Market or complete failure

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The second idea the business could use would be franchising. For many businesses this is the best way into international markets. Franchises are legal agreements by which local businesses are allowed to set up using the name, logo and trading method of a well known company. They gain all the benefits of a strongly branded product in return they pay a lump sum, percentage of the annual turnover and provide local knowledge. Examples of franchising would be Mcdonalds who have allowed some of their stores to be franchised.

I have found evidence relating to various franchised Gap stores around the world. Gap has entered the franchise industry in order to develop its growth in Asia. Gap has signed a franchise agreement with Singaporean group FJ Benjamin Holdings which will see stores opened in Singapore and Malaysia under the Gap and Banana Republic brands. Under the agreements, F J Benjamin will hold exclusive rights to operate Gap and Banana Republic branded clothing and accessories stores in Singapore and will hold exclusive rights to distribute Gap and Banana Republic products in Malaysia.

This franchise agreement between Gap and F J Benjamin demonstrates the company’s first step toward expanding the Gap and Banana Republic brands via international franchises. F J Benjamin plans to open about 30 stores in Singapore and Malaysia by 2010, opening the first Gap store in 2006 and the first Banana Republic store in 2007. “We are bringing Gap and Banana Republic to more customers throughout the world,” Quote from Andrew Rolfe president of Gap inc international. Gap Inc. will gain F J Benjamin’s retail expertise but will provide access to Gap and Banana Republic’s world-renowned clothing and accessories.

F J Benjamin will purchase merchandise from Gap Inc. or suppliers designated by Gap Inc. and must keep to Gap Inc. ‘s quality standards to protect the reputation of the Gap and Banana Republic brands. This year Gap has also brought more franchise partners on board in United Arab Emirates, Kuwait, Qatar, Bahrain and Oman, and plans to have 90 Gap and Banana Republic stores in Southeast Asia and the Middle East by 2010. The second franchising deal that Gap inc have signed is with the Al Tayer group-a leading business in the Middle East. Al Tayer will introduce Gap and Banana Republic brands into five key markets in the Middle East.

The Group plans to open about 25 Gap and about 10 Banana Republic stores by 2010. The first Gap stores will open in the later part of 2006 and the Banana Republic stores are scheduled to open in 2007. Under its agreement with Gap Inc, Al Tayer Group will hold exclusive rights to operate Gap and Banana Republic branded clothing and accessories stores in United Arab Emirates, Kuwait, Qatar, Bahrain, and exclusive rights for Gap in Oman. Gap Inc. will again provide access to Gap and Banana Republic’s world-renowned clothing and accessories in return Al Tayer Group’s expertise in building retail outlets in the Middle East.

Gap have entered two franchising deals already, if these were to succeed I would not predict against them entering them in the future. The advantages to gap for using franchise deals are as follows; any risk for the business is taken away as someone else will be running the business. The company will be provided with a lump sum and a percentage share of the annual turnover. This lump sum can be invested into other areas of the business such as advertising or research and development. The percentage of the annual turnover could also be retained profit.

The business grows quickly and easily a global brand can be created effectively as long as people are willing to buy franchises in your business. Although there are various advantages the company could benefit from there are also disadvantages which could harm the business, actions by the franchised stores could harm the reputation of the company, because they have no control in the market they give full responsibility to the franchisee that could let you down. Also only some of profits are given to the company they have to share with the franchisee.

This annual turnover they do receive would probably be significantly lower than the stores gross profit annually. The final growth strategy which could be used by Gap would be licensing, A license allows a business to make, produce and market a product or use the production method, which is protected by copyright or patent. This means that an innovative company can expand into international markets without actually having to invest in locally based production facilities. An example of licensing would be Heineken lager which is brewed under license by Whitbread’s in the United Kingdom.

From research I have found that as well as franchising Gap have also entered licensing agreements. In 2006 Gap announced a licensing agreement between themselves and Safilo group. Safilo group are the leader in high-end and luxury eyewear. The agreement includes Banana Republic-branded prescription frames and sunglasses. The agreement includes the design, development, production and distribution of a collection to be launched by the end of 2007 in the United States and Canada. Terms of the agreement include a five-year commitment.

The agreement represents the first time Banana Republic will sell its products outside its own distribution channels. “Their ability to transform eyewear concepts into luxury products is a great complement to our own expertise in extending the Banana Republic brand. ” Quote from Marka Hansen president of banana republic, highlighting that both the companies entering into the licensing agreement will benefit from the others expertise in that relevant field. Banana Republic are not familiar with the design or production of sunglasses and so have taken the opportunity to find a leader in the sunglasses market to do this for them.

Safilo will benefit from the well know brand identity of Gap inc and therefore the agreement should benefit both companies dramatically. These are not the only benefits that both companies could gain; capital costs of setting up in a foreign market are reduced because the licensee will have to produce the product. Also no local knowledge will be needed because the business will not have to sell in the area. This can save millions in research and development for the company. Finally the risk of setting up in a foreign market is reduced and the business grows quickly and easily, a global brand is created.

Having these benefits would be great for both the companies involved in the licensing agreement, but as with all the strategies there are downsides to entering these agreements, somebody else will be running your business you have to trust others will the reputation and brand of your company. If the licensee does something to harm your reputation it could reduce sales. Finally the profits from the new market go directly to the licensee. The business only receives a lump sum for selling the license. This could prove disastrous if the market does very well and profits are alot higher than expected.

Assessing which strategy will be best in order to be profitable and best for the business can be very difficult. Making the correct decision on which strategy to use when entering a foreign market could be the difference between success and profits in that market or complete failure. Gap inc. is a global brand, and owns stores around the world, as the table shows below. The company has entered into these markets using different strategies, and so therefore some have been successful and others have not. I will know analyze the strategies used by the company in order to create a global brand and then evaluate whether this has been successful.

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