Auburn University Chapter 8 International Expansion Strategy in Starbucks Questions Reading: OPENING CASE “Netflix Achieves Substantial Growth Through Int

Auburn University Chapter 8 International Expansion Strategy in Starbucks Questions Reading: OPENING CASE

“Netflix Achieves Substantial Growth Through International Expansion, But Such Growth Also Is Attracting Significant Competition”

Questions:

1. Identify another company that has reached or could reach its saturation point in the United States and is responding by adopting an international strategy. What are some of the challenges this company has faced or will face by going international? Explain.

2. Using the Business Insights: Essentials database, look at your company’s SWOT report. What other opportunities exist that could help the company expand their market share?

Netflix Achieves Substantial Growth Through International Expansion, but Such Growth Also Is Attracting Significant Competition

Netflix has ramped up its international expansion in recent years. The base of its international strategy includes strong capabilities in technological innovation, which it uses to expand abroad. Its technology is focused on understanding customer viewing patterns and providing content that matches those patterns. It has a broad selection of content produced by network television and movie studios in addition to its own original content, which has become a strong force in the market that, with its advancing investments, will likely become even stronger.

Given that Netflix has reached a near saturation point in the domestic U.S. market, it is extending its services abroad. It began to do so in countries that are close culturally and geographically to its U.S. customer base, such as Canada, Nordic, and Latin American countries. Netflix’s primary growth is coming from its international expansion efforts, which allow it to share its cost across a broader range of countries and a larger subscriber base. In the fourth quarter of 2017, Netflix added 8.3 million streaming subscribers, primarily driven by growth in foreign markets. In 2017, CEO Reed Hastings announced that Netflix added 130 new countries in which it provides its services. Basically, Netflix now serves all countries but Crimea, North Korea, Syria and China. In 2016 the company invested $6 billion and plans to spend another $8 billion to acquire new content to serves its various geographic markets. For example, its plans call for adding approximately 700 new shows/programs to its original content in 2018 with 80 of those targeted for international markets.

Netflix’s international growth strategy has had to overcome challenges. First, Netflix had to seek global licenses with its contract video and movie content providers. The content providers want to distribute their content in international markets as well, so Netflix generally must pay more for the content in order to obtain a global license. In addition, the expenses of initial start-up and licensing in new foreign countries drive up the costs of pursuing its global strategy, at least in the short term.

Second, Netflix must make its substantial English language content accessible in local languages for many international subscribers. Currently, Netflix provides content accessible in 20 different languages but it must rapidly increase this number to grow its subscriber base. To facilitate this transition, it has developed a new translation tool, HERMES, and hired many people to help with the translations.

Third, as it pursues its global streaming strategy, there are both increased domestic competition for subscriber growth and new entrants into foreign markets. Market success attracts rivals as they see the opportunities available. Netflix has many other current domestic streaming competitors, including Amazon and Hulu. And, it is now facing the entry of new formidable rivals in Disney and Apple. Disney has announced that it is opening its new video streaming service in 2019 and withdrawing all Disney content from Netflix at the end of 2018. Disney also planned to invest $1 billion to acquire and develop original content for its new streaming service. And, its planned acquisition of Twenty-First Century Fox will provide access to significant content as well. Apple has been investing heavily to develop new content to compete in these markets as well.

In 2018, Netflix had 117 million subscribers, with 62 million of them from outside the United States. Netflix is currently focusing heavily on expanding its business in India. India is projected to have 650 million Internet users by 2021 compared to approximately 300 million in the United States. Netflix hopes to double its subscriber base by 2023, with 100 million of those coming from India.

Netflix has profited handsomely from its international expansion. For example, in recent years its average annual revenue growth has been 26.5 percent and its annual average growth in net income has been 100 percent. It has increased the size of its board, adding international expertise. However, although the international expansion strategy has facilitated growth and profits for Netflix through sharing costs and expenses across a large subscriber base, it has also increased the complexity of its management structure. Additionally, the difficulty in global contracting for top-level domestic U.S. content continues to grow with increased international and domestic competition. While Netflix has challenges, it has become the global leader in its industry.

Sources: N. Walters, 2018, Apple and Disney gear up to pounce on Netflix, The Motley Fool, http://host.madison.com, March 23; R. Krause, 2018, Netflix takes on media giants as video streaming war goes global, Investor’s Business Daily, https://www.investors.com, March 8; 2018, Netflix,