Penetrating Foreign Market

Netflix

Introduction

The main aim of operating a business is to make profits; hence it is of utmost importance that the organization seeks to reach more customers by penetrating the foreign market. Penetrating international markets will automatically generate more returns for the company. The world economy is globalizing at an accelerating pace as ambitious, growth-minded companies race to build more strong competitive positions in markets of more and more countries, as countries previously closed to foreign companies open up their markets, and as information technology shrinks the importance of geographic distance. The forces of globalization are changing the competitive landscape in many industries, offering companies attractive new opportunities and, at the same time introducing new competitive threats. Companies in industries where these forces are most significant are, therefore, under considerable pressure to come up with a strategy for competing successfully in international markets.

Netflix is a publicly-traded company that offers subscription video streaming and online digital video disc and Blu-ray rental discs. In 2016 the company had an estimate of seventy million subscribers worldwide, including both domestic and foreign markets such as South Korea and Poland. The estimated revenues with this number of subscribers were $6.78 billion. The company sought to increase its market up to 190 countries by the end of 2017, with more than half of its subscribers being foreign customers. It was estimated that by the start of 2018, Netflix had more than 130 million subscribers worldwide, by the second quarter of 2018, the revenue from the foreign market had exceeded the domestic revenues, and the gap kept growing till today ( Halprin, 2018).

The expansion into foreign markets for Netflix has come with a lot of challenges being that different parts of the world have different policies, regulations, and culture. The challenges Netflix has faced so far include the securing of content deals region by region, and sometimes country by country. It also must meet a diverse set of national regulatory restrictions, such as those that limit what content can be made available in local markets. International subscribers, many of whom are not fluent in English, often prefer local-language programming. And many potential subscribers, accustomed to free content, remain hesitant to pay for streaming services at all. Furthermore, stiff competition in streaming already exists in many countries. In France and India, for example, homegrown leaders offer local-language video content, thus depriving Netflix of first-mover advantage. In some countries, like Germany and India, rivals such as Amazon Prime were already established (Straubhaar et al.,2019).

Reasons for expansion into the foreign market by Netflix

To gain access to new customers- Netflix being an internet-based service provider require that an increase in the number of customers will automatically increase the company’s revenue. The number of subscribers for the company grew at an average rate of seven million per year subscribers between 2016 and 2018; this helped propel the revenues earned by the company from $ 8.8 billion in 2016 to $15.8 billion in 2018, with the number of subscribers growing from forty-five million to sixty million in 2018. The strategy to expand into foreign markets to access new customers has been successful with almost universal access, with only a few countries lacking access to Netflix due to sanctions as well as legal policies (Halprin, 2018).
To gain access to resources and capabilities located in foreign markets- an increasing motive for entering international markets is to acquire resources and capabilities that may not be available in the domestic market i.e., the US. There different cultures worldwide which have different production themes. For example, the Money Heist, aka La Casa De Papel, which is a Spanish tv series that has gained worldwide viewership with millions following on the series. The production of the series would not have been possible without the incorporation of Spanish culture as well as songs, which would not be possible without expanding to foreign markets (Straubhaar et al.,2019).
To gain access to low-cost inputs of the production-the low cost of inputs that are experienced in some foreign markets in terms of movie and series production can be considered another factor which made the Netflix try creation with production houses in other parts of the world apart from the domestic production which can make production rather expensive as compared to what other countries are charging for the same. For example, the labor cost, which is what accounts for the most significant chunk of expenses incurred in movies and tv series production, is different between the US and countries like South Africa or even Turkey, which can be attracted enough to venture into such markets.

Reference

Halprin, A. M. (2018). Now streaming everywhere: an examination of Netflix’s global expansion (Doctoral dissertation).

Straubhaar, J. D., Castro, D., Duarte, L. G., & Spence, J. (2019). Class, pay-TV access and Netflix in Latin America: Transformation within a digital divide. Critical Studies in Television, 14(2), 233-254.