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Prepared for Marketing Equation Lecture notes by Clifton Neil July 2019
GLOBALIZATION - INTERNATIONAL MARKETING
It is hoped that we will reduce the mystique of Globalization by simple looking at it as
an attempt to be with the extended family (nations) and to recognize them as our
customers or “brothers and sisters”, near and far, home and abroad. Wherever they are,
people have almost the same basic needs as you do.
They have created cultures, mores, political structures and religious institutions almost
similar to what you know but a little different.
As CEO, you MUST recognize that your market is where ever a need is and you have the
ability and capacity to fill it. Actually, the key ingredient in Marketing is “finding needs
and filling them”. In short, needs satisfaction or satisfying needs, here or abroad.
What is Globalization?
Globalization refers to the worldwide phenomenon of technological, economic,
political and cultural exchanges, brought about by modern communication,
transportation and legal infrastructure as well as the political choice to consciously
open cross-border links in international trade and finance. It is a term used to
describe how human beings are becoming more intertwined with each other around
the world economically, politically, and culturally. Although these links are not new,
they are more pervasive than ever before. Trending towards the Global village.
Globalization has become identified with a number of trends, most of which may have
developed since World War II. These include greater international movement of
commodities, money, information, and people; and the development of technology,
organizations, legal systems, and infrastructures to allow this movement. The actual
existence of some of these trends is debated.
Why Globalization? Why not just fill customer needs domestically/at home?
Sometimes a business’s size, expertise, and resources might force it to focus on the
domestic market only. Its level of operations and profits might even surpass its
objectives, and this might be sufficient to keep the owners of the business happy.
However, even if the company is focusing on the domestic market, it should be proactive
and be aware of other globally competitive companies that will be looking to enter the
local or domestic market. The best form of defence is a good offence.
In general, companies go international because they want to grow or expand
operations, generate more revenue, compete for new sales, gain investment
opportunities, diversify the business, reduce costs, recruiting new talent, gain
competitive advantage and build brand image.
Prepared for Marketing Equation Lecture notes by Clifton Neil July 2019
Reasons to go overseas:
1. A great way to expand and grow the business portfolio is by entering overseas
market. Ansoff model calls it market development strategy. This means selling
the current products to new markets and locations.
2. Gain new customers and more revenue. Building customer base overseas will
result in more sales and profits.
3. Foreign exchange earnings from sales. This provides a flow of hard currency
which will help with its sourcing of supplies and make the company more
proactive.
4. Underutilized capacity. Excess production can be sold overseas therefore
operating machines near optimum levels.
5. Spreading risks. Low sales in domestic market can be offset by exports or
overseas sales.
6. Reputation and brand recognition. Many customers believe brands that are sold
internationally are of better quality than those sold only domestic. This level of
etnocentricism propel firms to sell products internationally.
7. Gain access to new technologies and industry ecosystems, which may
significantly improve their operations
8. Operating in international markets also gives you access to a larger and more
diversified talent pool. Employees who speak different languages and
understand different value schemes.
9. gain a competitive edge over their opponents. For example, businesses that
expand in markets where their competitors do not operate often have a first-mover
advantage, which allows for them to build strong brand awareness with
consumers before their competitors.
10. Competing. The best defence is a good offence. Operating in competitors
market will help level the playing field.
11. Investment opportunities
12. increase a company’s perceived image, as global operations can help build name
brand recognition to support future business developments.
Let’s summarized a few reasons why some companies should consider the global village
and operate in international markets. Let’s dub it SCAG.
1. Spreading risks across national boundaries (having eggs in more than one basket
concept)
2. Capitalize on its core competences and build brand image. (Does what it does best
anywhere, elsewhere)
3. Achieve lower cost and increase profitability due to economies of scale and
learning curve effects
4. Gain access to new customers, technology, diversified talent pool
The SCAG will set the back drop as we now look more deeply at global issues using
parts of our SWOT D PEST technique.
Prepared for Marketing Equation Lecture notes by Clifton Neil July 2019
The Global dynamics
Selling goods and services in the local or domestic is similar to selling goods and services
in international markets. As for local markets the marketing equation is APIC + 4Ps =
CS. However, everything gets amplified.
Indeed, we still analyze the marketing environment, then we make our marketing plans
based on the 4Ps or marketing mix, then implement and control these plans in order to get
customer satisfaction.
The major differences between local and international marketing is the “inter “ (between)
and the “national” (other countries). No two countries have the same environment and
dealings between them should be done accordingly.
This chapter looks at some of the environmental factors faced by international marketers.
Again, we will use the local marketing jargon for familiarity sake.
The environment is the factor or forces that affects the company’s ability to satisfy its
customers. As with domestic marketing we will call these external factors: Demographic,
Political, Economical, Social and Technological. (D PEST).
1. DEMOGRAPHIC
“Demo” meaning people and “graphic” to draw or give clear and vividly explicit details means studying people in terms of size, density, location, age, gender, race occupation, and other statistics. Demography is very important because it involves people, and people make up markets.
a. The size of the country is estimated by counting the population or the
number of the people in that country. The composition of population can be assessed by classifying it into Age compositions/generations such as child, working class and retirees. The current baby boomers and millenniums are examples.
b. Race/Ethnicity: In Jamaica, 90% of the population Negroes while in China the majority are Mongoloids while in the USA more than 60% are Caucasians. Diversity of race can affect the stability and attractiveness of the country.
c. Religion. Although the major religion ion Jamaica is Christianity, in amny countries this is not so. For example in India major religions include Hindu, and Muslim.
d. Education profile is assessed by assessing the number of the population level of attaining a specified level of education. Education level also often influences income, product choices, standard of living and occupation
e. Occupation: The type of work done by the population in terms of brown, blue or white collar worker are important indicators of thbge atgtractiv eness of a country.
f. Income: or earnings is a primary measure of well-being of a person. It influences purchasing power and choices. The per capita income of a country indicates its well being to an extent. Products are developed for high, medium and low income earners.
g. Gender composition: Many literature suggest men and women have different psychological and physiological needs and they shop differently. Gender
Prepared for Marketing Equation Lecture notes by Clifton Neil July 2019
largely reflects the underlying social, economic, and cultural patterns of a society.
2. POLITICAL
Politics is the policies that are used to influence and affect the operations
of companies and countries. Do not confuse politics with partisans such as
JLP, PNP parties in Jamaica or Republican and Democratic parties in
USA.
Companies deciding to operate in foreign countries must be aware of the
political climate in each country where it wants to sell its products.
i. Nationalism. Many countries are promoting nationalism and
sovereignty by encouraging their citizens to buy and consume local
products. This can negatively affect international marketing
thrusts.
ii. Formation or development of a set of universal values despite
nationalism.
iii. Increase in the number of standards applied globally; e.g.
International Standards Organization, and the registration and
enforcement of trademarks, brand names, labeling and
patents
iv. The spread of democracy and freedom of choice vs totalitarianism.
v. The push by many advocates for an international criminal court
and international justice movements
vi. Bureaucratic and administrative hurdles in order to effect
contracts for the supply and delivery of goods and services
vii. regulation of marketing communications material and their
content
viii. pricing and foreign exchange rates and controls set by
government vs free market. Confidence in the market and
level of control
ix. product safety, acceptability, and environmental issues
x. political satiability. The extent to which a country is
volatile and prone to upheavals or unrest.
xi. Trading blocs. Existence of one or more regional trade
agreements between countries. Such agreements are
designed to facilitate trade through the establishment of a
Preferential Trade Areas free trade area, customs union or
customs market.
a. Preferential Trade Areas (PTAs) exist when countries within a geographical region agree to
Prepared for Marketing Equation Lecture notes by Clifton Neil July 2019
reduce or eliminate tariff barriers on selected goods imported from other members of the area. This is often the first small step towards the creation of a trading bloc.
b. Free trade areas where two or more countries
in a region agree to reduce or eliminate
barriers to trade on all goods while
maintaining trade barriers with nonmember
countries.
c. NAFTA consisting of United States of
America, Canada and Mexico is an example
of a free trade area. However, this trading
arrangement is being negotiated to the the United States-Mexico-Canada Agreement, or USMCA. Dominican Republic-Central American Free Trade Area (DR-CAFTA), which includes the Dominican Republic, Costa Rica, El Salvador, Nicaragua, Honduras and Guatemala. The European Free Trade
Association (EFTA) was created in 1960 by the outer seven (as a looser alternative to the then-European Communities) but most of its membership has since joined the Communities/EU leaving only four countries (Iceland, Norway, Switzerland and Liechtenstein) still party to the treaty.
d. Customs unions involves the removal of tariff
barriers between members, plus the acceptance of a common (unified) external
tariff and rate against non-members countries. This means that members may negotiate as a single bloc with 3rd parties, such as with other
trading blocs, or with the WTO. (CARICOM).
The key distinction between customs unions and free trade areas, however, involves their approach to non-treaty nations. While a customs union, by definition, requires all parties to the agreement to establish identical external tariffs with regard to trade with non-treaty
Prepared for Marketing Equation Lecture notes by Clifton Neil July 2019
nations (those nations that are not signatories to the agreement), members of a free trade area are free to establish whatever tariff rates with respect to foreign imports from non-signatory nations that they deem necessary or desirable.
e. A ‘common market’ (or single market) is the first significant step towards full economic integration, and occurs when member countries trade freely in all economic resources – not just tangible goods. This means that all barriers to trade in goods, services, capital, and labour are removed. In addition, as well as removing tariffs, non-tariff barriers are also
reduced and eliminated. (CSME). the European Single Market (ESM).
Difference between single market and custom union. A single market is a deeper form of integration than a customs union.
A single market involves the free movement of goods and services, capital and labour.
In addition to a common external tariff, a single market also tries to cut back on the use of non-tariff barriers such as different rules on product safety and environmental standards replacing them with a common set of rules governing trade in goods and services within the common market.
Countries such as Norway and Switzerland are outside of the European Union, but they are members of the EU single market, paying into the EU budget to take advantage of some of the benefits of the free flow of capital, labour, goods and services.
Advantages from trading blocs 1) provide free access to members’ markets; 2) provide easier access to each other’s markets such that trade between members is likely to increase; 3) . application of scale economies for producers; 4) jobs creation, due to increased trade between member economies and 5) firms inside the bloc are protected from cheaper imports from outside.
Disadvantages of trading blocs include 1) since blocs are dealt with as a group, possible benefits of free trade between countries in different blocs is lost; trading
Prepared for Marketing Equation Lecture notes by Clifton Neil July 2019
blocs encourage trade amongst member countries to the detriment of global trade. Inefficient producers within the bloc can be protected from more efficient ones outside the bloc resulting in domestic and local market paying higher prices.
3. ECONOMIC factors:
i. Increase in international trade at a faster rate than the growth in the world
economy.
ii. Increase in international flow of capital including foreign direct
investment. Development of global financial systems with influences
from international organizations such as WTO, WIPO, IMF, ISO that deal
with international transactions
iii. Creation of international agreements leading to organizations like the
WTO and OPEC
iv. Development of custom unions and common markets such as NAFTA and
the CSME
v. increase of economic practices like outsourcing, by multinational
corporations
vi. market factors such as homogeneous markets needing global customers
vii. Shortening product life cycles, transferable brands and advertising, and the
ability to globalize distribution channels.
A nation’s economic situation represents its current and potential capacity to
produce goods and services. The key to understanding market opportunities lies
in the evaluation of the stage of a nation’s economic growth.
A way of classifying the economic growth of countries is to divide them into
three groups: (a) industrialized, (b) developing, and (c) less-developed nations.
COUNTRY EDUCATION TECHNOLOGY PER CAPITA
INCOME • Norway.
The world's most developed country is Norway with an Human Develop Index of 0.944. Australia. Second on the list is Australia. Switzerland. Netherlands.
high literacy, modem
technology,
stable population
bases, and market
saturation for
many products
already exists.
higher per capita
incomes.
Prepared for Marketing Equation Lecture notes by Clifton Neil July 2019
United states of America. Germany.
New Zealand. Canada.
private enterprise
and a consumer
orientation
Developing
China, Iran,
Russia, Syria,
Jamaica, Trinidad
and Tobago,
Turkey,
Zimbabwe
Latin American
nations
rising levels of
education,
technology, and
per capita
incomes,
transition from
economies based
on agricultural
and raw materials
production to
industrial
economies.
growing
population bases,
currently import
limited goods and
services,
the long-run
potential for
growth in these
nations exists.
Less-developed
These nations
have low
standards of
living,
Angola,
Cambodia,
Ethipopa,
Tanzania, Yemen,
Afghanistan, Haiti
literacy rates are
low,
and technology is
very limited.
satisfy basic
needs–food,
clothing, housing,
medical care, and
education.
Marketers in such
nations must be
educators,
emphasizing
information in
their market
programs.
International Trade is the sale of goods and services across national boundaries. Anything
that restricts, hinders or prevents international trade is called “barrier to trade”. Barriers
to trade can be as a result of “Natural” factors such as sea, distance, and mountains or
government imposed such as “Tariff” barriers which are monetary hindrance such as
Prepared for Marketing Equation Lecture notes by Clifton Neil July 2019
taxes or duties and “Non-tariff barriers” which are non-monetary hindrance such as
import restrictions, embargos and exchange controls.
Most government trade barriers are imposed to protect local industries, especially infant
industries and to protect local jobs. Government rules that give special privileges to domestic manufacturers and retailers are called buy-national regulations. Almost all countries have these rules.
Following are the main reasons for trade barriers,
• Infant Industries: trade barriers and restrictions tend to protect young and
undeveloped industries that are not large enough to completive with more mature foreign
markets and products. With governments help these industries have not been grown enough
are given a chance to create recognition , a brand name and develop grove in a healthy
economical environment. With Trade barriers young industries will be protected from foreign
competition while they are developing.
• Domestic Employment: Another major reason of trade barriers is protection of
domestic employment. By putting the trade barriers in front of the imported products
governments are promoting domestic produced product or services. While demand on
domestic products increases the domestic production and domestic employment increases
along.
• Unfair Trade: In some cases foreign products may be sold in the domestic economy
at a price actually below of its actual cost as a result of foreign governments subsidize their
producers. With This practice of dumping foreign products may take over the domestic
market and give less change to domestic products compete. That will allow increase of
foreign products in the domestic market.
• National Security : trade barriers also needed for protection of industries and
companies those produce important products to the defense and security of the nations. The
aim is to prevent the country from depending on these vital products or services to another
nation.
Trade barriers prevent foreign producers from unfairly gaining a competitive advantage in the
domestic economy and help to level the playing field. If it will be used fairly by the
governments they could be great tools for international trade and control the trade deficit of a
country.
Prepared for Marketing Equation Lecture notes by Clifton Neil July 2019
Advantages
If a country is trying to grow strong in a new industry, tariffs will protect it from foreign competitors. That gives the new industry’s companies time to develop their own competitive advantages.
Protectionism also temporarily creates jobs for domestic workers. The protection of tariffs, quotas, or subsidies allows domestic companies to hire locally. This benefit ends once other countries retaliate by erecting their own protectionism.
Disadvantages
In the long term, trade protectionism weakens the industry. Without competition, companies within the industry have no need to innovate. Eventually, the domestic product will decline in quality and be more expensive than what foreign competitors produce.
Tariffs
A tariff is a tax imposed by a country on imported goods. It may be a charge on each
item of goods or a percentage of the value of the goods or a combination. No matter how
it is assessed, tariff makes imported goods more costly, by raising the price of the traded
products so they are less able to compete with domestic products. If two or more nations
repeatedly use trade barriers against each other, then a trade war results. The current
impasse between China and the USA, since 2018 is an example of a trade war.
Non-tariff barriers to trade
• Import licenses
• Export licenses
• Import quotas
• Embargo
• Subsidies
• Voluntary Export Restraints
• Local content requirements
• Currency devaluation
• Trade restriction
Prepared for Marketing Equation Lecture notes by Clifton Neil July 2019
The World Trade Organization and the CSME
After World War 2, the winning powers and allies wanted to create a world trade
organization but were unable to have a common understanding and instead they
developed the General Agreement on Tariffs and Trade (GATT) in 1948. The main
features of GATT are
1. Tariffs: All the signatories agreed not to increase tariffs beyond their existing
levels
2. Quotas: The signatories agreed to work towards the abolition of quotas.
3. Most favoured nation: Every signatory was a “most favoured nation”, i.e. trading
privileges could not be extended by one member to another without extending
them to all. (Existing systems of preferences, such as the commonwealth
preference with banana and sugar were allowed to continue …but the USA and
the Chiquita brand successfully contested this arrangement and won. has
questioned t6hisd continuation”
4. Trading blocs: The establishment of common-market type agreements such as the
EC and CARICOM (CSME) were allowed to continue, but were encouraged to be
more outward looking rather than insular.
As a result of the GATT, barriers to international trade have been considerably
lowered since World War II through rounds of talk. Some of the initiatives carried out
as a result of GATT (now monitored by the World Trade Organization, WTO)
include:
Promotion of free trade
1. Reduction or elimination of tariffs; construction of free trade zones with small or
no tariffs
2. Reduced transportation costs, especially from development of containerization for
ocean shipping
3. reduction or elimination of capital controls
4. Reduction, elimination, or harmonization of subsidies for local businesses
Intellectual property restrictions
5. Harmonization of intellectual property laws across nations (generally speaking,
with more restrictions)
6. Supranational recognition of intellectual property restrictions (e.g. patents granted
by China would be recognized in the US)
4. SOCIAL
The social/cultural environment
Culture is the systems of knowledge, beliefs, and values shared by a relatively large group of
people. The cultural environment consists of the influence of religious, family,
educational, and social systems in the marketing system. These include: (a)
language, (b) color, (c) customs and taboos, (d) values, (e) aesthetics, (f) time,
(g) business norms, (h) religion, and (i) social structures.
Prepared for Marketing Equation Lecture notes by Clifton Neil July 2019
As with politics, some countries embrace greater international cultural exchange,
spreading of multiculturalism, and better individual access to cultural diversity. However,
ethnocentrisms (favouring one’s own culture) is also prevalent and this can hinder
international marketing.
Failure to consider cultural differences is one of the primary reasons for marketing
failures overseas. McDonald once made the error of trying to sell its beef burgers in
India, where the cow is revered. Naturally, it failed, and its stores were damaged. Since
then, they have opened vegan stores in India.
Language
Although we take English for granted in Jamaica, there are almost 3,000
languages in the world. Language differences will influence marketers in
designing advertising campaigns and product labels. Jamaica’s nearest
neighbour is Cuba which is a Spanish speaking country. The challenge
increases in a multilingual country as Canada, India and China. Spanish is
slowly becoming a major language in the USA.
Colors
Colours also have different meanings in different cultures. For example, purple
is royalty in many Western countries but in Hispanic nations it is associated
with death. In Jamaica and Japan black are colours of mourning and brides
rarely wear a black outfit for weddings.
Customs and taboos
All cultures have their own unique set of customs and taboos. It is important for
marketers to learn about these customs and taboos so that they will know what
is acceptable and what is not for their marketing programs. McDonald’s once
made the error of trying to sell its beef burgers in India, where the cow is
revered.
TECHNOLOGICAL environment
Technology is the collection of techniques, skills, methods, and processes used in the production of goods or services or in the accomplishment of objectives. Basically, anything that helps us produce things faster, better or cheaper is technology.
A country’s level of technological development will affect the type of
Prepared for Marketing Equation Lecture notes by Clifton Neil July 2019
operations that are possible and its ability to attract business ventures whether
by locals or by overseas investors.
Although machinery, transportation systems, production and physical
distribution systems are important technological factors, telecommunication
development has been the most important factor in considering the
attractiveness of doing business in a country. While these factors are taken for
granted in most developed and developing countries, some lesser developed
nations might find these as challenges.
The Strength and Weaknesses of the SWOT analysis would focus on internal factors that
can either facilitate or impede the company’s efforts to undertake a global approach.
These include
1. Structure: The ease of installing a centralized global authority and the absence of
rifts between present domestic and international divisions or operating units.
2. Management processes: The capabilities and resources available to perform
global planning, budgeting, and coordination activities, coupled with the ability to
conduct global performance reviews, and implement global compensation units.
3. Resources: does the company have the required Land, work force, capital and
entrepreneurial ability to undertake globalization.
national customs, it is unlikely that the European Union (EU) will ever become
the “United States of Europe”.
Marketing objectives
Having identified stakeholder expectations, carried out a detailed situation
analysis, and made an evaluation of the capabilities of the company, the overall
marketing goals can be set. It is important to stress that there is a need for
realism in this, as only too frequently corporate plans are determined more by
the desire for short-term credibility with shareholders than with the likelihood
that they will be achieved.
The process adopted for determining long-term and short-term objectives is
important and varies significantly, depending on the size of the business, the
nature of the market and the abilities and motivation of managers in different
markets. At an operational level, the national managers need to have an
achievable and detailed plan for each country, which will take account of the
local situation, explain what is expected of them and how their performance
will be measured. Examples of objectives might be:
Prepared for Marketing Equation Lecture notes by Clifton Neil July 2019
• financial performance, including return on investment and profitability;
• market penetration, including sales (by volume and value), market share by
product category;
• customer growth, by volume and profitability;
• distribution, including strength in supply chain, number of outlets;
• brand awareness and value;
• new product introductions and diffusion;
• company image, including quality and added value (or service).
International marketing and globalization
We had looked at the different terminology used to describe a company’s involvement in
international or global marketing. A recap follows:
Multicountry or multidomestic competition is merely the idea that the market
conditions are such that each country market is self contained. The market conditions in
one country differ from that in other countries. Thus, each country market in which the
enterprise operates is distinct and requires a unique marketing mix. Thus the marketing
mix applied in Jamaica would be different from that done in USA or Europe. The
enterprise sees its operation as “just a collection of self contained or independent
markets).
In the case of Global competition, the world is seen as one big market and the marketing
mix is integrated and applied to all countries.
The more the market conditions differ, the more the need to see the market as
multidomestic while the more similar the market, the more the scope for global.
CONCLUSION
Whether a company should undertake a multidomestic or global approach to organizing
its international operations will largely depend on the nature of the company and its
products, how different foreign cultures are from the domestic market, and the company’s
ability to implement a global perspective. in their quest to go global.
Operating in the local or national market has always been a given for most companies as
it allows them not to worry about foreign languages, or deal with strange currencies; or
face political and legal uncertainties or even adapt the product to different customer
needs and culture.
Today’s fast moving world and information explosion as well as the use of technology,
have made national marketing give way to include international marketing. International
Prepared for Marketing Equation Lecture notes by Clifton Neil July 2019
marketing is basically the marketing of products across national boundaries. In short,
international marketing is similar to marketing locally but it is done across national
borders into other countries. A Global firm is one that does international marketing by
operating in more than one country, gains R&D, production, marketing, financial
advantages in its costs and reputation that are available to purely domestic competitors.
International trade affects and influences international marketing. International trade is
the trading of goods between countries. It is growing rapidly and mirroring the level of
intensified global competition amongst companies.
International marketing requires the firm to ask itself some serious questions such as:
1. Looking at the global marketing environment
2. Deciding whether to go global
3. Deciding which markets to enter
4. Deciding how to enter the market
5. Deciding on the global marketing plan
6. Deciding on the global marketing organization
1. The global marketing environment. See above for a look at the DPEST of the
global marketing environment
2. Deciding whether to enter global markets – As mentioned above, these include
competition in home market; stagnant or shrinking home market; expanding
customer base overseas. The companies strategies and resources will also affect
the decision to go international.
3. Deciding which markets to enter: - based on the company’s objective, sales target
and volume the company can look at the attractiveness of a set of countries and
decide which one to enter.
4. Deciding how to enter the market- After deciding which country it wants to enter,
the company can select one or more of a number of entry methods. The entry
methods are 1) exporting 2) Joint Ventures and 3_ Direct Investment.
i. Exporting is entering a foreign market by selling goods produced
in the company’s home country, often with little modification
ii. Joint Venturing
a. Licensing is a method of entering a foreign market
in which the company enters into an agreement with
a licensee in the foreign market. Usually restricted
to merchandising and manufacturing goods.
b. Franchising, similar to licencing but usually for
services.
c. Contract Manufacturing: a joint venture in which a
company contracts with manufacturers in a foreign
market to produce the product or provide its service
d. Management contracting is a joint venture in which
the domestic firm supplies the management know-
ho-to z a foreign company that supplies the capital.
Prepared for Marketing Equation Lecture notes by Clifton Neil July 2019
e. Joint ownership is a joint venture where a company
joins investors in a foreign market to create a local
business in which the company shares joint
ownership and control. This is the only way to enter
some countries that have strong political overtone
for foreign ownership of resources in the country.
iii. Direct Investment. The is where a company enter a foreign market
by developing and establishing foreign-based assembly and
manufacturing facilities.
5. Deciding on the Global Marketing programme
6. Deciding on the Global marketing organization
Exporting is a typically the easiest way to enter an international market, and therefore most firms begin their international expansion using this model of entry. Exporting is the sale of products and services in foreign countries that are sourced from the home country. The advantage of this mode of entry is that firms avoid the expense of establishing operations in the new country. Firms must, however, have a way to distribute and market their products in the new country, which they typically do through contractual agreements with a local company or distributor. When exporting, the firm must give thought to labeling, packaging, and pricing the offering appropriately for the market. In terms of marketing and promotion, the firm will need to let potential buyers know of its offerings, be it through advertising, trade shows, or a local sales force.
Partnerships and Strategic Alliances
Another way to enter a new market is through a strategic alliance with a local partner. A
strategic alliance involves a contractual agreement between two or more enterprises
stipulating that the involved parties will cooperate in a certain way for a certain time to
achieve a common purpose. To determine if the alliance approach is suitable for the firm, the
firm must decide what value the partner could bring to the venture in terms of both tangible
and intangible aspects. The advantages of partnering with a local firm are that the local firm
likely understands the local culture, market, and ways of doing business better than an
outside firm. Partners are especially valuable if they have a recognized, reputable brand
name in the country or have existing relationships with customers that the firm might want
to access. Fo
Prepared for Marketing Equation Lecture notes by Clifton Neil July 2019
Strategic alliances are also advantageous for small entrepreneurial firms that may be too
small to make the needed investments to enter the new market themselves. In addition, some
countries require foreign-owned companies to partner with a local firm if they want to enter
the market. For example, in Saudi Arabia, non-Saudi companies looking to do business in the
country are required by law to have a Saudi partner. This requirement is common in many
Middle Eastern countries. Even without this type of regulation, a local partner often helps
foreign firms bridge the differences that otherwise make doing business locally impossible.
Walmart, for example, failed several times over nearly a decade to effectively grow its
business in Mexico, until it found a strong domestic partner with similar business values.
The disadvantages of partnering, on the other hand, are lack of direct control and the
possibility that the partner’s goals differ from the firm’s goals. David Ricks, who has written a
book on blunders in international business, describes the case of a US company eager to
enter the Indian market: “It quickly negotiated terms and completed arrangements with its
local partners. Certain required documents, however, such as the industrial license, foreign
collaboration agreements, capital issues permit, import licenses for machinery and
equipment, etc., were slow in being issued. Trying to expedite governmental approval of
these items, the US firm agreed to accept a lower royalty fee than originally stipulated.
Despite all of this extra effort, the project was not greatly expedited, and the lower royalty fee
reduced the firm’s profit by approximately half a million dollars over the life of the
agreement.”David A. Ricks, Blunders in International Business (Hoboken, NJ: Wiley-
Blackwell, 1999), 101. Failing t
Acquisitions
Prepared for Marketing Equation Lecture notes by Clifton Neil July 2019
An acquisition is a transaction in which a firm gains control of another firm by purchasing its
stock, exchanging the stock for its own, or, in the case of a private firm, paying the owners a
purchase price. In our increasingly flat world, cross-border acquisitions have risen
dramatically. In recent years, cross-border acquisitions have made up over 60 percent of all
acquisitions completed worldwide. Acquisitions are appealing because they give the company
quick, established access to a new market. However, they are expensive, which in the past
had put them out of reach as a strategy for companies in the undeveloped world to pursue.
What has changed over the years is the strength of different currencies. The higher interest
rates in developing nations has strengthened their currencies relative to the dollar or euro. If
the acquiring firm is in a country with a strong currency, the acquisition is comparatively
cheaper to make. As Wharton professor Lawrence G. Hrebiniak explains, “Mergers fail
because people pay too much of a premium. If your currency is strong, you can get a bargain.
New, Wholly Owned Subsidiary
The proess of establishing of a new, wholly owned subsidiary (also called a greenfield
venture) is often complex and potentially costly, but it affords the firm maximum control and
has the most potential to provide above-average returns. The costs and risks are high given
the costs of establishing a new business operation in a new country. The firm may have to
acquire the knowledge and expertise of the existing market by hiring either host-country
nationals—possibly from competitive firms—or costly consultants. An advantage is that the
firm retains control of all its operations.
Table 8.1 International-Expansion Entry Modes
Type of Entry Advantages Disadvantages
Prepared for Marketing Equation Lecture notes by Clifton Neil July 2019
Type of Entry Advantages Disadvantages
Exporting Fast entry, low risk Low control, low local knowledge, potential negative environmental impact of transportation
Licensing and Franchising
Fast entry, low cost, low risk
Less control, licensee may become a competitor, legal and regulatory environment (IP and contract law) must be sound
Partnering and Strategic Alliance
Shared costs reduce investment needed, reduced risk, seen as local entity
Higher cost than exporting, licensing, or franchising; integration problems between two corporate cultures
Acquisition Fast entry; known, established operations
High cost, integration issues with home office
Greenfield Venture (Launch of a new, wholly owned subsidiary)
Gain local market knowledge; can be seen as insider who employs locals; maximum control
High cost, high risk due to unknowns, slow entry due to setup time