Kotler on
Marketing; “Your company does not belong
in markets where it cannot be the best.”
In this topic we
will look at some of the factors that companies should review of look at before
deciding to go abroad. Besides looking at various and different factors to go
abroad, companies need to evaluate and select specific foreign markets and how to
enter these markets. There are questions that should be asked such as; what are
the major ways of entering a foreign market and to what extent must the company
adapt its products and marketing program to each foreign country? Questions
should also be asked as to how should the company manage and organize its
international activities?
With faster
communication, transportation, and financial flows, the world is rapidly
shrinking. Products develop in one country are finding enthusiastic acceptance
in others. Since 1969, the number of multinational corporations in the world’s
14 riches countries has more than triple from 7,000 to 24,000. In fact, these
companies today control one-third of all private sector assets and enjoy
worldwide sales of $6 trillion. (Kotler, 2003)
Competing
On a Global Basis
In this age of
globalization some businesses may want to eliminate competition through
protective legislation, however the better way to compete is to continuously improve
products at home and expand into foreign markets. Ironically, although
companies need to enter and compete in foreign markets, the risks are high,
huge foreign indebtedness, shifting borders, unstable governments, foreign
exchange problems, tariffs and other trade barriers, corruption, and
technological pirating.
Designing
Global Market Offerings
There are Risks
faced by companies that are thinking of entering and competing in a foreign
market and some of the risks are as follows;
·
Huge
Foreign Indebtedness
·
Shifting
Borders
·
Unstable
Governments
·
Foreign
Exchange problems
·
Tariffs
and other trade barriers
·
Corruption
·
Technological
Pirating
Global
Industry – Is an
industry in which the strategic positions of competitors in major geographic or
national markets are fundamentally affected by their overall global positions.
Global Firm – Is a firm that operates in more than one country
and captures Research & Development, production, logistical, marketing, and
financial advantages in its costs and reputation that are not available to
purely domestic competitors (Worldwide basis). Global Firms plan, operate, and coordinate their activities on a
worldwide basis.
Let us look at
an international Example: Ford’s
world truck has a European-made cab and a North American-built chassis, is
assemble in Brazil, and is imported into the US for sale.
A company need
not be large to sell globally. Small and medium-sized firms can practice global
nichemanship.
Major Decisions when deciding to go abroad.
·
Do
we really need to go abroad?
·
If
the decision is ‘yes’ then which market do we enter?
·
How
do we enter that market?
·
What
would be our Marketing Program?
·
What
type of Organizational structure do we use?
Most companies
would prefer to remain domestic if their domestic market is large enough. Managers
would not need to learn new languages and laws, deal with volatile currencies
or face political and legal uncertainty or redesigning their products to suit
different customer needs and expectation.
Deciding
Whether to Go Abroad
Several
Factors drawing Companies Internationally:
- Global firms offering better products or lower
prices can attack the company’s domestic market. The company might want to
counter attack these competitors in their home market.
- Companies discovering that some foreign markets
present higher profit opportunities then the domestic market.
- The company need large customer base to achieve
economies of scale.
- The company wants to reduce its dependencies on
any one market.
- The company customers are going abroad and
require international servicing
Several
Risks
- The company might not understand foreign customer
preferences and fail to offer a competitively attractive product.
- The company might not understand the foreign
country’s business culture or know how to deal effectively with foreign
nationals.
- The company might underestimate foreign
regulations and incur unexpected costs.
- The company might realize that it lacks managers
with international exposure and experiences.
- The foreign country might change its commercial
laws, devalue its currency, or undergo a political revolution and
expropriate foreign property.
Deciding
Which Markets to Enter
In deciding to
go abroad, companies need to defined its marketing objectives and policies.
What proportion of foreign to total sales will it seek? How many markets to
enter – Company must decide whether to market in a few countries or many
countries and determine how fast to expand; Example: Digicel entry into
the Caribbean and Pacific Region.
·
Companies
must also decide on the types of countries to consider. Attractiveness is
influenced by the product, geography, income and population, political climate
and other factors.
·
The
unmet needs of the developing world represent huge potential markets for food,
clothing, shelter, consumer electronics, appliances, and other goods.
·
Many
market leaders are now rushing into Eastern Europe, China, Vietnam, and Cuba
where there are many unmet needs to satisfy.
Ayal and
Zif have argued
that a company should enter fewer countries when;
- Market entry and market control costs are high.
- Product and communication adaptation costs are high.
- Population and income size and growth are high in the initial countries chosen.
- Dominant foreign firms can establish high barriers to entry.
Regional Free Trade Zones – Regional economic integration – trading agreements
between blocs of countries has intensified in recent years. This development
means that companies are more likely to enter entire regions overseas than do
business with one nation at a time.
·
The
European Union - Group of nations organized to work toward common goals in
regulation of international trade.
·
NAFTA
– (North America Free Trade Agreement)
·
APEC
– (Asia Pacific Economic Cooperation)
How does a
company choose which potential market to enter? Many countries prefer to sell
to neighboring countries because they understand these countries better. Example:
The largest US Market is Canada and Mexico, US neighbors. Australia’s market would
be Papua New Guinea & other Asian countries.
Deciding
How to Enter the Market
Indirect
and Direct Export
– The normal way to get involved in a foreign market is through export. Occasional
exporting is a passive level of involvement in which the company exports
from time to time, either on its own initiative or in response to unsolicited
orders from abroad.
Active Exporting takes place when the company makes a commitment to
expand into a particular market.
Indirect
Exporting – Companies
starts with indirect exporting by working through intermediaries.
Whether
companies decides to export indirectly or directly, many companies use
exporting as a way to test the waters before building a plant or manufacturing
a product overseas. The internet has also become an effective means of
everything from gaining free exporting information and guidelines, conducting
market research, and offering customers several time zones away a secure
process for ordering and paying for products.
Licensing – Licensing is a simple way to become involved in
international marketing. The licensor licenses a foreign company to use a manufacturing
process, trademark, patent, trade secret, or other item of value for fee or
royalty. Licensing has potential disadvantages and that is the licensor has
less control over the licensee than it does over its own production and sales
facilities.
Company can also
enter a country through franchising, which is a more complete form of
licensing. The franchiser offers a complete brand concept and operating system.
A good example of a franchise is: McDonald’s, KFC and Avis Rent A Car, are
companies with operation in many countries by franchising their retail
concepts.
Joint
Ventures – Foreign
investors may join with local investors to create a joint venture company in
which they share ownership and control. A joint venture may be necessary or
desirable for economic or political reasons. The foreign firm might lack the
financial, physical, or managerial resources to undertake the venture alone, or
the foreign government might require joint ownership as a condition for entry.
Direct
Investment – The
ultimate form of foreign involvement is direct ownership of foreign-based
assembly or manufacturing facilities. The foreign company can buy part or full
interest in a local company or build its own facilities.
The
Internationalization Process – Countries encouraging their companies to participate in foreign markets
to bring in foreign exchange for needed imports. Many countries encourage their
domestic companies to grow domestically and expand globally.
Deciding on
the Marketing Program
International
Companies must decide how much to adapt their marketing strategy to local
conditions. At one extreme are companies that use a globally standardized marketing mix
worldwide. At the other extreme is an adapted
marketing mix where the producer adjusts the marketing mix elements to
each target market. Between the two extreme many possibilities exist. Most
brands are adapted to some extent. Example: Toyota.
Product
Straight
extension means
introducing a product in the foreign market without any change. Straight
extension has been successful with electronic products, cameras, and many
machine tools.
Product
Adaptation involves
altering the product to meet local conditions or preferences. There are several
levels of adaptation. Companies can produce a regional version of a product or
other versions.
Product
invention consists of
creating something new. It can take two forms. Backward invention is
reintroducing earlier product forms that adapt well into the foreign markets. Forward
invention is creating a new product to meet a need in another country.
Promotion
Companies can
run the same advertising and promotion campaigns used in the home market or
change them for each local market, a process called communication adaptation. If
it adapts both the product and the communication, the company engages in dual
adaptation. Messages and colors can be changed to avoid taboos in some
countries. Examples: Purple is associated with death in Burma, White is
a mourning colour in India and green is associated with diseases in Malaysia.
Multinationals
companies face several pricing problems when selling abroad. They must deal
with price escalation, transfer prices, dumping charges, and gray markets. Because
the cost escalation varies from country to country, the question is how to set
the prices in different countries. Companies have three choices;
- Set a uniform price everywhere (Poor & Rich
countries)
- Set a market-based price in each country
(Affordability)
- Set a cost-based price in each country
Multinationals
companies should pay close attention to how the product moves within the
foreign country. From when the product leaves their port to another country,
the company must ensure the distribution channel effectively delivers the product
to the final outlet and onto consumers.
Deciding on
the Marketing Organization
Export
department - A
firm normally gets into international marketing by shipping out its good. With
international sales expanding, companies organize export departments to include
various marketing services to be able to carry out its business more
aggressively.
International
Division – Many companies
become involved in several international markets and ventures. Sooner or later
they create international division to handle all their international
activities.
Global
Organization - Several
firms have truly become global organizations. Their top corporate management
and staff plan worldwide manufacturing facilities, marketing policies,
financial flows and logistic systems. The global operating units reports
directly to the chief executive or executive committees. Executives are trained
in worldwide operations.
The global firms
distinguished three organizational strategies;
- A global strategy treats the world as a single
market
- A multinational strategy treats the world as a
portfolio of national opportunities
- A “glocal” strategy standardizes certain core
elements and localizes other elements
Summary and
Conclusion
Companies cannot
simply stay domestic and expect to maintain their markets. Despite the many
challenges in the international arena (shifting borders, unstable governments,
foreign exchange problems, corruption, and technological pirating), companies
selling in global industries need to internationalize their operations.
In deciding to
go abroad, a company needs to define its international marketing objectives and
policies. The company must determine whether to market in a few countries or
many countries. It must decide which countries to consider. In general, the
candidate countries should be rated on three criteria: Market attractiveness,
Risk, and Competitive advantages.
Once a company
decides on a particular country, it must determine the best mode of entry. Its
broad choices are indirect exporting, direct exporting, licensing, joint
ventures, and direct investment. Each succeeding strategy involves more
commitment, risk, control and profit potential.
In deciding on the marketing
program, a company must decide how much to adapt its marketing mix (product,
promotion, price and place) to local conditions. At the two ends of the
spectrum are standardized and adapted marketing mixes with many steps in
between. At the product level firms can pursue a strategy of straight
extension, product adaptation, or product invention.
At the promotion
level, firms may choose communication adaptation or dual adaptation. At the
price level, firms may encounter price escalation and gray markets. At the
distribution level, firms need to take a whole-channel view of the challenge of
distributing products to the final users. In creating all elements of the
marketing mix, firms must be aware of the cultural, social, political,
technological, environmental and legal limitations they face in other
countries.
Depending on the
level of international involvement, companies manage their international
marketing activity in three ways; through the export department, international
divisions or a global organization
Source:
Marketing Management 11th Edition, Philip Kotler (2003) Apprentice
Hall
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