International Business Strategy

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InternationalBusiness Strategy

InstitutionAffiliation

InternationalBusiness Strategy

Executivesummary

Thisreport aim at discussing the strategies that are to be made by a firmthat intends to engage in international operations. The paperexplores the decision to be made by managers at Inglot to achievetheir desired vision of being a world-leading colour cosmeticcompany. Various type of business franchising will be discussed inthis report. The aspects to be reflected when a company intends tomove their services across borders are also discussed. Geographicexpansion has many benefits to the firm through a systematic cautionshould be taken to identify and manage various challenges associatedwith the activity. This report also explores the importance ofproduct diversification to the business. Analyses of franchisinglicence granted to Inglot to move their products to France will alsobe conducted.

Theprimary objectives of nearly every business are to go cross-borderand geographical expansion followed by product diversification. Intheir vision statement, most of the firms brings it out clear thattheir future intended state is to become a global institute. Forexample, considering the case of Inglot, their vision has been statedas “conquering the world.” The success of Inglot has beensignificantly contributed to their much focus and investment inproduct expansion. My analysis was intended to examine the statedprimary objective and its role in the productivity of the firm increating a competitive advantage. This report will also reveal thesteps that a firm needs to undertake in its franchising process, thebenefits of franchising, as well as product diversification and thefactors affecting these processes.

Theanalysis revealed that most of the businesses seek to reach a newgeographical market and strive to expand their online present but notfocusing on the customers in the already existing market. About 15%of the firms focus on finding partners who could assist them inapplying product diversification range (Arnold, 2011). Some of thebusinesses were preparing to launch their exit, and they were in needof an external party that could assist them in this process. Asuccessful geographical expansion should be built upon comprehensivedue diligence in the international business environmentalcharacteristics. These attributes include potential competitors,market size and customer base among others. This report explores thetopic geographical expansion and how it can be achieved. Thefoundation stone for this concept will be the case of Inglot where weshall base our analysis onto. Inglot is a world leading colourcosmetic firm whose its products are available in various countriesworldwide.

Geographicalexpansion

Thegeographicalexpansion helps to gain access to new markets and reduce costs thiswill ensure that the firm reaches its future intended state ofbusiness growth. Companies view potential customers as the bestsource of future profits for the business. Inglot had taken aconservative approach to financing the geographical expansion oftheir business. Even though the firm had a minimum long-term debt asindicated on their balance sheet in Exhibit 5, the company reliedsolely on the retained earnings. The analysis showed that the companyhad reinvested quite a good percentage of its retained earning backto the business to facilitate its expansion. However, there are stillmore that needs to be done, and Inglot should not stagnate at thislevel for them to survive in this completive environment. For a firmto embrace geographical expansion, they give priorities tofranchising to enable them in achieving this goal (Verne, 2010).

Franchisingdecision

InternationalFranchise Association (IFA) describes the process of franchising as acontinuous relationship between two parties. The franchisor grants alicense or privilege to the franchisee to engage in businesstransactions with an exchange of royalties, or fee known as thefranchising fee. In other words, the process of Franchising providesthe opportunity for expanding the business. A franchise is a legalagreement that authorises a firm to furnish their product, idea, nameor even trademarks to another independent business owner or a thirdparty. Through franchising, the firm increases its number of outletand hence facilitating geographical expansion (Katherine, 2014).Franchising also helps the business owners to generate income withthe minimum risk associated. The primary objective of every investoris to maximize profit while minimizing risks. Profit maximization canbe achieved by maximizing the revenue that can be attained throughgeographical expansion.

The mostcompetition faced with the franchise includes other competingfranchises that offer the same products or services to the customers.The other is that being unable to be as creative as it was expectedto be, e.g. due to limitations from the main franchise as you do nothave much power to execute or modify their given standard. Those whohad hope that the business will take off easily based on the proventrack record of other companies within the franchise, get frustrated.The franchise, like any other business project, requires a lot ofblood, sweat and patience to be successful. The franchise being asystematic process is also faced with various challenges thatmanagers and business owners need to consider when making suchdecisions. The process also involves venturing into the unfamiliarbusiness environment. Therefore, managers need to do proper analysison this, to ensure that their strategies are smoothly implemented andthat they achieve their set goals (Verne, 2010).

The firmcan maximize its market powers by building its brand name. However,the market believes in brand loyalty due to their products andservices being a very healthy conscious commodity. People would notwant anything less than a well-built brand that they can trust andrely on every day. Restrictions on the admission of goods into themarket may also help the franchise as it will be the only serviceprovider to the population. An increase in market power will notalter the demand or the market share (Mendelson, 2004).

A patentlicense grants its owner the right to exclude others from practicingthe patented invention (Kotler, et al., 2012). It’s granted by alicensor to another party (licensee) as an element of the agreement.It enables government institutions to set conditions and limitations.In an imperfect competition market, a patent license should expire asit prevents competition among franchises, and it limits theircreativity. It also protects the subject matter rendering them to bein a comfort zone reducing competition and rise of new developments.Expansion of a franchise is inhibited due to geographicalrestrictions by the license thus the franchise does not achieve itsmaximum productivity. Rapports of the agreement e.g. time may alsolimit someone’s ability. For example, if the business did not payoff well or is not successful and they have been paying the royalty,they would go a loss since the time limit they paid for was longterm.

Types offranchises available for Inglot Company

There arevarious type of franchises that a business can engage into. Theseinclude Product franchises, manufacturing franchises, businessformat franchises and business opportunity ventures.

Thebusiness format franchises involve a company expanding itsgeographical coverage by supplying its product and services toindependent business owners with its name and trademark (Verne,2010). Under this strategy, the franchisor will assist the businessowners in running their businesses at a charge of little fee known asthe franchise fee or royalties. The franchisee will also purchasesupplies from the franchisor that will help in boosting the salesrevenue.

Productfranchises will allow the manufacturers to distribute their productsthrough an agreement that will allow the company to use their nameand trademark across borders. This particular type of franchises isnormally charged on the commission basis. This implies that the morethe sale, the higher the fee charged. Product franchises are mostcommon in manufacturing companies just like Inglot.

Manufacturefranchises grant the producer (manufacturer) the license to produceand sell its product using its name and trademark. This type offranchise is most common where the cost of production andtransportation in a foreign country is high. The firm enters into anagreement with a local firm to allow them produce in their companywith a compensation of a certain fee.

Finally,business opportunity franchises are whereby an independent businessowner agrees to buy and distribute the products from one companythough a legal agreement (Verne, 2010). This type of franchising isthe cheapest way of ensuring the expansion of business geographicalcoverage with little investment being put in place. However, thismethod is associated with lots of risks as the firm has no control ofsuch contracted parties. Also, the product can be easily copied bythe competitors since the management authority is lost in the processof contracting (Mahoney,2001).

Finally,business opportunity ventures encompass an independent businessholder buying and allocating the products from one enterprise. Thecompany provides the business possessor to accounts or clients and,therefore, the business vendor pays the company a charge in return.Business owners acquire vending machine distributorships and routes,for example, through this type of franchise arrangement.

Productionlocation diversification

Today’sfirms are producing more than one product. For this matter, theirproduction is considered to be diversified (Arnold,2008).Production diversification is also known as product horizontalintegration. A diversified company such as Inglot invests more inresearch and development programs to enable them gather more ideas intheir production diversification. Being a colour cosmetic company,Inglot have to produce as many varieties of products as possible forthem to survive in this competitive industry. Creativity andinnovation are essential when it comes to production diversificationas it helps the firm to reach its set goals.

Thegreatest role of managers is how to make decisions concerningdiversification of their production. Economists have argued that thefirm manages their risk through diversification. This is because acompany is assured of consistent cash inflows or revenues andmaximizes efficiency with their product diversification. The idea ofproductivity is transferred from one activity to another through thisprocess. Therefore, it is my recommendation that Inglot should embedmore and more in production diversification.

Someof the motives to production diversification include

  1. Gaining market power- A firm with more substitute products is capable of extracting more from their customers than it could be with two monopolies producing the individual products each.

  2. Risk management- This motive is most common small and medium business. Relying on one single product can be associated with significant risk of losing revenue especially where the market is seasonal. For example, consider a firm that is producing heavy clothes only (Arnold, 2008). The firm will only get adequate revenue only during the winter season. Therefore, the company is exposed to high risks, and it is more likely to go bankrupt or even liquidation during the summer season.

  3. Having adequate access to fund- some investment opportunities may go to diversified firms in case of imperfect capital markets. An investor will be only willing to invest in a less risky company, and this can only be achieved through diversification.

  4. Making the product compatible- In most cases, production diversification is motivated by the need for compatibility with the product especially where products have to be used as complement products (Arnold, 2008). For example, in a cosmetic firm such as Inglot, most of their products are used against one another and, therefore, a need for product diversification.

Exhibit11

Applicationfor a franchising license in France

Inachieving their vision of conquering the world, Inglot needs toutilize every opportunity that is available for them to move theirproduct and services across borders. However business managers willneed to access the feasibility of the franchising to measure howprofitable it is to the business. This can be achieved by analysingthe cost of this process.

Consideringthis opportunity of opening a new Inglot store in France, thefranchise will be associated with the following costs.

Element

Cost (EUR)

Cost ($)

Rent

50*100 (per month)

5,000

5,283

Renovation

20,000

21,172

Furniture

30,000

31,758

Start-up inventory

45,000

47,637

Maintenance

30*26 (per month)

780

826

Utilities

20*26 (per month)

520

550

Labour cost- Artists

2*26*45

2,340

6,563

Staff

8*26*25 (per month)

6,200

24,771

Total Cost

109,840

116,277

Revenueexpected per month = 20 * 27 * 8 * 26 = EUR112, 320

Recommendation

Theabove analysis has proved that the franchise exercise will beprofitable, and hence the company should consider this opportunitythe company will also benefit from the above-discussed benefit offranchising whereby geographical expansion included. The company canextend its activities to France and enable them reach more customers.

References

ArnoldG. (2008).Production diversification 4thedition.Britain: Pearson Education

Kotler,Philip, and Kevin L. Keller. (2012) MarketingManagement.Harlow: Pearson Education Print.

Mahoney,J. T., &amp Chi, T. (2001). Business strategies in transitioneconomies.Academyof Management Review,&nbsp26(2),311-313.

Mendelson,M. (2004). Aguideto franchising.Croatia: BookEnd ltd.

Verne,L. (2010). Franchiseopportunities handbook.indiana: JIST works.

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