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Designing Global Market Offering
Objectives • Factors to Consider Before Going Global • Selecting Foreign Markets • The Major Ways of Foreign Market Entry • Product Adaption for Global Marketing • Management & Organization of Global Activities
Competing on a global basis: • The better way to compete is to continuously improve products at home and expand into foreign markets. • The risk are high. • Huge foreign indebtedness • Shifting borders • Unstable governments • Foreign exchange problems • Tariffs and other trade barriers • Corruption • Technological pirating
A global firm • A global firm is a firm that operates in more than one country and captures R&D, logistical, marketing and financial advantages in its cost and reputations that are not available to purely domestic competitors. Global firms plan, operate and coordinate their activities on a worldwide basis.
Deciding which markets to enter Deciding how to enter the market Deciding on the marketing program Deciding on the marketing organization Major Decisions in International Marketing Deciding whether to go abroad
1. Deciding whether to go abroad • Most companies would prefer to remain domestic if their domestic market were large enough, managers would not need to learn other languages and laws, deal with volatile currencies, face political and legal uncertainties, or redesign their products to suit different customer needs and expectations
Several factors are drawing more and more companies into the international arena: • Global firms offering better products or lower prices can attack the company's domestic market. The company might want to counterattack these competitors in their home markets. • The company discovers that some foreign markets present higher profit opportunities than the domestic market.
Several factors are drawing more and more companies into the international arena: • The company needs a larger customer base to achieve economies of scale. • The company wants to reduce its dependence on any one market. • The company's customers are going abroad and require international servicing.
Before making a decision to abroad, the company must weight 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 country might realize that it lacks managers with international experience. • The foreign country might change its commercial laws, devalue its currency, or undergo a political revolution and expropriate foreign property
2. Deciding which markets to enter: • The company needs to define the marketing objectives and policies. What proportion of foreign to total sales will it seek? • How many markets to enter? The company must decide whether to market in a few countries or many countries and determine how fast to expand.
Generally speaking, it makes sense to operate in 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 a time. (EU, NAFTA-North America Free Trade Agreement, MERCOSUL, APEC)
Evaluating Potential markets: In general a company prefers to enter countries that • Rank high on market attractiveness, • That are low in market risk, • In which it possesses a competitive advantage.
3. Deciding how to enter the market: • Once a company decides to target a particular country, it has to determine the best strategy of entry:
Direct exporting Licensing Joint ventures Direct invest- ment Five Models of EntryInto Foreign Markets Indirect Exporting Amount of commitment, risk, control, and profit potential
Indirect export: • They work through independent intermediaries. Domestic based export merchants buy the manufacturer's products and then sell them abroad. • Has two advantage: • It involves less investment, the firm does not have a develop and export department, and overseas sales force, or a set of foreign contacts. • It involves less risk; because international marketing intermediaries bring know how and services to the relationship, the seller will normally make fewer mistakes.
2. Direct export: A company may decide to handle their own exports and can carry on direct exporting in several ways: • Domestic-based export department or division. • Overseas sales branch or subsidiary.
3. Licensing: • The 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 a fee or royalty. Advantages: • The licensor gains entry at little risk; • the licensee gains production expertise or a well-known product or brand name. Disadvantages: • Less control over the licensee • If and when the contract ends, the company might find that it has created a competitor.
Contract Manufacturing: • The firm hires local manufacturers to produce the product. • It gives the company less control over the manufacturing process • It offers a chance to start faster, with less risk and with the opportunity to form a partnership or buy out the local manufacturer later. • It offers a chance to start faster, with less risk and with the opportunity to form a partnership or buy out the local manufacturer later.
Franchising: More complete form of licensing. The franchiser offers a complete brand concept and operating system. In return the franchisee invests in and pays certain fees to the franchiser.
6. Joint Ventures: • Foreign investor may join with local investors to create a joint venture company in which they share ownership and control • May be necessary and desirable for economic or political reasons • The foreign firm might lack the financial, physical or managerial resources to undertake the venture alone. • The foreign government might require joint ownership as a condition for entry • The partners might disagree over investment, marketing or other policies.
4. Deciding on the Marketing Program Companies that operate in one or more foreign markets must decide how to adapt their marketing strategy to local conditions. • Standardized marketing mix (Product, communication and distribution). The argument for standardizing is that it saves costs and allows the promotion of one central brand or corporate image worldwide
Advantages of standardizing marketing program • Economies of scale in production and distribution • Lower marketing costs • Consistency in brand image • Ability to leverage good ideas quickly and efficiently
Disadvantages • Differences in consumer needs, wants, and usage patters for products • Differences in consumer response to marketing-mix elements • Differences in brand and product development and the competitive environment • Differences in marketing institutions • Differences in administrative procedures.
Adapted Marketing Mix Where the producer adjusts the marketing program to each target market. The argument for adaptation is that every market is different and victory will go to the competitor who best adapts the offer to the local market.
Product Do not change product Develop new product Adapt product Straight extension Product adaptation Product invention Do not change promotion Promotion Communi- cation adaptation Adapt promotion Five adaptation strategies of product and communications Dual adaptation
Five Strategies for a Foreign Market • Straight product extension means marketing a product in a foreign market without any change • Communication adaptation involves modifying the message so it fits with different cultural environments (one message or one theme, media). • Product adaptation involves changing the product to meet local conditions or wants (regional version, country, city, retailer)
Dual adaptation when the company adapts both the product and communication • Product invention consists of creating something new for the foreign market (Backward invention , Forward invention).
Pricing Challenges Multinationals face several pricing problems when selling abroad. • Price Escalation • Transfer Prices • Dumping Charges • Gray Markets
Price Escalation • Set a uniform price everywhere This strategy would result in the price being too high in poor countries and not high enough in rich countries. 2. Set a market-based price in each country: It could lead to a situation in which intermediaries in low-price countries reship their Coca-Cola to high-price countries. 3. Set a cost –based price in each country: This strategy might price the company out of the market in countries where its costs are high.
Transfer Price • If the company charges too high a price to a subsidiary, it may end up paying higher tariff duties, although it may pay lower income taxes in the foreign country. If the company charges too low a price to its subsidiary, it can be charged with dumping.
Dumping charges • It occurs when a company charges either less than its costs or less than it charges in its home market, in order to enter or win the market.
Gray Market • Consists of branded products diverted from normal or authorized distributions channels in the country of product origin or across international borders. Dealers in the low-price country find ways to sell some of their products in higher-prices countries.
Seller’s international marketing headquarters Channels between nations Channels within foreign nations Final buyers Distribution Channels Seller
Building Country Images • Governments now recognize that the images of their cities and countries affect more than tourism and have important value in commerce. • Attracting foreign business can improve the local economy, provide jobs, and improve infrastructure. Countries all over the world are being marketed like any other brand.
Consumer perceptions of Country of Origin • Country-of-origin perceptions can affect consumer decision making directly and indirectly. The perceptions may be included as an attribute in decision making or influence other attributes in the process. • Several studies have found the following: • People are often ethnocentric and favorably predisposed to their own country’s products, unless they come from a less developed country.
2. The more favorable a country’s image, the more prominently the “Made in…” lable should be displayed. 3. The impact of country of origin varies with the type of product. 4. Certain countries enjoy a reputation for certain goods. 5. Sometimes country of-origin perception can encompass an entire country’s products.
5. Deciding on the Marketing Organization Companies manage their international marketing activities in three ways: • Export Department • International Division • Global Organization
Export Department • A firm normally gets into international marketing by shipping out its goods. If its sales expand, the company organizes an export department consisting of a sales manger and a few assistants. As sales increases, the export department is expanded to include various marketing services. If the firms moves into joint ventures or direct investment, the export department will no longer be adequate to manage international operations.
International Division • When companies become involved in several international markets and ventures they will create international divisions to handle all their international activity, this division is headed by a division president, who sets goals and budgets and is responsible for the company's international growth. The international divisions corporate staff consists of functional specialists who provide services to various operating units.
Global Organization • Three organizational strategies: 1. a global strategy treats the world as a single market This strategy is warranted when the forces for global integration are strong and the forces for national responsiveness are weak. This is true of the consumer electronics market.
A multinational strategy treats the world as a portfolio of national opportunities • This strategy is warranted when the forces favoring national responsiveness are strong and the forces favoring global integration are weak. This is the situation in the branded packaged-goods business (food products, cleaning products).
“A global”strategy standardizes certain core elements and localize other elements • This strategy makes sense for an industry (such as telecommunications) where each nation requires some adaptation of its equipment, but the providing company can also standardize some of the core components.