Please read instructions for A1 First. I have attached an example and my COS is Japan and my COE is Starbucks which is also attached.

Market Entry Plan - Taiwan Student Name Course Details: Name, Number, and Section Prof. Sami Swaid Due date of the assignment Market Entry Plan – Netflix, Inc. 1 Table of Contents 1.2 – Executive Summary ................................ ........................................................................ 2 1.3 – Taiwan: An Introduction ................................................................ ................................ 3 1.4 – Netflix, Inc.: Company Background ............................................................................... 3 2.0 – Global Macro Environmental Analysis: Online Video Streaming..................................... 4 2.1 – PEST Analysis: Taiwan ................................................................ .................................. 4 2.2 – Political Environment, Rules & Regulations ................................ .................................. 4 2.3 – Economic Environment ................................................................ .................................. 5 2.4 – Society and Culture ................................ ........................................................................ 6 2.5 – Technological Environment ................................................................ ........................... 7 2.6 – Opportunities and Threats ................................................................ .............................. 7 3.0 – Global Competitive Analysis: Online Video Streaming .................................................... 9 3.1 – Competitive Analysis: Taiwan ....................................................................................... 9 3.2 – Identification of Primary Competitive Threat ................................ .............................. 10 3.3 – Identification of Additional Competitive Threats ................................ ........................ 11 4.0 – Entry Strategies: Options for Taiwanese Market ................................ ............................. 12 4.1 – Identification of Market Entry Options ........................................................................ 12 4.2 – Recommendation of Market Entry Strategy ................................ ................................. 13 5.0 – Market Analysis and Segmentation: Netflix, Inc. in Taiwan ........................................... 13 6.0 – Marketing Mix Strategies: Taiwanese Market ................................ ................................. 13 6.1 – Product Strategy ................................ ........................................................................... 13 6.2 – Price Strategy ................................................................................................................ 13 6.3 – Promotion Strategy ................................ ....................................................................... 14 6.4 – Place Strategy ............................................................................................................... 14 7.0 – References ................................................................................................ ........................ 15 Market Entry Plan – Netflix, Inc. 2 1.2 – Executive Summary Taiwan is an island nation in Southeast Asia located off the coast of China, which also goes by the name “Republic of China” (ROC). The territory itself has a rich history dating back to inhabitation by Taiwanese aborigines, but the most recent century has found the country caught up in numerous bouts of wartime drama and challenges to sovereignty that have ultimately led to differentiated answers when asking, “who exactly governs Taiwan?”. A great deal of campaigning has been done during the past decade to bring new MNC activity to the multiple technology parks that Taiwan has erected across the country. Taiwan’s government is supportive of private industry, and many government-owned entities have recently undergone privatization. The numerous typhoons and seismic events that take place here could potentially pose threat to companies with a great deal of physical assets, or those that depend on an extensive supply chain network. Despite this fact, many US-based companies have turned to Taiwan for expansion; among them being such recognizable global names as Corning, Microsoft, IBM, DuPont, 3M, Intel, and Hewlett-Packard. Netflix, Inc. was founded in 1997 by entrepreneurs Reed Hastings and Marc Randolph as a digital video disk rent- by-mail subscription service for movies (FundingUniverse). In the years since, the company has fundamentally transitioned its core business model to focus on digitally streaming content such as movies and television shows to its over 38 million subscribers spanning over 40 international markets. This service permits subscribers to view its over one billion hours of movies and television shows on-demand, streamed over the internet to devices such as PCs, Macs, and other electronics such as televisions and Blu-ray players, mobile devices, game consoles, and digital video players. The country of Taiwan is an entirely greenfield market, as no firm has introduced a viable product to Taiwanese consumers. As such, market entry for a firm such as Netflix will be relatively unencumbered by competitive threats. Netflix, Inc. should adopt an outright investment strategy in Taiwan by acquiring the content rights and equipment necessary to duplicate their US operations in the market. The firm ’s liquidity situation affords them the ability the flexibility of capital expense necessary to undertake the investment, and doing so will ensure that the firm reaps the maximum benefits of profitable success in the new venture. Market Entry Plan – Netflix, Inc. 3 1.3 – Taiwan: An Introduction Taiwan is an island nation in Southeast Asia located off the coast of China, which also goes by the name “Republic of China” (ROC). The territory itself has a rich history dating back to inhabitation by Taiwanese aborigines, but the most recent century has found the country caught up in numerous bouts of wartime drama and challenges to sovereignty that have ultimately led to differentiated answers when asking, “who exactly governs Taiwan?”. From a geographic perspective, the population is concentrated on the northern and western portions of the island, as the eastern half of the island is composed of rough, mountainous terrain. Taiwan and the small number of surrounding islands in its territory have a combined total of 35,980 sq. km., which is slightly smaller than the states of New Jersey and Connecticut combined. It is surrounded by 4 major bodies of water; the East China Sea to the north, the Luzon Straight to the south, the Philippine Sea to the east, and the South China Sea to the west-southwest. Taiwan’s climate is mostly tropical and somewhat similar to the Gulf Coast of Texas, with much if the island experiencing frequent rain and hot, humid weather during the summer months. A great deal of campaigning has been done during the past decade to bring new MNC activity to the multiple technology parks that Taiwan has erected across the country. Taiwan’s government is supportive of private industry, and many government-owned entities have recently undergone privatization. The numerous typhoons and seismic events that take place here could potentially pose threat to companies with a great deal of physical assets, or those that depend on an extensive supply chain network. Despite this fact, many US-based companies have turned to Taiwan for expansion; among them being such recognizable global names as Corning, Microsoft, IBM, DuPont, 3M, Intel, and Hewlett-Packard. With a prime location among the outer rim of Asia Pacific region, liberal views towards multinational investment, and a well-educated workforce, Taiwan is an exceptional host country for companies looking to internationalize. 1.4 – Netflix, Inc.: Company Background Netflix, Inc. was founded in 1997 by entrepreneurs Reed Hastings and Marc Randolph as a digital video disk rent- by-mail subscription service for movies (FundingUniverse). In the years since, the company has fundamentally transitioned its core business model to focus on digitally streaming content such as movies and television shows to its over 38 million subscribers spanning over 40 international markets. This service permits subscribers to view its over one billion hours of movies and television shows on-demand, streamed over the internet to devices such as PCs, Macs, and other electronics such as televisions and Blu-ray players, mobile devices, game consoles, and digital video players (GlobalData, 2013). Netflix operates under three unique business segments: domestic streaming, international streaming, and domestic DVD. Content is obtained through licensing agreements, revenue sharing agreements, and direct purchases with and from studios and other production companies. The company markets its services through a number of channels such as broad-based media (radio and television), online advertising, and strategic partnerships (GlobalData, 2013). Strategically, Netflix has identified exclusive original shows as the means of acquiring new customers, and it intends to begin distributing episodes of these popular offerings in the near future (BusinessWeek, 2013). The company reported $3.61billion of revenue at the close of FY2012, but while earnings increased 12% over 2011 its profits sank dramatically (SEC, 2013). The company is publicly traded on the NASDAQ exchange under the symbol NFLX, and as of October 2013 reports a Market Entry Plan – Netflix, Inc. 4 market cap of $17.9 billion. It employs over 2,000 full-time workers and is headquartered in Los Gatos, CA. 2.0 – Global Macro Environmental Analysis: Online Video Streaming After domestic sales began to flatten in 2010, Netflix began setting its sights on international expansion and has since rolled out operations in Canada, Latin America, the United Kingdom, Ireland, and the Nordic countries of Finland, Denmark, Sweden, and Norway (SEC, 2013). An area of particularly attractive growth potential is the Asia Pacific region, as its economic expansion, favorable demographics, and proliferation of internet service offerings make it an ideal candidate for Netflix' offering should they be capable of proper market segmentation (Seeking Alpha, 2013). With over 23 major countries of divergent tastes, however, the company should choose to enter the region with a "land and expand" strategy by first familiarizing themselves with customer needs and expectations in a nation of specific targeted culture, and growing their business outward as opportunity presents itself. 2.1 – PEST Analysis: Taiwan A PEST analysis will be used to observe the Taiwanese macro-environment in an effort to properly identify and account for factors which the MNC must consider prior to committing to market entry. Through this process of due diligence, the firm may reduce their exposure to components of risk as related to governance, economics, culture, and technology. Such research allows the strategic manager to more accurately form their marketing mix for the country of interest. 2.2 – Political Environment, Rules & Regulations Whereas a PEST analysis does not typically cover a particular country’s political history in great depth, the situation in Taiwan warrants addressing these factors due to the ongoing nature of their influence. The course of the past century has witnessed Taiwan come under the control of both Japan and China (PRC). When the communist party led by Chairman Mao took control of China during the 1949 Chinese Revolution, Nationalist party leader Chiang Kai-shek withdrew to Taiwan with several million refugees (CIA, 2013). Since that time, the island has recognized itself independently as the Republic of China; a fact that is disputed by mainland China and its allies (including the United States). Taiwan claims to have full sovereignty over PRC in addition to Taiwan, whereas PRC denies the independence of Taiwan and instead claims it as its 23rd province. Although tensions remain high in the region, neither PRC nor ROC has made significant militaristic threat against the other in recent years. The active government of Taiwan is a democratic republic, whose current president Ma Ying-jeou was elected by popular vote in May of 2008 (CIA, 2013). The Taiwanese government has undertaken several initiatives to spur investment activity in the nation, including the alignment of foreign investor rights and privileges with those of domestic investors, as well as tax breaks intended to encourage investors to contribute funds to R&D and human resource cultivation (HSBC & PWC, 2010). The country has been a member of the World Trade Organization since 2002, and as of 2009 the WTO ranked “The Separate Customs Territory of Taiwan” as the world’s 18 th largest trading entity (HSBC & PWC, 2010).

The World Bank’s Ease of Doing Business 2014 report ranks Taiwan 16th overall out of 189 world economies observed. This relatively high ranking puts Taiwan in a strategically sound position relative to their East Asia & Pacific peers, as only Singapore (1 st ), Hong Kong Market Entry Plan – Netflix, Inc. 5 (2 nd ), Malaysia (6 th ), and South Korea (7 th ) achieved higher results on the scale. The 10 dimensions of the World Bank’s DB analysis as measured against conditions in Taiwan are reflected in Table 1 below. As shown, Taiwan has made improvements in all but 3 categories versus 2013 rankings. Table1: Ease of Doing Business 2014: Topical Ranking Data for Taiwan Topic DB 2014 Rank DB 2013 Rank Change in Rank Starting a Business 17 15 - 2 Dealing with Construction Permits 7 6 - 1 Getting Electricity 7 6 - 1 Registering Property 31 31 No change Getting Credit 73 71 - 2 Protecting Investors 34 32 - 2 Paying Taxes 58 56 - 2 Trading Across Borders 18 18 No change Enforcing Contracts 84 85 +1 Resolving Insolvency 16 15 - 1 (Source: World Bank, 2013)  Opportunity: Strong trade relationship with the United States. The United States is Taiwan’s third largest trading partner. As of 2011, the country exported 10.8% of its net outgoing goods and services to the United States and accepted 10.1% of their total imports from same (U.S. Commercial Service, 2011).

 Threat: Delicate political relationship with China. The fact that China lays claim to Taiwanese territory, coupled with the knowledge that not all nations recognize Taiwan’s sovereignty is possible cause for concern. Should a firm invest in ROC operations, the arrangements made with the government of Taiwan could feasibly be nullified following a concerted effort made by PRC to reclaim direct control over the territory. The possibility of PRC expropriation of organizations erected without their influence and oversight should remain top of mind for those wishing to conduct FDI in Taiwan. 2.3 – Economic Environment Taiwan has a dynamic capitalist economy primarily steered by robust capabilities around machinery and technology manufacturing and export. The enormous growth undertaken in the country during the latter half of the 20th century has been referred to as the “Taiwan Miracle”, a s it has catapulted its GDP to USD901.9 billion (2012; USD38,500 per-capita) making it ranked 20 th among all world economies (CIA, 2013). Although it has demonstrated its ability to create and maintain industries capable of growing its economy, the fact that such a large portion of its GDP depends on exports leaves Taiwan vulnerable to soft markets in international demand. While the country has averaged 8% real GDP growth over the past 30 years, expansion slowed to a mere 1.8% in 2012 due to lagging exports (CIA, 2013) . Worth noting is the fact that Taiwan’s trade surplus is enormous, and the country suffers from a low unemployment rate of 4.3% as of 2012. As depicted in Fi gure 1 below, Taiwan’s percent change in annual GDP growth over the past 3 years has remained for the most part positive. The country’s strong performance in GDP Market Entry Plan – Netflix, Inc. 6 growth puts the nation in a competitive position as an outlet for foreign direct investment, as their ability to demonstrate consistency in economic expansion is reflective of the fortitude of Taiwan’s economy. Figure 1: Percent Change, Taiwan Annual GDP Growth Rate (Source: tradingeconomics.com, 2013) The country has long been a destination for contract and component manufacturing processes, but some time ago global organizations began shifting many such activities to mainland China to take advantage of comparatively lower labor costs. Fortunately for Taiwan, however, rising costs in China in tandem with a recognizable supply of skilled workers has found many operations moving back to the island. This year alone, the country planned to garner USD5 billion of additional investment capital from organizations moving back to Taiwan (BusinessWeek, 2013).

 Opportunity: Admirable GDP per capita. Although Taiwan globally ranks 30th in the GDP per capita comparison, the only three Asia-Pacific nations outranking the country are Hong Kong, Brunei and Singapore (CIA, 2013). This puts Taiwan in a strategically sound position for the introduction of consumer goods to the Asian market(s), as the disposable income enjoyed by its inhabitants likens the degree of product sampling.

 Threat: Dependence upon PRC for economic solvency. The People’s Republic of Ch ina represents Taiwan’s top ranked target for FDI activities. This fact, coupled with the idea that China is ROC’s number one trading partner (29% of total trade as of 2010) makes the country susceptible to severe economic disruption should political relations with mainland China dissolve. 2.4 – Society and Culture The majority of Taiwanese citizens are of Han (Chinese) descent, and —although several regional variations exist —Standard (or Traditional Mandarin) Chinese is the nationally recognized language. Most practitioners of religion in the country follow Buddhism or Taoism (68.1%), with the remainder of the country made up of I-Kuan Tao, Protestantism, and/or Catholicism. The Taiwanese people are almost completely opposite from United States citizens when analyzed using Hofstede’s Five Dimensions of Culture. They score high on the scale of power distance, uncertainty avoidance, and long-term orientation, taking low marks for Market Entry Plan – Netflix, Inc. 7 individualism and masculinity. Their collectivistic culture finds them forging strong, life-long bonds with both family and peers. Opportunity: Societal appreciation for American goods. Having visited the country in 2012, I was fortunate enough to witness the general appreciation for goods from the United States and “Americanism” first-hand. A 2012 Boston Consulting Group study concluded that Chinese consumers are willing to pay premium prices of between 10 and 80% to consume American goods and — although the observations were made of PRC consumption — similarities between the two cu ltures allow researchers to draw similar conclusions for the ROC market (Forbes, 2012).

 Threat: Comparatively laggard adoption of new products. The collectivistic nature of Taiwan’s people finds that early adopters are few, and aggregate adoption of products newly introduced in the market requires proliferation of recognized quality. This attitude typically originates with respected persons within social circles (in-country early adopters) and propagates slowly. Market entrants must accordingly remain patient with measurements of attach rate, which can lead to sluggish return on investment. 2.5 – Technological Environment Taiwan is a recognized global leader in integrated circuit manufacturing, including components and final products related to PCs, LCDs, LEDs, mobile phones, solar cells, motherboards, and more. From a consumer perspective, their advanced telecommunications networks and high proliferation of connected devices makes the country adequately situated for targeting by technology firms whose service offerings depend on these platforms for deployment. Opportunity: High saturation of connectivity. The United Nations’ Telecommunication Development Sector estimated that the percentage of Taiwanese people with internet access was 75.99% as of 2012 (ITU). For comparison, the same research concluded that usage in the United States of America sat at 81.03% for the same period (ITU, 2012). This widespread internet accessibility permits the copious number of firms utilizing web connectivity to d eliver services a well-established audience of consumers in Taiwan.

 Threat: Proliferation of copyright infringement. According to the U.S.

Commercial Service, American firms have remained cognizant of infringement of intellectual property rights by Taiwan and its citizens for some time now, and internet-based piracy by individuals, corporations, and educational institutions alike continues to be problematic (2011). Although the situation continues to improve, companies with electronic products that is easily replicated (e.g.

software and electronic books) should take the necessary steps to protect their IP.

The U.S. Commercial Service has outlined recommended procedures in their publication “Doing Business in Taiwan”. 2.6 – Opportunities and Threats A PEST analysis has uncovered several factors that Netflix should take into consideration both before considering expansion into Taiwan, and as they form their go- to-market plan moving forward. These findings are summarized below. Market Entry Plan – Netflix, Inc. 8 2.6.1 – Opportunities Th ree circumstances stand out as being the most advantageous opportunities for a Netflix, Inc. expansion into Taiwan. 1.Admirable GDP per capita. Although Taiwan globally ranks 30th in the GDP per capita comparison, the only three Asia-Pacific nations outrank ing the country are Hong Kong, Brunei and Singapore (CIA, 2013). This puts Taiwan in a strategically sound position for the introduction of consumer goods to the Asian market(s), as the disposable income enjoyed by its inhabitants likens the degree of product sampling.

2. Societal appreciation for American goods. Having visited the country in 2012, I was fortunate enough to witness the general appreciation for goods from the United States and “Americanism” first -hand. A 2012 Boston Consulting Group study concluded that Chinese consumers are willing to pay premium prices of between 10 and 80% to consume American goods and — although the observations were made of PRC consumption — similarities between the two cultures allow researchers to draw similar conclusions for the ROC market (Forbes, 2012).

3. High saturation of connectivity. The United Nations’ Telecommunication Development Sector estimated that the percentage of Taiwanese people with internet access was 75.99% as of 2012 (ITU). For comparison, the same research concluded that usage in the United States of America sat at 81.03% for the same period (ITU, 2012). This widespread internet accessibility permits the copious number of firms utilizing web connectivity to deliver services a well-established audience of consumers in Taiwan. 2.6.2 – Threats No entry into a foreign market is a leisurely experience, and as such should take into full consideration the existence of several threats discovered using a PEST analysis. The three most influential threats to a Netflix, Inc. expansion into Taiwan are summarized below.

1. Delicate political relationship with China. The fact that China lays claim to Taiwanese territory, coupled with the knowledge that only a handful of nations recognize Taiwan’s sovereignty is possible cause for concern. Should a firm invest in ROC operations, the arrangements made with the government of Taiwan could feasibly be nullified following a concerted effort made by PRC to reclaim direct control over the territory. The possibility of PRC expropriation of organizations erected without their influence and oversight should remain top of mind for those wishing to conduct FDI in Taiwan.

2. Proliferation of copyright infringement. According to the U.S. Commercial Service, American firms have remained cognizant of infringement of intellectual property rights by Taiwan and its citizens for some time now, and internet-based piracy by individuals, corporations, and educational institutions alike continues to be problematic (2011).

Although the situation continues to improve, companies with electronic products that is easily replicated (e.g. software and electronic books) should take the necessary steps to protect their IP. The U.S. Commercial Service has outlined recommended procedures in their publication “Doing Business in Taiwan”.

3. Dependence upon PRC for economic solvency. The People’s Republic of China represents Taiwan’ s top ranked target for FDI activities. This fact, coupled with the idea that China is ROC’s number one trading partner (29% of total trade as of 2010) makes the country susceptible to severe economic disruption should political relations with mainland China dissolve. Market Entry Plan – Netflix, Inc. 9 3.0 – Global Competitive Analysis: Online Video Streaming The global competitive environment for online video streaming is extremely young, and proliferation of service offerings is still emerging. Having originated in the United States of America, the technology is gradually undergoing global expansion as firms such as Netflix extend their businesses to foreign shores. While many smaller competitive firms exist around the world, the lack of technological and service-specific marketing expertise, the need to address content targeting by regional tastes, as well as capital-intense operational requirements surrounding legal content acquisition and licensing have prevented widespread market entry. 3.1 – Competitive Analysis: Taiwan Further to our analysis of the global competitive environment for online video streaming, the country of Taiwan is an entirely greenfield market, as no firm has introduced a viable product to Taiwanese consumers. As such, market entry for a firm such as Netflix will be relatively unencumbered by competitive threats. However, the prospective rollout is not without its drawbacks, and we’ve accordingly chosen to analyze the market through the lens of 5 competitive forces. The model of Five Competitive Forces was developed by Michael E. Porter and has become one of the most relevant methods for analyzing an organizations industry structure in strategic processes (Porter, 1980). Porter ’s model is based on the insight that a corporate strategy should meet the opportunities and threats in the orga nization’s external environment.

 Bargaining Power of Suppliers: Moderate: Content is king when it comes to streaming video services, as providers must have access to the media they wish to provide to consumers. While suppliers of these materials may wish to make the most profitable contractual arrangements for streaming of their content, they do not have competitive firms to play a market entrant against for the time being. However, the premier market entrant must gain access to this content, so suppliers do wield a certain degree of power.

 Bargaining Power of Customers: Weak: Without competitive conditions in the market, end -customers have no one else to turn to for streaming video content. That being the case, the bargaining power of these customers is extremely weak.

 Threat of New Entrants: Strong: Netflix is assuredly not the only firm to recognize the greenfield conditions of online video streaming in the Taiwanese market. Other firms are equally as likely to throw their hat(s) in the ring either at this juncture or in the near future should the first to act show demonstrable success.

 Threat of Substitute Products: Strong: Although the profitable video streaming service market in Taiwan is virtually non- existent, the country’s people have plenty of options for accessing video content; including piracy. Given that specific numbers regarding Taiwanese video piracy may be hard to come by due to the illegal nature of the action, should piracy be extremely widespread it may be extremely difficult to begin asking consumers to pay for such services.

 Competitive Rivalry within Industry: Weak: In stark contrast to the extremely competitive environment for entertainment video in the United States of America, the industry in Taiwan is almost non-existent. This presents an attractive situation for companies with existing expertise in video streaming such as Netflix, but although competition doesn’t exist at the moment any demonstrable success in the market is virtually guaranteed to be met with new market entrants within due time. Market Entry Plan – Netflix, Inc. 10 3.2 – Identification of Primary Competitive Threat Whereas no one competitive threat exists in the Taiwanese market, Netflix must not rest on their laurels while forming their entry strategy. The formation of a marketing plan should include an analysis of possible competitive threats the firm may face in the near future. For the purposes of this market entry plan, we’ve chosen to assess Amazon.com as the primary competitive threat due to their status as the most recognizable threat to Netflix in their home country of operations. In consuming these materials, however, the strategic marketing manager should assign limited weight to the impact of these analyses, as the competitive threat does not realistically exist as described due to the greenfield status of internet video streaming in Taiwan. Netflix : Strengths Amazon.com : Strengths 1. Core Competence in Content Selection and Delivery The company has committed over $5billion towards their streaming library, which boasts TV show and movie content exceeding 1 billion viewing hours and 60,000 titles. They ha ve created a strategic advantage with their proprietary user interface, which serves content browsers with recommendations based on ratings and viewing history analytics performed on historical data gleaned from their subscriber base. 2. Proven Capability in Subscriber Attraction and Retention Netflix’ faculty in content and selection is key to their ability to attract and retain subscribers. Although interdependent, the fact that they have demonstrated perpetual growth in their subscriber base represents a unique strength in and of itself. Netflix subscribers jumped by 5 million users in 201 2 to over 38 million total, which the company attributes to compelling content, outstanding member experience, and brand clarity. 3. Inherent Focus on Core Business The Netflix model finds particular strength in the market due to the fact they have not divers ified beyond their core business. The company adheres to their commitment to focus on streaming video, and sees their competence in doing so key to rapid innovation resulting in increased customer satisfaction. 1. Strong Customer Base Although Am azon remains the weaker of the two competitors in the video streaming sector, it benefits from a highly trafficked website and loyal following of retail consumers . With up to 138 million monthly visitors to its website, their Total Addressable Market for i ntroduction to existing and/or new video content services shows great potential, and a concerted effort to cannibalize the customer base of Netflix could prove successful (compete.com, 2013).

2. Growing Selection of Content Amazon’s Instant Video service curr ently offers over 150,000 movie and television show titles, and the company’s continuous expansion in additional licensing is evidence of its commitment to content growth.

3. Bilateral Instant Video Strategy Amazon offers its full library of streaming vide o content for sale or rent via its online marketplace. Alternatively, the company also devotes a segment of these materials as a complementary value - add to its Amazon Prime service, in which customers pay lump sum annual fee for access to free two - day shi pping on the majority of Amazon - sold products through its electronic retail storefront. This strategy incentivizes potential customers to upgrade their Amazon accounts to the Prime offering, and in turn exposes them to the streaming ecosystem it has devel oped. Market Entry Plan – Netflix, Inc. 11 Netflix: Weaknesses Amazon.com : Weaknesses 1. Burdensome Debt and Limited Cash Flow Early in 2013, Standard & Poor’s altered its outlook on Netflix’ speculative BB - minus level debt to negative, citing declining cash flow levels between this year and next, the firm’s increased propensity to leverage debt, and “risks associated with original programming”. The company’s stated intention to increase a debt - backed commitment to their streaming footprint is cause for concern, as decreasing cash reserve s reported in 2012 are actually reflective of an inability to obtain additional debt to finance acquisitions, capture business opportunities, and meet capital expenditure or other capital requirements in the future. 2. Weakening Firm Profitability Despite its ability to outpace analyst forecasts for share prices, Netflix has recently exhibited declining profitability. Fiscal year 2012 saw a decrease of 86.71% in operating profit from 2011, mainly due to increases in operating costs as a percentage of sales. Fu rther, the firm reported operating margin of 1.39% in 2012 compared with 11.74% in 2011. Should Netflix be ineffective in demonstrating success with its growth forecasts profitability may further wane, resulting in displeased investors and declining compan y value. 3. Decline of the Domestic DVD Segment Although the Domestic DVD segment vaulted Netflix to common recognition as the major player in subscription - based television and movie content delivery, subscriptions to the physical disc distribution service ha ve continued to decline in recent years. The firm’s commitment to investing in new content creates an additional financial commitment by default, as they must acquire additional assets as quickly as new movies are released. 1. Burdensome Debt Hampers Ability to Strategically Target Competitors Amazon.com is not exempt from the issues with debt obligations that have plagued its competitor Netflix in recent years . During fiscal year 2012, the company recorded total debt of $3.8 billion, which came as a 170% increase over the same performance in 2011 (GlobalData, 2013). This fact could limit their ability to expand their streaming video content and infrastructure to put it on par with Netflix’ offering. 2. Broadly Diversified Business Amazon began in 1994 as an online retailer of consumer goods and has since diversified its business into a number of product and services, including the facilitation of 3 rd party seller accounts, streaming video content, marketing and promotional activities, web services, and co - branded credit card agreements (GlobalData, 2013). While all of their offerings are web - based, the lack of focus on any one business in particular may prevent th em from developing competencies related to streaming video. 3. Lack of Physical Disc Options The physical disc rent - by - mail is a weakness for Netflix due to the fact the company has experienced a decline in users utilizing the service, yet its business model is still partially based on the offering. This puts Amazon at a disadvantage because although not as many consumers wish to rent videos on physical disc when given streaming capability, at least it represents flexibility of options. Amazon does not distr ibute physical disc rentals, therefore they cannot compete on this front. 3.

3 – Identification of Additional Competitive Threats As was the case for the primary competitive threat, existing secondary and/or tertiary competitive threats do not exist in the Taiwanese market. For the purposes of this study we have assigned additional competitors based on the current situation in Netflix’ home market of the United States of America, but — just as before— the strategic marketing manager should assign limited weight to the impact of these analyses, as the competitive threat does not realistically exist as described due to the greenfield status of internet video streaming in Taiwan.  Hulu – Hulu is a joint venture between several TV networks for subscription-based delivery of popular television shows. Similar to Netflix, Hulu subscribers pay a monthly access fee to view streaming content, which may be downloaded to a multitude of digital devices. From a competitive standpoint this service leaves a lot to be desired in terms of breadth of content, and unlike Netflix their offering is not exclusive of advertising. In the event our strategic recommendations selected a secondary competitor, Hulu would be chosen. Market Entry Plan – Netflix, Inc. 12  Vudu – Vudu offers users the ability to purchase or rent movies and television shows starting at 99 cents each, and was recently acquired by Wal-Mart. They tout competitive advantage in their claim to deliver streaming content the very day it’s released to DVD; a marked difference in the turnaround time of up to one year typically seen by Netflix subscribers. As was the case with both Amazon and Hulu, who would fill a primary and secondary competitor role, respectively, if our analyses rendered such a decision Vudu would fill the tertiary spot.

 HBO GO – HBO developed its GO service to stream their in-house television series, as well as licensed movies. As of now they only offer 244 movie titles in addition to 47 series and a handful of comedy and sports recordings, so their content lineup is paltry compared to the Netflix library.

 Apple iTunes – Apple began offering movies and television shows for purchase and download to compatible devices in 2005, and capitalizes on the broad user base the company enjoys for their mobile devices.

 Google Play – Much like Apple iTunes, the Google Play store allows its users to purchase or rent movies and television shows. The service should be viewed as a direct competitor to Netflix due to overlap of content offering, but thus far Google appears to have fleshed out their library as more of a fringe value-add to their Google Play marketplace rather than assemble a concerted effort to cannibalize Netflix viewership.

 YouTube – This behemoth of online video content is primarily driven by user-supplied uploads, but some full-length films are also legally available for streaming. Although this does not parallel the service offering of Netflix, their existence cannot be ignored; particularly in the event they choose to modify their business model to take advantage of their large-scale delivery infrastructure and offer services that compete with Netflix in the future.

4.0 – Entry Strategies: Options for Taiwanese Market 4.1 – Identification of Market Entry Options Netflix must recognize that correctly choosing their market entry strategy is imperative to sustainable success in Taiwan. Several options for market entry exist for Netflix to take into consideration, each of which has varying degrees of feasibility. Joint Venture – An entry strategy where two businesses join together and share ownership over a newly created third firm. This strategy is moderately attractive to a company considering entry into an intensely competitive market, but with shared risk comes shared reward. Considering the Taiwanese streaming video market is greenfield, there are no existing firms in the market with competencies that would bolster Netflix’ offering . Partnering with a production studio with rights to a large library of content desired by the firm may be attractive, but the Netflix’ value proposition is in the delivery of said content; something that the firm has historically demonstrated significant independent success with. Acquisition – Although an existing online video streaming firm does not exist in the Taiwanese market for the purposes of acquiring a veteran organization, Netflix may acquire companies which represent a significant portion of their overall cash outlays in an effort to ease the burden of market entry. Large internet infrastructure and/or web hosting companies, or holders of large content libraries may be targets for this manner of acquisition. Market Entry Plan – Netflix, Inc. 13 Outright Investment – This strategy would find Netflix performing direct foreign investment in the Taiwanese market by acquiring the content rights and equipment necessary to duplicate their US operations overseas. 4.2 – Recommendation of Market Entry Strategy Netflix, Inc. should adopt an outright investment strategy in Taiwan by acquiring the content rights and equipment necessary to duplicate their US operations in the market. The firm ’s liquidity situation affords them the ability the flexibility of capital expense necessary to undertake the investment, and doing so will ensure that the firm reaps the maximum benefits of profitable success in the new venture. 5.0 – Market Analysis and Segmentation: Netflix, Inc. in Taiwan The target consumer market for Netflix is adults over the age of 17 who enjoy watching movies and television shows, and who have internet access via a device capable of viewing streaming content. The company’s delivery model is such that perva sive internet connectivity and broad selection of content permit them to target just about every consumer in their markets of operation, with the only additional determination of eligibility being the offset amount of disposable income necessary to subscribe to their services. Furthermore, their business is largely hinged on factors of convenience, as consumers need not leave the comfort of their home to utilize their services. Internationally, this market largely consists of mobile users, as many consumers in emerging markets find larger, more expensive devices for streaming content access such as PCs and Macs to be cost restrictive. 6.0 – Marketing Mix Strategies: Taiwanese Market The marketing mix for Netflix’ expansion into Taiwan will take on a somewhat similar approach to the service rollout in the United States of America, with certain considerations being given for local taste in content. Of considerable in terest to the determination of marketing investment is the fact that the firm does not manufacture and/or distribute a tangible product, therefore inventory build-up and/or scrap to redress product specifications per ongoing marketing research is entirely unnecessary. Modification of service delivery can be dynamically performed with very little expense through acquisition of new content and/or redesign of the customer-facing user interface. 6.1 – Product Strategy As previously addressed, Netflix will not be offering a tangible product to consumers; rather a service-based internet streaming video on demand offering. The firm should negotiate and acquire the distribution rights for a solid base of content based on initial and ongoing market research, the scope of which should mirror their original offering during expansion into Latin America. Consideration should primarily be given to video content in Mandarin Chinese, or films which have the ability to enable subtitles in same. 6.2 – Price Strategy Considering that Netflix will only be offering web-based streaming video, the firm need not account for variable pricing seen in the US market, which continues to offer DVD and/or Market Entry Plan – Netflix, Inc. 14 Blu-Ray disc- by-mail services. Netflix should adopt a flat-fee offering wherein their customers may gain access to unlimited streaming video for a reasonable fee as determined by market research. To set their price and determine the scope of necessary content acquisition, the company should conduct public surveys to inquire as to “what price consumers would pay to obtain the following services ”, followed by a selection of predetermined options. 6.3 – Promotion Strategy A solid promotional strategy will be of pivotal importance to Netflix ’ ability to increase consumer awareness quickly. Netflix should consider taking out advertisement space offered by providers of public transportation, as well as in and around the oft-traveled urban roadways used by motorcyclists. The firm should offer complementary one month trials of their service for new subscribers responding to their initial marketing push, and bundle the same offering through partnerships with hardware manufacturers who retail new tablets, PCs, and mobile phones. As is the case in similar such marketing efforts in other countries, the company will collect billing information from consumers who sign up for the promotional offer; the terms and conditions of which will indicate that the subscription will automatically renew at the prevailing rate using the credit card information provided. This method of subscriber growth must be vetted with local law, but should the strategy be permitted the exposure to Netflix ’ service offering will increase consumer trials and minimize attrition. 6.4 – Place Strategy As a web -based service offering, Netflix n eed not be overly preoccupied with the Place Strategy of the marketing mix. Distribution of product is performed wholly over the internet, thus acquisition of the Netflix.tw and/or Netflix.com.tw top-level domain(s) is of primary concern. Purchase and/or service lease of the physical equipment necessary for the delivery of services may also fall under place strategy, as geophysical location of servers may impact quality of service (QOS). The island of Taiwan is small enough, however, that centrally positioning th e equipment in Market Entry Plan – Netflix, Inc. 15 7.0 – References BusinessWeek. (2013, September 3). Life after netflix: For original shows, streaming is just the first stop. 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