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International Business - Daniels - 15th Edition - Case Study - Chapter 13

MBA Incoterms 2010 & International Business

Incoterms 2010 and International Business - 101

International Business: Environments and Operations, 15e (Daniels et al.)

CHAPTER THIRTEEN: COUNTRY EVALUATION AND SELECTION

CHAPTER THIRTEEN: COUNTRY EVALUATION AND SELECTION

 

OPENING CASE: Burger King
[See Fig 13.1, Map 13.1]
Burger King is the world’s largest flame-broiled fast-food restaurant chain with 12,000 restaurants in all 50 states and it operates in 74 countries and territories. Even with all this global expansion, it is still in less than 40 percent of the world’s countries, providing many opportunities. Burger King differentiates itself in two ways, the flame-broiled cooking method and the flexibility it offers customers popularized by its “have it your way” marketing theme. Expansion is normally done through franchising, but if a market is sufficiently attractive and not ready for franchisees, they will enter with owned operations. Some global expansion has not gone well, but when conditions changed they have reentered these markets, for example in Colombia. Like so many companies, they have expanded into the BRICs and are evaluating if the Brazilian expansion model can make them successful in Russia.

Questions

13-1 Discuss the risks that an international restaurant company such as Burger King would have by operating abroad rather than just domestically.

Large franchisee-based companies like Burger King have a very structured approach when entering new markets. Burger King, through success and failure, refined the criteria for entering and reentering markets to support success. They also have resources that support growth. Many local firms do not have sufficient resources for expansion to compete with large corporations. However, local firms can watch and learn and apply the successful methods of foreign fast-food companies. Local firms can also modify their menus to support local tastes. Availability of suppliers is also a factor if the market is not large enough to support multiple customers. (LO: 2, Learning Outcome: To see how scanning techniques can help managers both limit geographic alternatives and consider otherwise overlooked areas, AACSB: Analytical Skills)

13-2 How has the Burger King headquarters location influenced its international expansion? Has this location strengthened or weakened its global position?

Burger King’s Miami headquarters location influenced its expansion strategy. Many consumers travel through this region and are exposed to the company. Brand recognition and acceptance made it easier to enter geographically local markets. Early expansion strategy was based on employees’ familiarity with markets, and the Latin American and Caribbean group was ideal. Although this expansion has increased the number of locations, the revenue percentage is not large because many of these countries do not have large populations. Burger King has also not expanded to some markets that could be potentially more profitable, like India, Pakistan, Nigeria, Russia, and South Africa. (LO: 6, Learning Outcome: To consider how companies allocate emphasis among the countries where they operate, AACSB: Multicultural and Diversity Understanding)

 

CLOSING CASE: Carrefour

This case explores the location, pattern, and reasons for Carrefour’s international operations. Carrefour opened its first store in 1960 and is now the largest retailer in Europe and Latin America and the second largest worldwide. In 2011, Carrefour derived 61 percent of its sales and 53 percent of its profits outside of France. Worldwide Carrefour has five different types of outlets: hypermarkets, supermarkets, hard discount stores, cash-and-carry stores, and convenience stores. Country selection criteria include a country’s economic evolution, sufficient size to justify additional store locations, and the availability of a viable partner. Aside from financial resources, Carrefour brings to a partnership expertise on store layout, clout in dealing with global suppliers, highly efficient direct e-mail links with suppliers and the ability to export unique bargain items from one country to another. Carrefour also considers whether a country or regional location within a country can justify sufficient additional store expansion to gain economies of scale in buying and distribution. Recently, Carrefour has used acquisition as a way to capture additional scale economies. Carrefour depends primarily on locally-produced goods but also engages in global purchasing when capable suppliers are found. Whether Carrefour can ultimately succeed as a global competitor without a significant presence in the United States and the United Kingdom remains to be seen.

 


Questions

13-3 What advantages and disadvantages would Carrefour likely have compared with domestic retailers where it operates?

Advantages:

1. Ability to find a partner familiar with local operating needs because of their financial strength
2. Expertise in store layout, direct email link, with suppliers that substantially reduce inventories and travel costs
3. The ability to export unique bargain items from one country to another, and clout in dealing with global suppliers
4. Global purchasing, when stores in one country find a good local supplier, management passes on that information to headquarters, which then seeks markets within store in other countries

 

 

 

Disadvantages:

1. Problems of expanding too fast internationally taking resources away to adjust to changes taking place in their domestic market (France)
2. Too much uniformity in store offerings, failure to take into account demographic and cultural differences
3. Changing demographics, as a large portion of the population ages, customers have shifted away from the large hypermarkets which have been the crux of their market to the less profitable smaller outlets
4. Failure to gain a significant presence in the United States and the United Kingdom (LO: 3, Learning Outcome: To discern the major opportunity and risk variables a company should consider when deciding whether and where to expand abroad, AACSB: Dynamics of the Global Economy)

13-4 Evaluate the reasons for following a geographic concentration versus diversification strategy as they apply to large retailers such as Carrefour.

With a concentration strategy, the company will move to only one or a few foreign countries until it develops a very strong involvement and competitive position there. In this case, it is pointed out that to be cost effective in an overseas market, Carrefour focuses on building a sufficient distribution process in target marketing. (LO: 3, Learning Outcome: To discern the major opportunity and risk variables a company should consider when deciding whether and where to expand abroad, AACSB: Dynamics of the Global Economy)

13-5 Refer back to the Burger King case at the beginning of the chapter. Compare the applicability of the first-mover advantage in international expansion for Burger King versus Carrefour.

Carrefour’s feelings were that to be successful in an international market, you had to be early, in other words in new countries you need to be the first in for the first win. You will fail when you arrive too late. This has been shown by Carrefour’s failures in Russia, the United States, Mexico, Japan, Korea, and Chile. On the other hand, at Burger King, expansion is normally done through franchising, but if a market is sufficiently attractive and not ready for franchisees, they will enter with owned operations. As with Carrefour, global expansion has not gone well, but unlike Carrefour, when conditions change, they have at times re-entered the market (i.e., Colombia) (LO: 3, Learning Outcome: To discern the major opportunity and risk variables a company should consider when deciding whether and where to expand abroad, AACSB: Dynamics of the Global Economy)

13-6 Carrefour has placed neighboring countries (Belgium, Italy, and Spain) in a higher priority than much larger countries such as Brazil and China. What are the pros and cons of doing so?

It enables them to build a more effective and efficient distribution system. This enables countries that are geographically close to share suppliers and negotiate better prices for items sold in their stores. The failure to perhaps be more aggressive in large markets such as Brazil and China may eventually hamper them as competitors gain an early foothold in those markets. (LO: 3, Learning Outcome: To discern the major opportunity and risk variables a company should consider when deciding whether and where to expand abroad, AACSB: Dynamics of the Global Economy)

13-7 Carrefour has recently given store managers more autonomy in selecting merchandise to sell in their stores. What are the advantages and disadvantages of this policy?

The autonomy given to store managers in selecting merchandise to sell in their stores enables them to better deal with local demographic and cultural differences. On the negative side, adaptation eliminates some of the economies of scale that can exist in purchasing and marketing costs. (LO: 6, Learning Outcome: To consider how companies allocate emphasis among the countries where they operate, AACSB: Multicultural and Diversity Understanding)

13-8 When the three big global retailers – Walmart, Carrefour, and Tesco – have entered the same country, only one has generally succeeded. Are the markets in China and India so big that all can succeed there? Support your conclusion.

The markets in both China and India are large enough to support multiple competitors. However, Carrefour’s experiences have shown that when they are not first, they are not successful and often times divest themselves by selling out and leaving the country. (LO: 2, Learning Outcome: To see how scanning techniques can help managers both limit geographic alternatives and consider otherwise overlooked areas, AACSB: Analytical Skills)


 

 

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