How to Craft a Winning Market Entry Strategy – Special Licensing Agreements

 

Wel­come back.

 

In the last video we talked about Licens­ing and how it pre­sented one of the quick­est and least expen­sive ways of enter­ing a new mar­ket. In this video we’ll dive into Spe­cial Licens­ing Agreements.

 

There are two over­ar­ch­ing cat­e­gories that we’ll talk about.

Con­tract Manufacturing

And, Fran­chis­ing

 

Let’s look at Con­tract Manufacturing

 

It’s exactly what the name implies. The asset owner retains the ser­vices of a con­trac­tor to pro­duce the prod­uct, or in some instances ful­fill a ser­vice; think call cen­ters and drop ship­pers. The tech­ni­cal spec­i­fi­ca­tions are pro­vided with the explicit pur­pose of hav­ing that con­trac­tor only use them to pro­duce the product.

 

The ben­e­fit of this arrange­ment is that it allows an orga­ni­za­tion to spe­cial­ize in a cer­tain aspect of the value chain.

 

There are many Global orga­ni­za­tions we’re all famil­iar with that fol­low this busi­ness model. Some of the most fol­lowed are apparel com­pa­nies, like Nike, who uti­lize con­tract pro­duc­tion facil­i­ties. Allow­ing them to focus on the sur­round­ing value-based activ­i­ties, prod­uct devel­op­ment and con­sumer market. Another cohort that quite often fol­lows this busi­ness model is the tech­nol­ogy indus­try. Mar­vell – not to be con­fused with the comic book con­cern — Mar­vell Tech­nolo­gies, which most likely has one or more of their chips in your cell phone, uses this out­source model so that they can con­cen­trate on what gen­er­ates the great­est return, the design of high-end semi­con­duc­tor chips.

 

Fran­chis­ing, the sec­ond of our two points today.

 

This is a con­tract between a par­ent com­pany – fran­chisor and a fran­chisee that allows the fran­chisee to oper­ate a busi­ness devel­oped by the fran­chisor in return for a fee and adher­ence to franchise-wide policies.

 

What this basi­cally boils down to is that some­one has devel­oped a busi­ness that they feel can be – or has proven been able to – port into a new geo­graphic mar­ket. Because they don’t want to invest the time or money in a new mar­ket they are will­ing to lease the con­cept and instruc­tions to oth­ers who want to bring the brand to other regions. In order to suc­cess­ful do this inno­va­tor has taken the time to detail the required launch process and day-to-day oper­a­tions such that it is a for­mu­laic process.

 

The spe­cialty retail­ing indus­try favors fran­chis­ing as a mar­ket entry mode. For exam­ple, there are more than 1,800 Body Shop stores around the world; 90 per­cent of the stores are oper­ated by fran­chisees. Fran­chis­ing is also a cor­ner­stone of global growth in the fast-food indus­try; a case in point is the reliance of McDonald’s on fran­chis­ing to expand glob­ally. The fast-food giant has a well-known global brand name and a busi­ness sys­tem that can be eas­ily repli­cated in mul­ti­ple coun­try markets.

 

There has been much writ­ten about the deci­sion process for a fran­chisee (the buyer) but very lit­tle around what a prospec­tive fran­chisor should con­sider. Use the fol­low­ing seven ques­tions as a quick cut as to whether your busi­ness can uti­lize a fran­chise mar­ket entry strategy.

 

Hope­fully I’ve given you some food for thought.

 

Inside the next video we’ll keep walk­ing up the curve and start our dis­cus­sion on invest­ment alternatives.

 

Thank you for watching.

 

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