Question

Discuss the advantages and disadvantages of the model of entry direct ownership , likening ,partnership and franchising employed by Starbucks in different countries, for discussion purpose discuss, select one country for each mode of entry

Answer 1

We may select India as the service importer company.

advantage-

1. INCREASE IN REVENUE-with the foreign investment the revenue of the concerned firm would increase and thus it would benefit to represent the level of business in terms of turnover basis
2. GLOBAL COVERAGE-due to foreign investment the business would get fame across the world and this would increase the consumer base and market share in the economy.
3. EXPANSION OF BUSINESS-the size and scope of business would be increased.country like India having more than 25 states would be useful to operate the business,which would be helpful in gaining increased market share in the economy.
4. INCREASE IN EMPLOYMENT IN THE IMPORTER COUNTRY-FDI and franchise would require the human power to operate the business,this would help the country like India to increase the employment in the country and the skills and ability of the men power could efficiently used.
5. INCREASE IN NATIONAL INCOME-the operating country would have to pay the taxes in both the country certainly and the labor force working under the country would also have to pay the income tax,thus it would help the government to enhance their level of income.

disadvantage-

1. COMPETITION WITH LOCAL LEVEL FIRMS-this company would face immense level of competition from local level of eateries,cafeteria and restaurants.
2. HIGHER OPERATING COST-foreign duties,several taxes and other elements would increase the level of operating cost for the firm.the burden would either be borne by the consumers or by the firm.
3. COSTLY PRODUCT-if the above mentioned costs are borne by the consumers then the cost per unit would increase and due to immense competition consumer would shift to another service provider in the economy.
4. HIGHER ADVERTISEMENT COST-the advertising and marketing cost would also create another problem because it need huge Financials resources and would result in another financial burden
5. LOWER PROFIT MARGIN-if the costs are borne by firm and couldn't be endorsed to consumers then the profit margin would decline,this point should be kept in mind that there is a difference between revenue and profit.lowering the price would increase revenue by selling additional unit but it would also decrease the profit margin of the company.