International Business (Domino's Pizza) - Essay Example

International Business Table of contents Introduction. 2. Methods of international expansion. 3. Critical appraisal of the current strategy, recommendations for development. 4. Conclusion. 1. The company chosen for this paper is Domino's Pizza as this is one of the world biggest companies of pizza production and delivery. The company was founded in the USA in 1960 by Tom Monaghan. Since that time Domino's Pizza Company became one of the leading fast food delivery companies in the world: "We have been delivering quality, affordable pizza to our customers since 1960 when brothers Thomas and James Monaghan borrowed $900 and purchased a small pizza store in Ypsilanti, Michigan. Since that time, our store count and geographic reach have grown substantially" (7). Domino's Pizza combines some methods of international expansion and development, but there are some most effective ones which provide the best penetration to the international markets. The paper will discuss the methods of international expansion the company used to date and its appropriate development methods, Domino's Pizza methods using in different markets, as well as the possible combination of international expansion methods. The paper will also critically appraise the current strategy and give appropriate recommendations for further development. 2. The most appropriate Domino's Pizza development method, as well as the best method of international expansion is licensing and franchising: "We have developed a large, global, diversified and committed franchise network that is a critical component of our system-wide success and our leading position in pizza delivery. As of March 21, 2004, our franchise store network consisted of 6,878 stores, 63% of which were located in the contiguous United States" (7). These system has doubtless advantages namely for such global international company as Domino's Pizza. The franchise system allows minimizing such negative barriers of international expansion as language barrier, local governmental measures and the registration of trademark. The system also provides the adaptation of Domino's Pizza rights and regulations to the cultural differentiations of various countries: "We also adapt our system to the local market to accommodate cultural differences in delivery vehicles, store design, signage, etc. Pizza toppings are the most common cultural adaptation. We have pickled ginger in India, squid in Japan and green peas in Brazil" (3). Domino's Pizza quick service restaurants in different countries are not a wholly subsidiary of Domino Pizza Company (like McDonald's in the UK). They are based on Franchising Agreement with Domino's Pizza International, Inc. A franchisee must have appropriate local market, business strategies and experience knowledge: "Internationally, we have also been able to grow our franchise network by attracting franchisees with business experience and local market knowledge. We generally use our master franchise model, which provides our international franchisees with exclusive rights to operate stores or sub-franchise our well-recognized brand name in their markets" (7). Through well developed franchising system Domino's Pizza Company gains constant royalty payments which allow the company to develop and expand to international markets: "A substantial percentage of our earnings is generated by our committed, owner-operator franchisees through royalty payments and revenues to our vertically-integrated distribution system. Royalty payments yield strong profitability to us because there are minimal corresponding company-level expenses and no capital requirements associated with their collection" (3). The growth and revenue of Domino's Pizza is mainly provided by its franchising system development and royalty payments from numerous stores throughout the world. The company has chosen the most appropriate method of international expansion. Domino's Pizza makes franchising agreements with appropriate firms working in relevant market segments and having local market features knowledge. This mode of international expansion protects Domino's Pizza from superfluous financial costs connected with wholly owned subsidiaries: "Our franchisees, in turn, have produced strong and consistent earnings for us through royalty payments and distribution revenues, with minimal associated capital expenditures by us. This enables us to both invest in the Domino's Pizza brand and deliver strong returns to our stockholders" (3). To increase franchisee revenue and support the brand image of Domino's Pizza, the company provides different kinds of franchisee supporting programs. The training course gives appropriate knowledge of Domino's Pizza functioning, its rules and policy, as well as other relevant elements of Domino's Pizza business: "This training course is designed to equip you with the knowledge and skills that you need to run a successful Domino's Pizza delivery business. Covering everything from pizza-making and people management to customer service and computer systems, we'll make sure that you're ready to open your first store" (10). The course also covers such elements as foodservice, marketing and information systems. One of the most important moments in Domino's Pizza international expansion is franchisees attraction as franchising and licensing system is the key-point mode of Domino's Pizza international market entry and development. For attracting new franchisees Franchise Development Services provides appropriate franchisees recruitment strategy: "FDS publications like The Franchise Magazine are the right vehicle to carry editorial that reports on facts as provided by the Domino's Pizza franchisees. This alerts readers that are searching for the brand and system that will form the ideal vehicle with which to achieve business success" (12). For its international expansion increasing Domino's Pizza actively work with local pizza chains throughout the world. Domino's Pizza coverts different local pizza chains to its own brand: "In 1994, we signed an agreement with an 88-unit Australian pizza company to convert its stores to the Domino's brand. This conversion brought our store count in Australia from 25 to over 100 in just two years. Other pizza companies in foreign markets are currently being targeted for conversion, as well" (3). Domino's pizza uses other modes of international market expansion and development, such as company-owned stores, but very few comparing to franchise stores, because Domino's Pizza business experience shows that licensing and franchising international expansion system is the most advantageous and providing the company effective development: "The principal sources of revenues from our international operations are royalty payments generated by retail sales from franchise stores, sales of food and supplies to franchisees in certain markets and, to a lesser extent, company-owned store retail sales and fees from master franchise agreements and store openings" (7). There are top ten Domino's Pizza international markets: Mexico, United Kingdom, Australia, Canada, South Korea, Japan, Taiwan, India, France and the Netherlands. These markets are rather different, but the company has the same international expansion strategy for all these markets - licensing and franchising with a little element of company-owned stores. Domino's Pizza franchisees provide the full range of measures for marketing strategy development which is appropriate to the local cultural and governmental requirements, but following Domino's Pizza's rules and policy. 3. As was shown above, the principal mode of Domino's Pizza international expansion is licensing and franchising agreements. But other methods might be suitable for the company as well. Collaborative ventures can be useful for international expansion to well-known markets - it can increase investments for the company and provide higher revenue for shareholders. Collaborative ventures can also promote more effective approach to the local market and local business strategy development. They can help to adapt Domino's Pizza production to the relevant market through the collaborative work of the people involved. Wholly owned subsidiaries can also be effective for Domino's Pizza international expansion, but to not well-known markets. The company could organize joint ventures with suppliers and its own outlets, as McDonald's in the UK did. Wholly owned subsidiaries can create their own sales market and win a good reputation of quality goods producer. Domino's Pizza would also better explore potential targeted markets through wholly owned subsidiaries, and after that it can provide its licensing and franchising system. Management contracts also can be available for Domino's Pizza international expansion, especially for the initial stage of relevant market development. Effective management could promote appropriate store work functioning and provide necessary Domino's Pizza management and marketing measures realization. Domino's Pizza licensing and franchising strategy implementation has its own risks dependent and independent on the company: "Our earnings and business growth strategy depends on the success of our franchisees, and we may be harmed by actions taken by our franchisees that are outside of our control" (7). To avoid such risks for Domino's Pizza international development and for more effective different markets expansion, the company should combine different methods of international expansion, such as licensing and franchising, management contracts, collaborative ventures and wholly owned subsidiaries. 4. The paper discussed about Domino's Pizza International, Inc., and its methods of international expansion. As was shown above, the most effective method of its international development is licensing and franchising system which provides the world growth of its stores chain. But critical analysis of the international expansion strategy allows asserting that such modes of international market entry and development as management contracts, collaborative ventures and wholly owned subsidiaries can also provide the company's growth. But in spite of this fact Domino's Pizza International, Inc. licensing and franchising system is the best way of its international expansion and development. Sources 1. Domino's Pizza. (http://dominos.investor-relations.co.uk/invest/dominos/annreport/projectpizza.pdf) 2. Johnston M. International Affairs. Pizza Today. (August 2005). (http://www.pizzatoday.com/features_articles.shtmlarticle=MTI1NHN1cGVyMTI1MXNlY3JldDEyNTg) 3. International Franchising. (http://www.dominos.com/C1256B420054FF48/vwContentByKey/W263HQEZ373DOMBEN) 4. The Business Domino's Pizza. Property & planning. FAQ's. (http://www.dominos.uk.com/) 5. Domino's sets up ''base' for European initiatives. (http://www.pizzamarketplace.com/news_story_11180.htm) 6. Domino's Pizza, Inc., Common Stock. Underwriting Agreement. (2004). (http://www.bloomthal.com/Agreements/dom_undag.htm) 7. Domino's Pizza. Inc. Common stock. Prospectus.( July 12, 2004). (http://www.hoovers.com/free/co/secdoc.xhtmlID=40131&ipage=2889231&doc=0&attach=on) 8. Prewitt M. Domino's franchisees set sights on #1 at meeting - Domino's Pizza. Nation's Restaurant News. (August 21, 1989). (http://www.findarticles.com/p/articles/mi_m3190/is_n34_v23/ai_7883051) 9. Case Study: Domino's Pizza. (http://www.readymealsinfo.com/articles/dominos.htm) 10. The Business. Domino's Pizza. Background. (http://www.dominos.uk.com/) 11. Floyd C. The future of franchising. (2005). (http://www.franchise-chat.com/resources/the_future_of_franchising.htm) 12. Domino's Pizza Celebrates 20 Successful Years of Franchising. (http://www.advertisingsurvival.com/content/view/118/2/) Read More