International expansion

A company’s ability to boost sales revenue through international expansion

A company’s ability to boost sales revenue is through international expansion. When a business reaches the point of maturity in its home market, it becomes necessary. A corporation can enter international markets through a number of strategies. These consist of production abroad and export, whether direct or indirect. In the neighborhood, Rocky Mountain Chocolate Factory has been prospering. The sales of chocolate, which account for 68% of the company’s income, demonstrate this. These confections were created and distributed through franchises, allowing the business to broaden its market by going global (Mull, Takano, & Owings, 2014).

Expansion Strategy Selection

Since franchising has proven to be a success, market development by using the Master License Agreement (MLA) approach would be better suited for the company. This is because it will allow the franchises to purchase more or produce similar products and thus the income generated from licensing fee and product sales are likely to increase (Duggal, 2013). With a focus on the huge Japanese market, this report will focus on market expansion through MLA as the appropriate strategy that RMCF can use to expand internationally.

Factors supporting MLA enlargement strategy

International marketing is very different from domestic marketing. International companies often receive different treatment with various regulations when it comes to operations outside the home country. Therefore, in determining the appropriateness of an expansion model, some key factors need consideration. For RMCF, there are some favorable factors in the Japan market which favors its MLA extension strategy. These include;

Favorable Laws

There are laws in some countries which significantly affect the ability of an international company to do business or prohibits the activities altogether. Starting up a foreign business in Japan might be difficult if you are not familiar with the rules and regulations. Examples of challenges include incorporation, visa, residence and taxation restrictions which affect investors who want to live in Japan and become directors of their own companies. Moreover, the laws regarding human resources can become a barrier since the standard working conditions as well as provision of the minimum wage needs to be met. The rules apply to all companies in Japan, regardless of whether the worker and the company are Japanese or non-Japanese (McPhillips, 2017). For RMCF, the laws favor its expansion strategy. Given by increasing its market by venturing via a franchise in Japan, the franchisee is well aware of the regulations and is in better contact with the workforce. With MLA, RMCF will only provide the necessary technology and raw materials facilitating the production process by the franchisee. On its part, RMCF will be receiving income regarding license fee as well as royalties. The policy will allow for expansion of the market as more shops will be opened throughout the Japanese market and given that the franchisee can brand the chocolates, the company will receive more royalties generated from unit sales. Given that the law favors local productions, thus, the MLA strategy is a viable option for expansion purposes.

Political Stability

Another aspect favoring expansion into Japan is the presence of political stability. Unlike other countries, Japan is a peaceful country with a stable government that supports international business. Coupled with the efficient transport systems, the market expansion strategy will target the huge Japanese population who provide a unique target market with a potential of making relatively high purchases of the RMCF products. McPhillips (2017), states that Japan is a stable country thus provides a stable market to companies.

Favorable Economic Factors

By considering the country’s Gross Domestic Product, Japan’s economy is the third-largest worldwide. It is also the fourth-largest by purchasing power parity and are the world’s second largest developed economy. Bryan Merryman eagerly anticipates significant success in this new market in Japan shortly (Mull, Takano, & Owings, 2014). With the evidenced development and financial strength of the Japanese economy, international expansion to the country is a very promising avenue. From the history of franchises in Japan, RMCF will reap big from the MLA strategy.

Drawbacks of Master Lease Agreements

Despite the favorable factors that encourage market expansion into the Japanese market, there exists some limitation for the success of MLA as a market development strategy. A major limitation is the limited form of participation by RMCF to the length of the agreement. The company is only expected to provide support to the primary licensee who in turn produces and brand the product as he wishes (Duggal, 2013). Similarly, the potential returns derived from marketing and manufacturing of the product may get lost since the licensee becomes a producer on his own. Moreover, with the transfer of production power to the holders, he can become a competitor as he may possess better production technology thus produce better goods than the original company.

Conclusion

Market expansion is a viable technique that can be applied by a company. MLA can be used to spearhead such an international development strategy. Given the favorable factors in Japan, there is potential for an increased market share which leads to increased revenues company. However, MLA requires considerable fact-finding, planning, investigation, and interpretation to avoid the drawbacks of this approach.

References

Duggal, A. (2013, June 18). The Master Lease: A Case Study on How to Achieve Cashflow with Little Capital. Retrieved from https://www.biggerpockets.com/renewsblog/2013/06/18/case-study-master-lease/

McPhillips, D. (2017, March 16). Japans stability is both a stregth and weakness. Retrieved from https://www.usnews.com/news/best-countries/articles/2017-03-16/japans-stability-is-both-strength-and-liability

Merryman, B. J. (2012, April 30). Rocky Mountain Chocolate Factory. Retrieved from http://www.marketwired.com/press-release/rocky-mountain-chocolate-factory-launches-international-expansion-strategy-with-first-nasdaq-rmcf-1650117.htm

Mull, R. H., Takano, K., & Owings, S. (2014). Rocky Mountain Chocolate Factory International. Journal of Case Studies, 27-32.