1. Thi Hang
Mercy
Aku
Fateha

2. PURPOSES
Understand different non-equity entry modes
How NEMs contribute to competitive advantage of the
company and consider drawbacks that may arise.

3. NON-EQUITY MODES
OF ENTRY
• Defined as modes that do not
entail equity investment by a
foreign entrant,
• Becoming increasingly popular
among service firms for organizing
overseas ventures/operations
• Has low degree of ownership and
Control and extent of investment.
• Less risk than equity entry modes.

4. LICENSING
• Involves a contractual arrangement whereby a company licenses
the rights to certain technological know-how, design, patents,
trademarks and intellectual property to a foreign company
• A common method of for companies with a distinctive and legally
protected asset,
• Licensing involves little expense and involvement. The only cost is
signing the agreement and policing its implementation.
• Licensee will pay a free which could be a % royalty of sales
(normally less than 5%) and a fixed fee.

5. COCA-COLA
Biggest soft drink company in the world
Has 3000 products and operations in 200 countries.

6. MERIT
• Brand awareness: Coca Cola senior
managers view licensing as a powerful
marketing term. Coca-Cola is the most
recognised word and recognised by
94% of the world’s population.
• •Gained an additional revenue
opportunity
• •Strengthened their core messaging of
• sustainability
• •Provided increased exposure for the
brand

7. DEMERIT
• Difficult to use legal redress with business partners to disagreements upon
implementation.
• Revealing secret
• Hard to monitor partners in foreign market

8. FRANCHISING
• A franchise is an ongoing business relationship where
one party ('the franchisor') grants to another ('the
franchisee') the right to distribute goods or services
using the franchisor’s brand and system in exchange
for a fee.
• The Franchisor will retain the intellectual property
rights to the recipes, formulas, ways of working or
operating the businesses and grant the rights to
operate and sell their products or services and brand
usage rights to the franchisee in exchange for ‘key
money’
• Franchise contractual market entry modes are
commonly used in the quick serve restaurant industry

9. MCDONALD’S
• McDonald's has over 30000
restaurants in the world,
operating in over 100 countries.
• 80% of restaurants are
franchised
• McDonalds is often "considered
the gold standard of franchising".

10. MERIT
• Increase Revenue: McDonald’s earns a substantial up-front fee
and regular royalty payments from each franchise:
• Restaurants typically cost between £150,000 and £400,000 to buy.
 Monthly rent on the premises based on sales and profitability
(usually between 10% and 18%).
 Service fees for the use of McDonald’s system – 5%
 Franchised sales was $67.65 billion compared with $18.29 billion
(operated restaurants)
=> McDonald’s keeps being a profitable business with positive cash
flow, which can be used to support for its core activities, grow and
expand larger in the future.

11. MERIT
• Leverage the brand: By acquiring new franchise outlets,
McDonalds was able to get in touch with a wider target market
and reach more consumers globally, this in the long-run helped it
achieve and maintain a high market share in the fast-food
industry and it also enhanced the company's corporate

12. DEMERIT
• Regulations and Legal Requirement: In order for
McDonald’s to franchise the company must comply with
substantial government regulations and legal restrictions.
• Extensive Preparations: McDonald’s should prepare to
setup and train their franchisee.
• Prepare a thorough and detailed operation manual and
provide technical, marketing, and other form of support
throughout their franchise agreement. These are all time
consuming.

13. CONTRACT MANUFACTURING
• One company arranges for another company in a different
country to manufacture its products.
• As known as ‘International subcontracting’ or ‘international
outsourcing’
• The company provides with the manufacturer with specifications,
(materials required if applicable)
• Many industries use this process, especially the aerospace,
defence, computer, energy, medical, food manufacturing,, …
• Some types include machining, complex assemble, gears,
grinding, …

14. CONTRACT
MANUFACTURING
(CONTD)
• Globalization of business technologies and
increasing pressure on international firms to
be globally competitive in costs, products
offering, speed in bring new products
Driving force of contract manufacturing
• Economic development of a number of
countries depend on contract manufacturing
like China, Indonesia, Mexico, Taiwan, etc.
• It enables the firm to develop and control
R&D, marketing, distribution, while handling
over responsibility for the production to a
local firm

15. IKEA
• Operating in 41 countries, IKEA is a global destination
store for home furnishing, appliances, ready-to-assemble
furniture, home accessories and kitchen products
• While most of the designs of IKEA products are made in
Sweden, manufacturing has been outsourced to China
and other Asian countries. IKEA outsources most of its
products.

16. MERIT
• Cost advantage :
 Most of IKEA’ manufacturing partner are based in a country with low
cost labour (China, India… ). They specialize in specific types of
product
 Having high volume production lines => lower unit cost
 Do not need to invest expensive capital in equipment and hiring skilled
labour
Contribute to cost efficiency and cost leadership strategy of IKEA
Keep its products price 30-50% lower than competitors.
• Operational Advantage : IKEA maximise production through their
available capacity.

17. DEMERIT
• Control over manufacturing quality is difficult
Quality may be insistent
• Revealing the company’s secret: Contractor may become future competitor
Ex: Apple Inc. Most of their product are manufactured in China, but the key
software is still be controlled and monitored in its headquarter in CA.

18. TURNKEY PROJECT
• This is an entry mode whereby an international company is paid to design
and construct a project for a client usually government in the developing
country.
• The contractor which is the international company agreed to offer training
on the usage of the project before handing over.
• Turnkey project normally happened in contraction firm, pharmaceutical, and
electricity power station
• It is means of gaining great economic return from technology provided to
the host country.
• Turnkey strategy is useful when the host government regulation limits
foreign direct investment
• Turnkey product has less risk as compare to foreign direct investment
especially with countries with political instability as a long-term investment
in such country may expose the company to unacceptable political risk.

19. MANHATTAN CORPORATION – MERIT
• Turnkey projects have improved the financial capabilities of most companies that operate
turnkey projects.
• Manhattan Corporation for instance which is engaged in turnkey mining and processing
equipment have obtained substantial benefits from delivering projects in Africa in Australia
• In 2013 the company completed 80% 400 kW turnkey grinding mill for a chrome
processing mine in Zimbabwe and received initial funding for the project.
• The Zimbabwean Project offers Manhattan Corporation the opportunity to undertake
investment in Zimbabwe, a country where there is a lot of restrictions on foreign direct
investment.
• In the same year Manhattan Corporation delivered a $22m a semi-autogenous grinding
mill for Australian Copper company and this also boosted the company’s financial
resources.

20. DEMRIT
• Risk of revealing company’s secrets to rivals It should
however be noted that if the international company
process technology which is it competitive advantage
then selling the technology after the project is done
means selling your competitive advantage.
• May create competitor

21. • Non-equity modes vary in terms of resource or commitment to
foreign markets.
• NEMs allow firm and reduce risk in high-risk countries, however,
they only have limited control over it.
• No market entry mode is appropriate in all circumstances.
• Most firms will have a vast portfolio on entry modes, depending on
each specific market situation.