Generic Strategies

1. Generic Strategies - Export one standardized product to all markets (e.g. Japan TVS, Walkmans, hi-fi’s) (Model T strategy) - Introduce product to home market, then begin to export as home market matures ( many U.S. products) (( But note how this fuels criticism of LDC’s of dumping obsolete technology onto them )) - Customize product for each export market (typical of many European exporters)

2. Exporting STEP - Social Technological Economic Political factors Competitive/comparative advantage conditioned by foreign exchange rate - level - volatility conditioned by demand conditions abroad ### SEGMENT THE MARKET #### Product quality Product Features Price What mix will best fit a particular market?

3. Possible segmenting factors - Geographically homogenous or regionally diverse? - Income But note that segmenting by average GDP per capita leaves out - high income individuals in countries with skewed distributions - emerging middle class in India, China, etc. - Demography - age distribution -birth rate/ family formation -language -religion/culture - urban/rural - Consumer tastes quality colour style

4. Segment by Use: The same product may be used in quit different ways e.g. Fertilizer Ammonium nitrate is very good, very common fertilizer, widely used in agriculture in Manitoba and throughout the world. Ammonium nitrate is also used in the mining industry. Mix it with diesel oil and you have a much safer, much cheaper explosive than dynamite, but just as effective. This was what Timothy McVeigh used to blow up the Federal Building in Oklahoma City, and has become a favourite with terrorists around the world.

5. Modify product to suit conditions -consumers preferences - patterns of use - physical conditions - humidity -temperature - dust e.g automobiles - desert radiators, oil radiator, air cleaner - a/c

6. Industrial Products: Segment by level of sophistication - availability of skilled labour - operation - maintenance Note that in developing countries with high growth rates, level of investment in infrastructure is higher than average: electric power airports harbours roads water & sewer telecommunications

7. Segment industrial products by natural resource base - agriculture - what kind of crops? Livestock? - mining - Shallow? Deep? Strip? Hard rock? Fluvial? Marine? - forestry – Hardwood? Softwood? Plantation? - timber - pulp and paper - fishery – pelagic, riverine/fresh water? Species? Seasonal? Note that LDC’s are dual economies - traditional sector ) - modern sector ) co-exist (Process of development can be thought of as moving social structure and activity from the traditional sector to the modern sector. )

8. Differences between consumer markets and industrial markets: Consumer product : use, eat, wear - no skill required to use it Industrial product - operate and maintain it to produce something else - skill required to do this - often the skill itself is an exportable commodity - service contracts for aircraft maintenance, IT functions - BOT contracts to introduce new technology (build, operate, transfer) Note too the role of management skills/style/sophistication in industrial markets - influence choice of technology, - labour intensive vs. capital intensive methods

9. Costs of exporting - transportation - distribution - commissions - tariffs will likely force you into a higher price segment than in your home market ( unless you are dumping surplus output) Question: Is there enough demand at that price to make it pay?

10. Things to Consider: 1.What’s happening in similar countries - what trends in what direction? 2. What are prospects for deregulation/restructuring of markets? 3. What are host government policies and programme? - supportive of industrial markets? - restrictive for consumers? - favour local mfrs? - favour local distributors? - cultural issues? 4. What is the position of potential competitors? - potential capacity constraints? - high market growth makes it easier to get a share

11. OK - we have a market segment with potential we have a competitive advantage to get in Question: How? What entry strategy? Answer: The 4 P’s ! Remember that the product will likely have to be specialized in some degree Try to keep price competitive Pay particular attention to distribution - channels as well as well as physical distribution Remember that after sales service is an important part of promotion and is particularly critical to importers because they can easily feel isolated

12. Channels of Distribution - will likely be more multi-layered and complex than domestic distribution - may have to use different kinds or types of channels than for domestic market In developing countries there is often a limited choice of possible agents It is vital to choose the right one - you’ll likely be stuck with him for several years! - Can be difficult to change agents Note the importance of the channel of distribution as the channel for the reverse flow of information - that is your source of information about the market. Key issues: - Ownership of the goods at various stages of distribution - Control of the channel of distribution

13. Generic Strategies - Export one standardized product to all markets (e.g. Japan TVS, Walkmans, hi-fi’s) (Model T strategy) - Introduce product to home market, then begin to export as home market matures ( many U.S. products) (( But note how this fuels criticism of LDC’s of dumping obsolete technology onto them )) - Customize product for each export market (typical of many European exporters)

14. Factors that impede trade: 1. Natural factors - transport - distribution costs - promotion costs ( ads from home country will NOT work translation is not good enough) - cultural factors - language - social values - political system - traditional (local ) way of doing business 2. Government imposed factors: - quotas - financial restrictions - localization policies - tariffs

15. Concept of psychological distance Enter first those markets which seem most similar to our home market in terms of - language - cultural similarity similar management styles Experience breeds comfort! Ok we’ve handled that, we can now handle something a little more complex

16. Advantages of a good agent: 1. Knows the market 2. Has access to channels of distribution 3. Has knowledge of, and contacts in, government 4. May have knowledge of operations in one or more foreign markets 5. May have knowledge of production capabilities in one or more products 6. May be able to supply some capital.

17. Countertrade - various devices and techniques to get around payment or currency problems, or as an instrument to force local investment and economic development 1. Barter 2. Counter purchase or re-investment - often significant in the purchase of military equipment 3. Contract to purchase part or all of output 4. Production sharing - e.g in mining or petroleum production- take payment by receiving a share of physical output - assume risk of price volatility in commodity markets 5. Industrial offset - requirement for some portion of final product to be produced or assembled locally 6. Switching - like the above - but involves balancing benefits over three or more countries 7. Unblocking funds for approved purposes - gives government control over use of foreign exchange