Ebook Global marketing: Foreign entry, local marketing, global management (Fifth edition) – Part 1

Ebook Global marketing: Foreign entry, local marketing, global management (Fifth edition) – Part 1 includes contents: Chapter 1: The global marketing task; Chapter 2: Theoretical foundations; Chapter 3: Cultural foundations; Chapter 4: Country attractiveness; Chapter 5: Export expansion; Chapter 6: Licensing, strategic alliances, FDI. Đề tài Hoàn thiện công tác quản trị nhân sự tại Công ty TNHH Mộc Khải Tuyên được nghiên cứu nhằm giúp công ty TNHH Mộc Khải Tuyên làm rõ được thực trạng công tác quản trị nhân sự trong công ty như thế nào từ đó đề ra các giải pháp giúp công ty hoàn thiện công tác quản trị nhân sự tốt hơn trong thời gian tới.

33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 th Edition Global Marketing seeks to develop the different skills a marketing manager needs to be successful when taking on the three-part tasks of foreign entry, local marketing, and global management Excellent examples and cases, many of which are drawn from the author’s rich international experience, help you move from concept to application Updated and New Features in the 5th Edition: The Effect of Technology and the Internet on Global Commerce Coverage is introduced early in the text and then integrated throughout the text where appropriate so students experience how technology affects global marketing Revised coverage of e-commerce in Chapter 17 recognizes the amazing developments after the emergence of Web 2.0 Revised Chapter 11: The Global Marketing Strategy The new Global Branding chapter extends the branding discussion in the previous edition, and adds new material on brand equity and on the added value that globality confers upon a brand This chapter also introduces the concept of country branding For more information and student resources, please visit the text Online Learning Center: www.mhhe.com/johansson5e ISBN 978-0-07-338101-5 MHID 0-07-338101-2 90000 780073 381015 www.mhhe.com Johny K Johansson New Chapter 13: Global Branding t h Edition global marketing Foreign Entr y, Local Marketing & Global Management Johny K Johansson MD DALIM #983087 09/12/08 CYAN MAG YEL BLK This revised chapter is an extended version of the Global Segmentation and Positioning chapter in the fourth edition The chapter still covers new research on global segmentation and positioning, but also adds new material on resource allocation across products and markets global marketing Focus on marketing decisions in the global environment joh81012_fm_i-xix 9/17/08 04:19am Page i ntt 201:MHBR058:mhjoh4:joh4fm: 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 Global Marketing joh81012_fm_i-xix 9/17/08 04:19am Page ii ntt 201:MHBR058:mhjoh4:joh4fm: 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 joh81012_fm_i-xix 9/17/08 04:19am Page iii ntt 201:MHBR058:mhjoh4:joh4fm: 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 Global Marketing Foreign Entry, Local Marketing, & Global Management Fifth Edition Johny K Johansson Georgetown University Boston Burr Ridge, IL Dubuque, IA Madison, WI New York San Francisco St Louis Bangkok Bogotá Caracas Kuala Lumpur Lisbon London Madrid Mexico City Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto joh81012_fm_i-xix 9/18/08 02:18am Page iv ntt 201:MHBR058:mhjoh4:joh4fm: 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 GLOBAL MARKETING: FOREIGN ENTRY, LOCAL MARKETING, AND GLOBAL MANAGEMENT Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020 Copyright © 2009, 2006, 2003, 2000, 1997 by The McGraw-Hill Companies, Inc All rights reserved No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning Some ancillaries, including electronic and print components, may not be available to customers outside the United States This book is printed on acid-free paper QPD/QPD ISBN 978-0-07-338101-5 MHID 0-07-338101-2 Vice president and editor-in-chief: Brent Gordon Publisher: Paul Ducham Managing developmental editor: Laura Hurst Spell Editorial assistant: Jane Beck Associate marketing manager: Dean Karampelas Lead project manager: Pat Frederickson Full service project manager: Meenakshi Venkat, Aptara, Inc Lead production supervisor: Carol A Bielski Designer: Matt Diamond Senior photo research coordinator: Jeremy Cheshareck Photo researcher: Ira C Roberts Media project manager: Suresh Babu, Hurix Systems Pvt Ltd Typeface: 10.5/12 Times New Roman Compositor: Aptara, Inc Printer: Quebecor World Dubuque Inc Library of Congress Cataloging-in-Publication Data Johansson, Johny K Global marketing : foreign entry, local marketing, & global management / Johny K Johansson.—5th ed p cm Includes bibliographical references and index ISBN-13: 978-0-07-338101-5 (alk paper) ISBN-10: 0-07-338101-2 (alk paper) Export marketing Export marketing—Management I Title HF1416.J63 2009 658.8'4—dc22 2008039034 www.mhhe.com joh81012_fm_i-xix 9/17/08 04:20am Page v ntt 201:MHBR058:mhjoh4:joh4fm: 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 To my parents, Ruth and Nils Johansson joh81012_fm_i-xix 9/17/08 04:20am Page vi ntt 201:MHBR058:mhjoh4:joh4fm: 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 joh81012_fm_i-xix 9/17/08 04:20am Page vii ntt 201:MHBR058:mhjoh4:joh4fm: 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 About the Author Johny K Johansson is the McCrane/Shaker Chairholder in International Business and Marketing in the McDonough School of Business at Georgetown University An expert in the areas of international marketing strategy and consumer decision making, especially as applied to Japanese and European companies and markets, Johansson has published over 70 academic articles and chapters in books He is the author of In Your face: How American Marketing Excess Fuels Anti-Americanism, Financial Times/Prentice Hall, 2004, and (with Ikujiro Nonaka) of Relentless: The Japanese Way of Marketing, HarperBusiness, 1996 He has conducted numerous executive seminars in many countries, including Japan, Germany, Sweden, Hong Kong, Thailand, and India He has also been a consultant to companies in many countries, including General Electric, Marriott, and Xerox in the United States; Beiersdorft and Ford Werke AG in Germany; Volvo and Electrolux in Sweden; and Honda, Dentsu, and Fuji Film in Japan Before joining Georgetown’s faculty, Professor Johansson held faculty positions at the University of Washington and the University of Illinois He also has held many visiting appointments in several countries He was the first Isetan Distinguished Visiting Professor at Keio Business School (Japan) and the first Ford Distinguished Visiting Professor at University of Cologne in Germany He also has been a visiting professor at New York University, Dalhousie University (Canada), Stockholm School of Economics, the Catholic University of Leuven (Belgium), the National Defense Academy (Japan), and the International University of Japan In 1988 he was a Phelps scholar at the University of Michigan Professor Johansson earned Ph.D and M.B.A degrees from the University of California, Berkeley, and his undergraduate degree (Civilekonom) from the Stockholm School of Economics A Swedish citizen, he lives in Georgetown, Washington, DC, with his wife, Tamiko, and their two daughters, Anna and Sonja vii joh81012_fm_i-xix 9/17/08 04:20am Page viii ntt 201:MHBR058:mhjoh4:joh4fm: 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 Preface Global marketing is one of the most exciting fields of business With the emergence of China, India, Vietnam, Dubai, and other unlikely candidates for global pre-eminence, many people and many companies around the globe now believe in the basic soundness of globalization and free trade Of course, there are clearly countries, companies, and people who have been shortchanged by the globalization process and who, not surprisingly, demand redress While terrorism cannot—and, fortunately, is not—condoned by anybody sane, at least the antiglobalization activists are raising issues that the global marketer needs to pay attention to But there are other challenges as well Global marketing is very demanding professionally This goes for managing it or learning about it, and also for teaching it It requires not only a good grasp of marketing principles and an understanding of the global environment, but also how the two interact—that is, how the environment impacts the applicability of the marketing principles Good marketing might be good marketing everywhere—but this does not mean it is necessarily the same The challenge when writing a text in global marketing is how to avoid being overwhelmed by all the curious and amazing differences in the marketing environment in foreign countries These differences make things fun and enjoyable—but also frustrating, since after a while it is difficult to see if any progress has been made It is hard to see the forest for the trees The key is to focus on the marketing decisions that have to be made—and then deal with those environmental factors that directly impact those decisions This is the approach taken in this text It discusses the complexities of global marketing and clarifies the managerial roles involved, without getting bogged down by the many environmental issues that are only marginally relevant Key Features When compared to other texts on the subject, Global Marketing still has three main distinguishing features: There are no introductory chapters on “the international environment” of politics, finance, legal issues, and economic regions With the exception of culture, the book covers the environmental variables on an “as needed” basis, in the various chapters As opposed to the traditional view of one “marketing manager,” the typical global marketing manager’s job consists of three separate tasks: foreign entry, local marketing, and global management Each requires different skills, as we will see Our metaphor is that the marketer wears “three hats,” sometimes successively In foreign entry, in global management, and to a large extent even as a local marketer in a foreign country, the global marketer needs skills that the home market experience—or the standard marketing text—has rarely taught The recognition of the three roles helps dispel the notion that “there is no such thing as international or global marketing, only marketing.” This sentiment has some truth to it, but mainly in the local marketing portion of the job The material is based on a foundation of strategy and the theory of the multinational firm—for the most practical of reasons, because the theory helps the marketing manager understand what drives the company expansion abroad and how and when to adapt the various marketing functions involved to local conditions At the same time, much of the excellent research and tried-and-true teaching material that global marketers in business and academe have contributed over the years is reflected in the chapters and in the several cases that can be found at the end of each major section My intent has been to retain and update much of the teaching and instructional material that has made global marketing such an exciting class in many business schools—and made for the start of an exciting managerial career—and to viii joh81012_fm_i-xix 9/17/08 04:20am Page ix ntt 201:MHBR058:mhjoh4:joh4fm: 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 Preface ix fit the material into a structure that reflects the global marketing management tasks I have focused on material that is timely and up-to-date, and relevant to the global context Target Audience and Possible Courses Global Marketing is aimed at the executive, the MBA student, or the senior undergraduate, none of whom is completely new to marketing or to the global environment I have in mind a reader who is familiar with the basic marketing principles, and who has had some exposure to the international environment and the thrust toward a global economy I have avoided unnecessarily complicated jargon—the global marketing job is inherently complex, and any opportunity to “keep it simple” has been capitalized on The three-way partition of the book makes it possible to construct several alternative course outlines from the book • A complete course on “Global Marketing,” possibly using additional cases, is the “full-course” treatment • A shorter “Global Marketing Management” course, perhaps for executives, could go straight from the fundamentals in the first three chapters to Part Four, “Global Management,” starting with Chapter 11 This is one approach I have used at Georgetown • An “International Marketing” course could focus on local marketing and global management, Parts Three and Four • An “Export Marketing” course could select the foreign entry chapters from Part Two, and then the local marketing chapters in Part Three plus the pricing and distribution chapters in Part Four, “Global Management.” • At Georgetown I have also used the text in a second-year MBA class titled “Foreign Market Development,” for which I assign Parts Two and Three on foreign entry and local marketing, and then only the first three chapters of Part Four, “Global Management.” New to the Fifth Edition The fifth edition keeps the original structure (Foreign Entry, Local Marketing, Global Management) that has proved successful and popular among users But based upon user and reviewer feedback, several changes have been introduced in order to make the text more relevant, useful, and up-to-date The five major changes are: There is a new chapter on “Global Branding” (Chapter 13) This chapter extends the branding discussion in the previous edition, and adds new material on brand equity and on the added value that “globality” confers upon a brand It also introduces the concept of country branding The “Global Marketing Strategy” chapter (Chapter 11), leading off Part Four on “Global Management,” is a revised and updated version of the “Global Segmentation and Positioning” chapter in the fourth edition The chapter still covers new research on global segmentation and positioning, but adds new material on resource allocation across products and markets The “Global Product” and “Global Services” chapters have been consolidated into Chapter 12, made possible by breaking out “Global Brands” into its own chapter This means the fifth edition has the same number of chapters as the fourth The region-specific chapters in Part Three on “Local Marketing”—mature markets in Chapter 8, new growth markets in Chapter 9, and emerging markets in Chapter 10—have been updated, taking into account not only economic developments such as China’s and India’s emergence as major players, but also the new Russia, Vietnam, and the Middle East joh81012_ch06_157-204.qxd 9/10/08 9:54PM Page 190 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 190 Part Two Foreign Entry Illy was a true gourmet, who sought to provide his customers with the highest-quality espresso coffee By 1990 Illycaffe had a total of 150 employees and its sales had grown from 21 billion lire in 1983 to 67 billion lire in 1990 It was a family-owned company whose shares were divided between Ernesto Illy (the founder’s son), his wife, and their four children, all of whom occupied various management positions within the company Riccardo Illy was marketing manager What’s Espresso? Italy is well known for its history, culture, art, and beauty Italian wine and cuisine are also part of the mystique that attracts people from around the world Espresso coffee is an element of the cuisine and therefore of this mystique Espresso is a symbol of the Italian culture What makes espresso so different from other types of coffee? There are several methods to percolate coffee: the “filter” or “napoletana” method of letting the weight of the water itself (gravity) pull it through the coffee powder; the “moka” method of creating steam pressure to push water through the coffee; the “espresso” method, which uses water at 194 degrees fahrenheit and 9–10 atmospheres of pressure The higher the pressure, the less time it takes for the coffee to percolate; the filter method requires several minutes, while the moka method requires one minute, and the espresso method only 30 seconds The different methods also result in different levels of caffeine in the coffee cup; the filter method (common in North American and in northern Europe) results in 90–125 mg of caffeine per cup, while the espresso method produces a cup with only 60–120 mg of caffeine Marketing Strategy Being a single-product company, Illycaffe differentiated its packaging of espresso coffee based only on format (from kg for professional consumption; from 125 gr to 250 gr for domestic consumption), on the form (ground coffee, beans, or E.S.E servings), and on the type (regular or decaffeinated) The unique preservation of the product, by the use pressurization, allowed the expansion of Illycaffe in strategic areas such as the United States, Europe, and even Japan The company’s mission, which was “to delight customers around the world with an excellent cup of espresso and to everything to improve its quality,” reflected the high level of specialized experience capable of meticulously evaluating both the product level and the process level The direction of excellence always made reference not only to the product that left the establishment but also to “the cup of espresso perfectly served, in every moment and in every place in the world.” Illycaffe’s positioning strategy in the crowded coffee market was based on the quality concept In order to © Anna Kubato maintain high standards, the management had patented a packaging system that was able to guarantee high levels of flavor and aroma But the quality system was also based on the careful selection and control of the coffee beans used in production Illycaffe used only 100 percent Arabica beans in production and had contributed to the invention of sophisticated machinery that was able to eliminate any defective beans from each batch used in production The company also dedicated percent of annual sales to research and quality control The advertising and promotion policies also focused on the quality of the product, linking it to the brand name in order to increase brand loyalty It was difficult for producers to ensure that coffee served in cafes was identified by brand But because most consumers believed coffee made in bars and restaurants was better than that made at home, a strong presence in this segment was necessary to build the brand’s image in the home segment (food retailing) Illy reinforced its brand name in cafes and restaurants by asking the owners to display Illy signs and logos both outside the premises to attract customers and inside to recall the brand name The marketing policies and brand image established by the management helped Illy to get a premium price for its coffee, often even doubling the price of the next highest competitor in this market The Quality Problem One of the company’s major problems in maintaining its quality image was the high rate of personnel turnover in the bar and restaurant business Many employees took on temporary positions as they were looking for other lines of work This was true in most advanced economies, but it meant that bar operators constantly had to train new personnel in the art of producing a quality cup of espresso The quality depended as much on the human input and machinery as on the quality of the coffee used According to Illy, in fact, a good cup of espresso depended on several elements including the quality of the beans, the roasting of the beans, the correct mix of roasted beans, the quantity of coffee powder used to prepare each cup of coffee, the de- joh81012_ch06_157-204 8/28/08 8:07 PM Page 191 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 Case 2-2 Illycaffe (A): Internationalization gree to which the coffee was pressed into the filter of the espresso machine, the water temperature, the pressure at which the water was expelled during the preparation, the cleanliness of the filter, the size of the filter holes, and the quality of the water used in preparation The company decided that this was a strategic area for innovation and began to offer technical assistance and training/consultancy to its clients As Riccardo Illy noted, “A good product is not enough in this market You also have to teach the operators of the espresso machines how to use them in the best way if you want to guarantee an increase in sales.” Global Strategy As the company grew to serving about million servings every day worldwide, more emphasis was placed on retail sales Outside Italy most sales had focused on the professional sector as Illycaffe had looked to restaurant chefs and cafes for the majority of its business However, the company’s marketing director, Franco DiLauro, indicated that while 63 percent of company sales were still in Italy this was expected to soon change He stated that sales growing in other countries at 25 percent or more should soon eclipse the current 8–10 percent domestic growth expected in Italy’s saturated, caffeine-driven marketplace As the firm had grown, its dilemma had become its image as a premium product that people should save for special occasions This notion was reinforced by an advertising campaign that featured Spanish actress–model Ines Sastra choosing Illycaffe as the perfect perfume In order to encourage consumption and convey that the extraordinary can be found in ordinary, everyday life, Francis Ford Coppola, the director of the Godfather movies, was enlisted to film his first-ever commercial Coppola also owned a California vineyard and had a store in San Francisco that sold Illycaffe With a $2 million budget and $4 million cost to run the commercial in Italy, Illycaffe was counting on Coppola to craft a coffee story juxtaposing illusion and reality The result was a homage to the Italian barista, or coffee bar operator, that had distributors in the United States and other markets clamoring to air The U.S Entry Illycaffe first entered the U.S market in 1981 after a long history and success in many high-end shops and restaurants throughout the world At that time, espresso could be found in few places other than Italian stores and restaurants, and the initial American reaction was not very enthusiastic toward the bitter beverage served in a tiny cup The company began focusing on the foodservice industry, courting top chefs and owners of fine restaurants throughout the country Statistics clearly showed that Illycaffe was in the right market at the right time According to the National Coffee Association, Americans drank just 1.87 cups of regular 191 coffee a day in 1993, down from 2.22 cups in 1975 But the Specialty Coffee Association said its industry was booming, doing more than $3 billion in retail business in 1993, with that figure expected to reach $5 billion by 2000 Thus, Illycaffe saw its sales increase by 53 percent in 1992 and another 45 percent in 1993 In 1994, the company expected sales to perk up another 38 percent and increase three-fold from the current level in just four more years Initially, Illycaffe faced sizable entry barriers into the U.S market For instance, since the 1950s U.S coffee consumption halved as a result of competition from soft drinks So Illycaffee not only had difficulty adapting American lifestyle and taste to espresso but also educating and training barmen how to serve a good espresso by handling the machine properly and using consistently the right dose of coffee But Illycaffe saw further growth in the American market based on sheer numbers alone In Italy there is one espresso bar for every 400 inhabitants, but in the United States the ratio is about one for every 30,000, according to Andrea Illy Japan was also viewed as a market where espresso could similarly become a fashionable drink The German Entry Problem Even though successful elsewhere, by the early 1990s Illy faced some difficulties in its German entry The position of Illy in Germany was somewhat different from its position in other European countries where sales were made through agents and sales subsidiaries Originally (1974), an exclusive agreement had been signed with a German distributor Despite the limits of this strategy, the company’s sales grew from 10 tons in 1974 to 30 tons in 1978 In 1978, however, one of the major German coffee producers, Hag, approached the management of Illycaffe with a proposal to form a distribution alliance Hag was a family-owned and family-run business with a long tradition in the coffee industry The company produced both caffeinated and decaffeinated filter coffee, as well as a line of supplementary products such as sugar and cream Hag had an extensive distribution network throughout Germany and had noted a growing interest in espresso coffee among its clients The company had tried to produce its own brand of quality espresso, but had failed and was now looking for an Italian producer who would be interested in an alliance for the German market Ernesto Illy realized that any significant increase in sales in Germany would require much greater investments in both sales force and promotion But 1977 had not been a profitable year in the domestic market, and the company’s financial situation would not permit such investments Nor was the existing German distributor willing to take on further commitments Ernesto therefore decided to accept Hag’s proposal As he concluded: “This was a great offer from a significant player in the German coffee industry who believed in our product This was all the assurance that I needed.” joh81012_ch06_157-204 8/28/08 8:07 PM Page 192 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 192 Part Two Foreign Entry The Hag-Goldene Tasse Era The contract that was signed by the two companies in 1978 gave Hag exclusive rights to the sale of Illy coffee in Germany Illy’s German distributor, in fact, was required to turn over its client lists to Hag The job of Illy’s distribution was reduced to acting as an interface between the two headquarters and to supplying smaller customers Illy maintained control over the brand name and the product, while Hag was given responsibility for promotion and distribution decisions in Germany Rough sales targets were indicated in the contract (80 tons by 1980, 150 tons by 1981, and 250 tons by 1982), although Hag was under no obligation to reach these targets No provisions were made for Illy to receive any information about the clients Three years later, Hag was acquired by another company in the German coffee business, Goldene Tasse No significant changes were made in the Illycaffe agreement as a result of this acquisition In fact, the meetings between the two companies during these years were rare and the contract was typically renewed at the end of each period without any direct contact between the two partners According to the original contract, Hag had agreed to pay Illy 13.70 DM for each kilo of coffee received The price was broken down into two parts: one half was pegged to the price of green coffee on the international market, while the other half was pegged to Illy’s production costs Price changes were provided for only the half related to the raw coffee: These changes could be effected only every three months according to the fluctuations in the trading price established on the international market Requests for price increases due to rising production costs, on the other hand, could be made by Illy only once at the beginning of each contract year and had to be supported by documentation explaining the actual cost increases Following the signing of this agreement in 1978, Illy witnessed a steady increase in sales But as Riccardo complained as he looked over the records in 1990, “The sales may have been increasing, but we weren’t making any money Our selling price was too low to earn any margins and we had to absorb the high rates of inflation in Italy Moreover, as the price of green coffee continued to fall on international markets due to the excess in supply throughout the 1980s, we had no way to raise the price of our product to Hag in any substantial way.” Globalizing the Strategy As Riccardo Illy took over responsibility for the company’s international activities in 1990, he quickly decided to change Illy’s strategy in the European market He was convinced that the move toward a more unified European market provided an excellent opportunity for Illy to appeal to a pan-European consumer through a standardized marketing program in line with the strategy followed in the Italian market In order to carry out this plan, however, he understood that he needed to create a cohesive team and to bring the various subsidiaries under his direct control The most effective way he saw to begin this process was to acquire distributors in each major market Once the buyout process was completed, Mr Illy gave one of his export managers, Mr Giacomo Biviano, responsibility for the company’s activities in Europe Mr Biviano, a young and decisive manager with a strong background in both international marketing and administration and control, was named CEO for France and Germany, and also appointed to the supervisory board of the new company in Holland As Biviano described it, “We needed managers who would be loyal to our ideas and would implement a standardized set of policies that were to be decided at the central level.” Ownership Complications Just about this time, however, Riccardo Illy also learned that Hag-Goldene Tasse had been acquired by General Foods, a diversified multinational in the food industry, which was itself later acquired by Philip Morris International By 1990, both Kraft, another American-based multinational in the food business, and Jacobs Suchard, a Swiss producer of coffee and chocolate with its own line of espresso, had also come under the wing of the Philip Morris group As a result, a merger was made between Hag’s coffee division, Goldene Tasse, and Jacob Suchard’s coffee business in Germany The new company, called Jacobs-Goldene Tasse, took over Hag’s position as Illy’s partner in the German market Riccardo Illy immediately called for a meeting with the new partners to discuss the potential effects of the changes on the distribution agreement between the companies Although Hag-Goldene Tasse had its own line of espresso coffee, and Jacobs Suchard had a line of both espresso coffee and espresso beans, all of which were sold to the bar segment in Germany, Riccardo Illy underlined the fact that none of these products were of the same quality as Illy’s brand of espresso coffee At the meeting the parties agreed to continue the existing arrangement until Jacobs had time to more research, with one significant change To protect its quality image, Illy was allowed to have a technical assistant accompany Hag’s salesmen during client visits, providing consultancy on the use and maintenance of espresso machines Although the arrangement lasted only a few months, Illy gained some important insights from these visits As Biviano noted, “One significant lesson we learned from these direct contacts with the clients was that it was unusual for bar and restaurant operators in Germany to demand trade credit from small suppliers Such financing was required only from suppliers whose products represented a large share of the business, such as filter coffee and beer.” joh81012_ch06_157-204 8/28/08 8:07 PM Page 193 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 Case 2-3 Illycaffe (B): The Starbucks Threat The Second Meeting Riccardo Illy and Giacomo Biviano prepared a list of changes that they wanted made in the contract for the subsequent meeting: The selling price of Illy coffee to Hag-Goldene Tasse would be the same as in other European markets, and with the same payment conditions All marketing activities (especially advertising to the trade, to the consumer, and at the point-of-sales) would be managed and controlled by Illy’s new German subsidiary Hag-Goldene Tasse would be granted exclusive rights to the distribution of Illy coffee in Germany, contingent on the requirement that Hag-Goldene Tasse distribute only Illy’s brand of espresso coffee Clear growth objectives would be stipulated in the contract These objectives should be in line with Illy’s overall objectives for growth, and Hag should be obliged to achieve the stated objectives A unit to supervise technical consulting/quality control at the point-of-sales would be created and managed by Illy-Germany A new policy of communication at point-of-sales would be implemented through the use of Illy cups and billboards Illy should have the authority to control the implementation of this activity through contracts and regular visits to clients By the end of the meeting, Jacobs Suchard and HagGoldene Tasse had agreed to points (1) and (4), but had refused to accept point (3) The companies did not adopt a position concerning points (2), (5), and (6) No new meeting was scheduled between the parties Uncertain Future At the end of the current contract period in June 1991, the manager of Illy-Germany terminated the contract between Illy and Hag-Goldene Tasse, offering an interim 193 option to renegotiate a new contract The option was left open until the end of August In the meantime, Riccardo Illy and Giacomo Biviano began to study the three major alternatives: Give full responsibility for rules and distribution back to Illy-Germany and work together with the German team to establish an effective sales force Look for a new partner in Germany who could offer a solid sales network and would agree to the terms outlined in the proposal prepared for Hag-Goldene Tasse Work toward a new contract with Hag-Goldene Tasse/Jacobs Suchard In the latter two cases, given that it was unlikely that all of Illy’s requests would be accepted by any partner, it would be necessary to rank the requests in order of importance and to establish the minimum requirements for any agreement As the next step, therefore, the two managers had to decide whether or not to attempt to revive the piggyback agreement with Hag, to look for a new distributor, or to create their own network in accordance with their new Euro strategy Source: This case was prepared by Pamela Adams, SDA Bocconi, Milano, and revised by Paul Kolesa Used with permission Discussion Questions To what extent you think a global strategy in coffee is well-founded? For example, is the espresso market global or multidomestic? How would you define Illycaffe’s FSAs? CSAs? Can they be transferred abroad? What were the difficulties Illycaffe faced when expanding abroad? How did these impact its choice of entry mode? What created the problems with the existing distribution strategy in the German market? Was the distribution alliance with Hag ill-advised? What negotiation strategy would you have recommended for Mr Illy? Case 2-3 Illycaffe (B): The Starbucks Threat Throughout the 1990s and into the new millennium, Illy continued to expand its relationships with restaurants and hotels around the world As of 2004, Illycaffe was sold in over 70 countries Europe and the United States were the primary strategic markets, where the group held close to 30 percent of the market for quality coffee Approximately two-thirds of its business came from the hotel, restaurant, and cafe sectors The proportion of sales earned outside of Italy was constantly growing and had reached over 40 per- cent The company’s global presence was strengthened after it became the only global agro-industrial company to have double quality certification In 1996, the company was granted ISO 9001 certification for its production process, after having received the Qualite France certification for its product quality in 1992 In Italy, Illy was still number one in Italy’s highly fragmented hotel, restaurant, and bar segment, but held only a percent market share The company had 27 percent of joh81012_ch06_157-204 8/29/08 2:23 AM Page 194 201:MHBR058:mhjoh4:joh4ch06: 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 194 Part Two Foreign Entry the home espresso market, however Among Italian connoisseurs, Illy was deemed the elite brand Illy went to much greater lengths than most firms to promote quality and consistency “It was ‘La Dolce Vita’ in a cup,” according to its loyal customers By the beginning of the new millennium, however, Illy faced a new and surprising global threat: An American chain of coffeehouses American coffee had always been disparaged as weak and watery, just like American beer But now Starbucks, a small company from Seattle, had revolutionized the coffee market in the United States, with high-quality lattes, mochas, and espressos There were also typical American “innovations” like “frappuccino,” an ice and coffee concoction, and paper cups of different sizes (all big compared to Illy’s standard cups) Espresso in a paper cup? To CEO Andrea Illy, son of Ernesto Illy, it seemed heretical and an insult to the coffee But Starbucks was very successful, not only in the United States, and the chain was expanding globally at a fast clip Should Illy worry about Starbucks? How big was the threat? Were Illy and Starbucks competing for the same segments of coffee drinkers? Perhaps Starbucks was simply creating new coffee drinkers, enlarging the total market? Andrea Illy decided he must take a closer look at the company, its history, and its financials The Starbucks Threat At the beginning of the new millennium, Starbucks seemed to be everywhere The world’s number one specialty coffee retailer, Starbucks operated and licensed more than 7,500 coffee shops (yes, they were referred to as shops rather than coffee bars or coffeehouses) in more than 30 countries Starbucks owned more than 4,700 of its shops (mostly in the United States), while licensees operated more than 2,800 units (primarily in shopping centers and airports) The company also owned and franchised the Seattle’s Best Coffee and the Torrefazione Italia chains in the United States (with more than 100 shops) During 2004, the company planned to open more than 550 company-owned units and an additional 375 licensed locations, primarily abroad The shops offered a variety of coffee drinks and food items as well as coffee and coffee accessories The strategic notion was that the coffeehouses would be destination points, where people could meet friends, drink coffee, chat, and spend time reading, doing homework, or surfing the Internet Starbucks was one of the first businesses to jump on the Wi-Fi bandwagon, teaming with Hewlett-Packard and Deutsche Telekom’s T-Mobile unit to offer high-speed wireless Internet access at 1,200 of its locations in the United States, London, and Berlin In March 2004, Starbucks and Hewlett-Packard unveiled their Hear Music service that allowed Starbucks’s customers to download songs and create custom music CDs in shops The company intended to offer Hear Music in 2,500 Starbucks stores by 2006 The company offered loyal patrons its Starbucks Card, which allowed customers to prepay up to $500 on a store card, which doubles as a gift certificate The program’s success enticed Visa to team up with Starbucks to offer Visa cards for the same purpose The company also leveraged its popularity to extend its brand beyond coffee to a host of home goods and lifestyle products It partnered with Amazon.com to sell branded kitchenware and coffee supplies Starbucks also marketed its coffee through grocery stores and licensed its brand for other food and beverage products History of Starbucks Starbucks opened its first location in Seattle’s Pike Place Market in 1971, selling quality ground beans over a small counter in an open-air market It was started more or less as a hobby for three good friends, strong on ideas but not very profit-oriented entrepreneurs Eleven years later, Howard Schultz joined Starbucks as director of retail operations and marketing Starbucks began providing coffee to fine restaurants and espresso bars in Seattle In 1983 Schultz traveled to Italy, where he became impressed with the popularity of espresso bars in Milan Seeing the potential to develop a similar coffee bar culture in Seattle (where a young Bill Gates had just started a promising software company named Microsoft), he convinced the founders of Starbucks to test the coffee bar concept in a new location in downtown Seattle This successful experiment was the genesis for a company that Schultz founded in 1985 called Il Giornale, offering brewed coffee and espresso beverages made from Starbucks’s coffee beans With the backing of local investors, Il Giornale acquired Starbucks’s assets and changed its name to Starbucks Corporation in 1987 The company opened coffeehouses in Chicago and Vancouver, B.C In the early1990s, Starbucks expanded headquarters in Seattle and built a new roasting plant The company also became the first privately owned U.S company to offer a stock option program that included part-time employees The company expanded into California, Washington, DC, Minneapolis, Boston, New York, Atlanta, Dallas, Houston, and negotiated contracts to serve Starbucks coffee with Horizon Air, United Airlines, Nordstrom, Barnes & Noble, and ITT/Sheraton/Westin (now Starwood Hotels) By then the company had 676 Starbucks locations International Expansion In the late 1990s, Starbucks expanded internationally, opening locations in Japan, Hawaii, Singapore, the Philippines, Taiwan, Thailand, New Zealand, Malaysia, joh81012_ch06_157-204 8/28/08 8:07 PM Page 195 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 Case 2-3 Illycaffe (B): The Starbucks Threat China, Kuwait, Korea, Lebanon, and the United Kingdom They were as aggressive in the domestic retail market, opening more locations in the United States This was when the strategy known as “a Starbucks on every corner” was developed, saturating downtowns with shops sometimes only one block away from each other By the year 2000, Howard Schultz transitioned from chairman and CEO to chairman and chief global strategist Orin Smith was promoted to president and CEO Within the three years that followed, the company continued to push for more retail locations abroad, launching shops in Dubai, Hong Kong, Shanghai, Qatar, Bahrain, Saudi Arabia, Australia, Switzerland, Israel, Austria, Oman, Indonesia, Germany, Spain, Puerto Rico, Mexico, Greece, southern China, Turkey, Chile, and Perú In 2004, Starbucks Coffee International opened in Paris, its first shop in the bastion of lovers of strong coffee As of mid-2004, the count of Starbucks locations around the world was at 7,569 Each of these locations was focused on providing the Starbucks experience: making various incarnations of coffee drinks available to people for enjoyment in the coffeehouses and for “to-go” consumption or takeout trade Starbucks’ international expansion had not gone completely smooth High startup costs and cultural resistance to the Starbucks brand were obstacles in some countries Tensions in the Middle East forced the company to pull out of Israel in 2003 Some of the licensees did not perform as well as expected or encountered unforeseen difficulties In June 2004 Starbucks decided to buy 35 stores from its Singapore licensing partner, Bonvests Holdings Limited, and in July 2004 the company agreed to acquire a 49.9 percent equity stake in its Malaysian licensee Adding to the pressure was the fact that back home fast-food restaurants like McDonald’s and Dunkin’ Donuts had started offering a selection of higher-quality coffees at much lower price points than Starbucks And loyal but finicky customers were complaining about deteriorating quality and service, also threatening Starbucks’s customer franchise In February 2008 Chairman Schulz proclaimed a three-hour “sabbatical closure” of all U.S stores so that “Starbucks’s partners will have an opportunity to connect and deepen their passion for coffee with the ultimate goal of transforming the customer experience.” Financial Performance Starbucks Coffee Company was the leading retailer, roaster, and brand of specialty coffee in the world According to its mission statement, the company was committed to offering the highest-quality coffee and the Starbucks experience while conducting its business in ways that produce social, environmental, and economic benefits for communities in which it did business Its coffee was advertised as “fair trade.” Its sales and profits 195 EXHIBIT Starbucks Sales and Income Annual Sales ($ mil.) Annual Net Income ($ mil.) 2003 2002 2001 2000 4,075.5 3,288.9 2,649.0 2,169.2 268.3 215.1 181.2 94.6 had been growing steadily as the international expansion has occurred (see Exhibits and 2) Illy versus Starbucks? Summarizing the Starbucks information after making several personal visits to the shops, CEO Andrea Illy had come to some conclusions He thought the U.S chain, which measured its sales in billions of dollars, not millions, over-roasted its coffee and concentrated too heavily on takeout trade But he also voiced admiration for what Starbucks had achieved “Starbucks piggybacked on the Italian concept of the coffee bar,” he said “They were able to internationalize espresso as no one else had done We see them as an opportunity for us, not a threat After they’re educated about coffee by Starbucks and others, we think they’ll want the real thing Us.” As opposed to the Starbucks shops, Illy had successfully pursued cobranding relationships with restaurants, cafés, hotels, and coffeehouses, where Illy provided equipment and coffee to augment the establishments’ existing menu It was very common to see the trademark red Illy logo, usually outside these cafés and restaurants underneath the café’s or restaurant’s own sign These cobranding arrangements were similar to the “Intel Inside” strategy adopted by Intel in the personal computer field It was also common to see Illy signage inside the establishments Also, Illy’s product line was more limited than Starbucks’s Illy tended to stress its espresso roots, playing down the mochas and cappuccinos that masked the true quality of the coffee Furthermore, Illy espressos were always served in specially designed small porcelain cups and saucers EXHIBIT Financial Overview Share price: Close 23-Jul-2004 52-Week High 52-Week Low Basic Earnings per share Price/Earnings Ratio Current Ratio R&D Expenses (mil.) Advertising Expense (mil.) % Owned by Institutions $47.06 $47.87 $26.00 $0.87 54.09 1.76 $5.40 $49.50 72.90% joh81012_ch06_157-204 8/28/08 8:07 PM Page 196 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 196 Part Two Foreign Entry Andrea Illy shuddered at the thought of having Illycaffe served in a paper cup Still, he could not deny the strength in Starbucks’s numbers, both in terms of sales figures and store locations To what extent should Illy concern itself with the Seattle giant? Was there a need for a defense strategy? Was Starbucks’s expansion really an opportunity for Illy, or was that just wishful thinking? Sources: This case was developed by Cipriano De Leon from the following sources: R W Apple, “Discovering La Dolce Vita in a Cup,” New York Times, October 24, 2001; “Starbucks Timeline and History,” Starbucks The Company, Internet Online, available from www.starbucks.com/aboutus/timeline.asp [2004]; “Starbucks Celebrates Five Years in South Korea With the Opening of its 100th Store,” Business Wire, July 26, 2004; “Starbucks Corporation,” Hoovers Online, Internet Online, available from http://premium.hoovers.com/subscribe/co/fin/factsheet xhtml?COID=15745 Discussion Questions What are Starbucks CSAs and FSAs? How these advantages explain the chain’s success in the United States? How internationally mobile is the Starbucks concept? Any barriers to entry? Franchising would seem a natural entry mode for Starbucks, but the chain sometimes owns the shops even abroad What could be the explanation? Do Illy and Starbucks compete or not? How likely are they to compete in the future? If you were Andrea Illy, what strategic plan would you develop? Case 2-4 AOL: International Expansion America Online (AOL) is one of the largest providers of online services With a large membership base in the United States and increasingly overseas, the AOL portal offers e-mail, Internet access, and instant messenger (IM) services to its members AOL’s network of Web properties is one of the top three in the United States, attracting an average of 110 million unique visitors each month during the quarter ending March 31, 2008, according to comScore Media Metrix, and many are leaders in their categories As part of its international growth plans, AOL has launched 19 international Web sites and has plans to expand to 30 countries outside the United States by the end of 2008 In addition, AOL has teamed up with HP—a leading PC maker in the United States—to include localized versions of the AOL.com portal and other AOL services as the default setting on HP computers shipped in the United States and more than two-dozen countries worldwide This case focuses on how the company expanded internationally and the problems involved in entering and managing virtual services in foreign countries 07:28 a.m EDT August 1998—AOL announced that its combined CompuServe and international subscribers surpassed 2.5 million members AOL total subscriber base is now over 15 million, up almost 70% over last year We not believe there is another company that strategically or financially is better positioned than AOL in the online/Internet marketplace AOL’s ability to leverage its massive infrastructure to deploy multiple brands (AOL, AOL.com, Digital Cities, Mirabilis, and CompuServe) on a worldwide basis is unmatched Conference call comments indicate the potential for international profit recognition as early as fiscal 1999, ahead of our 2000 expectations Scott Geltz, manager of New Market Operations for AOL’s international organization, was reading his e-mail on the plane back from Hong Kong to Washington, DC The e-mail contained a collection of reports from Wall Street’s stock analysts on AOL like the one above There were no surprises but Scott could see a discernible trend in these reports over the last few months: Everyone seemed to be counting on an aggressive strategy by AOL to expand its operations internationally Scott had just spent two weeks in Hong Kong working on the first steps toward launching the AOL service there In May 1998, AOL had signed a licensing agreement with China Internet Corporation (CIC), giving it a license to market, promote, and distribute AOL services to Hong Kong, as well as to use AOL’s proprietary publishing tool (i.e., Rainman) to develop local contents Like AOL’s other international ventures, once the deal was signed, the responsibility for the “program” would gradually shift from “market development” to “operations” within the international organization Scott Geltz, Lisa Zimmermann (an operations coordinator), and an intern made up the New Market Operations unit in AOL International Greg Consiglio, who had accompanied Scott on this trip, and an intern composed the Business Development unit Mark Minkin, the group’s vice president, presided over both the operational and Source: Professor Kasra Ferdows, from Georgetown University, prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation Certain facts and figures have been disguised Materials presented in this case not necessarily represent the views of AOL or its officers Copyright © Kasra Ferdows, Georgetown University, Washington DC, 20057, USA joh81012_ch06_157-204 8/28/08 8:07 PM Page 197 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 Case 2-4 AOL: International Expansion 197 EXHIBIT AOL International Organization Chart Jack Davies President AOL International Executive Assistant Vice President Int’l Services Mark Minkin Vice President Market Development Director Int’l Technologies Travis Good Director Mkt Development Int’l Launch Mgr Product Mgmt Greg Consiglio Senior Manager Mkt Development Director Int’l Product Mktg Scott Geltz Senior Manager Int’l Programs Project Manager Int’l Product Mktg Lisa Zimmerman Int’l Programs Coord Managing Director Int’l Support Director CSi Int’l Operations Director Int’l Finance Director Int’l PR/Comm Country Managing Directors (Reporting to Jack Davies) Managing Director AOL/CSi Canada Managing Director AOL/CSi Europe Managing Director AOL/CSi Japan VP Managing Director AOL Australia business development functions (See Exhibit for organization chart of AOL International.) Scott’s workload had been increasing rapidly in the last year Until November 1995, AOL did not have any subscribers outside the United States But since then, in one form or another, it had started to offer its service in eight countries Every country was different, with Hong Kong, the ninth one, being even more unique Hong Kong was a potential gateway to mainland China and possibly Taiwan It was important that AOL start on the right foot in this market Moreover, unlike all the previous international deals, Hong Kong was not a joint venture AOL had chosen to set up a franchise rather than hold any equity What did that mean in terms of day-to-day running of the Hong Kong operations? How would CIC work with AOL? What would AOL provide, and how would it protect the reputation of the AOL brand name? There were even broader issues As the Wall Street analysts were saying, there was no question that international expansion was an important, if not the most important, source of future growth and profitability for AOL In fact, given the rush of potential competitors, like Yahoo!, into the global markets, AOL had no choice but to expand its international operations quickly The international business development team was currently involved in assessing or signing deals in a half-dozen new countries But in all this rush, was it clear why one country was chosen over another? What about a regional approach—for example a Spanish language service for several South American countries? It seemed that so far, AOL had responded to opportunities in countries that could apply the “AOL System” smoothly Had AOL reached a point that it needed to change its approach to international expansion? Should it now ask what it had to to enter critical markets like China, Latin America, or India, even if it meant changing some of the key features of the “AOL System”? Given the fast pace of life at AOL, Scott knew that he didn’t have much time to delve into these questions He and Greg had another 15 hours on the plane and the weekend to prepare for a debriefing session with Mark Although the target date for starting full-fledged AOL service in Hong Kong was some months away, there were already urgent decisions to be made He wondered how many more trips to Hong Kong he would be taking in the next few months A franchise operation was supposed to require minimal investment by AOL, but it sure did not seem so Could he really manage a smooth start-up in Hong Kong from northern Virginia—12 time zones and 11,000 miles away? Should he ask Mark to send him and a small team to Hong Kong for at least six months to ensure that AOL started well in East Asia? Company Background America Online was founded in 1985 as Quantum Computer Services It started by providing interactive services for personal computers, first for Commodore 64 and 128, joh81012_ch06_157-204 8/28/08 8:07 PM Page 198 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 198 Part Two Foreign Entry EXHIBIT Partial Organization Chart of AOL Steve Case CEO/COB Bob Pitman Chief Operating Executive The Brands AOL Interactive Services CompuServe AOL Studios Technologies The Enablers AOL International Jack Davies President The Infrastructure Human Resources Planning and Budgeting Business Development Technologies then for Tandy (1986), then for Macintosh (1989), and finally for IBM PCs (1990) By then it had 100,000 members and 150 employees In 1991 it changed its name to America Online and by 1994, reached the millionmember mark In 1995 AOL, by then the largest provider of online services in the United States, started to enter international markets The first move was through a joint venture with Bertelsmann AG, one of the world’s largest media companies, to provide AOL service to selected European countries By 1998 and after two additional international ventures, AOL was serving subscribers in six European countries, Canada, and Japan AOL also started to acquire other companies in 1994 By mid-1998, it had acquired 12 companies, including CompuServe (in 1997) CompuServe had been founded in 1969 in Columbus, Ohio, and by 1980 had started to provide interactive service targeting computer enthusiasts, researchers, and business professionals By mid1998, CompuServe had over million subscribers Meanwhile, AOL had also entered into a number of important alliances with major companies in the industry, including IBM (in 1990), Netscape, and Microsoft (in 1996) By mid-1998, AOL had organized itself into three business units: AOL Interactive Services, CompuServe Interactive Services, and AOL Studios (See Exhibit for a partial organization chart.) AOL Interactive Services was responsible for AOL’s core online service (offering a variety of popular features like e-mail, chat, Instant Messenger, AOL Channels, etc.) CompuServe, also an online service, focused on the professional and business markets and was managed separately from the rest of AOL The AOL Studios developed original content programming for AOL and other online services AOL had also owned ANS Communications, a provider of global networks of communication systems to businesses, but sold this division to WorldCom Inc for $175 million in early 1998 (while continuing to use it as a customer) Worldwide, AOL employed approximately 10,000 persons Over 3,000 employees worked in the headquarters offices located in suburbs of Washington, DC, in northern Virginia AOL Networks operated eight call centers; five in the United States, one in Germany, one in Ireland, and one in Japan It also had sales offices in five other U.S cities AOL had no sales offices located outside the United States AOL employed a diversified portfolio approach in designing, structuring, and operating its network services It managed the AOLnet, a TCP/IP network of third-party network service providers, including Sprint, BBN (a part of GTE Internetworking), WorldCom’s wholly owned subsidiaries ANS Communications (recently acquired from AOL), and UUNET Technologies Buildup of network capacity required substantial investment in telecommunications equipment, and demanded a careful matching of anticipated demand with supply in a highly volatile market The risks were significant While revenues had been increasing substantially from year to year, expenses had grown even faster In 1997, AOL posted almost $500 million in losses from operations, $385 million of which was a write-off of “deferred subscriber acquisition costs.”1 (See Exhibit for Consolidated Statements of Operations and Exhibit for Consolidated Balance Sheet.) Competition AOL competed in a rapidly changing marketplace with a wide range of other companies in the communications, advertising, entertainment and information, media, direct mail, and commerce fields There was no other company similar to AOL, but the company had many competitors in each of these fields Competitors for usage, subscribers, advertising, and electronic commerce included Internet service providers (ISPs) like the Until 1997, AOL had regarded part of the marketing and promotion costs as investment for acquiring subscribers However, in 1997 it decided to regard all these costs (including what had been accumulated from previous years) as expense joh81012_ch06_157-204 8/28/08 8:07 PM Page 199 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 Case 2-4 AOL: International Expansion 199 EXHIBIT Consolidated Statements of Operation (amount in thousands, except per share data) Year Ended June 30, 1992 1996 1999 $1,429,445 255,783 $991,656 102,198 $344,309 49,981 1,685,228 1,093,854 394,290 1,040,762 638,025 232,318 409,260 385,221 58,208 193,537 — 6,549 48,627 24,506 24,204 638,025 — 43,164 110,653 16,981 7,078 — — — 77,064 — 11,669 42,700 50,335 1,653 — — — Total costs and expenses 2,190,874 1,028,611 415,739 Income (loss) from operations Other income (expense), net Merger expenses Income (loss) before provision for income taxes Provision for income taxes (505,646) 6,299 — (499,347) — 65,243 (2,056) (848) 62,339 (32,523) (21,449) 3,074 (2,207) (20,582) (15,169) $(499,347) $29,816 $(35,751) $(5.22) 95,607 $0.28 108,097 $(0.51) 69,550 Revenues: Online service revenues Other revenues Total revenues Costs and expenses: Cost of revenues Marketing Marketing Write-off of deferred subscriber acquisition costs Product development General and administrative Acquired research and development Amortization of goodwill Restructuring charge Contract termination charge Settlement charge Net income (loss) Earnings (loss) per share: Net income (loss) Weighted average shares outstanding Microsoft Network, Prodigy Services company, and various national and local Internet service providers Long distance and regional telephone and cable companies also competed with AOL, including among others, AT&T Corp., MCI Communications, and various regional Bell operating companies Also competing in these fields were the so-called “portal” sites— Web-based services like Yahoo!, Netscape, Infoseek, CNET, Excite, and Lycos—each providing interactive services that were becoming increasingly functional equivalents of AOL’s online services Another group of competitors were global media companies such as newspapers, radio and television stations, and content providers like Disney, Time-Warner, CBS, and Sony There were more New technologies were bringing in new competitors constantly The development of midband and broadband distribution technologies for offering cable Internet services had brought in new competitors like @Home Networks, Road Runner Group (owned by Time Warner), and MediaOne (a subsidiary of US West Media Group) Advanced telephone-based access services offered through digital subscriber line (DSL) technologies and other advanced digital services offered by broadcast and satellite companies were intensifying the competition even further Emerging convergent technologies offering combinations of television and interactive computer services, such as those offered by Web TV and NetChannel, posed yet additional competitive challenges for AOL International Expansion The joint venture with Bertelsmann in 1995 to expand AOL services into Europe was a major move for the company The joint venture itself was a 50–50 split, with Bertelsmann contributing DM 150 million (about $100 million), and AOL providing its technology, know-how, network, program contents, and the AOL brand name In addition, Bertelsmann purchased approximately a percent stake in AOL for about $50 million and put a director on the AOL Board From its 19th-century German roots as a small printing firm and religious book publisher that began the world’s first book club, Bertelsmann had grown into a global group of companies involved in book, magazine, and newspaper publishing and distribution, music and entertainment, radio, television, video, printing, and manufacturing Among its best-known North American enterprises joh81012_ch06_157-204 8/28/08 8:07 PM Page 200 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 200 Part Two Foreign Entry EXHIBIT Consolidated Balance Sheets (amount in thousands, except per share data) 1997 1996 $124,340 268 65,306 26,093 107,466 $188,421 10,712 49,342 23,271 65,290 Total current assets 323,473 267,036 Property and equipment at cost, net 233,129 111,090 50,000 72,498 — 16,777 84,618 24,410 41,783 — 44,330 314,181 4,947 29,067 135,872 51,691 Total assets $846,688 $958,754 Current liabilities: Trade accounts payable Other accrued expenses and liabilities Deferred revenue Accrued personnel costs Current portion of long-term debt $ 69,703 297,298 166,007 20,008 1,454 $105,904 127,876 37,950 15,719 2,435 Total current liabilities 554,470 289,884 Long-term liabilities: Notes payable Deferred income taxes Deferred revenue Minority interests Other liabilities 50,000 24,410 86,040 2,674 1,060 19,306 135,872 — 22 1,168 718,654 446,252 1 1,002 16,924 617,221 (507,114) 926 — 519,342 (7,767) 128,034 512,502 $846,688 $958,754 Current assets: Cash and cash equivalents Short-term investments Trade accounts receivable Other receivables Prepaid expenses and other current assets Other assets: Restricted cash Product development costs, net Deferred subscriber acquisition costs, net License rights, net Other assets: Deferred income taxes Goodwill, net Total liabilities Stockholders’ equity: Preferred stock, $.01 par value; 5,000,000 shares authorized, 1,000 shares issued and outstanding at June 30, 1997 and 1996 Common stock, $.01 par value; 300,000,000 shares authorized, 100,188,971 and 92,626,000 shares issued and outstanding at June 30, 1997 and 1996, respectively Unrealized gain on available-for-sale securities Additional paid-in capital Accumulated deficit Total stockholders’ equity Total liabilities were RCA Records and the Bantam Doubleday Dell Publishing Group Bertelsmann employed 52,000 people in more than 300 companies in 40 countries In 1995, when the joint venture with AOL was signed, Bertelsmann’s sales were $11 billion; AOL’s were $ 0.4 billion The first service was launched in November 1995 in Germany, and was followed by the United Kingdom in January 1996 and France in March 1996 Since Bertelsmann also had experience in Australia, AOL formed another joint venture with Bertelsmann to offer AOL service in Australia in late 1998 Meanwhile, AOL also introduced service in Canada (January 1996), and with the help of the joint venture with Bertelsmann, in Switzerland (November 1996), Austria (1996), and Sweden (January 1997) joh81012_ch06_157-204 8/28/08 8:07 PM Page 201 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 Case 2-4 AOL: International Expansion In April 1997, AOL formed another joint venture, this time with Mitsui, one of the world’s largest trading companies, and Nihon Keizai Shimbun, Inc (Nikkei), publisher of Japan’s leading business newspaper and a leader in the publications of online services Mitsui owned 40 percent, Nikkei 10 percent, and AOL 50 percent Mitsui and Nikkei contributed billion yen ($56 million) with AOL bringing its technology, know-how, network, access to its online services in the United States and Europe, and its brand name In addition, Mitsui purchased approximately $28 million of convertible preferred stock in AOL In 1997, Mitsui employed 11,600 people in 226 cities in 90 countries and conducted transactions in excess of $195 billion per year Nikkei, founded in 1876, was a large media company with book publication, broadcasting, exhibitions, and seminars as well as being publisher of Nihon Keizai Shimbun, a daily newspaper with a circulation of approximately million and a primary source of business information in Japan Many experts believed that the international market was the next major battlefield in the Internet online industry In August 1998, AOL reported 135,000 net new international members, bringing the total number of international members to 1.4 million (not including 1.2 million CompuServe members) There was no question that the potential markets, especially in Asia, were huge There was also no question that competition for these markets was becoming fierce, rapidly In spite of the financial and economic troubles in east Asia in 1998, many of the global Internet service providers were seeking entry into the large economies in this region For example, Yahoo! had recently opened a sales office in Singapore Up to 1998, AOL had entered international markets essentially through joint ventures Hong Kong, being the first venture in which AOL did not hold equity, was essentially a franchise and could prove the new model in which AOL would enter other international markets Franchising promised several advantages over joint ventures It would require not only a limited initial investment, but if there were any up-front payment by the franchisee, it could result in a net positive cash flow It would generate net revenues quickly, require fewer AOL employees during start-up, and often none thereafter In short, franchising promised the possibility of building brand awareness and a customer base quickly without taxing the company’s financial and managerial resources too much The disadvantages were partial loss of control over brand name and potential future revenues AOL had devised yet another model for introducing its brand name in new international markets The AOL Instant Messenger (AIM) was a message exchange service that AOL offered free of charge to anyone (including non-AOL subscribers) who asked for it Once connected to the Internet, the users, in any country, could exchange messages with other users For AOL, the great advantage of AIM was that the users had to first register with AOL 201 This gave AOL not only valuable information about potential customers, but because registration involved choosing a screen name, it was almost like the first step in joining AOL as a subscriber Moreover, AIM kept the AOL brand name in front of potential customers and allowed assessment of potential partners for franchising or joint ventures in promising markets In 1998, AOL planned to distribute AIM worldwide to speakers of English, German, French, Spanish, Japanese, and Portuguese The annual cost of offering this service (for AOL) was small, less than $100,000 per country Yet another model for spreading the AOL name internationally was the AOL.com Web site The intent here was to create an Internet search service like Yahoo!, Excite, or Lycos, with the goal to make it the most visited Web page on the Internet It would put AOL’s brand name in front of the worldwide audience and could enhance advertising revenues The costs for this project were minimal In summary, AOL could enter a new country with as little investment as just creating a customized Web site As it increased its financial and managerial investments, AOL could offer free AIM service, offer basic AOL (not customized for the country) through a local Internet service provider (almost like a franchise), create a full franchise with local contents (like the one in Hong Kong), or establish a joint venture (like the ones with Mitsui and Bertelsmann) So far, AOL had not considered a wholly owned greenfield subsidiary as a way to enter a new country Serving International Subscribers—Operational Issues To provide AOL.com or AIM internationally, AOL did not have to set up an establishment in a country to allow individuals in that country to use those services However, once there were paying subscribers, AOL had to establish call centers and provide member services From an operational viewpoint, it did not make much difference whether the unit in the country was a joint venture or a franchise Besides operating the call centers, there were a number of tasks that had to be done by the unit These tasks could be grouped into the following categories: Marketing Public relations and communications Legal and local regulations Fraud prevention and security Management of local network Billing and collection Design and layout of service Design of local content Production of local content 10 Finance 11 Human resources and administration joh81012_ch06_157-204 8/28/08 8:07 PM Page 202 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 202 Part Two Foreign Entry EXHIBIT Typical Network Structure Points of Presence Clients AOL’s headquarters staff would provide the technical help with software and host infrastructure to allow subscribers the ability to connect with the AOL network They would provide a range of services: from providing the “Golden Master” for production of AOL CDs to be sent to subscribers to programming assistance for all the steps in getting a signal from a subscriber’s computer to the AOL central computers in northern Virginia and back (See Exhibit for a schematic diagram of the typical network.) The difference between a joint venture and a franchise operation was in who performed the tasks “We have to provide everything that we usually provide in these markets We have to provide ’the AOL experience’ for the subscribers whether we have a joint venture or a franchise In our joint ventures so far, we have used a few experienced AOL employees who understand the AOL system almost instinctively They have stayed around during the start-up phase and answered the myriad of inevitable questions Even after the start-up phase is over, we have AOL employees in the organization of the country who not only monitor what is going on, but more importantly, help in solving the local operating problems as they arise In a franchise, we must all that remotely and rely on people who are not employed by AOL,” said Scott Geltz Launch of Service at Hong Kong In 1998, in spite of the economic problems in east Asia, Hong Kong was an attractive market for Internet services According to American International Data Corporation, Host Complex Hong Kong was experiencing the fastest Internet user growth rate in Asia There was an estimated 300–600,000 Internet users, projected to hit million by 2000 There were already a large number of local ISPs in Hong Kong, but AOL counted on its brand name and the features of the AOL experience to compete These features included AIM, access to unique AOL content from AOL’s other international services, and local content from CIC geared to Hong Kong consumers, in both English and Chinese The Web page was to be introduced first AOL.com had its own NetFind search engine, but a new search engine in Chinese was also under development AIM would be provided soon after These introductions were straightforward The real challenge was in the launch of the full AOL service, scheduled in the second quarter of 1999 With all that having to be decided first, it was difficult to tell if everything was on schedule There were big decisions like pricing of the subscription (including whether it would be a flat rate or not) and on the marketing plan for Hong Kong (including the logistics of production and distribution of the AOL discs) Smaller decisions like whether the “Terms of Service” shown during signup to new subscribers would be in English, Chinese, or both languages also had to be ironed out Were there any local laws, procedures, or customs that had to be taken into account? Who would prepare the Chinese text of this agreement, and what were the steps to clear it through the AOL lawyers? There were a host of decisions about the layout and the artwork On one hand, it was essential to preserve the AOL “feel”—the familiar layout, colors, channels, joh81012_ch06_157-204 8/28/08 8:07 PM Page 203 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49 Case 2-4 AOL: International Expansion sequence of pages, and so forth On the other hand, it was important to customize the context to fit the Chinese language and thinking Even if guidelines that codified the “AOL feel” could be written, would they be sufficient? There were many detailed decisions often involving trade-offs Especially during the start-up phase when many of these decisions were made for the first time, someone from AOL had to sit across the table from CIC and help reach a good compromise For example, the side screen in the sports channel should be the usual size, but it could show horse-racing news in Hong Kong instead of baseball often shown in the United States and Japan Undoubtedly, the fact that Hong Kong was AOL’s first experience with franchising made this venture even more challenging Unlike McDonald’s or Coca-Cola, AOL had neither the experience nor established guidelines for how a franchise should operate In a sense, Hong Kong was a pilot for testing the proposition that it was possible to codify what was AOL As Scott Geltz saw it, “To operate a franchise successfully, we must first be able to gather the collective knowledge at AOL, and translate it into specific guidelines, procedures, and methods of doing things These are not easy tasks, and for the moment, they fall on us in the AOL International group because we need this form of knowledge more than the rest.” Scott had already started to write an inch-thick manual going over some of the common questions, ranging from what should be put behind “firewalls,” to how long it took to obtain a new layout design from AOL’s central staff There was no question that such a document would be helpful for Hong Kong and future franchise operations Anyway, one could argue that it was crucial for AOL to capture and document its tacit knowledge and this was an important step in that process However, no one (including Scott himself) believed that a manual, even a very good one, would ensure that all would go well in Hong Kong It was important both to suggest what to and to make sure that it would be done CIC was a large organization The Chinese news service, Xinhua, had a 60 percent stake in CIC and already had strategic partnerships with other large international information services such as Reuters and Bloomberg The deal with AOL was another strategic partnership for CIC and it was reasonable to assume that some of CIC’s 203 senior managers would have more than AOL to worry about In the last two weeks, Scott had tried to pinpoint exactly who in the CIC organization would be in charge of the various functions related to the AOL franchise However, the answers had not been very clear It seemed that CIC was falling behind schedule in recruiting some of the key managers for this venture Consequently, some of the tasks were starting to fall behind schedule and Scott was wondering if or when he should intervene An example was a piece of artwork that was supposed to be done by mid-September So far, CIC had not hired anyone to that and it seemed likely that the deadline would be missed Scott knew of someone in Australia who had recently done similar work for AOL and wondered if he should ask the Australian to step in He also wondered about the portal, HongKong.com He had been told that this portal was primarily for tourists It could nicely complement the travel section of AOL, but could it also compete with AOL? Getting the needed attention was also a problem at the AOL headquarters AOL U.S had been expanding rapidly, and demanded the full attention, time, and energy of key managers in the AOL organization Many of these managers regarded the international operations to be of a lower priority than the fast-growing U.S operations Changing this “culture” was not going to be easy or fast Discussion Questions How would you define the business that AOL is in? What are the key success factors (KSFs) in that business? What are the main obstacles to international expansion in this business? Is the service mobile, with competitive advantages (FSAs and CSAs) intact? How would you evaluate the market opportunity for AOL abroad? Where is demand strong? Local competition? Any first-mover advantages (FMAs)? Any positive or negative country-of-origin effects? Any lead country benefits? What are the different foreign entry modes for the service? Their pros and cons? What should AOL in Hong Kong? joh81012_ch06_157-204 8/28/08 8:07 PM Page 204 33a8d66 6e7d7dc9e13 dd1 05b1 1d31 bb1a 3455 1df2b0 cb9 7186 bc6 d16a 369ee5 b ee72a4a6 c95e 8b44 261 c11b4da31 9ff705 b88da 47d8 4df733 b53a c07db5dfacc 1510e98 0f4 50b60aa5d5a6890 d04 084e1 69f91b0a 0746aa f8db6ad4b36 3cb2aa f7241 c66a 32f777 f8d7 cb0bb287 f89ee b3cc87 25aa013 8eb5 ef5 3e30 c2eaa3 b4 e02a5a6fa 70b0 7f7 fcd90 ba65b61b8 f12 3f1 9667 d8f652fe56 cf4 b7e8a dcc6c3 27fc8c5 9ff18a6 cc5 b550e f27 2207e 2890 e7004 6d87 71b5cc78 c4cc78 b7b5 3ed 7c671 77c6ed c0d9 cb4e3df6 d9b4 f27 9f2 4b01 e9147a 384db32 2798e 50c0f8e b6 be2c8 01b1fb0070 8e12 c6de 961 c5f1c0 06855 d27 b368 f5d3200 457bf86 82875 7da9aa76 fc2 ed63 f83 0eaf0 c38 74ebfb6 7e9c8ed f16 f6dc82 6b51 078e7 60f49c 65a914d4973 444e2 d79a7 58d43b2e 6adbb6da 6d7 cb1 d692 8950 8de5 27b9 8e614 08e5183 8cb468 07e5 f69d5b5 f32e 0b59 dd6 d94 9422a0 b5 cc7e 452e d3c3d3a4 8f c8c0 747 d2d9 988b26a4d181 f8d1ae03e7 8f6a 3d5a4 0036 f14 74f03bfa68a33 1f 24180d1943 19c5b53 60e51 00c27f5c0 6601 be5b55b9 1eb2 908e5 cb1a159e 6e2b bd19 f0b1a72 c4971 21fb1e8 ee703 c88 1d05 b4f370 b27a4 cb9a 76d3 8fc7fa3 9f9 6e4c1 25a430 5bfc91 dc8 7d41 6036 0fb00fca063 6038aae 4774 0cfd0a7 b33ab4d c075 cc2 f31a 7f7 245 c7a5fca8 f749 3b20 d1be27aa69 d40 c7a2 f7f36b3f0ae f35 e190ac1c9 6f6 f10 748 f84c4d3a 7aaad61 9ff8ef2 9806 c05 43c99b8a 20c9a1df4 b83b8 d125 48d1f8 da85e1 7f2 45c47e48 f5 cf18c4a38b4fb6219a 69980 133a2 49