Why do companies expand into foreign markets Presented

Why do companies expand into foreign markets Presented by: Lera Pogorielova

Agenda O Four major reasons to expand O Factors that shape strategy choices O Examples: KFC Gazprom Neft Fairmont Hotels & Resorts

Four major reasons to expand: 1 2 • To gain access to new customers: - increase revenues, profits, and long term growth attractive option when a company's home markets are mature • To achieve lower costs and enhance the firms competitiveness domestic sales volume is not large enough to fully capture manufacturing economies of scale

• To capitalize on its core competencies: 3 leverage company's competencies and capabilities into a position of competitive advantage in foreign markets as well as just domestic markets • To spread its business risk across a wider market base: 4 A company spreads business risk by operating in a number of different foreign countries rather than depending entirely on operations in its domestic market

Factors that shape strategy choices in foreign markets 1) Differences in Cultural, Demographic, and Market Conditions To match the tastes and preferences of local buyers or whether to offer a mostly standardized product world wide

2) Gaining Competitive Advantage Based on Where Activities Are Located Factors which create sizable variations in manufacturing costs from country to country: • differences in wage rates • worker productivity • inflation rates • energy costs • tax rates • government regulations and etc

3) The Risks of Adverse Exchange Rate Shifts Companies with manufacturing facilities in a particular country are more cost competitive in exporting goods to world mar kets when the local currency is weak (or declines in value relative to other currencies)

4) The Impact of Host Government Policies on the Local Business Climate Companies desire to expand their participation in foreign markets tend to put most of their energies and resources into those country markets not only where market opportunities are attractive but also where the business climate is favorable.

KFC o KFC (Kentucky Fried Chicken) the world's largest chain of fried chicken fast food restaurants o The world’s 3 rd largest chain of fast food restaurants (after Subway and Mc. Donald’s) o KFC is going to enter in Ukrainian market this year

Reasons why KFC is going to enter in Ukraine: O Ukraine is one of the most attractive markets for O O fast food development Purchasing power of fast food market growing rapidly. Fast food chains are in the first line to gain millions of customers. The fast food market is taking up strong position in Ukraine because of international competition from leaders which everyone can find them in the touristic areas all over the world. Strong Brand Name recognition and reputation

Gazprom Neft Gazprom a global energy company. Its major business lines are geological exploration, production, transportation, storage, processing and sales of gas, gas condensate Reasons for enter in Ukraine: Ø Ideal platform for exporting from Russia Ø Ukraine as a try of franchising Ø The retail motor fuel market in Ukraine is about 8 9 million tons per year and has serious growth potential Ø Move into Ukraine as a test of brand’s competitiveness

Fairmont Hotels & Resorts Reasons: O Constant increasing demand for premium hotel rooms O Inability of functioning hotels to satisfy this O Limited assortment of hotel services O Progressive integration of Ukraine in both the European and World community O Increasing of political and networking event quantity O State assistance to units taking part in EURO 2012 preparation program

Advantages of Ukraine: O Emerging market (15 20 % every year) O 45 million consumers, the greatest market in Eastern O O Europe Highly competitive, well educated, skilled workforce Strategic location at the crossroads of East West and North South trade routes Ideal platform for manufacturing and exporting both to Russia and to the EU Extensive transport infrastructure with railroad system, Black Sea ports, and Pan. European Transport Corridor roadways

Thank you for attention!

Sources: O Main book (chapter 7) O http: //chnci. blog. com/2011/09/20/fast food in O O ukraine 2010 3/ http: //www. investukraine. net/horeca/pizza hut burger king kfc will come to ukraine/ http: //pda. gazprom neft. com/press center/lib/253471/ http: //www. eturbonews. com/30895/starwood hotels names ukraine key emerging market http: //www. mayger. ua/en/market review/euro 2012 hotel business development of ukraine/