MGT301 - Principles of Marketing - Lecture Handout 41

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Lesson overview and learning objectives:

Discuss the global marketing environment, the international trade system and the economic, political-legal, and cultural environments that affect marketing decisions. Outline the key elements of deciding whether to go international, deciding which markets to enter, and deciding how to enter the market, either through exporting, joint venturing, or direct investment. Explain the primary issue of deciding on the global marketing program, whether to use a standardized or adapted marketing mix, or some combination of the two. Distinguishing among the ways companies manage their global marketing organizations, through export departments, international divisions and becoming a global organization.

A. GLOBAL MARKETING

Companies today can no longer afford to pay attention only to their domestic market, no matter how large it is. Many industries are global industries, and those firms that operate globally achieve lower costs and higher brand awareness. At the same time, global marketing is risky because of variable exchange rates, unstable governments, protectionist tariffs and trade barriers, and several other factors. Given the potential gains and risks of international marketing, companies need a systematic way to make their international marketing decisions. The company must understand the international marketing environment.
The l990s mark the first decade in which companies around the world must start thinking globally. Time and distance are shrinking rapidly with the advent of faster communication, transportation, and financial flows. Products developed in one country are finding enthusiastic acceptance in other countries. Domestic companies that never thought about foreign competitors suddenly find these competitors in their own backyards. The firm that stays at home to play it safe not only
might lose its chance to enter other markets but also risks losing its home market. A company faces six major decisions in international marketing.

a. Getting involved in international marketing:

Getting involved in international marketing

Before getting involved in the international marketing some important aspects should be considered by the organization, these include the basic decisions that why should we go international than in which specific market to enter, how to reorganize the resources and the impact of the international operations on local or domestic operations should also be considered major decisions that company takes in involving into international marketing are:
Major International Marketing Decisions:

  1. Understanding - comes from looking at the international marketing environment. Multinational companies operating in many countries have proliferated and in a global economy more companies must consider international markets if they are to grow.
  2. Deciding - whether to go abroad may be the best growth opportunity, even for relatively small companies. More foreign markets can increase volume.
  3. Which Markets - to enter is also based upon environmental conditions.
  4. How to Enter - involves choices about how to compete.
  5. The Marketing Program - appropriate to international markets includes variations on the product and promotion.
  6. The Marketing Organization - choices available in international marketing include export department, international division, and global organization.

b. LOOKING AT THE GLOBAL MARKETING ENVIRONMENT

i. Globalization

A myriad of forces are coming together in the late 1990's which are triggering the globalization of industries, companies and individuals. Trade blocks are forming which are consolidating market regions; global communications and media are bringing information, services, cultures and brands to all corners of the world. Industries such as finance, computers, telecommunications and media have become global.

ii. International Trade System

Trade system concerns identify opportunities and obstacles for US firms abroad. Companies should investigate tariffs (taxes on imported goods), quotas (which restrict import amounts), and other obstacles such as non-tariff barriers that may affect ability to compete.

  1. The General Agreement on Tariffs and Trade - GATT: This is a 45-year-old treaty designed to promote world trade by reducing tariffs and other international trade barriers.
  2. Regional Free Trade Zone: Certain countries have formed free trade zones or economic communities–groups of nations organized to work toward common goals in the regulation of international trade. One such community is the European Community (EC)

When selling aboard, the firm faces various restrictions. Examples are:

  1. A tariff is a tax levied by a government against certain imported products, which is designed to raise revenue or to protect domestic firms. This is the most common barrier. The tariff may be designed either to raise revenue or to protect domestic firms.
  2. A quota is a limit on the amount of goods that an importing country will accept in certain product categories. It is designed to conserve on foreign exchange and to protect local industry and employment.
  3. An embargo is a ban on the import of a certain product (the strongest form of quota).
  4. Exchange controls are limits placed by a government on the amount of its foreign exchange with other countries and on its exchange rate against other countries.
  5. Non tariff trade barriers are no monetary barriers to foreign products, such as biases against a foreign company’s bids or product standards that go against a foreign company’s product features.

c. Looking at the Global Marketing Environment

i. Economic Environment.

Concerns relate to the industrial structure of the host country. Subsistence and raw-material exporting countries may be limited markets for some kinds of consumer goods.

ii. Political/Legal Environments.

Regulations and government attitudes vary from country to country and in each country in their attitude toward foreign firms. Scrutiny of legal regulation is a must. At least four political—legal factors should be considered when considering whether to do business in a given country.

  1. Attitudes towards international buying: Some nations are quite receptive to foreign firms and others are quite hostile.
  2. Political Stability: Stability is another issue. Governments change hands, sometimes violently. Even without a change a government may decide to respond to new popular feelings.
  3. Monetary Regulations: Firms need to assess the government and currency regulations within a country to determine if any restrictions exist and if they will play a negative role in the international business in that country. Besides currency limits, a changing exchange rate also creates high risks for the seller. International trade usually involves cash transactions; however in some instances a barter system can be developed, this practice has been called counter trade and now accounts for about 25% of all world trade.

iii. Cultural Environment.

Cultural differences are very important in international marketing. Most advertising and even product images are culturally based and may be inappropriate, ineffective, and even offensive in another culture. Care is required.

d. DECIDING WHETHER TO GO INTERNATIONAL

Not all companies need to venture into foreign markets to survive. For example, many companies are local businesses that need to market well only in the local marketplace. However, companies that operate in global industries, where their strategic positions in specific markets are affected strongly by their overall global positions, must think and act globally. Any of several factors might draw a company into the international arena. International competitors might attack the company’s domestic market by offering better products or lower prices. The company might want to counterattack these competitors in their home markets to tie up their resources. Or the company might discover foreign markets that present higher profit opportunities than the domestic market does. The company’s domestic market might be shrinking, or the company might need an enlarged customer base in order to achieve economies of scale. Or it might want to reduce its dependence on any one market so as to reduce its risk. Finally, the company’s customers might be expanding abroad and require international servicing.

e. DECIDING WHICH MARKETS TO ENTER

Before going abroad, the company should try to define its international marketing objectives and policies. First, it should decide what volume of foreign sales it wants. Second, the company must choose how many countries it wants to market in. Third, the company must decide on the types of countries to enter. Possible international markets should be ranked on several factors, including market size, market growth, and cost of doing business, competitive advantage, and risk level.

f. DECIDING HOW TO ENTER THE MARKET

i. Exporting.

Exporting may be of two kinds.

  1. Indirect Exporting: works through independent international intermediaries and involves less investment by the exporter.
  2. Direct Exporting: involves more risk and investment as the firm sets up its own presence in the host country but the potential return is also greater.

ii. Joint Venturing.

Firms have four types of joint venture available to them.

  1. Licensing: occurs when a company enters into an agreement with a licensee in the foreign market. Licensing means little risk but also little control.
  2. Contract Manufacturing: arranges for a foreign producer to make products in the host country for that market.
  3. Management Contracting: has the exporting firm provide the management team with the host country supplying the capital.
  4. Joint Ownership consists: of one company joining with another in the host country to create a local business in which they share owner ship and control.

iii. Direct Investment

Direct investment occurs when the exporting firm enters a foreign market by developing foreignbased assembly or manufacturing facilities.

g. DECIDING ON THE INTERNATIONAL MARKETING PROGRAM

Global or multinational?

Global or multinational

Although the issue has been vigorously debated, there is increasing recognition that a global strategy can possess sufficient flexibility to have a standardized business strategy and yet still market and deliver products adapted for many different markets.

i. Product Strategies.

  1. Straight Product Extension: involves marketing a product in the foreign market without making any changes. Some products may have very strong brand awareness and already be desired as is in the new market.
  2. Product Adaptation: involves changing the product to meet local conditions or wants. Often product forms need to be altered. Size and tastes, for example, are usually at least partially preferred on some culturally related dimensions.
  3. Product Invention: consists of creating something entirely new for the foreign market.

ii. Promotion

  1. Communication Adaptation: is often required. Although some companies can use a single theme and meaning internationally, it is often the case that the local variation on even a universal theme may require some modification. Also, media vary in the reach and effectiveness, even their availability.
  2. Dual Adaptation: involves a combination of promotion and product alternations for the foreign market.

iii. Price

International pricing: Regardless of method used to calculate prices, they will probably be higher than domestic prices. Issues relate to transfer pricing, dumping (The controversial trade practice of selling a product in a foreign market at a lower price than it commands in the producer’s domestic market.) and grey market.

iv. Distribution channels

  1. Whole-channel view: This view involves designing channels that take into account all the necessary links in distributing the seller’s products to final buyers, including the seller’s headquarters organization, channels between nations and channels within nations.

h. THE GLOBAL STRATEGY FRAMEWORK

i. Three Step Global Strategy

Every industry has aspects that are global or potentially global - global meaning that there are inter country connections. A strategy is global to the extent that it is integrated across countries. George Yip suggests that a total global strategy usually has three separate steps or components:

  1. Step one is the development of a core strategy which is the basis of the firm’s competitive advantage.
  2. Step two involves the internationalization of the strategy through expansion of activities and adaptation of the core strategy to several country markets.
  3. Step three integrates the strategy across countries. At this stage globalization is achieved. This involves managing for worldwide business leverage and competitive advantage.

ii. Globalization strategy

  1. Market participation relates to the choice of country markets and the level of activity in these countries.
  2. Product/Service standardization involves the extent to which standardization or differentiation exists in each country.
  3. Location of value adding activities requires choices of location of each of those activities in the business's value chain from R & D to service back-up.
  4. Marketing involves choices about worldwide use of brand names, advertising, sales strategies and service.
  5. Competitive moves relate to the extent to which moves in specific countries form part of a global competitive strategy.

i. DECIDING ON THE MARKETING ORGANISATION

i. Export Department.

During early international marketing efforts, companies typically just create a new department to coordinate international operations. The sales manager may take on larger staff if and as the international business grows in importance and more marketing services are needed to support it.

ii. International Division.

As the level of involvement in and complexity of international operations increases, companies commonly organize an international division. In addition to running international operations, the division oversees strategic growth and investigates different types of foreign entry opportunities in new countries. Operating units in foreign markets under division control may be organized by geographical organization, world product groups, or international subsidiaries.

iii. International Organization.

For many large companies, the scope of operations grows to the point where they are no longer a firm involved in many foreign markets, they are a truly a multinational company. Recruitment, management, suppliers, manufacturing, and financing are no longer linked to a single-country mentality. The entire world becomes a single market whose segmentation is base upon strategic and tactical competitive advantage, not national affiliation.

j. BASIC COMPETITIVE STRATEGY PROFILES

i. Global Leader Strategy

Innovator in technologies, products and markets with high global share and wide country market coverage

ii. Global Challenger Strategy 1

Frontal or encirclement attack on the leader in all markets with increasing country market coverage and high global share but less than the leader.

iii. Global Challenger Strategy 2

Flanking or bypassing world leader with increasing country market coverage and high global share but less than the leader.

iv. Global Follower Strategy

Rapid imitation of leader or challenger with moderate country market coverage and emphasis on price sensitive markets. The result is overall moderate share with high shares in selected country markets.

v. Global Niche Strategy 1

Rapid penetration of narrow market segments by selective targeting of country markets and small share of overall market.

vi. Global Niche Strategy 2

Infiltration - slow penetration of selected narrow markets with focus on selected country markets and low share of the overall market.

vii. Global Collaborator Strategy

Innovations in research and development of technologies, products and markets, set standards and shares them with other firms. This shows small or moderate country market shares but high shares when all strategic "standards users" are included.

Related Content: MGT301 - VU Lectures, Handouts, PPT Slides, Assignments, Quizzes, Papers & Books of Principles of Marketing