INTERNATIONALINVESTMENTREPORTGROUP A PRESENTS MELISSA & DOUG IN ISRAEL – INT 610

Shekera Alvarado - Tami Brouillette - Angela Derby-Wright - Bryant Kirk - Lance Mogdics

OUTLINE• Company Background & Expansion Specifications

• Country Basics & Demographics

• Country Structure

• Political, Financial & Economic

• Country Evaluation

• Political, Financial & Economic

• Associated Risks & Associated Benefits

• International Perspective, Current Events & Overall Indicators

• Industry Evaluation

• Regulatory Structures, Competition, Financing & Overall Attractiveness

• Entry Strategy

• Recommendation

COM

PAN

Y B

ACK

GR

OU

ND

• U.S.-based toy company founded in 1988 by Melissa and Doug Bernstein

• Leading designer and manufacturer of educational toys

• Customer-focused mission statement

• Private company employing approximately 1,200 employees

Home page (n.d.). Melissa & Doug. Retrieved on April 26, 2013 from http://www.melissaanddoug.com/ Cody, T. (2010). Berkshire Cleared to Acquire Melissa & Doug. Mergers & Acquisitions Report,  23(50), 7.

COMPANY GROWTH

1988

Com

pany

Fo

unde

d

2006

Met

alM

ark

Partn

ers

2010

Berk

shire

Pa

rtner

s

2013

Indu

stry

Le

ader

Berkshire Partners Invests in Melissa & Doug (2010). Berkshire Partners. Retrieved on April 29, 2013 from http://www.berkshirepartners.com/news_press_2010December21.shtmlFitcher, M. (2012). Bernstein, Melissa & Doug. 2 Paragraphs. Retrieved on April 29, 2013 from http://2paragraphs.com/2012/09/bernstein-melissa-doug/

Macfadyen, K. (2010). Berkshire Partners Completes Toy Deal. Mergers and Acquisitions News. Retrieved on April 29, 2013 from http://www.themiddlemarket.com/news/berkshire-completes-toy-deal-214440-1.html

PRODUCT OFFERINGS

Arts & Crafts

Stuffed Animals

Classic Toys Puzzles

Home page (n.d.). Melissa & Doug. Retrieved on April 26, 2013 from http://www.melissaanddoug.com/

http://commons.wikimedia.org/wiki/File:World_Map_Blank.svg

OP

ERAT

ION

S

MANAGING EXPANSION

• Expansion Planning

• Market Demand – Emerging Markets = Israel (1.8% pop. growth compared to world at 1.1% (Israel Sees Growth as Population Passes 8 Million Mark, 2013). 

•  E-Commerce: enabled achievement of double-digit returns by supplying product line to over 80 countries worldwide (Promo 8). 

Israel Sees Growth as Population Passes 8 Million Mark. (2013, April 14). Retrieved from The Algemeiner: http://www.algemeiner.com/2013/04/14/israel-sees-growth-as-population-passes-8-million-mark/Israel: A Resilient Global Economy. (2013, April 29). Retrieved from Invest in Israel: http://www.investinisrael.gov.il/NR/exeres/75A535CF-BCC7-4A06-9E24-88EAC7EC67C0.htm

"Promo 8". (n.d.). Retrieved from Melissa & Doug: http://www.melissaanddoug.com/promo_8

GEOGRAPHY

• Located in the Middle East, bordering the Mediterranean Sea (CIA, 2013)

• Climate & geologic events:

• Hot & dry

• Sandstorms

• Droughts

• Earthquakes (CIA, 2013)• Total sq. km. = 20,770 sq. km

• 20,330 sq. km. = land

• 440 sq. km. = water

Central Intelligence Agency. (2013). The World Fact Book. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/is.html

2nd Largest % (0-14 years)

Largest % of population (25-54 years)

Population: 7,707,042 (July 2013 est.)

Age Structure0-14 years: 27.3 percent

15-24 years: 15.7 percent25-54 years: 37.7 percent

55-64 years: 8.8 percent 65 years +: 10.5 percent

ISRAEL: COUNTRY BASICS

Race: Jewish 76.4 percentNon-Jewish 23.6 percent (mostly Arab) (2004)Language: Hebrew (official)Arabic (used officially for Arab minority), English (most commonly used foreign language)Religion: Jewish 75.6 percent, Muslim 16.9 percent, Christian 2 percent, Druze 1.7 percent, other 3.8 percent (2008)

Central Intelligence Agency. (2013). The World Fact Book. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/is.html

DEMOGRAPHICS• GDP Purchasing power (PPP/USD) - $247.9 billion (2012 est.) Compared to the world: 51 (out of 229)

• Imports - $77.59 billion (2012 est.)

• Average salary - $31,000 USD per year. $45,000 in US (Central Bureau of Statistics, 2013).

• Online Purchases - 5,313,530 Internet users in 2012 = 70.0 percent penetration – a high Internet adoption rate (Internet World Stats, 2012). 7 percent of Israelis purchased toys online vs. 93 percent offline; 6 percent of purchasers did research online before purchasing toys online (Google, 2013).

• Industry Leader - Approximately 40 Israeli manufacturers offer educational toys. (Israeli Export and International Cooperation Institute, 2011)

• Israeli Toy Market - worth approximately NIS 930 million ($260 million USD) per year, with about 55 percent of sales derived from brand-name toys. (Levy, 2012)

Export.gov. (2013). Country Commercial Guide. Retrieved from http://export.gov/israel/marketresearchonisrael/countrycommercialguide/eg_il_026161.aspIsrael: Risk Assessment (2013). Global Edge. Retrieved from globaledge.msu.edu: http://globaledge.msu.edu/countries/israel/risk

POLITICAL STRUCTURE

Israel is a parliamentary democracy which consists of four institutions (“Political Structure”, 2001):

• The Executive Institution (the Presidency)

• The Legislative Institution (the Knesset, parliament)

• The Governmental Institution (cabinet of Ministers)

• The Judiciary Institution (Judges)

Israel Executive Branch (n.d.). Index Mundi. Retrieved on April 29, 2013 from http://www.indexmundi.com/israel/executive_branch.htmlPolitical Structure and Elections (2001). Israel Ministry of Foreign Affairs. Retrieved on April 28 from http://www.mfa.gov.il/MFA/MFAArchive/2000_2009/2001/6/Political%20Structure%20and%20Elections

The Electoral System in Israel. (n.d.) The Knesset in the Governing System. Retrieved on April 26, 2013 from www.knesset.gov.il/description/eng/eng_mimshal_beh.htmThe Judiciary: The Court System (n.d.). Israel Minster of Foreign Affairs. Retrieved on April 28, 2013 from http://www.mfa.gov.il/MFA/Government/Branches+of+Government/Judicial/The+Judiciary-+The+Court+System.htm

POLITICAL COMPARISON

RISKS

• New government in Israel, which has greater ideological diversity then the past Knesset (Country Risk Summary, 2013).

• Gaza conflict continues to threaten Israeli security.

• The Palestinian–Israeli Conflict is a continuing source of uncertainty in the region. 

• Iran's possible nuclear capability

• Civil War in Syria

BENEFITS

• Government is open to foreign investment, and actively encourages and supports the inflow of foreign capital.

• Few restrictions on foreign investors.

• There have been no expropriations of U.S.-owned businesses in Israel in the recent past.

Balmer, C. & Williams, D. (2013). Analysis: Israeli Credibility on Line Over Iran Nuclear Challenge. Reuters. Retrieved on April 27, 2013 from http://news.yahoo.com/analysis-israeli-credibility-line-over-iran-nuclear-challenge-095926903.htmlIsraeli Lawmaker Urges Intervention in Syria, Claims Chemical Weapons ‘Trickling’ to Hezbollah. (2013). The Washington Post. Retrieved on April 28, 2013 from http://www.washingtonpost.com/world/middle_east/israeli-lawmaker-urges-intervention-in-syria-warns-

chemical-weapons-trickling-to-hezbollah/2013/04/29/69f4b42c-b0bd-11e2-9fb1-62de9581c946_story.htmlTamopolsky, N. & Boghani, P. (2013). Israel, GazaExchange Heaviest Strikes Since Cease-Fire. Global Post. Retrieved on April 26, 2013 from http://www.globalpost.com/dispatch/news/regions/middle-east/israel-and-palestine/130403/israel-gaza-exchange-heaviest-

strikes-Country Risk Summary (2013). EIU ViewsWire. Retrieved on April 29, 2013 from http://search.proquest.com.ezproxy.snhu.edu/docview/1328395841

FINANCIAL STRUCTURE

• Israeli financial system currently appears to be generally robust

• The main financial institutions are banks and insurance companies; there is a large and active market in shares, corporate bonds, and government bonds

Viñals, J. (2012). Israel: Financial System Stability Assessment. Retrieved from  http://www.imf.org/external/pubs/ft/scr/2012/cr1269.pdf

FINANCIAL COMPARISON

RISKS

• The global economy and in particular some of Israel’s main trading partners may slip back into recession

• Israel is exposed to geopolitical risk.

• The nonfinancial, banking, and insurance sectors are concentrated

BENEFITS

• Little law provides conflict for international business

Viñals, J. (2012). Israel: Financial System Stability Assessment. Retrieved from  http://www.imf.org/external/pubs/ft/scr/2012/cr1269.pdf

ECONOMIC STRUCTURE

•  Growth of the Israel economy is largely from exports and foreign investments. 

•  Unemployment is at 5.9% in 2011 and Gross Public debt as a percentage to GDP decreased from 102% in 2003 to 75% in 2011 (Israel: A Resilient Global Economy, 2013).

2013 Index of Economic Freedom: Israel. (n.d.). Retrieved from The Heritage Foundation: http://www.heritage.org/index/country/israelSteinberg, J. (2012, March 25). Does it pay to shop and ship to Israel. Retrieved from Times of Israel: http://www.timesofisrael.com/does-it-pay-to-shop-and-ship-to-israel/

ECONOMIC COMPARISON

RISKS

• High public debt

• Ranked number 17 in the world for risk of terrorism (Maplecroft, 2012)

• Regional stability at risk because of ongoing issues in the West Bank and Gaza Strip

• The Arab Spring that affected surrounding countries has also left unrest in the region (A.M. Best, 2012).

BENEFITS

• Diversified economy – ranked top 5 emerging markets 2010 (Israel: A Resilient Global Economy, 2013).

• Strong high-tech sector

• Skilled workforce (Global Edge, 2013)

• Good business climate (Global Edge, 2013)

• Israel has been ranked 9th highest for durability facing the global financial crisis.

AMB Country Risk Report: Israel (2012, October 26). A.M. Best. Retrieved from ambest.com: http://www3.ambest.com/ratings/cr/reports/Israel.pdfPolitical Risk Map 2012. Maplecroft. Retrieved from ipoliticalrisk.com: http://www.ipoliticalrisk.com/wp-content/uploads/2012/02/maplecroft.bmp

INTERNATIONAL PERSPECTIVE

• International MembershipsUnited

Nations

World Bank

International Monetary

Fund

World Trade Organization

United States Department of State. (2013). U.S. Relations with Israel. Retrieved from http://www.state.gov/r/pa/ei/bgn/3581.htm

CURRENT EVENTS & OVERALL INDICATORS

• U.S. Policy in Middle East

Commitment to Security

• 4.5% increase• $9.7 Billion in 2010

Increase – U.S. FDI’s

• 26th Largest Trading Partner

• $37 Billion in 2011

26th Partner

Office of the United States Trade Representative. (2013). Retrieved from http://www.ustr.gov/countries-regions/europe-middle-east/middle-east/north-africa/israel

INDUSTRY EVALUATION – REGULATORY STRUCTURE

• Israel and U.S. Free Trade Agreement

• No Tariffs due to Free Trade Agreement

• Import and Export Port Fees

• TAMA uplift rate

• VAT (value added tax)

• International R&D Programs

• Treaties for the Avoidance of Double Taxation

Tariff and Tax Information (n.d.) U.S. Commercial Services. Retrieved on May 29, 2013 from http://export.gov/middleeast/country_information/israel/Tariff%20and%20Tax%20Info-IS.pdfIsrael Free Trade Agreement (n.d.). Trade Compliance Center. Retrieved on May 29, 2013 from http://tcc.export.gov/Trade_Agreements/All_Trade_Agreements/exp_005439.asp

BDO Israel. (2013). Doing Business in Israel 2013. Tel Aviv: BDO Ziv Haft.

COMPETITION

TOP COMPETITORS

• The leading toy competition will be from large well-known brands that are imported to Israel (Levy, 2012).

• Lego

• Fisher Price

• Hasboro

MINOR COMPETITORS

• Tiny Love (Sarah, 2011)

• Theora Design

• Taf Toys

• Halilit

• Savta’s Toys

Levy, R. (2012). Building Blocks of High Prices. Haaretz. Retrieved on May 30, 2013 from http://www.haaretz.com/business/building-blocks-of-high-prices-1.418984Melissa and Doug (n.d.) Savta’s Toys. Retrieved on May 30, 2013 from http://www.savtastoys.com/brand.php?brand=8&view=all

Sarah, V. (2011). Israeli Oomph at International Toy Fair. Israel 21c. Retrieved May 28, 2013 from http://israel21c.org/news/israeli-oomph-at-international-toy-fair/

MAJOR TOY DISTRIBUTORS (ISRAEL)

• Toys R Us- 28 Branches and 26% of market share (Fiterman, 2011)

• Kfar Ha’Shashuim – 80 stores and 16% of the market share

• Red Pirate – third major chain – 13 stores

Fiterman, A. (2011). Toys They Can’t Hold a Candle To. Haaretz. Retrieved on May 30, 2013 from http://www.haaretz.com/business/toys-they-can-t-hold-a-candle-to-1.400453

INVESTMENT INCENTIVES

Government Created Incentives

Tax Benefits (20% Grants)“Priority Area A”

Law for Encouragement of Capital Investments

- Buildings, Machinery & Other Equipment

- Land Development Expenses

- Building Renovation Expenses

Economic Boost

BDO Israel. (2013). Doing Business in Israel 2013. Tel Aviv: BDO Ziv Haft.HLB International. (n.d.). Doing Business in Israel. Retrieved from hlbcpa.co.il: http://www.hlbcpa.co.il/businesscont.htm#about

FINANCING OF INVESTMENT

Israeli Financial Market Offers

LoansShort

MediumLong-term

Installment Credit & Leasing

Venture Capital

Organization Assistance

Export/Import Bank of

America & Small Business Administration

(SBA)

Embassy of the U.S. - Israel. (n.d.). Israel is Open for Your Business. Retrieved from http://israel.usembassy.gov/: http://israel.usembassy.gov/doing-business/services-for-u.s.-companiesKriheli, O. P. (2012). Doing Business in Israel 2012. Ramat Gan, Israel: Crowe Horwath.

ATTRACTIVENESS OF INDUSTRYWorld

Leader in Industry

Market Worth Approx. $260

million USD/year

30% of population<14

years old

Liberal Business Environment =

A2 Climate Rating

Toys Israeli Export and International Cooperation Institute. (2011). Israel: Inspired by innovation/ Home and family

products. Tel Aviv: Israeli Export and International Cooperation Institute.

Levy, R. (2012, March 16). Building blocks of high prices. Haaretz, pp. http://

www.haaretz.com/business/building-blocks-of-high-prices-1.418984

israemploy. (2013). Salary and compensation. Retrieved from israemploy.net:

http://www.israemploy.net/Salaries/

Business Monitor International. (2012). Israel Retail Report Q1 2012. London: Business Monitor

International.

ENTRY STRATEGY

• Possible Modes of Entry for Melissa & Doug into Israel:

• Exporting

• Joint Venture

• Wholly Owned Subsidiary

• Licensing Agreement

• Direct Investment

Investopedia. (2013). Wholly owned subsidiary. Retrieved from http://www.investopedia.com/terms/w/whollyownedsubsidiary.aspQuick. (2010). Foreign market entry modes. Retrieved from http://www.quickmba.com/strategy/global/marketentry/

Samii, M. (2011).  International Business, Thirteenth Edition. Custom Business Resources. Pearson Learning Solutions: Boston, MA.Schreiner, E. (n.d.). "Differences Between Wholly Owned Subsidiaries & Divisions". Retrieved from Small Business Chron: http://smallbusiness.chron.com/differences-between-wholly-owned-subsidiaries-divisions-32631.html

ENTRY STRATEGY – VITAL RELATIONSHIPS

• Customs Agents

• Possibly Business Partners

• Competing Companies

• Government officials/politicians

• US Commercial Service

ENTRY STRATEGY - EXPLANATIONS

• Cost and Return on Investment

• Risk

• Speed

• Learning Potential

• Cultural Difference

• Current Foreign Investments

• Goodwill

Quick. (2010). Foreign market entry modes. Retrieved from http://www.quickmba.com/strategy/global/marketentry/