Business HW 7

 First, read the document “10 Successful American Businesses That Have Failed Overseas” and answer the following questions about two of the 10 stories: (please answer questions based on the document and video I provided. no outside sources)

1. What incentives did the company have to enter the new market and what were the basic benefit(s) they sought (see the first figure below and slides)?

2. What International Corporate level Strategy did they choose? What would you choose, why?

3. What were some of the political, economic, and cultural risks the companies weren’t aware of or underestimated leading to their poor performance? 

Then read the article “How Netflix Expanded to 190 Countries in 7 Years” and answer the following questions:

4. What lessons could be learned from Netflix’s international strategy? Do you think this strategy is feasible for other companies?

5. What advice would you give Netflix to help them remain successful overseas?

Watch either the Michael Marks, Janet Ang, or Manuel Medina-Mora videos (or all 3 but only answer the questions for 1) and answer the following questions:  link to 3 mins video:  https://vimeo.com/490354834. 

6. Do you agree with the leader’s decision? Why?

7. Can you think of a plausible alternative? 

How Netflix Expanded to 190 Countries in 7 Years

https://hbr.org/2018/10/how-netflix-expanded-to-190-countries-in-7-years

·

Louis Brennan

October 12, 2018 UPDATED October 12, 2018

Netflix’s global growth is a big factor in the company’s success. By 2017 it was operating in 

over 190 countries,

 and today close to 

73 million of its some 130 million subscribers are outside the U.S.

 In the second quarter of 2018, its international streaming revenues exceeded domestic streaming revenues for the first time. This is a remarkable achievement for a company that was only in the U.S. before 2010, and in only 50 countries by 2015.

Other U.S. internet companies have scaled internationally, of course (Facebook and Google are two obvious examples). But Netflix’s globalization strategy, and many of the challenges it’s had to overcome, are unique. Netflix must secure content deals region by region, and sometimes country by country. It also must face a diverse set of national regulatory restrictions, such as those that limit what content can be made available in local markets. International subscribers, many of whom are not fluent in English, often prefer local-language programming. And many potential subscribers, accustomed to free content, remain hesitant to pay for streaming services at all.

Furthermore, strong competition in streaming already exists in many countries. In France and India, for example, homegrown leaders offer local-language video content, thus depriving Netflix of first-mover advantage. In some countries, like Germany and India, rivals such as Amazon Prime were already established. Yet the majority of Prime subscribers are in the U.S., and Netflix has managed to make inroads into even those markets where Prime arrived first. Now Netflix, with its global reach, has 

more subscribers worldwide than all other pure streaming services combined

.

Netflix’s success can be attributed to two strategic moves — a three-stage expansion process into new markets and the ways it worked with those markets — which other companies looking to expand globally can use too.

Netflix did not try to enter all markets at once. Rather, it carefully selected its initial adjacent markets in terms of geography and psychic distance, or perceived differences between markets. For example, its earliest international expansion, in 2010, was to Canada, which is geographically close to and shares many similarities with the United States. Netflix was thus able to develop its internationalization capabilities in locations where the challenges of “foreignness” were less acute. In doing so, the company learned how to expand and enhance its core capabilities beyond its home market.

In that sense, the first phase of its globalization process was consistent with the traditional model of expansion. But from the experience and learning it gained in that process, Netflix developed the capabilities to expand into a diverse set of markets within a few years — the second phase of the process.

This second phase, involving a faster and more-extensive international expansion, saw Netflix extend its footprint to some 50 countries, drawing on the lessons it learned in the first phase in order to operate in a wider variety of markets. The choice of those markets was influenced by their degree of attractiveness, such as from shared similarities, the presence of affluent consumers, and the availability of broadband internet. The second phase helped Netflix continue learning about internationalization and partnering with local stakeholders while also growing its revenue. Since this phase involved expanding into more-distant markets, it was supported by investments in content geared toward the preferences of those geographies, as well as technological investments in big data and analytics.

The third phase, during which a much-accelerated pace of entry brought Netflix to 190 countries, used everything it had learned from the first two phases. It had gained expertise in the content people prefer, the marketing they respond to, and how the company needed to organize itself. Now Netflix focused on adding more languages (including for subtitles), optimizing its personalization algorithms for a global library of content, and expanding its support for a range of device, operation, and payment partnerships. Six months after entering Poland and Turkey in 2016, for example, Netflix added the local languages to its user interface, subtitles, and dubbing. As with the markets it had entered earlier, the company launched a service targeted at early adopters, and then iterated quickly to add features to attract a wider audience.

Recognizing that in some parts of the world, particularly emerging and developing economies, mobile is the primary way most people access the internet, Netflix also began placing a greater emphasis on improving its mobile experience, including sign-ups, credentials and authentication, the user interface, and streaming efficiency for cellular networks. It has been developing relationships with device makers, mobile and TV operators, and internet service providers as well.

Netflix has worked with, and responded to, the new markets it’s entered. The company has partnered with key local companies to forge win-win relationships. In some cases, it has joined with cell phone and cable operators to make its content available as part of their existing video-on-demand offerings. For example, when Vodafone launched a TV service for its customers in Ireland, it included a dedicated Netflix button on its remote controls. More recently, Netflix announced deals with 

Telefonica in Spain and Latin America

 and with KDDI in Japan.

And while Netflix believes that “great storytelling transcends borders,” in the words of Ted Sarandos, Netflix’s chief content officer, the company has responded to customer preferences for local content: Currently it’s producing original content in 17 different markets. Importantly, Netflix sees such content production as not just local-for-local, but also local-for-global. In other words, it aims to have content attract an audience not only locally, where it is produced, but also more widely. As such, Netflix potentially reaps the benefits of investing in local content all around the world.

To address the protracted process of signing content deals with major studios on a regional or local basis, it has increasingly pursued global licensing deals so that it can provide content across all of its markets at once. Netflix has also begun to source regionally produced content, providing a win-win for these producers, whose local content can find a global audience.

The company is also applying its deep customer insight to international markets, using that knowledge to create content that appeals to a wide range of customer segments. Despite its very rapid internationalization, Netflix implemented in all markets the same customer-centric model of operations that had been key to its success in the United States. It experiments with customer usage data to determine which offerings work best. Because it operates in so many countries, Netflix is able to try different approaches in different markets. As the number of its international subscribers grows, the performance of its predictive algorithms continues to improve.

Netflix has demonstrated that developing country-specific knowledge is critical for success in local markets. This knowledge needs to be both broad and deep, extending across political, institutional, regulatory, technical, cultural, customer, and competitor domains. Understanding local cultures ensured that Netflix could be sensitive to and respond to their differences. This enhanced its credibility and helped it forge smooth relationships with key stakeholders.

Taken together, the elements of Netflix’s expansion strategy constitute a new approach that I call exponential globalization. It’s a carefully orchestrated cycle of expansion, executed at increasing speed, to an increasing number of countries and customers. The approach has helped the company expand far more quickly than competitors. Going forward, Netflix will face increasing competition not only from other global players such as Amazon Prime but also from new entrants and regional or local players. In that regard, it will have to continue to expand its blending of global and regional content.

For a variety of market and technological factors, including the absence of high-speed broadband and a very low level of internet penetration in many parts of the world, exponential globalization was infeasible until a few years ago. With the growth of the internet in general, including on phones, tablets, and smart TVs, Netflix has demonstrated that this strategy is now a viable option. But it requires a mastery of local contexts, including the ability to acquire local knowledge and to demonstrate sensitivity and responsiveness. With the increasing prevalence of winner-take-all markets, companies operating in such markets will need to pursue an internationalization strategy similar to Netflix’s. And when it comes to Netflix’s next stage of growth, and how it will respond to new challengers, the sequel appears likely to be as captivating as the original.

(Reminder from the assignment): Answer the following questions about two of the 10 stories below. Use the figures at the end of the document to help (along with the book).

1. What incentives did the company have to enter the new market and what were the basic benefit(s) they sought (see the first figure below and slides)?

2. What International Corporate level Strategy did they choose? What would you choose, why?

3. What were some of the political, economic, and cultural risks the companies weren’t aware of or underestimated leading to their poor performance?

10 Successful American Businesses That Have Failed Overseas

It’s a big world out there and many of America’s biggest brands are eager to get their hands on a piece – or many pieces – of it. But what works on the average American consumer doesn’t always translate well in other countries, and a combination of naïveté, arrogance, and lack of understanding the market have often led to some rather disappointing ventures in the far reaches of the world. Some have suffered defeats in a number of countries, while others couldn’t make it work in very specific markets. Interestingly, many American behemoths struggled especially in China and other Asian markets, largely due to a lack of understanding of local demands and buying habits. In most cases, an adherence to their Americanized approach to marketing and selling became their undoing. People in different countries were turned off by foods, products and strategies that simply didn’t suit their cultural tastes. Who would have guessed not everyone wants to live American style?
Below are 10 American brands that struggled to make it abroad.

Best Buy

This big box store chain may appeal to Americans, but the electronics and entertainment retailer has struggled to make headway in foreign markets. 

Business Insider

 reported in 2011 that Best Buy bungled its European efforts through poor marketing strategy and for failing to notice that Europeans prefer smaller shops to large box stores, among other factors. Best Buy also 

closed its branches

 in China and Turkey. CNBC contributor and China Market Research Group founder 

Shaun Rein

 attributed Best Buy’s lackluster performance in China to “failing to differentiate its product lines” from local retailers and for not adapting to local consumers’ shopping preferences, such as preferring smaller, more conveniently located retailers.

eBay

The popular ecommerce site eBay was no match for TaoBao, China’s heavyweight company, in this industry. In an article for the 

Association of Computing Machinery

, two Hong Kong-based professors cited TaoBao’s built-in instant messaging system as a reason for its edge over eBay China. Customers wanted to be able to see a seller’s online status and communicate with them easily — a function not seamlessly incorporated into eBay’s China system. Despite eBay’s seller rating system based on feedback from past buyers, the ACM article noted that Chinese customers prefer to develop trust through their own interactions with sellers rather than acting on other users’ ratings.

eBay also struggled in Japan, where it launched in 2000. Both 

Forbes India

 and 

Finance Elements

 noted that the company did not adjust its strategies and purchasing methods according to local preferences. For example, buyers had to input their credit card information in order to make a purchase, a practice that was not popular in Japan at the time. The company did not offer a cash-on-delivery service, which Finance Elements asserts would have made a significant difference in how it was received. Forbes noted that eBay learned from these early mistakes and made more successful returns to both countries several years after its initial failed attempts.

Google

This most massive of Internet companies faced notorious 

issues with the Chinese government

over censorship, but its struggles in China go well beyond that. 

The New York Times

 reported in 2010 that Google could never catch up to Chinese competitor Baidu, which initially catered to consumers by offering easy access to pirated media, rapidly growing their user base.

However, the Times also noted that in all cases with American Internet companies that fail in China, it’s difficult to compete with Chinese entrepreneurs who are better equipped to cater to the local market. Lee Kai-fu, a former Google exec in China, echoed that sentiment in an interview with Abu Dhabi’s 

The National

. He blamed corporate bureaucracy in part for U.S. companies being unable to compete with Chinese ones, and said being attuned to the local market, having a strong local team and long-term strategy, and the ability to respond quickly to customer demands were essential for success.

Groupon

Tech in Asia

 wrote a fairly scathing piece on the ways in which group-buying deals site Groupon made missteps in the Chinese market. Among its criticisms were the fact that the company staffed largely foreign managers who didn’t have a strong understanding of the Chinese purchasing landscape, and using marketing tactics that were counter to what Chinese consumers typically respond positively to. Competitors echoed some of these criticisms, and according to 

TechCrunch

, Groupon “didn’t have a chance from the beginning” because of their lack of understanding of the Chinese market.

Groupon now holds a minority share in Gaopeng, the local daily deals site it launched in partnership with Chinese company Tencent. Gaopeng reportedly 

received $30 million in funding

 from Groupon and Tencent in July 2013, but had only about 

three percent

 of China’s daily deals site market share as of the first quarter of 2013, according to Tech in Asia.

Mattel

The free-standing Barbie store Mattel built in Shanghai turned out to be less of a dream house and more of a disappointment in a market it seemed to have approached too aggressively.

Businessweek

 described the store, which was meant to appeal to both young girls and adult women, as having 900 display cases, a spa and a cocktail bar, and other various attractions. That’s quite a commitment in a market where Barbie is relatively unfamiliar and doesn’t have the audience base to guarantee a return on the investment. The 36,000-square-foot, six-story Barbie store was open only two years before Mattel decided to close up shop.

McDonald’s

The Golden Arches are a staple fast food establishment around the globe, but Ronald and Co. haven’t quite caught on in the Caribbean. The company made a good effort during its 10-year run in Jamaica, initially opening 11 stores on the island. A writer for 

Moneymax101

 noted a number of other issues, including high barriers to running a McDonald’s franchise and a slow economy. In 

Barbados

, the company was there less than a year before closing due to lack of sales.

McDonald’s also saw less-than-stellar performance in Trinidad and Tobago, pulling out of the country in 2003 due to low sales. But Mickey D’s is nothing if not determined, and Arcos Dorados, a major McDonald’s franchiser in Latin America and the Caribbean, announced in 2011 that 

the chain would reopen there

.

Starbucks

Given its prolific status in the United States, it seems almost inconceivable that Starbucks would not be a crowd-pleaser wherever it opened its doors. But that was just the case in Australia, where the 

BBC

 said the “coffee juggernaut” could not compete with “local stores’ homespun hospitality and boutique qualities.” Though Starbucks is a wildly successful international chain, some coffee drinkers shunned it for not being original enough, with no compelling reason to choose it over more interesting and diverse roasts from other shops.

The chain also faced issues when it expanded into the Israeli market, and closed its six stores there in 2003, 

citing “operational challenges.”

 Some commentators criticized the chain for not appreciating coffee culture in Israel, and misinterpreting the local consumer base’s tastes.

Taco Bell

This gastronomically dubious fast food chain has seen mixed reactions in Asia. Despite the success of parent company Yum Foods’ other brands, such as KFC, in China, Taco Bell never garnered rave reviews in the Middle Kingdom, according to 

Agenda Beijing

. The magazine noted that Mexican food is “notoriously hard to market in China,” and the Taco Bell shops in Shanghai and Shenzhen were shut down in 2008.

Taco Bell made a valiant 

return to South Korea

 in 2010, after a poor performance there in the 1980s. The fast food chain was opened in 

Itaewon and Hongdae

 — a strategic move, as these are two popular nightlife areas frequented by foreigners who are likely familiar with the brand.

WalMart This famous shopping center is as American as apple pie — and that just may be its biggest problem abroad. WalMart has made forays into a number of foreign markets but been unable to replicate its original success in some, a problem that can be attributed to the corporation not fine-tuning the shopping experience to the local culture.
For example, in South Korea, the company did not heed local preferences for buying small packages at a variety of local stores, the presence of native discount chains, and aesthetic preferences among shoppers, according to The New York Times. Similar problems contributed to its closures in Germany, where customers could find groceries for lower prices at local stores.

In Japan, WalMart bought a share in the Seiyu company, and attempted to implement its successful strategies in Seiyu stores, such as the “Every Day Low Prices” campaign. However, Businessweek pointed out that this doesn’t have the same draw in Japan as it does in the United States because customers associate low prices with cheap quality, making them wary about shopping there.

Wendy’s

Yet another American fast food chain that struggled to make foreign consumers fall in love with their greasy goodness, Wendy’s left Japan in 2009, shutting the doors at its 71 locations in the country. At the time, a Wendy’s spokesman said the company hoped to return to Japan to explore new opportunities in a timely manner, according to the 

Associated Press

. But in a country that already has McDonald’s and Burger King, not to mention its own burger chains that focus on the Japanese palate, it’s small wonder that Wendy’s was ultimately edged out.