[ Group 17 Report] Netflix\'s International Business Strategy PDF

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FOREIGN TRADE UNIVERSITY SCHOOL OF ECONOMICS AND INTERNATIONAL TRADE --------♦♦♦♦♦-------REPORT INTERNATIONAL BUSINESSANALYSIS OF INTERNATIONAL BUSINESS STRATEGY: THE CASE OF NETFLIXLecturer : MSc. Nguyen Hong Hanh Class code : KDOE307. Group : 17 Members : Duong Hoang Ngan 1915550715 Hoang Thu Phuo...

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FOREIGN TRADE UNIVERSITY SCHOOL OF ECONOMICS AND INTERNATIONAL TRADE --------♦♦♦♦♦-------

REPORT INTERNATIONAL BUSINESS

ANALYSIS OF INTERNATIONAL BUSINESS STRATEGY: THE CASE OF NETFLIX

Lecturer

: MSc. Nguyen Hong Hanh

Class code Group Members

: KDOE307.2 : 17 : Duong Hoang Ngan Hoang Thu Phuong Tran Thi Thuy Nga Le Phuong Thao Pham Nguyen Tue Minh

Hanoi, December 2021

1915550715 1915550022 1915550016 1915550027 1915550014

TABLE OF CONTENTS INTRODUCTION .................................................................................................. 3 Section I. Overview of Netflix Inc. .......................................................................... 4 1.1. Establishment history ................................................................................... 4 1.2. Mission and vision statement ........................................................................ 5 1.3. Netflix’s Organizational Culture ................................................................... 5 Section II: International business strategy of Netflix Inc. ........................................ 6 2.1. Analysis of Netflix value chain model ............................................................ 6 2.1.1 Five primary activities in Netflix's value chain analysis .............................. 6 2.1.2. Four support activities in Netflix's value chain analysis ............................. 8 2.2. Netflix’s International Strategy and its result ................................................ 9 2.2.1. The application of International Strategy .................................................. 9 2.2.2. Implementation of Netflix’s International Strategy .................................. 11 Section III. Challenges of Netflix's International Strategy ..................................... 16 3.1. Regulatory Restrictions............................................................................... 17 3.2. Competition in the Global Markets ............................................................. 17 3.3. Financial Cost ............................................................................................. 19 CONCLUSION .................................................................................................... 21 REFERENCE ...................................................................................................... 22

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INTRODUCTION Audiovisual input and output devices are in abundance these days and so are movies and films. Everyone watches videos, be it on TV, social media, or cinemas. The film industry is one of the most impactful sectors in modern society. Film has a uniquely powerful ubiquity within human culture, it has become an efficient vehicle for culture, education, leisure and propaganda. Sitcoms and comedy shows make us laugh, psychological thrillers help us see the world from an improved perspective, and historical films help us understand where we’ve come from as a people. Every video and every film reflects society and transforms opinions. As the technology keeps growing, political and economic leaders have utilized cinema in changing and shaping people’s outlooks for their benefits. Nowadays, when technology is developing and the world is starting to enter the 4.0 era, the demand for entertainment on convenient digital platforms in daily life is increasing, including the movie industry. Especially with the Covid-19 outbreak showing no signs of stopping, people can no longer go to cinemas to watch movies or gather in crowded places. As a result, the form of watching movies at home on the phone, computer, or TV will be much prefered. Meeting the needs of the times, Netflix, an online streaming service, has become increasingly popular and penetrated deeply into people's daily lives, with thousands of movies in different genres translated into many languages. Netflix recently made a move into the independent film category, where traditional movies in theaters typically face an uphill battle being seen. Now, even small films can easily be seen on Netflix. It is essentially a storehouse of content, including movies, documentaries, and television series, both pre-existing and its own. Currently, Netflix is available in more than 190 countries and is becoming increasingly popular. So, how did Netflix from a DVD rental company expand to such a global scale? In this report, we will analyze and delve deeply into Netflix's international business strategy to find out the answer. 3

Section I. Overview of Netflix Inc. 1.1. Establishment history Netflix, Inc. happens to be one of the most successful entertainment companies of all time. It was first founded in August of 1997 by two serial entrepreneurs, Marc Randolph and Reed Hastings. The company began out in Scotts Valley, California. Netflix, Inc. originally began by providing services to customers through the delivery of physical copies of movies, shows, video games, and other forms of media through a standard mailing system. Through a successful startup and the rapid changes that technology has introduced over time, Netflix has transformed its business model. It has gone from physical releases to allowing customers to stream their favorite content comfortably. Netflix's success can be attributed to two strategic moves: a three-stage expansion into new markets and how the company operates there. In the first phase, Netflix didn’t try to enter all markets at once. Instead, they carefully selected markets that were geographically and psychologically close, or were well aware of the differences between markets. For example, the first plan to enter the international market was in Canada in 2010, which is geographically close and has many similarities with the US. As a result, Netflix could develop its internationalization capabilities where the "foreign" challenges were less acute. In the second phase, to expand to the international market faster and wider, Netflix had spread to 50 countries, based on the experiences in the first phase. This phase helped Netflix continue to learn about internationalization and work with local stakeholders, while ensuring revenue growth. In the third phase, using the experience from the previous periods, the strong expansion rate had brought Netflix to 190 countries. The company is now well-versed in user preferences, marketing strategies, and internal organization.

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Nowadays, the platform evolving streaming technologies has enhanced and improved Netflix's overall revenue and business structure. The platform gives viewers the ability to stream and watch a variety of TV shows, movies, documentaries and more, through the medium using a software application. Since Netflix's transition to streaming, it has been the world's seventh-largest internet company by revenue, including its presence on a global scale. 1.2. Mission and vision statement With an aim of entertaining the world, Netflix wants to become the best global entertainment distribution service, license entertainment content around the world, create markets that are accessible to film makers and help content creators around the world to find a global audience. 1.3. Netflix’s Organizational Culture Known as one of the most famous case studies of organizational culture in the world, Netflix Inc. presents its organizational culture as unusual, especially with regard to how employees are encouraged to behave in the workplace. The company applies its corporate culture to develop resilience among its workers, as a way to support growth in an increasingly competitive on-demand digital media streaming industry. Though over 20 years passed, up to now Netflix has a high filtering function, is still relevant with the current development direction, even surpassing Google and Facebook, to stand at the #1 position in the dream workplace in 2020 (according to Hired.com) and #1 Best Leadership Company of 2020 (according to Comparably). Netflix’s CEO thinks company culture is the only competitive advantage he has full control over and affords to grow Netflix culture into a major asset of the business. This is really forward thinking compared to many startups, SMEs that only focus on business development. In 2009, the company published its Netflix Culture Deck material which fully, specifically, clearly explains the core values as well as the skills and behaviors confirmed in the culture. 5

They make it clear where they stand and where they want their employees to stand through 7 aspects: Core Values, High Performance, Freedom and Responsibility, Context not Control, Highly aligned, Loosely coupled, Pay top of market, Promotions & Development. In short, the Netflix Culture would emphasize on employee autonomy, communication, attitude, productivity, and rule avoidance to create a business situation where employees are motivated to take risks and deliver innovative ideas that contribute to the online company’s competitive advantage. Such an organizational culture makes Netflix’s human resources flexible and readily responsive to challenges in the industry. The expected behavioral outcomes of this corporate culture relate to the nature of the company’s operations in the on-demand media streaming industry. For example, workers are motivated to share ideas that strengthen the alignment between Netflix’s service and market trends. In terms of strategic planning, the organizational culture makes the streaming business capable of implementing strategies and tactics that utilize human resource ingenuity to support operational enhancements. Overall, Netflix maintains a corporate culture that helps keep its organization flexible, innovative, and responsive to market demand and consumer preferences. Section II: International business strategy of Netflix Inc. 2.1. Analysis of Netflix value chain model Porter's value chain model is based on five primaries and four secondary activities. Primary activities aim to create profit and value in the business that exceeds the cost incurred on developing products or services. 2.1.1 Five primary activities in Netflix's value chain analysis • Inbound Logistics A company’s inbound logistics defines the process of how it sources its operations. For Netflix, the inbound logistics come in the form of partnerships with various production 6

houses. The company partners with production houses such as Warner Bros to get the latest content on its platform. By having a strong partnership with them, Netflix can achieve a competitive advantage.The digital content companies provide their media to Netflix at optimum costs, so Netflix gains and increases its profits. On top of that, Netflix has an in-house production, which produces movies and TV series. The company uses this in-house production to develop original content in multiple languages. Any content made through its own production is cheaper and doesn’t come with copyright restrictions. Therefore, Netflix also creates a competitive advantage through that. • Operations Operations are the processes or services that transform inbound logistics into outbound logistics. The key terms here are efficiency and cost-effectiveness—Netflix stores all its content on its servers by using cloud architecture. So the ease of access, quick search, stability, and security of the server are the primary concerns. Netflix uses cloud architecture on its servers that store the content. Users can connect to Netflix servers through multiple devices. Similarly, it has other features on its network, including search and organize features that provide the best services to customers. • Outbound Logistics Outbound logistics are the activities related to the distribution of products or services to the customers. It is a broad term encompassing product delivery, storage, and distribution both internally and externally. The Netflix value chain model includes wholesalers and retailers order fulfillment, distribution, scheduling, processing, and storage. Netflix’s outbound logistics include its apps and website, where customers can view content. The company has apps on both iOS and Android, which deliver the content to the customers. The company also operates a DVD rental business. In that case, the outbound logistics include services that come with delivering these DVDs to customers.

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• Marketing and Sales Netflix marketing is an innovative, agile approach based on brand development through customer relationship management. Constant analysis and optimization are the foundation of marketing the Netflix model. In the last few years, Netflix has increased its marketing budget drastically. In the year 2019, Netflix spent 2.65 billion USD on marketing endeavors alone. It included promotions and advertisements to expand the customer base. • Services Due to its business model, most of Netflix’s value starts after customers have paid for the platform. Therefore, providing services and satisfying customers is a crucial part of the company’s value chain. It includes customer services to help customers with their queries, such as account issues or payment issues. The company also has a 24/7 customer care center where customers can resolve their issues. 2.1.2. Four support activities in Netflix's value chain analysis • Infrastructure Firm infrastructure support activities consist of activities such as – planning, general management, quality management, legal services, along with finance and accounting. Firm infrastructure activities in Netflix value chain analysis are managed through diversification and distributed management. Since there are no brick-and-mortar stores, the business model is somewhat different from the typical businesses. The transactions are online, and the products are digital, so data security and management are critical. The finance and planning at Netflix are managed at the corporate level. The quality management, accounting, and legal issues are looked after at the business unit level. • Human Resource Management Netflix human resource management is based on employee participation and rewards. Netflix is very supportive of its employees and includes them in all decision-making. The 8

reward programs for employees are also an excellent incentive for them. Employees must involve themselves in innovation and provide superior customer service for the company to grow. Effective HR management has gained an edge over Netflix. • Technology Development Netflix is committed to giving its customers the most advanced and the best user experience for a reliable online video rental service. Netflix's complete business model is based on advanced technology. It uses cloud infrastructure to perform all its operations. Similarly, the company invests a lot in research and development aimed at creating value for the business. This is the basis of a company's competitive advantage. • Procurement Procurement in Netflix value chain analysis involves obtaining copyright licenses for the digital content it sells. Netflix makes sure that it has access to original and in-demand content. An example of competitive advantage by procurement is the Friends TV series. It paid around a hundred dollars to acquire the copyrights for this popular series. Netflix also creates original content creation. This way, Netflix attracts more value and more customers. 2.2. Netflix’s International Strategy and its result 2.2.1. The application of International Strategy With a development history of more than 20 years, Netflix nowadays leads the video streaming world. To have such a strong position, Netflix had to establish and take the international strategy as the foundation strategy to penetrate deeper into the international market with low cost-reduction pressures and low local-responsive pressures. •

Low cost-reduction pressures

In the streaming market, Netflix is a big player with core competencies. In competition with Amazon, Hulu, HBOGo, Disney Plus, Netflix decided to hike the price of its 9

combined streaming and DVD rental memberships by a stunning 60%. Netflix didn't have to fight on pricing since its competitive advantage had been created and promoted for a long time, strengthening its position as an industry leader. Netflix's use figures are greater than they were last year, despite increasing competition and costs. In competitive global markets, international businesses often face pressure for cost reduction. Many enterprises have pursued an international strategy, taking their products first produced for their domestic market and selling them internationally. The distinguishing feature of many such firms is that they sell a product that serves universal needs, but they do not face significant competitors. Netflix Inc.’s generic strategy is cost leadership, which in Michael E. Porter’s model ensures competitive advantage through minimized costs and, frequently, minimized selling prices. This generic strategy enables the online entertainment company’s business model’s competitiveness based on low costs and the corresponding ability to sell at affordable prices, without necessarily being a best-cost provider. In this generic strategy, Netflix broadly acquires more customers in the online entertainment market, in contrast to focus strategies that concentrate on specific market segments. For example, the media streaming company uses its competitive advantages to reach more customers in the international market. This broad approach of the generic strategy aligns with Netflix’s intensive growth strategies, which prioritize market penetration. It doesn't matter how much you charge as long as you give a positive consumer experience. Many customers were unhappy when Netflix hiked its pricing by 60%, and many analysts worried if the company was doomed. However, just one out of every twenty-five clients (4%) decided to discontinue their memberships. Despite the public outrage, this indicates that most buyers are not solely motivated by price. The majority of Netflix consumers appreciate the service and are prepared to pay for it in the future.

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Low local - responsive pressures

Pressure for local responsiveness of Netflix firstly arises from the difference in consumer tastes and preferences depending on their age, gender, culture, region… However, Netflix is ready to serve all of them by its rich content library. Second is the host government demands. Although facing a diverse set of national regulatory restrictions, such as those that limit what content can be made available in local markets, Netflix is still available for streaming in over 190 countries. Netflix also obtained copyright licenses for the digital content it sells. Netflix makes sure that it has access to original and in-demand content to overcome government regulations. Third is identical distribution channels: In America, Netflix was launched in the late 1990s in California and gained popularity by mailing its signature red-enveloped rental DVDs to customers. This underscored a shift towards at-home, commercial-free viewing of films, while undermining the business models of bricks-and-mortar home-rental giants such as Blockbuster. Netflix later made a move into online film streaming, creating a space where viewers could watch movies and television programs – allowing them to basically borrow filmed content for a monthly fee, rather than buying it and housing it on their own equipment. Netflix uses cloud architecture on its servers that store the content. Users can connect to Netflix servers through multiple devices. Similarly, it has other features on its network, including search and organize features that provide the best services to customers. Netflix’s channels also include its apps and website, where customers can view content. 2.2.2. Implementation of Netflix’s International Strategy •

Centralizing product development in the Headquarter

Netflix Inc. features a U-form or unitary organizational structure, which includes a hierarchy for executive leadership and direction across the company. However, as compared to many organizations that have a hierarchical organizational structure, this company's structure is c...