REPORT INTERNATIONAL BUSINESS ANALYSIS OF INTERNATIONAL BUSINESS STRATEGY THE CASE OF NETFLIX

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 Netf

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

Hanoi, December 2021

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

Audiovisual input and output devices are in abundance these days and so are movies andfilms Everyone watches videos, be it on TV, social media, or cinemas The film industry isone of the most impactful sectors in modern society Film has a uniquely powerful ubiquitywithin human culture, it has become an efficient vehicle for culture, education, leisure andpropaganda Sitcoms and comedy shows make us laugh, psychological thrillers help us see theworld 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 leadershave 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 ofstopping, 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 bemuch prefered

Meeting the needs of the times, Netflix, an online streaming service, has becomeincreasingly popular and penetrated deeply into people's daily lives, with thousands ofmovies in different genres translated into many languages Netflix recently made a moveinto the independent film category, where traditional movies in theaters typically face anuphill battle being seen Now, even small films can easily be seen on Netflix It isessentially 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 increasinglypopular 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 businessstrategy to find out the answer

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 Itwas first founded in August of 1997 by two serial entrepreneurs, Marc Randolph and ReedHastings 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 overtime, Netflix has transformed its business model It has gone from physical releases toallowing customers to stream their favorite content comfortably Netflix's success can beattributed to two strategic moves: a three-stage expansion into new markets and how thecompany 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 internationalmarket was in Canada in 2010, which is geographically close and has many similaritieswith the US As a result, Netflix could develop its internationalization capabilities wherethe "foreign" challenges were less acute

In the second phase, to expand to the international market faster and wider, Netflix hadspread to 50 countries, based on the experiences in the first phase This phase helpedNetflix 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 expansionrate had brought Netflix to 190 countries The company is now well-versed in userpreferences, marketing strategies, and internal organization

Nowadays, the platform evolving streaming technologies has enhanced and improvedNetflix's overall revenue and business structure The platform gives viewers the ability tostream and watch a variety of TV shows, movies, documentaries and more, through themedium using a software application Since Netflix's transition to streaming, it has beenthe world's seventh-largest internet company by revenue, including its presence on aglobal scale.

1.2 Mission and vision statement

With an aim of entertaining the world, Netflix wants to become the best globalentertainment distribution service, license entertainment content around the world, createmarkets that are accessible to film makers and help content creators around the world tofind 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 howemployees are encouraged to behave in the workplace The company applies its corporateculture to develop resilience among its workers, as a way to support growth in anincreasingly competitive on-demand digital media streaming industry Though over 20years passed, up to now Netflix has a high filtering function, is still relevant with thecurrent development direction, even surpassing Google and Facebook, to stand at the #1position in the dream workplace in 2020 (according to Hired.com) and #1 Best LeadershipCompany of 2020 (according to Comparably) Netflix’s CEO thinks company culture isthe only competitive advantage he has full control over and affords to grow Netflix cultureinto a major asset of the business This is really forward thinking compared to manystartups, 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

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 notControl, 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 employeesare motivated to take risks and deliver innovative ideas that contribute to the online

company’s competitive advantage Such an organizational culture makes Netflix’s humanresources flexible and readily responsive to challenges in the industry The expectedbehavioral outcomes of this corporate culture relate to the nature of the company’soperations in the on-demand media streaming industry For example, workers aremotivated to share ideas that strengthen the alignment between Netflix’s service andmarket trends In terms of strategic planning, the organizational culture makes thestreaming business capable of implementing strategies and tactics that utilize humanresource ingenuity to support operational enhancements Overall, Netflix maintains acorporate culture that helps keep its organization flexible, innovative, and responsive tomarket 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 costincurred 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 ForNetflix, the inbound logistics come in the form of partnerships with various production

houses The company partners with production houses such as Warner Bros to get thelatest content on its platform By having a strong partnership with them, Netflix canachieve a competitive advantage.The digital content companies provide their media toNetflix 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 outboundlogistics The key terms here are efficiency and cost-effectiveness—Netflix stores all itscontent 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 toNetflix 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 tothe customers It is a broad term encompassing product delivery, storage, and distributionboth internally and externally The Netflix value chain model includes wholesalers andretailers order fulfillment, distribution, scheduling, processing, and storage Netflix’soutbound logistics include its apps and website, where customers can view content Thecompany 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 logisticsinclude services that come with delivering these DVDs to customers

• Marketing and Sales

Netflix marketing is an innovative, agile approach based on brand development throughcustomer relationship management Constant analysis and optimization are the foundation

of marketing the Netflix model In the last few years, Netflix has increased its marketingbudget drastically In the year 2019, Netflix spent 2.65 billion USD on marketingendeavors 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 theplatform 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, generalmanagement, quality management, legal services, along with finance and accounting Firminfrastructure activities in Netflix value chain analysis are managed through diversificationand distributed management Since there are no brick-and-mortar stores, the businessmodel is somewhat different from the typical businesses The transactions are online, andthe products are digital, so data security and management are critical The finance andplanning 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

reward programs for employees are also an excellent incentive for them Employees mustinvolve 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 userexperience for a reliable online video rental service Netflix's complete business model isbased 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 valuefor the business This is the basis of a company's competitive advantage

• Procurement

Procurement in Netflix value chain analysis involves obtaining copyright licenses for thedigital 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 originalcontent 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 videostreaming world To have such a strong position, Netflix had to establish and take theinternational strategy as the foundation strategy to penetrate deeper into the internationalmarket 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

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 along time, strengthening its position as an industry leader Netflix's use figures are greaterthan they were last year, despite increasing competition and costs

In competitive global markets, international businesses often face pressure for costreduction Many enterprises have pursued an international strategy, taking their productsfirst produced for their domestic market and selling them internationally Thedistinguishing feature of many such firms is that they sell a product that serves universalneeds, 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 affordableprices, without necessarily being a best-cost provider In this generic strategy, Netflixbroadly acquires more customers in the online entertainment market, in contrast to focusstrategies that concentrate on specific market segments For example, the media streamingcompany uses its competitive advantages to reach more customers in the internationalmarket 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 consumerexperience Many customers were unhappy when Netflix hiked its pricing by 60%, andmany analysts worried if the company was doomed However, just one out of everytwenty-five clients (4%) decided to discontinue their memberships Despite the publicoutrage, this indicates that most buyers are not solely motivated by price The majority ofNetflix consumers appreciate the service and are prepared to pay for it in the future

• Low local - responsive pressures

Pressure for local responsiveness of Netflix firstly arises from the difference in consumertastes 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 nationalregulatory restrictions, such as those that limit what content can be made available in localmarkets, Netflix is still available for streaming in over 190 countries Netflix also obtainedcopyright licenses for the digital content it sells Netflix makes sure that it has access tooriginal and in-demand content to overcome government regulations

Third is identical distribution channels: In America, Netflix was launched in the late 1990s inCalifornia and gained popularity by mailing its signature red-enveloped rental DVDs tocustomers This underscored a shift towards at-home, commercial-free viewing of films, whileundermining the business models of bricks-and-mortar home-rental giants such asBlockbuster Netflix later made a move into online film streaming, creating a space whereviewers could watch movies and television programs – allowing them to basically borrowfilmed 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 toNetflix 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’schannels 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 ahierarchy for executive leadership and direction across the company However, ascompared to many organizations that have a hierarchical organizational structure, thiscompany's structure is comparatively flat In Netflix's organizational structure, for

example, all of the top business executives report directly to the CEO The number ofmanagement layers required to escalate difficulties from the online company's bottom line

to its organizational headquarters is reduced as a result of this organizational structuredesign Netflix Inc has a hierarchical organizational structure with adaptations toaccommodate for company flexibility and response to global market developments Thefirm may continue to evolve by offering original entertainment content and on-demandmedia streaming services that appeal to target customers all over the world thanks to thiscorporate structure

Functional Groups are based on business functions such as human resource management,which is referred to as "Talent" in Netflix's corporate structure These categories form thefoundation of the internet company's structural framework Strategic objectives fromNetflix's CEO, for example, are communicated downward via vertical lines of authorityand communication Despite this hierarchical structure, the company's organizationalstructure is generally flat due to the low levels of middle management, allowing thecorporation to adjust quickly to changes in the entertainment sector Despite the unitaryand hierarchical character of the company organization, Netflix Inc has a corporate culturethat encourages open communication and cooperation The strategic management choicesfor the whole organization's streaming activities are made by top executives at thecorporate headquarters Netflix's organizational structure contains the following keyfunctional groups or offices, as shown in its organizational chart: