Week 8 Discussion Responses

A.      Increase in the Profit Margin

B.      Decrease in Inventory Turnover

C.      Increase in the Current Ratio D.      Decrease in the Earnings Per Share E.      Increase in the Debt to Asset Ratio

(This info is for background Only)

Discussion 1 Response Fin_Acct

By: D, J Jr.

A.      Increase in the Profit Margin

Profit margin measures the difference between sales and expenses. Therefore, an increase in the profit margin would mean that the Elk Corporation is increasing their profitability as the difference between the sales and expenses increases. 

B.      Decrease in Inventory Turnover

The length of time that a company holds its inventory before selling it is the inventory turnover. Therefore, it is a negative sign if the Elk Corporation is experiencing a decrease in inventory turnover because that means they are holding onto their inventory longer than they have in previous time periods. 

C.      Increase in the Current Ratio

The current ratio measures a company's ability to pay off its short and long term debt obligations. If the Elk Corporation is experiencing an increase in the current ratio then this is a positive sign because they have a larger proportion of asset value relative to the value of its liabilities and are in a better position to pay off their financial obligations(Investopedia,2017). 

D.      Decrease in the Earnings Per Share

Earnings per share measures a company's profitability and is portion of a company's profit allocated to each outstanding share of common stock(Bragg,2017). A decrease in earnings per share is a negative sign for the Elk Corporation because it indicates that their profitability is diminishing and the company is losing money. 

E.      Increase in the Debt to Asset Ratio

An increase in the debt to asset ratio of the Elk Corporation is a negative sign. As the debt to asset ratio increases it indicates that a large percentage of the company is financed by liabilities. As a result, it might be more difficult for the corporation to secure additional financing in the future or be subject to unfavorable terms. 

Works Cited: 

Bragg, S. (2017, May 17). Earnings per share ratio | EPS ratio. Retrieved October 18, 2017, from https://www.accountingtools.com/articles/2017/5/14/earnings-per-share-ratio-eps-ratio

Investopedia. (2016, April 01). Accounts Payable Turnover Ratio. Retrieved October 17, 2017, from http://www.investopedia.com/terms/a/accountspayableturnoverratio.asp

Discussion 2 Response Fi_ Acct

By: I,H

A.     Increase in the Profit Margin

Profit Margin expresses as a percentage how much of every dollar of sales a company keeps in earnings (Investopedia Profit Margin, 2017.) If Elk Corporation is experiencing an increase in Profit Margin this is a positive sign of growth and success.

B.     Decrease in Inventory Turnover

Inventory turnover shows how many times a firm’s inventory is sold. If inventory turnover is decreasing, this may mean that there is not enough demand for the product.

C.     Increase in the Current Ratio

The current ratio is a liquidity ratio that shows a company’s ability to pay obligations (Investopedia Current Ratio, 2017.)  The increasing ratio shows a better ability to pay obligations. A current ratio that is lower than 1 shows that liabilities are larger than assets and can signal financial troubles. If the ratio is increasing, this shows potential for the firm, but over 1 is the ideal financial situation.

D.     Decrease in the Earnings Per Share

Earnings per share is the portion of the company’s earnings/profit that is allocated to each share of stock in the company (Hansen, 2017.) If the EPS has decreased, this shows that there has been less profit to allocate.

E.     Increase in the Debt to Asset Ratio

 The debt to asset ratio is a leverage ratio that tells you what percentage of assets are financed by liabilities or debt (Accounting Coach, n.d.). The increase of this ratio signals assets growing through financing.

In conclusion, the increase in profit margin shows a positive note as it means more money for Elk Corp. However, when considering the decrease in inventory turnover, the profit margin may just be due to an expensive price that is likely driving the consumer away lowering the demand as reveled with the inventory turnover decrease. The increase in the current ratio is a positive attribute, but unless the value is above 1, this might not be enough information, especially in conjunction with the other ratios shown. The debt to asset ratio shows a smart ability to use financing for a business decision but if EPS are going down, this is not proving to be an effective way to use debt to make profits. All in all, these ratios signal poor financial health for Elk Corporation.

Hansen, W. (2017, August 01). Understanding Revenue and Earnings Per Share (EPS). Retrieved October 18, 2017, from https://www.learningmarkets.com/understanding-revenue-and-earnings-per-share-eps/

I. (2017, August 10). Profit Margin. Retrieved October 18, 2017, from http://www.investopedia.com/terms/p/profitmargin.asp

I. (2017, August 09). Current Ratio. Retrieved October 18, 2017, from http://www.investopedia.com/terms/c/currentratio.asp

What is the debt to total assets ratio? | AccountingCoach. (n.d.). Retrieved October 18, 2017, from https://www.accountingcoach.com/blog/ebt-to-total-assets-ratio

Discussion 1 Response Int_Biz

By: Globe Trotters

Global Business Opportunity: Expansion of Netflix

Sara Martin, Raj Patel, Brian Reynolds, Vrusha Shastri

Benedictine University

October 15, 2017

TABLE OF CONTENTS

I. Global Business Opportunity……………………………………………………………...6

A. Expansion of Netflix..…….…………….………………………....……………...6

1. Business Opportunity…………………....…….…………………………..6

2. Absolute and Comparative Advantages....…........……….………………..6

2.1 Geographic Factors……………….………………....…………..6-7

2.2 Economic Factors…………………………....…….………………7

2.3 Cultural Factors…………...………….…………….…………...7-8

2.4 Political Factors……………....…………………………………...8

2.5 Technological Factors……………....…………………………...8-9

3. Potential Market…………..………....………………....………………...9

B. Competitors……………………………..……………………………………..9-10

1. Business Strategies…………...………………………...………………..10

C. Cultural Analysis……………………….……………………………….……10-11

1. Demographic Trends and Factors of Influence……....…………………..11

2. Cultural Recommendations…………………………………………..11-12

D. Political-Legal Environment……………………………………………………..13

1. Government……………………………………………………………....13

2. Intellectual Property……………………………………………………...14

3. Political-Legal Recommendations……………………………………14-15

II. Organization of Global Business Activities……………………………………………….15

A. Company Structure……………………………………………………………....15

1. Strategic Objectives……………………………………………………...15

2. Potential Entry Modes……………………………………………...........16

3. Activities………………………………………………………………....16

4. Strategic Recommendations……………………………………………...17

B. Financing Sources………………………………………………………………..18

1. Economic Conditions…………………………………………………….18

2. Costs……………………………………………………………………...18

3. Financing Options…………………………………..…………………....19

4. Recommended Financial Action…………………………………………19

C. Global Management Information System………………………………………..19

1. Needs Assessment………………………………………………………..20

2. Information Sources and Technology…………………………………....20

3. Necessary Database and Information Systems……………...…………...21

D. Human Resources…………………………………………………………….21-22

1. Necessary Skilled Employees……………………………………………21

2. Training Topics…………………………………………………………..22

3. Performance and Compensation………………………………………....22

E. Managing Risk………………………………………………………………..22-23

1. Potential Risk…………………………………………………………….23

2. Recommend Risk Management Techniques……………………...….23-24

III. Implementing the Global Market Plan…………………………………………………...24

A. Market Planning for Foreign Markets………………………………...…………24

1. Product Concept…………………………………………………....…….24

2. Branding and Packaging……………………………………………..…..25

3. Recommended Actions for Target Markets……………………………...25

B. Distribution Strategy……………………………………………………………..25

1. Country Infrastructure…………………………………………………...25

2. Trade Barriers……………………………………………………………26

3. Recommended Distribution Intermediaries……………………………...26

C. Planning Promotional Strategy………………………………………………26-27

1. Promotional Goals……………………………………………………….27

2. Cultural Barriers……………………………………………………….....27

3. Recommended Promotional Strategy………………………………...27-28

D. Pricing Strategy…………………………………………………………………..28

1. Economic Factors………………………………………………………...28

2. Influential Costs……………………………………………………….....28

3. Factors Influencing Pricing…………………………………………..28-29

4. Recommended Pricing Strategy………………………………………....29

IV. Implementation of Marketing Plan……………………………………………………...30

A. Financial Results………………………………………………………………...30

1. Revenue Sources………………………………………………………...30

2. Estimated Operating Expenses…………………………………………..30

3. Expected Profitability…………………………………………………....30

B. Measuring Success……………………………………………………………….31

1. Potential Gains and Economic Benefits………………………………….31

2. Social Benefits and Costs…………………………………………....31-32

References …………………………………………………………………………...33-37

I. Global Business Opportunity

Expansion of Netflix

Netflix is a movie and TV streaming company that you must pay a subscription to use. Currently the company is able to be used in 190 countries. The company was founded in 1997 an originally loaned DVD to subscribed customers. With the dawn of the internet era and online streaming the company made the jump to a mostly online platform.

Business Opportunity

Currently the company is worth $61.6 billion and employees 4,700 (Forbes, 2017). This year Netflix is expected to pass 100 million subscribers as it makes a major drive towards member acquisition (Fiegerman, 2017). Despite being in many countries around the world Netflix is still not available in Crimea, North Korea, Syria, and most notably China (Netflix, n.d.). Not having a presence in China means that Netflix is losing out on most the populous country in the world. With a population of 1.37 billion people the Chinese market offers a huge area with which Netflix can expand (U.S. Census, 2017).

Absolute and Comparative Advantages

Geographic Factors

China, part of Eastern Asia, borders the East China Sea, Korea Bay, Yellow Sea, and South China Sea, between North Korea and Vietnam (CIA, 2017). Although the majority of China is mountainous, China also has high plateaus, deserts in west, and plains, deltas, and hills in the east (CIA, 2017). China contains natural resources of coal, iron ore, petroleum, natural gas, mercury, tin, tungsten, antimony, manganese, molybdenum, vanadium, magnetite, aluminum, lead, zinc, rare earth elements, uranium, and the World’s largest hydropower potential (CIA, 2017). The majority of China’s land is used for agriculture and it is the world's fourth largest country, after Russia, Canada, and United States (CIA, 2017).

Economic Factors

Since 1978 China has increased their GDP (Gross Domestic Product) ten times over. In 2016 China became the largest economy in the world, surpassing the US in 2014, becoming the world's largest exporter in 2010, and the largest trading nation in 2013 (CIA, 2014). However, China's per capita income is below the world average and the country faces many challenges. These challenges include: reducing its high domestic savings rate and correspondingly low domestic household consumption; servicing its high corporate debt burdens to maintain financial stability; facilitating higher-wage job opportunities for the aspiring middle class; dampening speculative investment in the real estate sector; reducing industrial overcapacity; and raising productivity growth rates through the more efficient allocation of capital (CIA, 2017).

Other challenging factors that may contribute to China’s economy are changes to the one-child policy, which now allows for families to produce two children without financial consequence (CIA, 2017). However, this increase in population may produce further deterioration in the environment through air pollution, soil erosion, and the steady fall of the water table resulting in a limiting capacity for production of product (CIA, 2017).

Cultural Factors

For centuries China stood as a leading civilization, outpacing the rest of the world in the arts and sciences. However, with the destruction caused by World War II, and the rise of Communism imposing strict control over the country, China’s appeal was greatly reduced (CIA, 2017). For much of the 1.3 billion citizens of China, living standards have improved dramatically and the room for personal choice has expanded, despite tight political controls (U.S. Census, 2017). In January of 2016, the Chinese policy changed so that couples could have two children instead of just one, as mandated in 1979; the new policy was implemented to address China’s rapidly aging population and economic needs (CIA, 2017).

China officially recognizes 56 ethnic groups, but the majority identify as Han Chinese at 91.6% (CIA, 2017). A multitude of languages are spoken in China, with Mandarin being the official language, however, the official language may vary between regions (CIA, 2017). The religion of China is officially atheist, but Buddhists at 18.2% are highest in numbers with some Christians, Muslims, folk religion, and others to follow, respectively (CIA, 2017).

Political Factors

Since the end of World War II China has been ruled by the Chinese Communist Party, no dissent is allowed and is dealt with brutally. A majority of the decisions are made by a committee called the politburo (BBC, n.d.). None of the officials in this committee need to stand for election and instead are put in positions of power through conforming to what the senior communist party officials desire.

Technological Factors

While people may be dismissive of the technology available in China considering it to be the cheap knock off material Americans see in Walmart, it is a booming sector throughout China. Many of the large Chinese tech companies are far surpassing their American counterparts. The amount of people with access to internet in China surpasses the population of the United States at 731 million using the internet and 95% of those people accessing the internet from their phones (Millward, 2017). While this is a large number of people it still leaves close to half the population with little to no internet access. Many people in rural areas do not use the internet due to lack of access and extreme poverty. China will continue to advance in the technology world at a rapid pace, if this pace continues it will most likely leave the other major countries far behind it.

Netflix has started to work on expanding into China but has faced many roadblocks. Dealing with governmental difficulties, obtaining the permits required to expand into China is one of the biggest barriers. Streaming sites in China are closely regulated and strictly censored. This means that much of the content that is currently on Netflix would not be permitted in the country. To combat this Netflix will have to modify content streaming in the country so that it meets in country regulations. It will also need to provide content that is relevant to the population. Many of the shows currently offered by the Netflix would not pertain to Chinese culture and would be hard to adapt to Chinese languages. Initial estimates conclude that in the first year of streaming Netflix would likely increase subscription membership by about 3 million (Feldman, 2017). Netflix will need to compete with other online streaming services that are already active in the country. Due to the issues with the government it remains unclear whether Netflix will be able to stream directly in the country or will need to work in tandem with other local companies.

Competitors

Although Netflix is currently not readily available in China through the usual route, there are ways to obtain a poorer quality, illegal streaming of Netflix. Competitors of Netflix, such as Hulu and Amazon Prime, would also be able to stream video in the same way. However, the biggest competition of Netflix is China itself. China currently censors certain websites and data coming into the country, but individuals may obtain their own United States IP (Internet Protocol) and VPN (Virtual Private Network) address to get around the blocked sites. This does affect quality and speed of streaming media content. Netflix is currently competing with another streaming company backed by Jack Ma, a wealthy businessman of Asia, for streaming rights in China (China Daily, 2017).

Business Strategies

For Netflix, China presents a large population to market its services to. As China has develops into a mature economy with its own complexities, many companies within the country are driving technological advances which could present opportunities to help Netflix expand (Lashinsky, 2017). Jack Ma has a distinct advantage in starting operations in China. Companies backed by Ma are more likely to be approved by the Chinese government seeing as the companies will be owned and operated by a person likely to understand Chinese politics and culture. This advantage means that Netflix may have more to gain by partnering with Ma and his companies rather than trying to compete against them. By working together the two different companies would be able to provide a superior service with better content and streaming capabilities.

Cultural Analysis

The cultural factors, social institutions, and informal trade barriers also affect global business activities. Being that China’s population is so large and spread throughout an equally large country, it leads to many diverse communities. Despite the fact that there is a large amount of diversity in the country there is a running theme that links the different communities. This strong core identity has been ingrained in Chinese culture over centuries. Family, cultivation of morality, and emphasis on hard work have been the backbone of the people and forged them into the people seen today. Despite the fact that China is officially an atheist country it would be foolish to not have an understanding of the underlying religious currents in the society. Netflix would need to do its due diligence on learning the basic tenets of Buddhism and folklore to understand how this will impact the content viewers expect to see.

Demographic Trends and Factors of Influence

Demographic trends can heavily influence global business activities. Factors such as age, race, and sex have an impact on how people perceive the activities of businesses. Due to the fact that China has one of the largest economies, the people living there can have a large amount of control and influence over the global market. The one child per couple law that was prevalent for many years in China has led to an older population overall. While the younger population of 20 to 24 year olds is projected to decrease by 40%, however, the people that are over 60 is projected to represent 27% of the population (Whitebrook, 2016). This is a factor that Netflix should consider seeing as, generally speaking, older people tend to not use technology as readily. Along with an aging population China currently has more men than women. There are roughly 1.16 males per female at birth in China (Whitebrook, 2016). This is an important ratio to take into consideration seeing as it would influence the content that Netflix would need to provide to its customers.

Cultural Recommendations

The social and cultural environment of the foreign market is extremely important for both new and existing companies to think about when considering expansion. Cross-cultural literacy is understanding how the culture of a country affects the way business is practiced (Hill & Hult, 2016). Businesses that do not take into account the local culture have an exceptionally high failure rate. For example, consumers’ needs and wants in a new region or country can be drastically different than what the company is currently providing. Ensuring that one has a competent understanding of local culture and trends can give a company a leg up against both the established competition and other companies trying to expand. If a company does not take the time to understand local culture the lack of understanding can lead to offend and upsetting the population, a situation which is easily avoided.

Due to the fact that China is such a large and diverse country having strong cultural competency is important. Cultural competency is the idea being aware of the differences and how to work with them (Vennapoosa, 2012). There are many aspects such as language, standard of living, social norms, and values of the different cultures that must be taken into consideration. Each of the differences must be taken into account when marketing a product in a new area. With Netflix specifically the streaming must be available in all of the major languages that are prevalent in China. The standard of living must also be considered when deciding the cost of membership. There are major differences in the standard of living throughout the country, while many of the CHinese people are fortunate enough to have access to the internet, an equally large portion live in terrible poverty or rural areas with limited internet access. Social norms also has the potential to play the biggest role. The widespread diversity in China means that Netflix will need to have a vast understanding of the many different areas in order to present material that appeals to each group of people.

Political and Legal Environment

Government

When thinking about doing any business outside of the United States, it is essential to know all the regulations, potential tax rates, and any trade barriers. These are all things that can make or break the emergence of a company in a foreign market. The regulations include taxation of companies depending on the goods they sell. For a company trying to emerge in China, there is a beneficial exemption. While most companies pay a corporate tax rate around 25%, investment by high tech companies garner a tax rate of only 15% (Export, 2016). This could be good news for Netflix as they are a high tech company, but that is not the only thing they should consider before finally settling down in China. There are formal and informal trade barriers that must be talked about early in the expansion talks. Formal barriers are taxes, quality control of goods by the Chinese government, and any licensing needed for a particular product (Export, 2016). Informal barriers would come from the language barrier and the amount of local content that could be acquired (McAlone, 2016). While these two barriers are different, they pose a big hurdle before emerging in a new market. The language barrier is a problem because a majority of the content on Netflix is in English, while they have done well in getting foreign films onto their site it may not be enough. A local would want more variety to binge watch as we do here in the United States. As for the formal barriers, they have been more accommodating to foreign investment in the region ever since China joined the WTO in 2001 (HKTDC, 2017). Starting in 2017 most products can circumvent the licensing process in China. Unfortunately, Netflix is not one of those products due to its electronic content the Chinese government still has the right to restrict the content.

Intellectual Property

Intellectual property (IP) has been a staple to our growing economy and increased innovations here in the United States (GIPC, 2009). IP is an idea or concept that has been registered with a patent or trademark. It protects many different industries across our economy and should be protected worldwide. IP creates and supports high paying jobs; in the United States a job in this industry earns on average $50,576, while the national average salary is only $38,768 (GIPC, 2009). This shows the lucrative nature of an IP created job, which also spurs innovation to patent or trademark more concepts. In contrast to the United States, China is known to be weak in its protection of IP (Scissors, 2012). This makes innovative companies wary when moving to China. The need to protect IP is crucial so that the consumer knows that they are receiving a safe and reliable product.

Political and Legal Recommendations

Netflix is a stable powerhouse in the United States, but expansion is always on the mind of a for-profit business. To emerge in the Chinese market Netflix will have to be creative and patient. The biggest downfall for American companies is being culturally insensitive in foreign markets, whether it is their advertising or their product (Say, 2014). Kraft and Intuit are good examples of what to do and what not to do when emerging into the Chinese market. Kraft took time and listened to the local population and reinvented the Oreo, while Intuit did not take any cultural nuances into account they simply translated their marketing and introduced it countrywide (Say, 2014). These things can be helped by using an expert in local cultural nuances, a sherpa of sorts, to help get around any tricky situations. Another action Netflix should take is to try to get the government involved. If both governments can come to an agreement that aides both sides in trade and protections of IP, then a mutually beneficial solution will ease the process of emerging into China (Scissors, 2012). China has a tendency to give subsidies to its own businesses which helps these companies to continuously be more competitive than American companies. This is an issue that should be discussed during negotiations to ensure a level playing field for all.

II. Organization of Global Business Activities

Company Structure

Due to the nature of China’s various geographic, economic, social-cultural, and political-legal influences, a primarily decentralized organizational structure will be implemented for the Netflix expansion (Benedictine University, 2017). Though the organizational structure will also consist of components taken from the more centralized nature of Netflix that currently exists in the United States.

Strategic Objectives

Strategic Planning will involve goals related to products offered, target market and customer benefits, return on investments, employee satisfaction, and social contributions (Benedictine University, 2017). The product to be offered will be Netflix streaming. Target market will be residents of China. Customer benefits includes non-committal online streaming. Many different movies and television shows would be available 24 hours a day, seven days a week with the ability to watch anytime and anywhere, as long as individuals have a compatible device.

Potential Entry Modes

The streaming service, as well as the economic, social-cultural, and political-legal environment of the country afore mentioned will influence an organization’s entry mode (Benedictine University, 2017). As citizens in the United States diminish streaming with Netflix, global interest in the streaming company is hoped to increase for maintaining profits (Steele, 2014). The CIA (Central Intelligence Agency) (n.d.) states that China is a communist state. This means that any contracting, licensing, or partnerships will need cooperation from government officials. Although there is no risk of importing products, China’s infrastructure issues like establishing payment systems for customers can be difficult in nations such as China (Steele, 2014). Additionally, obligations to pay for content will be strained without a stable customer payment system (Steele, 2014).

Activities

As a centralized organization the company would rely on the judgement of a single person to make decisions that affect the entire company. This is a common approach for smaller businesses. It allows them to make decisions in a fast and concise manner. Decentralized organization on the other hand have several people responsible for making decisions in the company. This allows people with expertise in a specific field to make decisions. For Netflix, the best approach is the decentralized approach. To start with the company is far too large for one person to be the sole decision makers. Secondly, it is necessary to have people heading the company in different countries that are able to help adapt to local customs and culture to ensure that the company is successful in that region. It is not a job that can be accomplished by a single person.

Strategic Recommendations

Strategic alliances are extremely important for company expansion. “A strategic alliance is an arrangement between two companies that have decided to share resources to undertake a specific, mutually beneficial project” (Investopedia, n.d.). In regards to Netflix expansion, this is an necessary step. China is a highly competitive market in which there are already video streaming services available to the population. Coupled with the competitive market is the barriers that the Chinese government has erected against international companies. China favors the domestic companies when it comes to video streaming due to the fact that it is worried about banned content being streamed to the population. China is highly restrictive on the media content available online. For a company like Netflix to successfully expand into China it needs to worry about having content that is acceptable to the government and also that is adapted to suite the population.

The challenges that Netflix faces by expanding into China make it perfect for a strategic alliance with an existing movie streaming company. Currently, Baidu iQiyi is one of the top movie streaming companies in China. As of this year the company has around 500 million viewers on a monthly basis (Russell, 2017). The two companies would be able to help each other in several ways. Currently, Netflix membership is hovering around 100 million viewers (Russell, 2017). IQiyi is a movie streaming site that runs off of ads. With the combination of the two companies in China, Netflix would be able to greatly increase its membership and iQiyi would be able to transition away from ads and into a membership program. This would then be a service that most closely resembles other competitors in China.

Financing Sources

Economic Conditions

Although China’s economy has boomed since the 1980s, the growth has been regional with rapid growth being seen on the coastal areas (Lee & Oh, 2015). Lee & Oh (2015) suggest that the regional differences could come from private industries concentrating more on the coastal areas. They also state that the regional disparity could develop from different paces of development of private firms or different regions having experienced different changes in industrial structure, leading to the regional disparity (Lee & Oh, 2015). Additionally, coastal areas have received more support of the central government (Lee & Oh, 2015). Conditions of the economy that may affect financial potential for Netflix in China include, unemployment rate was 4%, inflation rate is 2%, and the exchange rate is 6.64 Renminbi yuan (RMB) per US dollar as of 2016 (CIA, 2017).

Costs

Although costs for Netflix to enter into the Chinese market are difficult to determine considering Chinese business deals are not always available to public (Netflix goes global with streaming service, but China is notably absent, 2016). However, it is estimated by other streaming companies entering into China that it would require an estimated a 200 million dollars investment (Netflix goes global with streaming service, but China is notably absent, 2016). Costs to consider would be equipment, buildings, vehicles, infrastructure improvements, training costs, consultants, legal fees, and licenses.

Financing Options

For very large companies such as Netflix there are several avenues that it can take to raise the amount of money needed. Much of the funding for large companies revolves around debt and equity. A company is able to take loans from banks. “Bank loans are a form of debt, often with a relatively low cost of capital. Loans granted over a given lending period and paid back in installments” (Lumen, n.d.). Another way for the company to make money is through issuing bonds. The bonds are investments that potential clients can purchase and which will then be paid back with interest over time. Lastly, there is equity shares. This is when the company “can sell small fractions of organizational ownership as an asset to investors who are betting on the success of the organization” (Lumen, n.d.).

Recommended Financial Action

In the case of Netflix, the best option seems to be to use a combinations of loans and issuing bonds. This will allow the company to diversify a little more. Also, the people that buy the bonds will have a little more trouble covering the massive cost of a Netflix expansion.

Global Management Information System

There is information that is needed for the proposed global enterprise. Netflix is an entertainment company that uses various technology and information systems to run smoothly. All the transactions and technology is online, which requires the company to have advanced systems. Customers do have the option to have DVDs mailed to them opposed to streaming it online.

Needs Assessment

The proposed global business enterprise requires for streaming to be available in China with the shows and movies that consumers prefer. Netflix uses on-line transaction processing (OLTP), online analytical processing (OLAP) and transaction process system (TPS) for their business. On-line transaction processing (OLTP) is a software that is used to support application transactions on the Internet. On-line analytical processing (OLAP) is an analytical database that allows for complex calculations and predictions. Transaction process system (TPS) is a processing system that is used for business transactions. This allows for the collection, modification and retrieval of transaction data. There is a great deal of analytical data that is required to understand the customer's’ needs. This data allows for Netflix to make the necessary adjustments to their streaming options for the customers.

Information Sources and Technology

The information sources and technology that would be used in a global information system for the situation is analytical technology. Netflix has a great deal of analytical technology available that helps them understand the needs of the customers. Since launching in China would be a new experience, this technology would be essential. This allows for Netflix to understand what the customers would and would not like to stream. Along with that, this allows for Netflix to create their own specials that can be streamed in China like they have done in the United States. This data would assist with understanding the customers in China and creating a streaming option that is preferred over anything that is currently available there.

Necessary Database and Information Systems

There are many databases and information systems to facilitate international business activities. China with the shows and movies that consumers prefer. Netflix uses on-line transaction processing (OLTP), online analytical processing (OLAP) and transaction process system (TPS) for their business. On-line transaction processing (OLTP) is a software that is used to support application transactions on the Internet. On-line analytical processing (OLAP) is an analytical database that allows for complex calculations and predictions. Transaction process system (TPS) is a processing system that is used for business transactions. This allows for the collection, modification and retrieval of transaction data. Along with that, analytical databases are necessary to help facilitate the international business activities. This being a new market for Netflix, they need to be able to cater to the customers’ needs to stay competitive and relevant in the country.

Human Resources

Any company of significant size will require the use of a human resource department, and a Netflix expansion in China will be no different . A human resource department helps to enhance employee performance based on an employer's mission and/or objective. Human resources helps to manage employee benefits, recruitment, retention, pay, training, and policies, etc.

Necessary Skilled Employees

In addition to the usual administration and operations teams, Neflix in China will need professionals with engineering and infrastructure experience. Additionally, business planning strategists, marketing, financial, political and legal experts apprised of Chinese and U.S. governmental regulations and laws will be essential. Language skills in Chinese languages will also be essential to maneuver business within China.

Training Topics

Every department will have topics of training geared toward the job an employee was hired to perform. Specifically for China Netflix, a cultural training will be essential. Although, technology is always changing and new advancements will need to be educationally maintained, so too will policies and laws of the Chinese government.

Performance and Compensation

Knowing that China has strict rules and regulations on the content that is available for streaming it will be important for Netflix to work closely with the Chinese government to ensure that all content is legal. Beyond the legal aspect it is also important to ensure that Netflix is providing content that is culturally acceptable and sought after. Ensuring that these two areas are satisfied it will naturally lead to a strong performance for the business. It will be necessary for Netflix to review its business model on a quarterly basis to evaluate how the current strategy is working in the country. In the first year each quarter should reflect a steady growth as customers clamor to join the new streaming service. There should be no observable dip in membership numbers for the foreseeable future. Any aberration of this would need to be closely investigated and a new strategy may need to be created if this occurs.

Managing Risk

There are economic, social and political-legal risks that might be encountered with the proposed global business enterprise. The cost of the streaming application would be considered an economic risk. Netflix would need to choose pricing accordingly, but need to ensure that it is feasible for the customers.

Potential Risk

China has a growing economy that has changed a great deal in recent years. However, it is also considered a risky economy for investments. Along with the economic risks, there are social risks that may be encountered. China is a country with many languages and an extensive culture. By investing in China, there are risks of adaptation to this culture. There would be a need to control what content is being streamed for the Chinese people. China has many languages that would need to be taken into consideration when having streaming options. Along with that, there are other streaming options that are more popular in China currently. It would be a risk to compete against a company that has been popular in the country amongst the population. Furthermore, there are political-legal risks of Netflix expanding to China. The regulations that are present in this country differ from those of the United States. Chinese laws require a Beijing granted license for Netflix to operate as an Internet television (Rosenfeld, 2015). In order for Netflix to do so, a partnership with a Chinese company would be required to operate. This would cause an impact on the revenue because a partnership would cut the revenue. These are risks that must be taken into consideration prior to launching Netflix in China.

Recommend Risk Management Techniques

There are risk management techniques that can be taken for these international business operations. There are foreign exchange risks that must be acknowledged to ensure that they are profitable. The FDI Confidence Index for China is 1.83 (Global Economy, 2017). However, with the foreign exchange risk being low, this must be taken into consideration. There needs to be a transition of economies from United States to China. Another aspect that must be taken into consideration for international business operations would be the cultural understanding. China has a rich culture with different languages, religions and beliefs. There is an importance of culture when doing business with or in a new country. Cross-cultural literacy is understanding how the culture of a country affects the way business is practiced (Hill & Hult, 2016). Businesses can fail when expanding internationally if they ignore the local culture. For instance, the consumers’ needs and wants can be very different to what these businesses are used to. Cultural competency is the idea being aware of the differences and how to work with them (Vennapoosa, 2012). There are aspects like language, standard of living, social norms, and values of the different cultures. This would create a strong relationship between the company and their customers and ensure trust with the organization. It is essential for Netflix due to them being a foreign company to be understanding to their culture needs. This prepares the company to make the necessary adjustments to cater to the needs of the country. The risk management techniques help take different aspects into consideration.

III. Implementing the Global Market Plan

Market Planning for Foreign Markets

Product Concept

The concept behind Netflix in China is to be considered a global streaming company, so that eventually everyone in the world has the ability to have Netflix access if so desired. In addition, China having such a large population provides the opportunity for investors in the global streaming company to profit greatly.

Branding and Packaging

The world is no stranger to video streaming. As was the case in the U.S., online advertising, social media, and word of mouth will make Netflix a top streaming company. Legal considerations will need to be made due to the limitation of content in the country, as well as adaptations for types of movies and language subtitles.

Recommended Actions for Target Markets

Recommended actions for the promotion of Netflix in China will be to combine forces with other Chinese companies who can promote the video streaming company as well as maneuver the Chinese infrastructure with a more thorough understanding. Joining forces with Jack Ma and iQiyi, an ad-supported video platform that streams a range of licensed and original TV shows and movies to Chinese viewers offers advantages that may save Netflix years of debate (Sawers, 2017). Additionally, gathering investors from China various parts of Asia would help to promote Netflix in the region.

Distribution Strategy

Country Infrastructure

Streaming television and movies is not new to China. So the infrastructure for Netflix to come in and start streaming would not be a problem. The Chinese have many services already set up in the country. One of these services is through iQiyi, a Chinese video streaming giant. The company is currently one of the leading streaming services for mainland China (Perez, 2017). This would be a competitor for Netflix, if they were allowed to start operating. They also can be an ally to Netflix if they partnered with the giant to start getting their content into mainland China.

Trade Barriers

There are many trade barriers that have prevented Netflix from gaining access the China. Most of them are listed on a list of irritants that was put out by the U.S. Trade Representative office (USTR). This list is a list of 63 countries that have what seem to be unfair regulations against foreign companies expanding into their region. The USTR says, that China uses a set of cybersecurity parameters to stop any foreign technology products from disseminating to the masses, while wanting only Chinese based firms to offer a similar product (Reuters, 2017). This seems to be the case for Netflix. China has long been known for its vast amount of red tape for any company trying to establish a foothold, but with new trade deals and the cutting of some of the regulatory processes; China is becoming a more open company to foreign markets of technology.

Recommended Distribution Intermediaries

For Netflix, a distribution intermediary would be a company that already provides a streaming service, but does not have Netflix’s proprietary content. iQiyi is one such company. It is a subsidiary of Baidu, a search engine that mirrors the avenue of google. This would be a good partnership because iQiyi already has a streaming service and could then send out Netflix content to the masses, but it would also aid in making the content adhere to the state's censorship in china, which can be very vigorous (Chen, 2017). This censorship is one reason Netflix has been getting denied access to the population of China, not all the content is censorship friendly.

Planning Promotional Strategy

To begin promoting the company, Netflix could easily start by replacing some of the ads currently on iQiyi with those regarding the new merger with Netflix. If Netflix did form a strategic alliance with Baidu iQiyi, the biggest goal of promoting the alliance would be to get the 500 million current users to sign up for a subscription with the two companies. While getting all current users to subscribe is an unrealistic goal signing around 100 million users would be a big gain for Netflix expansion.

Promotional Goals

Promotional ads would show how subscribing to Netflix is a positive experience that will bring watching TV and movies to another level. Secondly, in the US Netflix has gained large popularity by producing its own TV shows. This is a tactic that could be used in China as well. By producing a riveting show and advertising it not only online but during normal TV commercials it will help to draw more people in.

Cultural Barriers

While promotional goals are important, the biggest issue Netflix will need to contend with is the content it will stream for Chinese viewers. Currently there is very little material on the website that would appeal to the local population. The little material that is suitable for Chinese viewing needs to be translated into Chinese. Lastly, Netflix will need to ensure that all of the content it plans to stream for Chinese audiences does not violate any rules and regulations from the government. All of this will require that Netflix has an extremely thorough team of employees based in China that understands the local population and the rules of the government.

Recommended Promotional Strategy

The pricing strategy for Netflix subscription needs to take into consideration the vast amount of people in varying socioeconomic levels. As part of the promotional period encouraging people to sign up the pricing should include an introductory price for the first 500,000 people that subscribe. This will give those first people half price subscription for an entire year. Those that sign up after the first 500,000 will be given a 20% discount as incentive to still sign up. Considering that many in China are not as well off as in the US it may be prudent to reduce subscription price by 25% overall. It will also offer a separate pricing schedule for those that would like to have the option to receive DVDs.

Pricing Strategy

Economic Factors

The economic factors that would affect Netflix pricing in China would be the access to infrastructure, competition, and supply and demand. China has the infrastructure, but access to it may be costly or limited. There are already some streaming services available in China. The pricing would be based on the competition and the need for Netflix specific content.

Influential Costs

The streaming giant iQiyi currently is set at $3.25/month for a premium membership (Frater, 2015). This would mean that the typical $9.99/month that subscribers pay in the United States, would have to be reduced to be competitive in the Chinese market. With enough subscribers the cut in price point would potentially even out to a good profit margin.

Factors Influencing Pricing

The demand factors, competitor actions and government regulations may affect pricing activities. The demand factors for Netflix would be low in the beginning with it being a foreign company. There are streaming options that are available for the customers. It would be important to create promotions to better appeal to the customers. With the currency exchange rates, it would be important to appeal to the population. There are competitor actions that would affect pricing activities. Currently there are other streaming options that are available and are well liked by the Chinese population. iQiyi subscription rates are about 15-25 RMB, which is about $2.30 dollars. It would be important to create pricing and promotions that keep them competitive with these different streaming options. The regulations that are present in this country differ from those of the United States. Chinese laws require a Beijing granted license for Netflix to operate as an Internet television (Rosenfeld, 2015). In order for Netflix to do so, a partnership with a Chinese company would be required to operate. This would cause an impact on the revenue because a partnership would cut the revenue.

Recommended Pricing Strategy

A recommended pricing strategy for the proposed enterprise would depend on how much the Chinese consumers can afford. The economic state in China is improving and a great deal of the population is upper middle class (Global Economy, 2017). However, the currency exchange rates must be taken into consideration. Current competitors in China have subscriptions between 15 to 25 RMB. (Rosenfeld, 2017). In the United States, Netflix subscriptions cost start at $9.99, which would be about 65 RMB (Rosenfeld, 2017). It would be important that the price selected is feasible for the population. Netflix can promote their service by offering a month free subscription and then mirroring the prices to their competition until they are set in the market. By charging between 15 to 25 RMB would keep them competitive amongst other streaming options that are available.

IV. Implementation of Marketing Plan

Financial Results

Revenue Sources

China has the largest population in the world. Every household that has an internet connection that could promote a streaming service. Currently, China has a potential market of 56.5 million households for Netflix to tap into; for comparison, when Netflix launched in France, Germany, Austria, Switzerland, Belgium, and Luxembourg they only offered a combined 66 million potential households for Netflix (Trefis Team, 2015). This number of households is only estimated to grow as the infrastructure for more outlying areas gets better.

Estimated Operating Expenses

Since the infrastructure is already in place, it would not cost Netflix anything to start sending out content to the population that is connected. The one thing that would increase cost is the need for Netflix to comply with regulatory and censorship within each country that Netflix enters (Trefis Team, 2016). Every country has different rules that affects content that is allowed to be shown to its populous. China is very strict on what is able to be spread to its people, so this is something that would be costly for Netflix to comply with.

Expected Profitability

While the profitability for Netflix in China is great, it relies on a number of factors. First is just getting into China. With all the legal red tape and competition from local streaming services, Netflix will have to be patient and dedicated to its endeavor into China. Even a sliver of the Chinese population could be profitable for them.

Measuring Success

Potential Gains

Netflix stands to gain a huge number of revenue and subscribers if it can fully enter the Chinese market. It is estimated that Netflix will have 164 million subscribers worldwide by the end of 2020, this does not include any of the subscribers that could come from China (Franck, 2017). This expansion would lead higher profits and a rise in stock prices, which is great for shareholders.

Economic Benefits

There are many economic benefits for China for obtaining Netflix as a streaming option. This would create a competitive environment among streaming options that would benefit the customers to get the best price. This also increases the online streaming market in the country. China would be able to get different options for online streaming, which would create a competitive environment. This also changes the streaming services in the country, with people opting to stream opposed to own. This could impact the video industry in the country with people choosing to not rent or own movies/shows. Along with that, there economic benefits for Netflix with the foreign exchange rate. There would be a great deal of cost saving that would occur from doing business in China. Netflix would be able to do business for much cheaper in China. This would help create many jobs in the country and the labor cost would be cheap for Netflix.

Social Benefits and Costs

There are social benefits and possible costs associated with the proposed business venture. The Chinese people have access to movies and shows that they might not before. This also changes the streaming services in the country, with people opting to stream opposed to own. This would help the environment impact on many levels with people being able to stream opposed to having renting or buying these items. This would help create many jobs in the country and the labor cost would be cheap for Netflix. Even with the strict regulations in China, this allows for development in a growing industry. China does not have many options for online streaming currently.

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