International Marketing 2013.pdf

NAXILO | 2013

1 International Marketing

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CHAPTER 1 - INTRODUCTION TO INTERNATIONAL

MARKETING

International marketing is a combination of both local business context and

international business context. In an international marketing context, marketing

theories remain the same. But, market conditions change dramatically. Here, the

market will be divided into the following segments:

1) US & European Market

2) Far East Asia (China, Hong Kong, Malaysia, etc.)

3) South Asia (India & Suburbs)

4) Soviet Union and related communist countries

5) African Region and Middle East

6) Australia, Japan and other remarkable economies

Each region has its own unique features, language, accent, symbols and even the

reading pattern. This may lead to many difficulties for a marketer to tackle.

Therefore marketers should be more concerned and aware about the

international marketing standards.

When analysing the international environment, more focus will be given through

global multinationals such as:

1) Proctor & Gamble (P&G)

2) DHL

3) HSBC

4) Shangri-La Hotel Chain

5) Avery Dennison

6) Coca-Cola

7) Amazon


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Understanding the complications in International Marketing

International Marketing is considered as a complicated marketing situation due to

several reasons:

“International Marketing is the process of planning and conducting transactions

across international borders to create exchanges that satisfy the objectives of

individuals and organizations.”

When an organisation steps into international markting, following questions

should be taken into consideration:

1) Should I obtain my supplies domestically or aboad?

2) What marketing adjustments are neccessary?

3) What threats from global competition should I expect?

4) How to deal with threats to turn them into opportunities?

5) What are my global alternatives?

International marketing complications may have different forms.

1) Adaptation to the marketing environment

2) Marketing problems

2.1) Product (Quality standard, packaging and language)

2.2) Pricing (Inflation, exchange rate, income, etc.)

2.3) Place (Distribution)

2.4) Promotion (Language, culture, perceptions, attitudes and preferences)

2.5) Financial capabilities and profit centres


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SMEs and Large Organisations in International Marketing

Large Organisations SME

Resources - Many resources - Internalization of

resources Coordination of

Personnel

Financing

market knowledge

- Limited resources - Externalization of

resources (outsourcing of resources)

Formation of Strategy / Decision Making

Process

- Adaptive decision-making in small incremental steps

- Focus on long term opportunities

- The owner/manager is directly and personally involved and will dominate all decision making throughout the enterprise

Organisation - Formal/hierarchical - Independent of one

person

- Informal - The owner usually

has total control over the organization

Flexibility Low High Market Research Use of ‘advanced’

techniques:

Databases

external consultancy

Internet

Information gathering in an informal manner and an inexpensive way:

internal sources

face-to-face communication


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Explain what is meant by “standardisation” and “adaptation” in the context of

international marketing and give an example of each.

Standardisation is a process where the company will enter the global business

environment, with a single or same product range to market in different cultures.

EX: Coca-Cola uses the same product or the same range of product throughout

the world, but marketing mix will not change much from country to country.

Adaptation is a technique used by organisations to overcome the global

environmental challenges and fit more towards the domestic requirements.

EX: HSBC operates in different countries and they adopt a local’s strategy in each

country to cater the consumer’s unique needs and wants. This is displayed in their

slogan, “World’s Local Bank”

Compare and contrast the benefits of standardisation with those of adaptation

in the context of international marketing mix.

Standardisation

Can communicate with a single message throughout the globe, which may

make the brand very powerful.

If marketed strategically, can create a top-end brand image.

EX: A decade back, Marks and Spencer were a symbol of higher quality.

Possible to have a centralised management and operation unit which follows

to research and development unit.

Organisational structure controlling and reporting system and/or mechanism,

and a centralised MKTIS system where accurate information flow is

entertained.

Suitable for companies with popular brands, high cash flow and

entrepreneurship.

It is also helpful for the organisations who seek economies of scale through

mass production.


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Adaptation

Developing local messages to reach the audience within their territory.

More unique and customised needs and wants are understood and products

are developed accordingly.

EX: GODREJ does research and development in all continents.

Requires more independent sub management systems where individual units

are given minimum guidelines and maximum encouragement to operate at its

best.

Companies can earn higher margins, high customer loyalty and a local image

which may be able to create a niche or Unique Selling Proposition (USP)

Types of Standardisation and Adaptation

Straight Extension

This involves introducing a standardized product with the same promotion strategy throughout the world market (one product, one message worldwide). Example: Unilever’s worldwide introduction of Organics Shampoo, with the advertising concept ‘Organics – the first ever root-nourishing shampoo’


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Promotion Adaptation This strategy involves leaving a product unchanged but fine-tuning promotional activity to take into account cultural differences between markets. It is a relatively cost-effective strategy. Example: Unilever’s Lux soap advertisements in UK and India

Product Adaptation By modifying only the product a manufacturer intends to maintain core product function in the different markets. Example: Electrical appliances have to be modified to cope with different electrical voltages in different countries. A product can also be adapted to function under different physical environmental conditions. Example: Exxon changed the chemical composition of petrol to cope with the extremes of climate, but still used the ‘Put a tiger in your tank’ campaign unchanged around the world.

Dual adaptation By adapting both product and promotion for each market the firm is adopting a totally differentiated approach. This is often adopted by firms when one of the other strategies has failed, but particularly if the firm is not in leadership and is reacting to the market or following competitors. Example: Kellogg’s Basmati Flakes in the nascent breakfast cereal market in India. It was specially created to suit Indian tastes, India being a large rice-eating country. The advertising campaign was a locally adapted concept based on international positioning. The product is available only in Bombay.

Product invention Product invention is adopted by firms usually from advanced nations that are supplying products to less developed countries. Products are specifically developed to meet the needs of the individual markets. Existing products may be too sophisticated to operate in less developed countries, where power supplies and local skills maybe limited. Example: Hand-powered washing machine


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CHAPTER 2 - Comparative Advantage and

Competitive Advantage

Comparative Advantage

Comparative advantage is an economic term which refers to the ability of a

country to produce goods or services at a lower cost or more efficiently than

others.

Methods of gaining comparative advantage

Sustained period of investment

Here, you will invest on infrastructures that need to support and industry.

EX: Kingfisher airlines introduced the sub airline called Deccan Airlines for

domestic travel, which revolutionise the transportation industry in India.

Lower Labour Cost

Economic policies and legal barriers to lower wages.

Exploiting Raw Materials

Geological and geographical conditions favourable for certain resources.

EX: Middle East for Oil, Sri Lanka for Tea, Switzerland for Tourism

Subsidy to Industry

EX: European Union gave a higher quota for Pakistani textiles as a courtesy in

the support shown towards war against “terror”.

Developing Expert Knowledge

Investment in education and certain research skills may give a country

comparative advantage.

EX: South Korea’s investment in technical education made them market

leaders in the export of semiconductors, mobile phones, and cars.


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Competitive Advantage

Gaining competitive advantage, through value chain in international

environment

Competitive advantage is a strategic advantage a firm has over its rival entities. To

analyse the competitive advantage, we use value chain.

This model will have certain stages and 4 of them are highlighted:

Research and Development

Companies gain advantage through R&D, in terms of technology, product

improvements, New Product Development (NPD) and product performance. It

can be applicable in different ways to encounter global competition.

Technical research can be sourced more easily across the globe.


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The firm may have experience in alternative markets.

A wider range of knowledge may be available from an international spread of

‘best of

Breed’ suppliers.

In terms of product improvements, benefits may be tested in overseas markets,

lowering risks.

The same is certainly true in terms of NPD.

Product performance can be monitored in different markets and success

leveraged.

EX: Switzerland stays ahead in wrist watch technology from rest of the world

through R&D and commitment for innovation.

Production

Products can vary in terms of quality, therefore best practice can be achieved

by studying the production activities of the firm’s various overseas operations.

A breakthrough in country A can be speedily transferred to other factories in

the group.

Economies of scale and cost savings

Assembly capabilities and overseas production

EX: Toyota gains competitive advantage through high speed manufacturing

process which is also error free. (Total Quality Management [TQM])

EX II: Proctor & Gamble (P&G) is gaining an edge in Chinese market in Aerial

washing powder, through reducing the quality (benefits) and selling it at the

lowest price.

Marketing

Exceptional marketing strategies and plans help the organisation to set a unique

standard. Following marketing advantages can be gained:

Global firms have the chance to partner with global distributors, striking global deals, thus eliminating the need to ‘go it alone’.


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Example: Senseo and Philips Branding and positioning, in a global context, have clear savings over

‘standalone’ single market communication, as companies can leverage brand values internationally meeting the needs and aspirations of global consumers. Example: Coca-cola

Pricing strategies also bring benefits as firms can spread the downside of a price war in a single country (or an economic downturn) across a number of markets. Example: Air Asia

Sales and Service

Companies who approach international marketing, especially in the service

industry, are concerned how they should differentiate themselves from the rest

of the competition. Most common advantages are:

1) Customer Service

EX: Eye Care offers better customer solutions.

2) Merchandising

EX: Heineken

3) Inventories and retail floors

EX: Wal-Mart leads in US through a large inventory of products.

4) After sales service

EX: Pizza Hut

5) Terms of Payment

Through layer credit periods and easy payment terms, organisations gain

advantage.

EX: Manchester United


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CHAPTER 3 – BARRIERS TO INTERNATIONAL

MARKET

In the international marketing concept, market entry is a situation where high

prominence is given. There are many ways that a company will be challenged in

the international environment. Therefore marketers are supposed to do several

research analysis and assumptions, before entering an international market. This

area basically consists of 3 sections:

1) Problems associated with regard to market entry (Entry Barriers)

2) Risk associated with international market development

3) Trading Environment Barriers

1) Entry Barriers

When you enter a new market, company has to start all from the beginning,

and may come across following problems:

Cultural differences, ethical and other value systems and perceptions

Financial capability of organisation to compete with the existing opponents in

the market

Competitiveness of competitors: Financially, brand wise and market share

Environmental concerns, such as eco friendly, genetic and social responsibility


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2) Risk associated with international market development

Risk Component Definition International Market Development

Financial Risk Threat of loss of profit Changes in exchange Rates

Performance Risk Threat of non-performance of product or service

Environmental influences on product performance and service performance

Security Risk Threat to safety of personnel and continuity of operations

Political and judicial system instability

Psychological Risk Threat to ease of understanding and operations

Added complexity relating to management and marketing activity

Social Risk Threat of misunderstanding

Language, cultural and business convention differences

Convenience Risk Threat of delay or inefficiency in operations and delivery

Time differences Geographical distance


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3) Trading Environment Barriers

Tariff

Basis

Drawbacks

Specific Tariff

Fixed amount that is not linked to price

Requires adjustments with changes in exchange rate and inflation

Ad Valorem Tariff

A set percentage of the value of the good being imported

Decreases with the price, increasing demand of domestic consumers

Prohibitive Tariff Fixed at a level to deter imports completely

Exporting country may retaliate

Protective Tariff Set to allow competition by locals

Exporting country may retaliate

Environmental Tariff Placed on imports from countries with substandard environmental controls

Developing and newly Industrialised countries may view these controls as limiting their growth

Retaliatory Tariff Applied in response to one that has been placed on the domestic countries exports in an attempt to convince the overseas government to reduce their tariff

May result in an escalation in tariff charges


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NAME DESCRIPTION

Quantity

Restrictions

(Quotas) and

Embargo

Restrict the number of units that can be imported or the

market share that is permitted. When the quota is set at

zero, it becomes an Embargo

Entry Procedures Complicated administrative and bureaucratic procedures. Requiring international air carriers to land at inconvenient airports; requiring product inspections that damage the product itself; purposely understaffing customs offices to cause unusual time delays; and requiring special licences that take a long time to obtain.

Financial Limit Exchange Rates are fixed to maintain value of currency.

Technical Barriers Product and process standards set for health and safety of

population

International

Price Fixing

Used by Cartels, group of firms who join to fix prices or

quantities sold, in an effort to control price.


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CHAPTER 4 - INTERNATIONAL MARKET RESEARCH

Marketing research is a way of systematic gathering, analysing and evaluating information.

Secondary Research This research represents evaluating all the information that is already available or analysing previous research done for other purposes.

Advantages in foreign markets Secondary research conducted from the home base is less expensive and less

time consuming than research conducted abroad.

No contacts have to be made outside the home country, thus keeping commitment to possible future projects at a low level.

The researcher is not constrained by overseas customs.

Disadvantages in foreign markets Non-availability of data - In many developing countries secondary data are

very scarce. These weak economies have poor statistical services. In such cases primary data becomes vital.

Reliability of data - Sometimes political considerations may affect the reliability of data. In some developing countries governments may enhance the information to paint a rosy picture of the economic life in the country. It may as well lack statistical accuracy.

Data classification - In many countries the data reported are too broadly classified for use at the micro level.

Comparability of data - Secondary data obtainable from different countries are not readily comparable because national definitions of statistical


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phenomena differ from one country to another. Example: The term ‘supermarket’ has various definitions across the globe.

Primary Research

Most problems in collecting primary data in international marketing research

stem from cultural differences among countries, and range from the inability of respondents to communicate their opinions to inaccurate questionnaire translation.

Sampling in field surveys - The greatest problem of sampling stems from the lack of adequate demographic data and available lists from which to draw meaningful samples. Example: In many South American and Asian cities street maps are unavailable, and streets are neither identified nor houses numbered.

Non-response - Inability to reach selected elements in the sample frame. As a result opinions of some sample elements are not obtained or properly represented.

Language Barriers - Difficulty of exact translation that creates problems in extracting the specific information desired and in interpreting the respondents’ answers.


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CHAPTER 5 - MANAGING MARKETING MIX IN AN

INTERNATIONAL BUSINESS ENVIRONMENT

Product

Making sure that you can continuously manufacture and supply the product.

Quality standards required by the governing bodies.

EX: When you are exporting food to countries from European Union, you are

required to have quality standards such as ISO, UKS, etc.

Product should understand the demographic attitudes and values of the

culture.

EX: When KFC launched Chinese menu, they used a dragon theme.

To meet basic requirements, that is necessary to use the product.

EX: Voltage of electronic equipments

EX II: Nokia introducing hard cover with torch light, specifically for India.

Additional features to the product, depending on the market.

EX: Philips developing smaller versions of shavers for Japanese market.

Company will have to consider Product Life Cycle (PLC) stage of the country

they are entering.

Price

Innovative/Unique features of the product and substitutes available will play a

vital role in determining the price.

Have to consider exchange rate, fluctuations and risk of discrepancy.

Pricing strategies may have to be changed to reflect the requirement.

EX: In China, P&G sells Aerial washing powder at a very low price, with some of

the benefits removed.

Have to consider the entry techniques as a defender or a market leader.

Taxations and legal price regulations should be taken into consideration.

EX: Sri Lankan government imposes 100% tax to all the imports which can also


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be locally manufactured.

Price calculations and profit margins should be publicised in certain countries.

Place

Deciding on how we are going to enter the international market: Is it as an

export, or is it as an agent to represent you, or assemble there or to do the

whole process within that market.

Evaluating all the possible distribution methods and choosing the best. At

times, logistics will be handled by the own organisation, where in certain

situations, the total process will be outsourced.

Nature of the product: For convenience products, intensive distribution and for luxurious and prestigious products, exclusive distribution. Transportation may require additional facilities and modification to the existing distribution method, due to country’s geography and its development of transportation infrastructure. EX: Hagen Dans uses special coding containers to maintain temperature levels.

Have to consider the legal requirements of distribution and requirements such

as quota, trade agreements, etc.

Have to avoid conflicts with the physical distribution channels and virtual

distribution channels.

EX: Agoda.com offers much cheaper price than the agents from the hotels.

Competition: Customers may prefer to buy goods from a certain store. Global competitors may have agreements with a major wholesaler, which may create a barrier since access to key channels is cut off.

Promotion

Culture, language and aesthetics should be given priority, as these factors give

ownership to the customers.

Promotions should not be over emphasizing on other markets.

Should contain the benefits rather than origin or other available markets.

Promotions should not discriminate any religious beliefs or attitude.


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Communication methods used in countries should be considered.

Level of activities should be adjusted in accordance to competition faced in

each country.

Legal and regulatory conditions may impose difficulties in marketing certain

products.

Example: In many countries, tobacco and alcoholic products are heavily

regulated in terms of promotion.


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CHAPTER 6 – METHODS OF INTERNATIONAL MARKET ENTRY

Indirect Export Mode Indirect export occurs when the exporting manufacturer uses independent organization located in the producer’s country. If international sales are viewed primarily as a means of disposing of surplus production, or as a marginal, use of indirect export modes may be appropriate. There are five main entry modes of indirect exporting:

1) Export buying agent 2) Broker 3) Export management company/Export house 4) Trading Company 5) Piggyback

1) Export Buying Agent

The export buying agent is a representative of foreign buyers who is located in the exporter’s home country. The agent offers services to the foreign buyers, such as identifying potential sellers and negotiating prices.

2) Broker Export/import broker is another type of agent based in the home country. The chief function of a broker is to bring a buyer and a seller together. Broker is paid a commission (usually about 5 percent) for the services provided. They may act as the agent for either the seller or the buyer.

3) Export management company/Export house Export houses or export management companies (EMCs) are specialist companies set up to act as the ‘export department’ for a range of companies. They conduct business under the name of the manufacturer they represent.


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Advantages

- EMCs deal with the necessary documentation, and their knowledge of local purchasing practices and government regulations is particularly useful in markets that might be difficult to penetrate.

- Companies gain far wider exposure of their products in foreign markets at much lower overall costs

Disadvantages

- EMCs deal with a huge amount of manufacturers. The company’s products may not be given enough attention by the EMC. They may also carry competitive products that might negatively impact the company’s products.

- The specialization of the EMC (by geographical area, product type, consumer type) may not be the best combination for the company’s objectives.

4) Trading Company

5) Piggybacking In piggybacking the export-inexperienced SME(rider) deals with a larger company (carrier) already operating in certain foreign markets to export to those markets on behalf of the rider. The carrier is either paid by commission to act as an agent or, buys the product outright and acts as an independent distributor.

Indirect Export Mode

Direct exporting occurs when a manufacturer or exporter sells directly to an importer or buyer located in a foreign market area.

Distributors

Exporting firms may work through distributors (importers), who act as exclusive representatives of the company and are generally the sole importers of the company’s product in their markets. In many cases distributors own and operate wholesale and retail establishments, warehouses and repair and service facilities.


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For each country, exporters usually deal with one distributor, take one credit risk, and ship to one destination.

Agents An agent represents an exporting company and sells to wholesalers and retailers in the importing country. There can be mainly 3 types of agents: Exclusive Agents: Agent has exclusive rights to specific territories

Semi-exclusive Agents: agent handles the exporter’s goods along with other

non-competing goods from other companies

Non-exclusive Agents: Agent handles a variety of goods, including some that may compete with the exporter’s products


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Born Globals Unlike many organizations, Born Globals have a unique philosophy behind its purpose of birth. An international organization is usually started in the domestic stage, then they become internationals, multinationals and finally Global conglomerates. But the market conditions have changed along with both environment and competition. This has given birth to firms that globalize from its birth, without any preceding long-term internationalization period, i.e. Born Globals.

Characteristics of Born Globals

Organizations with 500 or less employees, sales under 1million and with a

product range of innovative technology or process.

High activity in international markets from or near the founding: Born-global firms begin exporting their products or services within a couple of years after their founding and may export a quarter or more of their total production.

Managers have a strong international outlook and international

entrepreneurial orientation: The managers of born-global firms do not see foreign markets as a mere addition to their domestic markets. They proactively and aggressively compete in international markets, take risks, and innovate.

Targets a business area with homogenous and minimal adaptation of 4Ps:

Born-global firms tend to adopt minimal adaptation strategies that target niche markets, which may be too small for the tastes of larger firms. The focus is on stimulating customer loyalty by uniquely meeting particular needs.

Using external, independent intermediaries for distribution in foreign markets: Most born-global firms expand by engaging in direct international sales or leveraging the resources of independent intermediaries located abroad. It enables flexible international operations including the ability to enter or


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withdraw from foreign markets relatively quickly and easily. More experienced born-global firms appear to adopt additional strategies, such as joint ventures and foreign direct investment

Reasons for the Birth of Born Global

Increasing role of niche markets

Customers in mature economies are increasingly demanding for specialized or customized products. With the globalization of markets and increasing worldwide competition from large multinationals, many smaller firms are forced to specialize in the supplying of products to a relatively narrow global niche.

Advances in process/technology production New technologies allow small companies to compete with large multinationals in the markets for sophisticated products around the world. It helps SMEs to find USPs.

Flexibility SMEs are more flexible and quicker to adapt to foreign tastes and international standards.

Global networks Successful international commerce today is increasingly facilitated through partnerships with foreign businesses.

Advances and speed in information technology With invention of internet and other mediums of communication, managers even in small firms can efficiently manage operations across borders.


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Explain strategic marketing alliances and discuss the reasons for their creation. When it comes to international marketing, needs become diversified, and so does the market size. Therefore, it becomes practically impossible to satisfy everyone around the globe. Neither organisation will have sufficient resources, nor skill or know-how. A strategic alliance is where more than two organisations come together in support of each other and to share the risk in achieving a shared/common goal. A strategic alliance can be created in many ways: 1) With a simple agreement to corporate with each party EX: T&J switches are marketed by MESCO in Maldives, under the sole agent flag. 2) Through licensing or franchising This is a much quicker and effective way of sharing the knowledge and profit between organisations. At times, beneficiary may have to pay a royalty or share the profit with parent company of franchisee, for the technical knowhow and other facilities. 3) Joint Venture Here, both organisations share expertise and resources to combat the competition. 4) Mergers Two companies joint together to grow the sales and profit 5) Buy outs Totally buying out another company. Example: Avery Dennison bought the Paxar group to gain the market leadership in Asia. There can be many reasons behind a strategic alliance: 1) To share knowledge and technical know-how 2) Reduce risk in new market entry


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A company may merge with an organisation that already has expertise on the market. By capitalizing on the product development skills of one company and the marketing skills of the other, the resulting alliance can serve the market quickly and effectively. 3) Resource management and utilisation 4) Utilise excess manufacturing or stock 5) Utilise excess capacity 6) Speed up new market commercialisation, overcome technical gaps 7) To avoid cultural barriers 8) Global research advantages 9) Economies of scale

Documents

International Marketing 2013.pdf