International Managment - Assignment Example

1. Provide a list of the top 20 companies that pursue franchising as a mode of international entry. List of top 20 companies Rank Franchise Description Startup Costs (Entrepreneur.com, 2008) 1 Subway Submarine sandwiches & salads $80K-310K 2 KFC Corp. Chicken $1.1M-1.7M 3 McDonalds Hamburgers, chicken, salads $950K-1.8M 4 Dunkin Donuts Coffee, doughnuts, baked goods Varies 5 Dominos Pizza LLC Pizza, breadsticks, buffalo wings $118.5K-460.3K 6 Curves Womens fitness & weight-loss center $31.4K-53.5K 7 RE/MAX Intl. Inc. Real estate $35K-200K 8 Sonic Drive In Restaurants Drive-in restaurant $820K-2.3M 9 Pizza Hut Pizza $1.1M-1.7M 10 UPS Store, The/Mail Boxes Etc. Postal, business & communications services $170.8K-279.4K 11 Choice Hotels Intl. Hotels, inns, suites, resorts $2.3M-12.6M 12 Ace Hardware Corp. Hardware & home improvement store $400K-1.1M 13 Kumon Math & Reading Centers Supplemental education $30.96K-129.4K 14 Baskin-Robbins USA Co. Ice cream, frozen yogurt, frozen beverages $156.9K-560.4K 15 Taco Bell Corp. Quick-service Mexican restaurant $1.1M-1.7M 16 Cartridge World Printer/fax cartridge replacements & sales $117.1K-181.6K 17 InterContinental Hotels Group Hotels Varies 18 Jani-King Commercial cleaning $11.3K-34.1K+ 19 Arbys Sandwiches, chicken, salads $336.5K-2.4M 20 Century 21 Real Estate LLC Real estate $11.8K-522.8K 2. Choose any one company from the list. Study the company in detail; provide a description of its business model, its international expansion pattern, what qualification it looks for in its franchisees, and what kind of support and training it provides for them. Description of business model Ace Hardware is one of the biggest players in the do-it-yourself and home improvement market around the world. With a business model that utilizes retail model, Ace Hardware has come to be known as a strong brand that positions itself as a helpful brand, hence the name Helpful Ace (Acehardwareintl.com, 2008). Ace utilizes a retail model in its operations. Ace Hardware has “over 5000 stores in more than 60 countries (Acehardwareintl.com, 2008).” These stores offer a one-stop shopping experience to customers, serving as something like ‘convenience’ hardware stores (FundingUniverse.com, 2008). While the added value of finding all the consumers’ home improvement needs in one store that carries their so-called “Ace® product assortment [which] includes more than 10,000 items - all value priced (myace.com, 2008).” Ace Hardware has some 10,000 proprietary label products which are carried in these stores. The proprietary label products also serve to strengthen Ace’s claim on product quality and safety. Ace’s retail model through stores that serve something like ‘convenience’ hardware shops, a one-stop solution to customers’ needs plays a huge role in the positioning of Ace Hardware and to the strength of its brand. This model under the Ace Hardware brand, as well as all the proprietary items that accompany it is passed on in different countries where the company aims to expand for its international expansion through licensing; instead of being an exporter to different countries, the company aims to become a ‘true world trading company’ (FundingUniverse.com, 2008). International expansion pattern Over the course of the years, Ace Hardware’s international expansion pattern has enabled it to achieve its strategic goals; entering foreign markets establishes the company as a player in the global home improvement market. According to the article from the ‘International Directory of Company Histories’, “according to Do-It-Yourself Retailing, Ace hoped to evolve from being only an exporter to becoming a true world trading company, by offering international affiliates the services enjoyed by dealers in the United States (FundingUniverse.com, 2008).” From being only an exporter to becoming a true world trading company—Ace Hardware ventures into different regions where it can offer licensing grants for business opportunities in countries all over the world. According to the article, the company’s international expansion pattern showcases large concentration in Mexico, as well as Middle East, Eastern Europe, Latin America and the Pacific Rim (FundingUniverse.com, 2008). By granting licenses in different franchisees all over the world, the company is able to expand and leverage its brand name in order to become a global player in the global home improvement market. Qualifications for franchisees The major qualification for an individual or entity to become an Ace store-owner is his or her net worth, which amounts to $400,000; of this net worth requirement, the cash liquidity requirement is $250,000, with the individual’s or entity’s general business experience as the background requirement (Entrepreneur.com, 2008). According to Entrepreneur.com, the individual or entity is also required to pay $5,000 for the franchise application fee. The individual or entity does not have to pay on-going royalty fee to Ace Hardware in the future, aside from this initial application fee. This is usually applicable for those in the United States who have plans to own a store within the country. As for the aspiring Ace store owners outside the United States, according to Acehardwareintl.com the membership application process varies in each global market. The individual’s or the entity’s initial ownership stock investment per store location is $5000; the license and royalty fee is dependent on the individual market and the level of support required with the liquid capital figure varying depending on each global market. The approximate investment per store location is $1,000,000 which is “based on 20,000 retail square feet per store (Acehardwareintl.com, 2008).” According to the site, the initial investment will include fixtures, startup costs, training, etc and will vary depending on the global market where the store belongs to, as well as the store size. Support and training for franchisees According to Myace.com, the company provides support from the a “dedicated and experienced team of experts”, where the program includes extensive training, systems and support that will equip the entrepreneur the knowledge when entering the DIY consumer market (2008). According to the site, Ace Hardware offers “start-up assistance which includes: financing programs for qualified individuals; [assistance] in finding the right location; store set-up and design, including store planning, visual merchandising, pricing strategy development, office set-up and product selection (Myace.com, 2008).” Apart from the assistance, Ace Hardware also includes in its programs comprehensive training covers strategies which are aimed for: “effective store management; managing each revenue center; purchasing and inventory; implementing superior customer service; financing management and back-office procedures; hiring, training and managing employees; [and] effective marketing techniques.” Apart from this comprehensive training covers strategies and assistance, the Ace Hardware offers two other types of support in order for the entrepreneur to fully become an ambassador of the Ace brand. These two types of support include on-site support and marketing and advertising support. Ace Hardware’s on-site support includes “hands-on, on-site support at your grand opening; visits from our experienced retail support staff; in-store tools for continual improvement, such as customer surveys, customer comment card programs and mystery shopper programs.” The marketing and advertising support includes “grand opening planning, assistance and awareness programs; local store marketing programs such as newspaper ad slicks, direct marketing materials and regional radio and television opportunities; comprehensive and effective national advertising; public relations strategies and materials; community involvement programs and local charity tie-ins; Ace Rewards [the company’s] one-to-one consumer loyalty program; [and] system-wide website with store directory and e-commerce.” 3. Find out how your chosen company is doing, both domestically and internationally. Apply relevant concepts from the course to evaluate company’s global strategy. Is the company expanding to attractive markets? Is the company’s approach to franchising appropriate? Company’s performance: domestic and international Ace Hardware’s performance domestically and internationally can be gauged through different measures. These can include market share and customer satisfaction, wholesale sales and retail sales. According to Dave Carpenter in his article entitled “Ace Hardware likes being underdog”, “the 83-year-old chain just concluded its best sales year since 1998, with wholesale sales up 6.5 percent to $3.4 billion and a record bottom line exceeding $104 million, based on preliminary figures. Its stores, about two-thirds owned by independent dealers, racked up almost $12 billion in retail sales (Deseret News, 2007).” He further added, “while mega-retailers Home Depot Inc. and Lowes Cos. are expected to report about $140 billion in 2006 sales between them next month, Ace appears to have outperformed the two leviathans in same-store sales growth for the fourth year in the past five (FindArticles.com, 2008).” As regards customer satisfaction, J.D. Power and Associates has conducted a report entitled “Ace Hardware ranks highest in customer satisfaction among Home Improvement Retailers for a second consecutive year”, the report noted that “Ace Hardware achieves a score of 791 on a 1,000-point scale and performs particularly well in the sales staff and store facility factors, which are the two most important factors driving overall customer satisfaction. Lowe’s (784) and Menards (779) follow Ace Hardware in the rankings. Lowe’s performs particularly well in merchandise, while Menards performs well in the sales/promotions and price factors (2008, p.1).” As a measure of the company’s performance, customer satisfaction influences the relative strength of the brand, in this case the Ace brand. The article further noted that “Ace Hardware is particularly successful in pleasing customers with their knowledgeable and helpful sales staff,” said Dale Haines, senior director of the real estate and construction practice at J.D. Power and Associates. Mr Dale Haines further elaborated that “while offering a wide selection of merchandise and low pricing are important, customers tell us that being able to get the assistance and advice they need to complete their projects correctly the first time is what keeps them satisfied with, and loyal to, their primary home improvement retailer (2008, 1).” This focus on customer is reflected in the company’s efforts through constantly changing their strategy in dealing with customers. Aili McConnon in his article in the Business Week entitled “Ace Hardware: Calling the Right Play for Each Customer,’ she wrote, “the new strategy was hatched by 12 Ace staffers who spent a year analyzing how to increase the time employees spend helping customers without adding extra bodies. If theres an influx of shoppers, the coordinator alerts sales associates to drop everything and focus on customers. Like any good quarterback, they know when to call a new play (BusinessWeek.com, February 21, 2008).” The company’s dedication to help other people through its stores has continuously created additional value to the customer which contributes to the success of its brand, and the company. By sticking to what the brand stands for and delivering as it has promised, the company’s success is directly related to its customer service. Company’s global strategy Expansion to attractive markets As the company strives to become a “true world trading company” and not just an exporter, Ace Hardware has expanded over the years to the various markets such as Mexico, East Europe, Latin America, and the Pacific Rim. However, while the expansion has contributed to the success of the organization, the future of the company lies in the choices that it makes such as overseas locations. In an article in the Business Wire entitled “Opportunities and Challenges in the Global Home Improvement Market,” the global market for home improvement is set to boom in the next couple of years. According to the article, “Globally, the home improvement market holds immense potential. This is because most of the countries/regions are still under-penetrated. Only the United States home improvement market is showing signs of slowing down after registering double-digit growth in the last decade. However, the European region shows dichotomy in its market characteristics - the Northern countries like the UK, Germany and France are on an upswing whereas the Southern countries like Spain and Italy are still under-developed (FindArticles.com, 2007).” The global markets where the company currently operates in will not offer the most attractive markets for growth. The article further added, “…it is the Asian countries notably China and India which holds the actual potential. And this is illustrative of the fact that global home improvement retailers like Home Depot and Lowes are entering these regions either through buy-outs of regional players or through joint ventures (FindArticles.com, 2007).” While Ace Hardware has entered various markets in Asia such as Japan and other countries in the Pacific Rim, there has not been any announcement yet as regards future plans for the company’s expansion in China and India, where the growth seems to be most promising. Appropriateness of company’s approach to franchising The company’s approach to franchising involves licensing to individuals or entities who apply to own a store in their own countries and chosen locations. When an applicant qualifies, the company then has taken another step for expansion. While licensing has contributed much to the company’s success over the years, when entering the most attractive markets such as India and China, Ace Hardware’s approach to franchising seems to be insufficient. This is because, like any other foreign player that wants to enter these markets, active participation and careful planning is necessary—the initiative comes from the company. One alternative approach to franchising in order to enter these attractive markets, which is more appropriate in the given situation, is to either build strategic alliances or enter joint ventures within these markets. While the risks can be great, the company’s initiative is necessary to enter the market in this kind of foreign entry. The franchising can still hold, the granting of license to various owners, however a strategic alliance should be forged in order to ensure the success of the operation. While the home improvement industry is set to boom in these markets, like the other industries it should be entered by a company with all the initiative to study and plan its entry. This is more appropriate than licensing alone to those investors who are interested in owning a store in certain countries. 4. Choose one country where your chosen company is present. Find information about the market conditions for the chosen product or service in the market. Based on published information, evaluate the company’s performance. What are the opportunities and threats? What is the company’s strategy (using the strategic choice matrix) competitive strategy in that market? Company’s performance in the foreign country According to Census.gov.ph, Ace Hardware in the Philippines belongs to the category of specialized retail chains for hardware and construction supplies. Of the huge retail industry in the country, the hardware and construction supplies occupy a small chunk. The hardware and construction supplies stores in the Philippines are comprised of stores that are located in public markets and corner streets. Nevertheless, with the company’s strong brand and promise, the company has expanded to up to thirty four branches nationally (Acehardwareintl.com, 2008). While the increasing retail expenditures of people in the country due to the people’s increasing preference for shopping malls as one of the channels where they go purchase things, the one-stop promise of Ace Hardware proves to be in line with it. However, due to the larger number of players in the hardware and construction supplies segments and other hardware stores’ offer of accessibility due to proximity, Ace Hardware has still a long way to go to dominate the market. But as the health of its operations is dependent on the health of the retail industry in general, as its stores are strategically situated in malls, Ace Hardware in the Philippines is doing well. Opportunities and threats The increasing preference of people from the Philippines in mall-shopping experience serves as a huge opportunity for Ace Hardware. As shopping malls continue to grow in number (SM-Shoemart.com, 2008) which makes them very accessible to people, Ace Hardware can strategically place its stores in there in order to expand as the retail industry continues to expand. However, as the country continues to expand and entrepreneurship continues to become the trend (Census.gov.ph, 2008), hardware retail stores are one of the choices for startups. This increases the competition for Ace Hardware as smaller competitors that require smaller investments spring. The company’s huge investment requirement makes it less attractive to small and medium scale entrepreneurs, which could start their own hardware retail stores, although far from what the Ace brand holds and compete in terms of different attributes. Company’s strategy The company utilizes a market development strategy in the Philippines, where old products enter new markets as it continues to expand. This strategic choice is good as the company aims to expand across the different parts of the country, and start with the strategic shopping malls. The thirty four branches of Ace Hardware are strategically situated in shopping malls across the country. The company’s strategy is to bring its one-stop ‘convenience’ shop idea to the country. As people’s preference for shopping malls for retail buying, this idea fits that experience. The company capitalizes on this. As the company positions itself as a premium ‘convenience’ shop in the country within shopping malls, the company reinforces its image of better quality products, as well as the experience. This strategy helps the company maintain its health in line with the whole retail industry as a whole. Works Cited Acehardwareintl.com “Ace Hardware International.” Acehardwareintl.com. 2008. 10 December, 2008. Acehardwareintl.com “Ace Hardware International-Qualifications.” Acehardwareintl.com. 2008. 10 December, 2008. 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Power & Associates. “Ace Hardware ranks highest in customer satisfaction among home improvement retailers for a second consecutive year.” JDPower.com. 29 May, 2008. 10 December, 2008. McConnon, Aili. “Ace Hardware: Calling the Right Play for Each Customer.” BusinessWeek.com. 21 February, 2008. 10 December, 2008. MyAce.com. “Ace Hardware-Training.” MyAce.com. 2008. 10 December, 2008. MyAce.com. “Ace Hardware-Investment.” MyAce.com. 2008. 10 December, 2008. MyAce.com. “Ace Hardware-About.” MyAce.com. 2008. 10 December, 2008. "Opportunities and Challenges in the Global Home Improvement Market". Business Wire. . FindArticles.com. 12 July 2007. 11 Dec. 2008. http://findarticles.com/p/articles/mi_m0EIN/is_2007_July_12/ai_n27302471 SM Shoemart. “SM Shoemart-Retail Affiliates, Ace.” SMShoemart.com. 2008. 10 December, 2008. Read More