Designing Global Market Strategies

DESIGNING GLOBAL DESIGNING GLOBAL MARKET STRATEGIESMARKET STRATEGIES

DR. RAGINI MOHANTY 20/08/2004

GLOBAL INDUSTRYGLOBAL INDUSTRY

A global industry is an industry in which thestrategic positions of competitors in majorgeographic or national markets arefundamentally affected by their overall globalpositions. (Auto manufacturers like Suzuki,Honda, Ford, etc.)

GLOBAL FIRMGLOBAL FIRM* A global firm is a firm that operates in more than

one country and captures R & D, production, logistical, marketing, and financial advantages in its costs and reputation that are not available to purely domestic competitors.

* Global firms plan, operate, and coordinate their activities on a worldwide basis.

* A company need not be large to sell globally. Small and medium-size firms can practice global niche-man-ship. E.g. Biocon Pharma - Genetics.

REASONS FOR REASONS FOR GLOBALIZATION:GLOBALIZATION:

1. 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. 2. The company discovers that some foreign markets present higher profit opportunities than the domestic market. 

3. The company needs a larger customer base to achieve economies of scale.

 4. The company wants to reduce its dependence on any one market.

 5. The company's customers are going abroad and require international servicing.

RISKSRISKS1. The company might not understand the

foreign customer preferences and fail to offer a competitively attractive product.

 2. The company might not understand the foreign

country's business culture or know how to deal effectively with foreign nationals.

3. The company might underestimate foreign regulations and incur unexpected costs.

4. The company might realize that it lacks managers with international experience. 5. The foreign country might change its commercial laws, devalue its currency, or undergo a political revolution and expropriate foreign property.

DecisionsDecisionsTo go abroad or not?

Which markets to enter?

How to enter the market?

Marketing Program?

Marketing Organization?

TO GO OR NOT?TO GO OR NOT? 1. Huge Foreign Indebtedness. 2. Unstable government/ Political instability.3. Foreign exchange problems. 4. Foreign government entry requirements/bureaucracy. 5. Tariffs and other trade barriers.6. Corruption.7. Technological pirating. 8. High cost of product and communication

adaptation. 9. Shifting borders.

WHICH MARKETS?WHICH MARKETS?

1. Define Objectives and Policies.2. Few countries or many?  Expansion?3. Type of country to enter.4. Regional Free Trade Zones – European

Union, common currency.5. Evaluating Potential Markets –

Neighboring countries – language, laws, and culture.

Enter fewer countries - Enter fewer countries - WHEN WHEN

1. Market entry and market control costs are high.2. Product and communication adaption costs are high.3. Population and income size and growth are high in the initial countries chosen.4. Dominant foreign firms can establish high barriers to entry.

Which type of country to Which type of country to enter?enter?

Influencing factors include product, geography, income and population, political climate, and other factors. Earlier international trade concentrated on the triad markets of U.S.A., Western Europe, and Far East. Now, companies are shifting focus to developing countries of Central and West Asia, Eastern Europe, Cuba - huge market potential. Regional Economic Integration - Trading Agreements between blocs of countries (EU), companies enter entire regions rather than individual nations.

HOW TO ENTER?HOW TO ENTER? 1.1. Indirect exporting.Indirect exporting.

2.2. Direct exporting.Direct exporting.

3.3. Licensing.Licensing.

4.4. Joint ventures.Joint ventures.

5.5. Direct investment.Direct investment.

INDIRECT EXPORTING:INDIRECT EXPORTING:Occasional Exporting - Passive level of involvement. Active Exporting - When a company makes a commitment to expand its exports to a particular market. TYPES OF INTERMEDIARIES: Domestic-based export merchants.Domestic-based export agents.Cooperative organizations.Export-management companies.

ADVANTAGES OF INDIRECT EXPORTING:

1. Involves less investment - no need to develop export dept., overseas sales force, or set of foreign contacts.

 2. Involves less risk - international marketing intermediaries bring the know-how and services to the relationship.

DIRECT EXPORTING:DIRECT EXPORTING: Domestic-Based Export Department or Division. Overseas Sales Branch or Subsidiary. Traveling Export Sales Representatives. Foreign-Based Distributors or Agents. Exhibiting at Overseas Trade Shows. Electronic Communication via the Internet. 

LICENSING:LICENSING: PROCESS: The licenser licenses a foreign company to use a manufacturing process, trademark, patent, trade secret or other item of value for a fee or royalty. The licenser gains entry at little risk. The licensee gains production expertise of a well-known product or brand name. E.g. Pharmaceuticals.DISADVANTAGES: Licenser has less control over licensee. If licensee is very successful, company might end up creating a new competitor.PREVENTED BY: Supply of ingredients or components needed to make the product. Innovation of the product.

Variations to licensing arrangements:Management Contracts - Management consultancy for a fee.Contract Manufacturing - Hire local manufactures.Franchising - Complete brand concept and operating system offered by franchiser; in turn, the franchisee invests in and pays certain fees to the franchiser.

JOINT VENTURES:JOINT VENTURES:REASONS:* Economic or political reasons.* The foreign firm might lack the financial, physical, or managerial resources to take the venture alone.* Foreign government might require joint ownership as a condition of entry. E.g. Maruti Suzuki.DRAWBACKS:* Disagreement between partners over investment, marketing or other policies (reinvest or declare dividends).* Specific manufacturing and marketing policies on a worldwide basis might not be possible for an MNC.

DIRECT INVESTMENT:DIRECT INVESTMENT:Direct ownership of foreign-based assembly/mfg. facility.

ADVANTAGES: 1) Cheap labor/raw materials, govt. incentives, freight savings. 2) Jobs created - image strengthened. 3) Deeper relationship developed with govt., customers, local suppliers, and distributors – adaption of products and communication is better with the local environment. 4) Firm retains full control over the investment – can develop mfg. and mktg. Policies that serve its long-term international objectives. 5) Firm has assured market share if local govt. insists upon use of domestic content in locally manufactured products. E.g. Saint Gobain Glass India, Hutch.

Internationalization Process.Internationalization Process.

** No export activity.No export activity.** Export via representatives.Export via representatives.** Establishment of sales subsidiaries.Establishment of sales subsidiaries.** Establishment of production facilities Establishment of production facilities

abroad.abroad.

MARKETING PROGRAM?MARKETING PROGRAM?

* Standardized – marketing mix elements are std., so costs kept low. E.g. Nike,

Pizza Hut/Macdonald.

* Adapted – marketing mix elements adjusted as per the target market. E.g.

Pizza Hut/Macdonald.

MARKETING TOOLS – 4 P’sMARKETING TOOLS – 4 P’sProduct

Straight extension – product is introducedas it is. E.g. Consumer electronics,machine tools, cameras, etc. Product adaptation – alter the product to meetcustomer preference/local conditions - regional/country/city/retailer version + localbeliefs/superstitions, e.g. Feng Shui.Product invention – Backward invention -reintroduce earlier product forms. Forwardinvention – Create new products. Services E.g. Insurance, credit cards, consultancy firms.

MARKETING TOOLSMARKETING TOOLSPromotion

Communication adaptation – Ads and promotioncampaigns for home market + local market. Dualadaptation – both product and communicationadaptation.1. One message - language, colors, name,

headlines can differ.2. Global theme, adapt copy - local.3. Global ad pool, select country-appropriate ad.4. Sales promotion technique - local mgmt.

MARKETING TOOLSMARKETING TOOLSPrice

Strategies:Uniform price.Market-based price.Cost-based price.Transfer price – price charged to subsidiary unit in the company. High price - to pay low income tax abroad. Low price – dumping.Gray markets – same product sells at different prices geographically.

MARKETING TOOLSMARKETING TOOLSPlace

Track movement of productSELLER - Seller's International Marketing Unit (export div.) - Channels Between Nations (agents, transport, financing and risk) - Channels Within Foreign Nation (entry into the nation to ultimate buyer) - BUYER.

MARKETING MARKETING ORGANIZATIONORGANIZATION

EXPORT DEPARTMENT.

INTERNATIONAL DIVISION.

GLOBAL ORGANIZATION.

GLOBAL Organizational StrategyGLOBAL Organizational Strategy

* World is a single market.* Forces for global integration are strong,

forces for national responsiveness are weak.* e.g. Consumer electronics market, Infosys –

software services, L N Mittal Steel – UK based, global operations.

MULTINATIONAL StrategyMULTINATIONAL Strategy

* World as portfolio of national opportunities. * Forces favoring national responsiveness are strong

and forces favoring global integration are weak.* e.g. Branded packaged products, food products.

Macdonald/Pizza Hut – changed flavor as per Indian taste, Unilever (UK) – more decision making autonomy to its local branches.

GLOCAL StrategyGLOCAL Strategy

* Standardizes certain core elements and localizes other elements.

* Makes sense for an industry where each nation requires some adaptation of its equipment but the providing company can also standardize some of the core components.

* e.g. Hyundai, Siemens Electronics, Indian Textile designs per African tastes and culture.