are the important people we have to hire?
And so there's a lot more mistakes that you can make when
you do this, when you're not working with the locals, you
know, in a joint venture or something like that, and also,
like I said, about the joint ventures, governments maybe like
trend ventures.
Sometimes governments don't like 100% owned foreign, direct
investment products an- and companies, so there are those
issues there.
But the thing is, there's lots of other ways that companies can
actually go abroad.
I just wanted to give you some of the basic kind of global
entry strategies that are out there, so you can be better
prepared if you're going to be taking your international
marketing exam or your, your global business exam or
something like that, or if you just want to know hey, what are
some of the different ways that companies go abroad.
So I hope this helps you know, a little bit more.
I want to say thank you for watching.
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from here in Rwanda.