Strategies for international marketing — practice questions

Export only: Low risk but no local shop experience for premium brand; import duties raise price.

Franchise: Faster rollout, local retail expertise; quality control risk if franchisee deviates.

Joint venture: Shared market knowledge, navigate regulations; profit split, conflict possible (7.1.4 trust).

Adaptation: Shades and formulations for Indian skin tones; modest promotion vs Western imagery — glocalisation.

Recommendation: JV or master franchise for physical presence; adapt product line; keep global brand identity.

Data:

• Exchange Rate: £1 = €1.15
• Option 1: Direct Exporting
  • Annual Sales Volume: 500 units
  • Price to Dutch Retailer: £1,500 per unit
  • UK Production Cost: £800 per unit
  • Shipping & Insurance: £100 per unit
  • EU Import Tariff: 10% of the price to the retailer
  • Annual Marketing Costs: £50,000
• Option 2: Joint Venture (JV) with HollandWheels
  • Annual Sales Volume: 800 units
  • JV's Selling Price to Retailer: €2,000 per unit
  • Cost of Components from BritBikes: £400 per unit
  • Local Assembly & Other Costs (in Netherlands): €700 per unit
  • JV's Annual Overheads: €200,000
  • Profit Split: 50% for BritBikes, 50% for HollandWheels

Step 1: Calculate Annual Profit from Direct Exporting

1. Total Revenue: 500 units × £1,500/unit = £750,000
2. Total Costs:
   • Production: 500 × £800 = £400,000
   • Shipping: 500 × £100 = £50,000
   • Tariffs: 10% × £750,000 = £75,000
   • Marketing: £50,000
   • Total Costs: £400,000 + £50,000 + £75,000 + £50,000 = £575,000
3. Annual Profit (Exporting): £750,000 - £575,000 = £175,000

Step 2: Calculate BritBikes' Share of Annual Profit from the JV

1. JV Total Revenue (in €): 800 units × €2,000/unit = €1,600,000
2. JV Total Costs (in €):
   • Components from UK: (800 × £400) × 1.15 = £320,000 × 1.15 = €368,000
   • Local Assembly: 800 × €700 = €560,000
   • Overheads: €200,000
   • Total JV Costs: €368,000 + €560,000 + €200,000 = €1,128,000
3. Total JV Annual Profit (in €): €1,600,000 - €1,128,000 = €472,000
4. BritBikes' 50% Share (in €): 0.50 × €472,000 = €236,000
5. BritBikes' Share (in £): €236,000 / 1.15 = £205,217

Step 3: Recommendation

• Financial: The Joint Venture is projected to yield a higher annual profit for BritBikes (£205,217) compared to Direct Exporting (£175,000).
• Qualitative: The JV offers strategic advantages like deeper market penetration (higher sales volume), local expertise, and avoidance of tariffs, which justifies the shared control and initial investment. Exporting is lower risk but offers lower returns and is vulnerable to trade policy changes.
• Conclusion: The Joint Venture is the recommended strategy. The financial gain of over £30,000 per year, combined with long-term strategic benefits, outweighs the simplicity of exporting.