Question

Assume that two rival coffee chains when entering Turkish market followed different entry modes. Company CWC followed a greenfield approach and Company GLJ followed franchising. What can be the problems associated with each entry mode. (Hint: Base your evaluation on control over foreign activities and the amount of resource committed to the foreign market)

Answer 1

GREENFIELD APPROACH :- When a parent company creates a subsidiary in a different country, building its operations from the ground up this type of foreign direct investment is known as greenfield.These investment projects include the construction of new production facilities,the building of offices,distribution hubs,services etc.Here the parent company creates a new operation in a foreign country from the ground up.Also the company has great control over the branches.     FRANCHISING :- It is a kind of arrangement as well as agreement between two parties where the franchiser grants the franchisee the permission and the right to use the business ,products and the market of goods and services to use its own tag and trademark.A certain fee as well as a percentage of sale ,from the franchisee is asked by the franchiser .It provides the franchisee a good access to the talent,minimum growth risk,easy expansion capital etc.Here the franchisee has also the certain level of independene where he can earn easily and thus the franchiser is also benefitted. In the case of these above two coffee rivals who are established in Turkeywe see the problems associated with their entry and can look at them in the following manner :- **Greenfield:- *it is considered as the riskiest form of FDI,as it has high risk factors of investment (as mentioned above)     *greenfield entry is expensive in one go(barriers to entry). *it compulsorily needs local workforce. *it is easily affected by government regulations. **Franchising :- *they also possess high start up costs (but definitely different than greenfield) *they have some sort of independence but are limited. *profits are not fully guaranteed.        *franchise can be removed easily so it is a risk factor too . Here in the case of above two rivals and their entry modes the franchising mode is more favourable than the greenfield mode except some extraordinary circumstances where the franchisor may remove the franchisee's rights.Also the foreign factors exists and they are effective too.