Details of the Assignment
Using Netflix (https://www.netflix.com) as a case company, prepare a report that:
1.Identifies a potentially attractive target market for the company’s future international expansion strategy. You will be provided with 3 specific countries to choose from. In order to identify which of these 3 countries represents a potentially attractive target market, you are required to undertake a comparative analysis of the macro-environmental factors of the 3 countries.
– Worth 20% of the overall mark; not included in the word count.
This background analysis must be included as an appendix.
2. Discusses your rationale for the selection of your chosen market. Your rationale should be justified with a more detailed discussion of your analysis of the macro-environmental factors of your chosen market which you have presented in the appendix.
– Worth 20% of the overall mark; 825 words.
Your rationale and more detailed discussion of your analysis of the macro-environmental factors of your chosen market should be presented in the first section of the main body of your report.
3. Critically analyses the key strategic issues the firm faces in expanding into your chosen market:
i) opportunities and threats in the firm’s industrial environment in your chosen market
– Worth 20% of the overall mark; 825 words.
ii) strengths and weaknesses in the firm’s internal environment which may support or challenge the firm’s expansion into your chosen market
– Worth 20% of the overall mark; 825 words.
Your analysis of the key strategic issues the firm faces in expanding into your chosen market should be presented in the second section of the main body of your report.
4. Evaluates the various modes of entry available to the firm and recommends – with justification based on the findings of your analyses in Tasks 2 & 3 above – the most suitable mode of entry that will enable this strategic international expansion to be a success for the firm
– Worth 20% of the overall mark; 825 words.
Your evaluation of the various modes of entry available to the firm, and your recommended / justified mode of entry, should be presented in the final section of the main body of your report.
You are strongly advised to structure your report in the same order as the assignment tasks set out above.
Remember to include a list of references used at the end of the report (presented Harvard style).
Countries to choose from:
You are required to undertake a comparative analysis of the macro-environmental factors of the following 3 countries in order to identify a potentially attractive target market for your case company (Task 1):
- South Africa
Learning Outcomes to be assessed
This assessment assesses how well you can do the following (as outlined in the module specification):
- Critically review the strategy of an organisation in light of international business issues, applying relevant theories and concepts
- Produce a creative strategic solution to a business problem for an organisation facing diverse challenges, taking into account the firm’s external and internal environments
Key Skills to be practised / assessed
This assessment assesses how well you can do the following (as outlined in the module specification):
- Develop their analytical and problem solving skills.
- Improve their research skills and data analysis.
- Work both individually and collaboratively to solve a given problem.
- Develop effective written and oral communication and presentational skills.
- Improve their planning, organising and time management skills.
Your assessment will be assessed according to these criteria which are reflected in the Assessment Feedback Sheet:
- Degree of knowledge and understanding of the module subject
- Ability to develop an argument which is clearly justified and relevant to the particular circumstances of the situation under consideration
- Ability to develop an argument which is well structured
- Breadth and depth of reading from the relevant academic literature
- Ability to critically synthesise and apply relevant theories and concepts from a range of sources
- Ability to apply the Harvard referencing system in the correct manner
- Ability to collect and analyse relevant data
- Ability to identify and evaluate a range of strategic options relevant to the particular circumstances of the situation under consideration
- Degree of originality in generating relevant and justified solutions to the business problem under consideration
- Professionalism of presentation
- Ability to manage time to submit by the deadline
- Academic good conduct
International Business Strategy: A Case Study on Netflix
Netflix is an internationally renowned provider of TV series and movies for online streaming. As at the end of the year 2015, the company had over 75 million subscribers. Notably, the company started as a simple DVD-by-mail service in the year 1997 and only introduced the streaming services in the year 2007 – just about a decade ago. The company’s headquarters are in Los Gatos, California (Netflix, 2016). It is with the introduction of the streaming service in the year 2007 that the business started to expand globally. Taking advantage of the possibility created by the efficiency of the internet, Netflix first featured international streaming in the year 2010 by allowing Canadian subscribers. Although starting at a low tempo, the Canadian market increased with the introduction of more and more television shows in the Netflix channel – especially with the English speaking population in Canada (Bolen, 2014). Towards the end of the year 2011, the company ventured beyond the United States and the Canada market by introducing its streaming across 43 countries in the Latin America (Kanaracus, 2011). Notably, the launch in the Latin America region did not turn up as successful as that in Canada due to several reasons. However, it marked a valuable step in the company’s journey towards global market expansion. As the expansion demands continued, Netflix moved ahead and launched its services in Europe – starting with the core European countries including the United Kingdom, Sweden, Denmark, Norway and Finland. Different from the rather slow growth in the Latin American region compared to its first international launch in Canada, the launch in the European region was relatively successful. The development of Netflix in Europe was much faster than in Canada.
Ideally, there are various reasons and factors upon which the urge to pursue international expansion across different industries finds its basis. It is upon the dynamics of such provisions that pushed Netflix towards starting its first international venture by launching its streaming services in Canada. Five years after the first international expansion success, Netflix has ventured in major countries across the globe. However, there still are many countries where Netflix is yet to introduce its streaming services. Some of the regions where Netflix could consider venturing its services include some Eastern Europe countries like Turkey, relatively developed countries in Africa like South Africa, as well as some Southeast Asian countries like Malaysia. Notably, there are quite a lot of factors that multinational companies use to decide the most optimal locations to venture their international expansion strategies. Using the case of Turkey, South Africa, and Malaysia, it is quite evident that the above countries feature quite lucrative opportunities for Netflix since they are notably under-exploited in the video streaming business and industrial sector. Therefore, each of the above three countries provides quite a good niche suitable for Netflix to carry on with its continuing international expansion endeavors. However, one of them stands out as the best. Regarding the provision of the illustrations featured under the Appendix at the end of this paper, it is quite evident that undertaking its market expansion endeavors in the developing South African country is far much lucrative venture compared to the expansion endeavors in Turkey or Malaysia. As mentioned above and reflected in the Appendix, there are quite some factors that lead to the conclusion that South Africa is the best choice for Netflix. The rationale for the above choice follows below.
Rationale for Choosing South Africa as the Best Market Expansion Target
In the pursuit of implementing international business expansion across various foreign frontiers, multinational companies depend on quite a lot upon the provisions of different factors (Peltier, 2015). Ideally, what forms the basis upon which market expansion ventures are the motives for which most international expansion objectives exist. For Netflix, there are quite some motives which surface as the supporting reasons why South Africa is the best country for Netflix to choose over Malaysia and Turkey. That is, among all the most relevant aspects that feature as the core motives behind international market expansion ventures, they are most pertinent in from the perspective of venturing in the South African market.
The first motive that supports the South African motive is the uniqueness of the product. It is worth noting the fact that the streaming of movies online, despite having started over a decade ago across many other places across the world, is still a relatively fresh concept in Africa (Mkhwanazi, 2016). More so, despite the fact that South Africa is a relatively developed country compared to most other countries in the African continent, it is also hugely untapped and lacking in various information technology aspects. Notably, many multinationals in different industries always have their second thoughts regarding bringing in new products and services to African countries. However, the case of Netflix is relatively different. That is, the video streaming service which features as the main business of Netflix is unique in two primary ways. First, there is no other service like that in South Africa. In light of the above, the expectations for the successful venture are high, and the potential for success is highly foreseeable (Rahman and Bhattacharyya, 2003). The other aspect of the uniqueness comes in the form of the type of service provided by Netflix. Unlike many other multinationals seeking market expansion opportunities in Africa, Netflix does not have a tangible product. Therefore, it does not have to establish factories or other production-related infrastructure that would require capital investment. The video streaming service is a kind of business that Netflix would start to offer from its current servers that are currently used in other countries. The first aspect of uniqueness, standing out as the first international video streaming company to launch in South Africa stands out as the best reason for the above choice. Malaysia and Turkey are in geographical locations that are more developed than Africa. In light of the above, the aspect of uniqueness that promotes quick acceptance into the market is not so high for Netflix in Turkey or Malaysia as it is in South Africa.
The other motive behind the reason South Africa stands out as the best choice over Malaysia and Turkey has to do with the aspects of profit maximization and economies of scale. Ideally, it is worth noting the fact that the core reason for business operation for all companies, irrespective of their industry of operation or their market expansion size, is profit making (My Broadband, 2015). In light of the above, the economies of scale production principle stand out as a key factor that helps in the pursuit of profit maximization for every company. The reason South Africa provides good economies of scale for Netflix finds its basis upon the demographic background of the country concerning the other two –Turkey and Malaysia. Notably, the entire population in South Africa is relatively Christian. On the other hand, both Malaysia and Turkey feature a significant proportion of major religions – majorly Christians and Muslim. Notably, the teachings and expectations of every religion most of the times are not the same. The above conclusion is mostly visible from the Muslims; the Muslim faith has rather strict provisions. Therefore, by expanding its market in either Turkey or Malaysia, Netflix would have to run different TV series or movies at the same time so as to meet the requirements of both the Christian and the Muslim subscribers. In South Africa on the other hand, the presence of just one general religious background makes it possible for Netflix to comfortably prepare its packages from a less complicated perspective and meeting the requirements of the total subscribers at the same time. By meeting the subscriber needs through all-inclusive packages, Netflix gets to enjoy the economies of scale. Consequently, the company gets to reduce the associated packaging costs thus maximizing the profits.
Other than the above two major motives, another relatively positive motive that favors the choice of South Africa over Turkey and Malaysia is the presence of government incentives for multinationals investing in African countries. Unlike the Eastern Europe or the Southeast Asian regions where Turkey and Malaysia are located, respectively, the African continent still depends on the Western especially for information technology related products and services. In light of the above, Netflix is sure to get a better business relationship with the government and the authorities in South Africa than it would in either Turkey or Malaysia. The rationale for the above finds its basis in the fact that the introduction of Netflix in South African bears way much economic relevance in the country than it would to the economies of Turkey or Malaysia should implement its market expansion there.
Strategic Issues Facing the South African Choice
In the process of expanding its market operations in the South African frontier, there are various issues that may arise as a result of the outstanding factors surrounding the entire operation (Haggiag, 2015). Ideally, the above issues are quite significant in forecasting the natural direction that Netflix will take once introduced to South Africa. Notably, there are two major perspectives with which to establish and evaluate the strategic issues facing the introduction of Netflix in South Africa. The first perspective features the determination of the internal environment associated with the operations of Netflix in South Africa. From the above perspective, the focus is on the strengths as well as the weaknesses relating to the above move.
There is a much notable strength that results from the introduction of Netflix in South Africa. First, Netflix is a pioneer in the instant movie and TV Series streamlining services. In light of the above, it bears the first mover advantage compared to all its competitors that would be in the process doing the same (Bright, 2016). That is, it has a strong brand recognition index that would help it to slip into the South African market without much branding campaigns. Additionally, other than its brand recognition as Netflix, some original TV shows that have won awards and are internationally renowned are its property – including the House of Card show. The management believes that the company has what it takes for it to produce original content that is in line with the specific preferences and tastes of particular people within a given target market. At the moment, Netflix has some highly trending TV it is airing, and that would be quite helpful to pave a quick way for its entry into any new market – including that of South Africa.
Irrespective of the above strengths, it is also important to reflect upon the existence of several weaknesses that face Netflix in its market international expansion ventures. So far, statistics from most of its recent international ventures have proven not to be so profitable yet. According to the financial records in the year 2013, Netflix made a loss of 274 million dollars from its operations in its international business expansion ventures (Sweney, 2014). Additionally, the creation of original content has a downside too. From taking notes from experience with other companies, the creation of original content most definitely leads to the downside of depending on how well the company succeeds in striking deals with the owners of such content.
While the above strengths and weakness reflect upon the internal operation of Netflix as it ventures in South Africa, it is also important to reflect upon the general industrial environment affecting the operations of Netflix in South Africa from an external perspective – that is, the opportunities as well as the threats. Since rolling out in Canada in the year 2010, there is no single country that Netflix has ventured and completely failed. The worst that happens is slow growth which slowly starts to grow and turn profitable as time goes by and Netflix starts to accustom itself with the consumer preferences and tastes of the specific country. In light of the above, the fact that Netflix will be venturing in Africa for the first time means that it is an opportunity to understand about the dynamics of the video streaming businesses – not only in South Africa but also in other African countries that closely relate to South Africa. Additionally, the fact that Netflix has started to produce movies as well means that it would have a possibility to make its customer base more satisfied since it will have the opportunity to facilitate the production of entertainment content that is most appealing to them.
There are notable threats in the general movies streaming industry as well. The primary threat facing Netflix in its market expansion ventures is competition. Irrespective of the fact that Netflix is the pioneer company in this industry, there are so many dynamics taking place in this industrial sector that would endanger Netflix’s market expansion ventures across the world – including in South Africa. At the moment, Amazon Prime and HBOGO from HBO are the major competitors of Netflix (Epstein, 2014). As observed throughout other industrial sectors, both HBOGO and Amazon Prime may wait for Netflix to take the maiden step of establishing the movies streaming business in Africa and take advantage of perfect information by establishing their operations in South Africa by basing their operations on strategies developed after observing the pioneer performance of Netflix in the above market.
Evaluating the Mode of Entry for Netflix in South Africa
The essence of entering a new market is opening up the possibilities of increasing the revenues as well as decreasing the cost of the goods or the services sold by the companies undertaking the expansion measures – thus increasing profits (Decker, 2014). More so, entering new markets also allows companies to integrate with its foreign-based enthusiasts and prospective customers. In other companies, it is a mere call for survival resulting from increased domestic competition thereby requiring for operations overseas. Notably, the mode of entry plays a remarkable role in facilitating the extent of success a given multinational from its international business ventures (Chanakira, 2012). In the case of Netflix, there are several possible market entry modes that may apply in its pursuit to tap the South African movie streaming business.
One common market entry method is through the establishment of mergers and acquisitions (Miller, 2013). Mergers and acquisitions refer to the business set-up where Netflix comes into an agreement with a local online TV content broadcast in South Africa. Ideally, the above would mean that Netflix takes substantial ownership shares in the local company before slowly taking over and acquiring the entire control of the company which means even branding all its former content under Netflix. In its entirety, it features the acquisition of all existing business in the local company, including the staff. Notably, there are some definite advantages that would result from Netflix choosing to enter the South African market through this method (Sherman and Sherman, 2011). First, it allows for a quicker establishment of a consumer base for Netflix. More so, if facilitates the availability of skilled workers right from the first day. The necessary infrastructure is also readily available and good to go. Finally, the increased knowledge base offered by the association with the local company helps a great deal to deal with competition issues.
Another entry strategy that would be suitable for Netflix in South Sudan is establishing its operations as a Greenfield Investment (Dunning and Lundan, 2008). In this case, it means starting from the ground and building up the Netflix brand in South Africa from the ground. Greenfield investments stand out as a very lucrative model that features the following advantages. First, it provides the best long-term strategy for establishing the greatest control in the movies streaming business. More so, it proves to the consumer that Netflix is committed to the market and intends to provide its services in the new market for a long future. Greenfield investments also suitable for more effective staff control especially compared to mergers and acquisition features better press opportunities and allows for the establishment of effective brand control (Herrmann and Lipsey, 2003).
Another possible mode of entry for Netflix in South Africa is licensing. Ideally, licensing refers to a contractual agreement that allows a company to transfer its rights to run a business in a given jurisdiction (Fritz, 2015). In the case of Netflix in South Africa, it could acquire the license to distribute and use all forms of marketing tools such as the patents and trademarks of a company that is already known and established in the country. In exchange for the license rights, Netflix would be required to pay a given percentage of its sales revenue. The use of the above mode is quite practical especially in a country where the targeted market stands out to be under strict legal protection (Wilkof and Burkitt, 2005). Overall, the above method features various advantages including the quickness as well as the ease of entry into the foreign markets in that it helps a company to overcome any tariff barriers that may be present. More so, it does not feature any more financial requirement besides the license fee which is not initially costly owing to the fact that some of the license fees are paid from the sales revenue of the company year after year.
In light of the above, the best entry mode for Netflix in South Africa
is through mergers and acquisitions. The rationale for the following conclusion
finds its basis in the fact that mergers and acquisitions help to blend in
foreign companies with the local market. That is, by merging and acquiring a
local streaming media company in South Africa, Netflix stands the best means of
understanding the consumer dynamics of the South African market (Taiwo, 2016). Through entering into a merger,
Netflix will slowly get its way around the entertainment media streaming under
the umbrella of the local company it merges with without the knowledge of the
subscribers of the local company. Before the local consumers learn of the
acquisition of the local company by Netflix, it will have already established a
good name for itself and ready to market its brand independently.
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Wilkof, N. and Burkitt, D. (2005). Trade mark licensing. London: Sweet & Maxwell.
International Business and Strategy – The Case of Netflix
An effective corporate strategy serves a significant role in promoting organizational development by prompting increased efficiency, productivity, quality improvement, increased performance and the creation and implementation of organizational goals. According to Johnson, et al. (2015), the implementation of effective strategy enhances a company’s competitiveness by improving its competitive advantage. Most organizations employ different strategies to attain a competitive edge over competitors, improve their market share and dominance, and increase profit efficiency. Netflix has recorded impressive growth since it was founded in 1997. Currently, Netflix is one of the largest Internet TV networks in the world and has diversified its products and services to appeal to different market segments in 190 countries (Netflix, 2016). The success of Netflix comes from the application of effective strategies. For instance, it continually reinvents itself by adopting and implementing new technologies, forging partnerships, adding value and aligning its products and services with consumer needs. In the recent years, the Company has focused on penetrating new markets, developing and diversifying its products, and market development. In January 2016, Netflix launched its operations in 130 countries in the quest to increase its market share and maintain its dominance (Netflix, 2016). This report analyzes the macro environment in Malaysia, South Africa, and Turkey, where Netflix launched its operations recently, to determine the most lucrative market for expansion. After the analysis of different internal and external factors environment factors, the report identifies South Africa as the best market for expansion.
Why South Africa is the Best Market Expansion Target for Netflix
According to Peltier (2015), multinationals consider different factors before expansion into a foreign market. These factors determine whether or not the firms enter the market. After a consideration of the different factors in the recent past, Netflix expanded its operations in over 130 countries. However, these countries offer different promises for the company, and while the company may succeed in most, some markets appear more effective for business growth and expansion and guarantee increased profit efficiency. South Africa, Malaysia, and Turkey are new expansion markets for Netflix, which offer different challenges and opportunities (Gomez & Sundaram, 2015: Zakaria, 2016: Ergener, 2012). The analysis of all factors pinpoints South Africa as the most lucrative market expansion target.
Different socio-cultural factors set Malaysia and Turkey and South Africa apart and outline South Africa as the best market expansion target. For instance, Malaysia, Turkey, and South Africa have approximate populations of 30.9, 78.4, and 54.9 million respectively. While most of the population in South Africa is English speaking, the largest populations in Turkey and Malaysia are non-English speaking. Bahasa Malaysia and Turkish are the predominantly used languages in Malaysia and Turkey and thus Netflix, an American corporation, will face greater challenges in the integration of its content with the culture and language in the two countries that it will face in South Africa (Heper & Sayari, 2016: Weiss, 2015: IBP, Inc., 2015). The latter offers a lucrative market of an English speaking population, which provides an opportunity for direct exploration and expansion. Moreover, religion is another influencing factor in the three countries. While Malaysia and Turkey are Islamic states, South Africa is a multiethnic society with numerous religions and cultures. As such, it offers a wider market for the content Netflix seeks to promote and sale in the country. The different cultural aspects in South Africa diversify the risks and thus place it at an elevated level as an appealing market in comparison with Turkey and Malaysia. Religious restrictions in the two countries may influence the operations of the company and future laws passed on the basis of religion to censure or ban particular content may impact greatly on the profitability of the company (Çetin & Oğuz, 2011). South Africa does not pose similar challenges to Netflix and thus is the best target for expansion.
Additionally, though the different countries have revealed significant technological advancement in consideration of their levels of development, South Africa avails a largely untapped market, sets it out as the best market expansion target. According to Mkhwanazi (2016), South Africa is highly developed and offers a potential market for streaming TV series and movies since it is a newly adopted concept. The country avails different opportunities for expansion of any online based programming, TV, and movies/series offering company. As the major player in the global platform for such companies, Netflix stands a chance for increased expansion of its market share in South Africa than in Turkey or Malaysia. Even when Turkey and Malaysia offer a huge platform for streaming TV series, movies and other content, the market is saturated by local players who may make it difficult for the penetration of international players. For instance, in view of the socio-cultural constraints, Netflix may find it difficult to compete in the countries as the content may not align well with the local market needs (Ergener, 2012). To align its products and services, the company will need to allocate more resources for translation technologies, promotion, and the identification, creation and implementation of different strategies to ensure effective competition in the market (Johnson, et al., 2015).
The uncertainty that faces Turkey in consideration of the rising threat of terrorism in the neighboring countries (Iraq and Syria) and the Arab upspring, place a great challenge to any multinational corporation entering the market (Hitt, 2016). The Joint Task Force – Operation inherent Resolve by the international community faces a major challenge in eliminating ISIL/ISIS in the country. Therefore, the issue poses a political and economic challenge to all neighboring countries (U.S. Government, 2015). Turkey, therefore, may not pose an effective environment or market for the promotion and expansion of any business. The TV and series streaming may be faced with numerous challenges in the future since such a threat may lead to infrastructural destruction. On the other hand, South Africa provides a peaceful environment for any business venture. The recent xenophobic attacks were easily and efficiently managed and thus with the promise of continued political stability the country is a potentially profitable market for the streaming industry. Therefore, the choice of South Africa as the best target market for expansion was made after a consideration of future political state and stability of the countries.
The different markets record impressive economic development and significant strides in the reduction of poverty and other different economic challenges that limit business growth and development. The countries have developed and implemented different economic policies and regulations that foster increased economic growth by encouraging entrepreneurship and the foreign investment. The laws and regulations set by the South African government to offer incentives for investors in the country’s tech industry makes it a feasible market for any online business (Zakaria, 2016). However, even with the economic development of Turkey and Malaysia, a consideration of the future of the company in the countries identifies South Africa as with the greatest potential of an untapped market for Internet TV content streaming. Most South Africans depend on Dstv, a satellite TV and thus reveals a huge market that can be exploited effectively. On the other hand, Turkey and Malaysia have other key players such as ABC and FOX among others. Moreover, all the countries have established investor protection policies and a consideration of the different factors identify South Africa as the best market expansion target for Netflix.
Key Strategic Issues Facing Netflix in Expansion to South Africa
The technological advancement recorded in the recent past continues to influence all aspects of human interaction and integration. Additionally, it has led to the development of more efficient platforms for communication, entertainment and leisure, interaction, and social integration. Netflix integrates technological advancement using the internet to transform the TV and media industry. However, it faces new challenges in the penetration of new and emerging markets. In entering South Africa, Netflix intends to exploit the existing market for internet TV experience by replacing the linear TV. Most South Africans depend on linear TV and thus Netflix must integrate different strategies in its operations to replace the rigid linear TV experience. The love for TV content means that people will be willing to pay for more efficient, flexible, advanced and highly personalized TV content. Netflix has developed different strategies such as the integration of Internet TV applications in its operations and takes advantage of the Internet ecosystem growth and the rapid innovation (Netflix, 2016). As the Internet gets faster and increasingly reliable, the penetration of Smart TVs rises, and Internet TV applications depict efficiency and applicability, there is a chance that Netflix will transform the linear TV experience in South Africa (Netflix, 2016).
Moreover, Netflix offers a wide range of flexible content depending on people’s tastes and preferences. The linear TV industry in South Africa, like anywhere around the world offers a rigid program that the viewer must work with. However, Netflix identifies and utilizes user interface and recommends TV series, movies and other content based on the personal preferences (Liu, 2014). It sends the members different relevant titles in their homepage based on their preferences. Additionally, it intends to spend more than $6 billion on a cash basis and $5 billion on content for its customers. The flexibility of its programs and the capital allocation will serve a strategic role in giving it a competitive advantage over the linear TV in South Africa. Also, it will maintain its opportunity in the promotion of its original content through personalized promotion (Netflix, 2016).
Another key strategic issue that will propel Netflix towards the domination of Internet TV market in South Africa is its focus on the establishment of a movie and TV series commercial-free package, which offers unlimited viewing on any screen connected to the Internet. It intends to create a passion-focused brand through a flat-free unlimited viewing commercial-free unlike the pay-per-view and ad-supported content the linear TV industry offers. Additionally, it differentiates itself from the linear TV industry and other related industries that offer news, sports, music videos, gaming and user-generated content by offering exclusively TV series and movies (Netflix, 2016). Also, it strives to remain straightforward and allows the member to leave when they want and gain their membership back at their convenience. These aspects will give the company a better chance of competing effectively and acquiring an increased market share in the South African market. Additionally, as the company focuses on the establishment of a loyal customer base, its concentration on technology and development gives it an even greater chance of offering more appealing packages to its consumers, therefore, attracting more viewers (Johnson, et al., 2008). The linear TV that dominates the South African market lack in the implementation of technologies and continues to offer the same content in the same platforms for years (Gerstner, 2015).
However, it is an undeniable fact that the company will face greater challenges from the competitors in the market. The linear TV is predominant in South Africa, and most South Africans subscribe to the industry. Netflix will be fighting for a share of an emerging market in the country (Johnson, et al., 2015). As such, the implementation of different strategies will be crucial. It will need to establish measures that enable it to compete effectively for the share of the members’ time and spending for entertainment, relaxation and stimulation. The key players in the industry will include DVD watching, pay-per-view content, gaming, magazine reading, web browsing, and video piracy among others (Netflix, 2016). As the different forms of entertainment improve, the company will face a greater challenge in the maintenance of its membership. The vigorous competition will demand the application of more efficient strategies in order to maintain its competitive advantage (McCord, 2014). Additionally, the growth of other Internet TV services, which offer the same consumer satisfaction reveals the significant challenge that the company will face in the future.
Another key strategic issue that faces Netflix in the penetration of the South African market is the development of Internet service provider (ISP) and multichannel video programming distributor (MVPD) relationships. As ISP subscribers expect to enjoy Netflix services for free, there is a need for the company to forge relationships with large and small ISPs to lower costs of third-party transit providers. Also, the company must focus on creating relationships that ensure a free interconnection where neither Netflix nor the ISPs charge the other. However, the achievement of the process is faced with numerous challenges such as the difficulty in reaching an agreement. Also, the company must offer integrated viewing experiences for MVPDs with internet-capable TV set-top devices. However, most MPVDs will not allow the process which enhances Netflix’s growth with minimal advantage to them (Netflix, 2016) (Marzec, 2014).
Modes of Market Entry – Evaluation and Recommendation
The consideration of the different modes of entry, the risks they present, the resources required for implementation, and the guarantee high profit, efficiency and return on investment is key before entrance into a foreign market. The evaluation of the different modes of entry is critical to the determination of their effectiveness. The different modes that Netflix should consider include licensing, strategic alliances, acquisitions, and new wholly-owned subsidiaries. The identification and implementation of the most efficient mode of entry will guarantee Netflix increased strategic competitiveness and the acquisition of a profitable market share (Hitt, 2016). These will further advance its operations and continually improve its profit efficiency and the maximization of shareholder wealth.
Netflix may choose to enter the market by acquiring a local Internet TV service company. The cross-border acquisition will allow the Company to enter the South African market. Netflix can either acquire a stake in the company or purchase its entirety and use its already established platforms in the promotion of its services. Using acquisition as an entry mode into a foreign market comes with different advantages that give the company a competitive advantage in the new market (Tielmann, 2009). The acquisition of a local company, for instance, will give Netflix a quicker access to the new market and a chance to build on an established business. If it purchases all of the firm, Company will focus on establishing or developing the existing systems, channels, operations, services and products and align the previous organizational culture with its culture and corporate strategy. However, acquisitions offer various challenges. For instance, Netflix will have to go through complex negotiations and offer huge amounts to acquire a company. Additionally, upon acquisition the company acquiring has to deal with the existing corporate challenges (Hitt, 2016). Most importantly, Netflix will experience a major challenge in identifying a company to merge with due to the limited options in existence in South Africa, where most companies offer cable or linear TV services. As such, this may not be a feasible mode of entry in the market.
Additionally, Netflix may choose to enter the South African market through the establishment of a new wholly-owned operation in the country. The process will involve the development of new operating channels, systems, and creating its brand afresh in the country. Netflix has achieved success by applying the same strategy in different countries. The application of the mode of entry in South Africa will mean the choice of a location, investment in infrastructural development and the start of its operations from the ground. As an online company, the Company will face fewer challenges in the establishment of a new wholly-owned subsidiary in Africa. Even when the process is complex, demanding, costly, time-consuming and offers high risks, the implementation comes with higher returns, few organizational, conflicts and the company will maintain maximum control (Hitt, 2016). The ability to control its operations wholly will allow for the efficient Implementation of strategies and the application of effective leadership and management. Moreover, as an established multinational company with sufficient capital and resources, the company will not face critical financial challenges that may force it to mergers. As such, in consideration of all the factors then starting its operations from the ground will be the best market entry technique and expansion into South Africa.
Another market entry mode that Netflix may consider is licensing. Licensing involves an agreement formed that allows a foreign investor or company to purchase the right to producing and offering services to the host country’s market or across a set of markets in the host country (Hitt, 2016). Using the licensing mode of entry in penetrating the South African market will require Netflix to enter an agreement with the government to offer its services to the market. The government of South Africa will receive a certain percentage of royalty on all services and products sold in the South African market. While this is the case, Netflix will take all the risks and make monetary investments in all the facilities required for the production and delivery of the services. This will reduce the costs of entry and the risks significantly. However, it will pose various challenges to the Company. For instance, licensing gives the licensee less control and lower returns (Klug, 2006). As such, it is only a suitable entry mode for small firms. Netflix will find it unbeneficial and thus ineffective in entering the South African market.
After consideration of the different modes of entry into
a foreign market and in view of the case of Netflix penetrating the South
African market, the establishment of a new wholly-owned subsidiary would be the
best strategy. The various modes depict ineffectiveness upon application. While
some may pose the least risk, require less capital, and promise high returns, their
application will limit the efficiency of Netflix in expanding in the South
African Market. Additionally, they offer less control of the business. The
application of the abovementioned mode of entry will promise high returns and
maximum control. Further, it will allow for the effective integration and
promotion of corporate strategy and objectives and promote the Company to the success
it seeks to achieve in the local and international market.
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