Analysis of risk in international marketing David Kilburn
Analysis of risk in international marketing David Kilburn Bournemouth University EUNCET – Spain March 21/04
INTRODUCTION TO INTERNATIONAL MARKETING
WHAT IS MARKETING? Marketing Involves: • Focusing on the needs and wants of customers • Identifying the best method of satisfying those needs and wants • Orienting the company towards the process of providing that satisfaction • Meeting organisational objectives
WHAT IS INTERNATIONAL MARKETING? Different Levels of International Marketing • Export marketing • International marketing • Global marketing management
ENVIRONMENTAL INFLUENCES ON INTERNATIONAL MARKETING Socio/Cultural Language Religion Aesthetics Values and attributes Social organisation Material culture Economic Developed economies Emerging economies Less developed economies Currency movements Legal Local domestic laws International law Home domestic law Political Operational restrictio Discriminatory restric Physical actions Technological Environmental Influences on International Marketing Satellite Communications ISDN Internet WWW The Electronic Superhighway
SOCIAL / CULTURAL INFLUENCES n Coca-Cola: n n 2 Litre bottles too big for Spanish fridges Pronunciation in China – Kooke Koula n n Johnson’s Floor Wax: n Made Japanese floors slippery n n ‘A thirsty mouthful of candle wax’ The Japanese do not wear shoes indoors Mc. Donald’s: n The white face of ‘Ronald Mc. Donald’ n A white face is seen as a death mask in Japan
REGIONAL BREAKDOWN OF GLOBAL POPULATION 0 0. 5 1. 0 1. 5 2. 0 2. 5 Other Asia Africa India China Latin America Europe North America 1995 Source: United Nations (1998) 2050
THE LEGAL ENVIRONMENT n 3 dimensions in the legal environment: n local domestic law: n n international law: n n different in every country issues include piracy, treaties, patents etc domestic laws in the home country: n export controls, plus duty to abide by national laws in all activities
WORKING TIME REQUIRED TO BUY A BIG MAC Minutes 1997 0 Caracas Moscow Manila Shanghai Mexico City Bogota Warsaw Bangkok Sao Paolo Johannesburg Singapore Paris Kuala Lumpur London Frankfurt New York Tokyo 20 40 60 80 100 20 Source: Economist: Jan 1998
ECONOMIC ENVIRONMENT n Developed triad Economies n n Emerging Economies n n account for 80% of world trade huge and growing consumer demand government directed economic reforms ‘dual economy’ Less Developed Countries (LDCs) n n n low GDP, limited manufacturing base infrastructure weaknesses heavy reliance on one product/one trading partner
POLITICAL ENVIRONMENT n ‘A risk due to a sudden or gradual change in a local political environment that is disadvantageous or counter productive to foreign firms and markets’ n Government actions which may constitute potential risk for the firm: n n n Operational restrictions eg. exchange controls or employment policies Discriminatory restrictions eg. special taxes and tariffs Physical actions eg nationalisation, riots and war
TECHNOLOGICAL CONSIDERATIONS n n n Increased ease and speed of communication High rate of technological change Global access to the World Wide Web n n Projected 765 million users by end 2005 Importance of English language for web users
THE CHALLENGES OF THE INTERNATIONAL MARKETING ENVIRONMENT #1 n Culture n n Markets n n Widespread and sometimes fragmented Data n n Often diverse and multicultural Difficult to obtain and sometimes expensive Politics n Regimes vary in stability, political risk becomes an important variable
THE CHALLENGES OF THE INTERNATIONAL MARKETING ENVIRONMENT #2 n Governments n n Competition n n Can be a strong influence in regulating importers and foreign business ventures Multinationals can distort competitive structure of markets Economies n Varying levels of development
THE CHALLENGES OF THE INTERNATIONAL MARKETING ENVIRONMENT #3 l Finance n l Currency n l Varying and unstable, strong likelihood of transaction risk Business n l Many differing finance systems and regulatory bodies Diverse rules, culturally influenced Control n Difficult to control and co-ordinate across markets
INTERNATIONAL MARKETING STRATEGIES Success and Failure n Failure arises from: n n n n n inability to find right market niche unwilling to adapt products not perceived as sufficiently unique vacillating commitment assigning the wrong people picking the wrong partners inability to manage local stakeholders mutual distrust/lack of respect between HQ & management inability to leverage ideas to all countries
THE INTERNATIONAL MARKETING STRATEGY PROCESS : influences Analysis Understand the environmental on a firm’s international markets Segment international markets, identify & analyse opportunities Develop appropriate international marketing Strategy Feedback & strategies, planning & processes Development reassess continually Decide marketing entry strategies Build added value through effective Implementation marketing mix strategies
THE INTERNATIONAL TRADING ENVIRONMENT
Asia Developing Japan 10 Equ ita ble Dis trib Western Europe North America uti Proportion 25 of World GDP 20 (PPP terms, %) 15 on REGIONAL COMPOSITION OF WORLD GDP & POPULATION Latin America 5 Middle East & North Africa Eastern Europe & FSU Other Sub-Saharan Africa Proportion of World Population 0 0 10 Source: EIU National Westminster Bank 1998 20 30 40 50 60
PERCENTAGE OF THE TOTAL OF WORLD EXPORTS IN MERCHANDISE (2000) Country Source: WTO. org/english/res. e/statis_e/stat_toc_e. htm Percentage % United States 12. 6 Germany 9. 6 Japan 7. 5 France 5. 3 Britain 4. 8 Italy 4. 1 Canada 4. 2 Netherlands 3. 6 Hong Kong 3. 1 China 3. 5
FORECASTS IN % CHANGES IN CONSUMER PRICES AND REAL GDP/GNP 1999 -2003 Country Australia Belgium Brazil Canada China France Germany Hong Kong India Ireland Italy Japan Malaysia Mexico % inflation rate 2. 7 2. 4 6. 0 2. 4 6. 8 2. 3 5. 8 9. 0 2. 8 2. 7 1. 8 3. 9 12. 2 % growth rate 2. 9 2. 2 4. 2 2. 6 7. 6 2. 2 4. 4 5. 5 2. 2 5. 4 5. 1 Country Netherlands Singapore South Korea Spain Taiwan Thailand UK US Adv economies EU Eastern Europe FSU Asia Developing Latin America Source: Marketing Intelligence Department, Nat West Bank (1998) % inflation rate 2. 4 2. 6 4. 7 2. 7 3. 5 5. 8 2. 5 2. 4 2. 5 11. 8 10. 6 7. 1 9. 5 % growth rate 2. 5 6. 1 4. 9 2. 6 5. 8 4. 4 2. 5 2. 6 2. 5 2. 3 4. 4 4. 3 6. 2 4. 6
BALANCE OF PAYMENTS CURRENT ACCOUNTS Australia -17. 0 Brazil -33. 8 China +29. 3 Japan Country Mexico Malaysia +120. 6 -15. 9 -4. 8 Netherlands +19. 9 Saudi Arabia -12. 8 Singapore +17. 6 UK Source: World Bank: World Development Indicators 2000 13. 4 USA EU -0. 3 -220. 5 +78. 2 US $ Billion Germany
REGIONAL TRADING AREAS OF THE WORLD 1998
MAJOR CHANGES IN THE SINGLE EUROPEAN MARKET n n n Removal of tariff barriers Removal of technical barriers Public procurement Free movement of labour and workers’ rights Opening up of professions Financial services n n n Transport, haulage and coastal carriage Capital movements Company law Fiscal barriers The environment
FOUR TESTS FOR A SUCCESSFUL TRADING BLOC n n Similar per capita income Geographical proximity Compatible trading regimes Political commitment
CONVERGENCE CRITERIA n PRICE STABILITY n EXCHANGE RATE STABILITY n LONG TERM INTEREST RATES n GOVERNMENT DEFICIT n PUBLIC DEBT
SINGLE CURRRENCY STRATEGIC IMPLICATIONS n NON UNIFORMITY OF PRICING n PRICE TRANSPARENCY n GREY MARKETING n EURO SOURCING n FEWER TRANSACTION CHARGES n NEW PRICING POINTS
SOCIAL AND CULTURAL CONSIDERATIONS
CULTURE DEFINED The sum total of learned beliefs, values and customs that serve to direct customer behaviour in a particular country market
COMPONENTS OF CULTURE #1 Beliefs: A large number of mental and verbal processes which reflect our knowledge and assessment of products and services
COMPONENTS OF CULTURE #2 Values: The indicators consumers use to serve as guides for what is appropriate behaviour, they tend to be relatively enduring and stable over time and widely accepted by members of a particular market
CULTURAL VALUES AND THEIR RELEVANCE TO CONSUMER BEHAVIOUR Source: Schiffman, L. G. & Kanuk, L. L. (2000) Value Features Achievement & success Success flows from hard work Justification for acquisition of goods Efficiency & practicality Admiration of things that solve problems People can improve themselves Stimulates purchase of well functioning products Ready acceptance of ‘new’/‘improved’ products Material comfort The ‘good life’ Individualism Being oneself Fosters acceptance of convenience/ luxury products Stimulates acceptance of customised or unique products External conformity Uniformity of observable behaviour Stimulates interest in products used by others Youthfulness State of mind that stresses being young at heart Stimulates acceptance of products that promote youthfulness Progress Relevance to behaviour
COMPONENTS OF CULTURE #3 Customs: Overt modes of behaviour that constitute culturally approved or acceptable ways of behaving in specific situations. Customs are evident at major events in ones life eg birth, marriage, death and at key events in the year e. g. Christmas, Easter, Ramadan, etc.
CULTURAL INFLUENCES ON BUYER BEHAVIOUR Adapted from: Jeannet and Hennesey (1998)
A CULTURAL FRAMEWORK Religion Values & Attitudes Language Aesthetics Cultures Law & Politics Adapted from Terpstra & Sarathy (1999) Technology & Material Culture Education Social Organisations
OFFICIAL LANGUAGES AND SPOKEN LANGUAGES SOURCE: Guardian (1992)
THE MAIN SILENT LANGUAGES IN OVERSEAS BUSINESS #1 Silent Language Implications For Marketing & Business Time - Appointment scheduling - The importance of being ‘on time’ -The importance of deadlines Space - Sizes of offices -Conversational differences between people Things Source: Hall & Hall (1987) - The relevance of material possessions - The interest in the latest technology
THE MAIN SILENT LANGUAGES IN OVERSEAS BUSINESS #2 Silent Language Implications For Marketing & Business Friendship - The significance of trusted friends a social insurance in times of stress a emergency Agreements - Rules of negotiations based on law moral practices or informal customs
Assumptions to Be Questioned by International Marketing Managers 1. That Maslow’s Hierarchy of Needs is consistent across cultures 2. That the buying process in all countries is an individualistic activity 3. That social institutions and local conventions are similar across cultures 4. The consumer buying process is consistent across cultures - consumer involvement - perceived risk - cognitive style 5. Self reference criterion
MODEL OF CONSUMER BEHAVIOUR IN INTERNATIONAL MARKETS Cultural Identity Attitudes Motives Consumer Experience Family Consumer Lifestyles Values Attitudes Beliefs Values Reference Learning Groups Social Status Cultural Identity Problem Recognition Information Search - Opportunity cost of time in seeking information - Delay costs - Psychological costs Evaluation of Alternatives - Evoked set Purchase - Degree of involvement Post Purchase Evaluation - Actual product against expectations
INTERNATIONAL MARKETING RESEARCH AND OPPORTUNITY ANALYSIS
3 AREAS OF INTERNATIONAL MARKET ANALYSIS n n n Scanning international markets to identify and segment markets Building marketing information systems to monitor environmental trends Carrying out primary marketing for input into the development of marketing strategies
PRODUCT/MARKET COMBINATIONS AND THE SCOPE FOR COMPETITIVE ADVANTAGE ON MARKET ENTRY Source: Gilligan and Hird (1985) Type Market of Product Competitive Existing Latent Incipient Low Existing brands for developing needs; no direct competition. Need to find and educate consumers. Risk and cost of failure may be Advanced profile offers Cost & high greater benefits to the Risk market; no direct of competition Superior product Improvedoffers high competitive Advantage and launching eases market Breakthrough the entry Breakthrough product offers significant product Product Breakthroughoffers self evident advantages but markets need to be identified. Few competitors, but high consumer resistance superiority and competitive High Advantage is. Cost high & Risk of Opening Up Low Cost & Risk of Opening Up Market High
THE FOUR RISK MATRIX
BUSINESS PORTFOLIO MATRIX Source: Harrell G D and Kiefer R O (1993) Multinational market portfolios in global strategy development, International Marketing Review, Vol 1 - No 1 Country Attractiveness High Company’s Compatibility Medium With Each Country Low Medium Low
WHY NEW APPROACH NEEDED l MACRO vs MICRO l TRADE BARRIERS DOWN l GLOBAL NICHES l GREY MARKETS l NET ETC.
TRANSNATIONAL SEGMENTATION & METHODS Demographic: sex, age, income level, social class and educational achievement Psychographic: lifestyle factors - activities, interests and opinions Behavioural: patterns of consumption, loyalty to product category and brand
BEHAVIOURAL SEGMENTATION l NEEDS l BENEFITS l OCCASION l USAGE
HIERARCHICAL COUNTRY CUSTOMER SEGMENTATION #1 Stages of Segmentation • Identify the countries that have the infrastructure to support the product and which are easily accessible to the company • Select from these, countries that meet certain qualifying criteria • Develop micro-segments within these countries e. g. examine information search behaviour or product characteristics required Source: Kale & Sudarsen (1987)
HIERARCHICAL COUNTRY CUSTOMER SEGMENTATION #2 Stages of Segmentation • Look for similarities across segments to identify characteristics of demand of each segment. They can then be rated in terms of potential response • Cluster analysis is used to identify meaningful cross-national segments which it is thought would evoke a similar response to a marketing mix strategy Source: Kale & Sudarsen (1987)
2 ND AREA OF INTERNATIONAL MARKET ANALYSIS Building marketing information systems to monitor environmental trend
12 C FRAMEWORK Culture/consumer Behaviour Country Channels Concentration Choices Commitment 12 c Currency Communication Consumption Contractual Obligations Capacity to Pay Caveats
Trading Practices Tariff Barriers Financial Source: Majaro (1992) Distribution Mix Pricing Mix Promotion Mix Product Mix Social Cultural Legal Factors Economic Factors Political Factors Technological Factors Competition Market Entry MARKET PROFILE ANALYSIS
SOURCES OF INFORMATION n n n n Business libraries University libraries International chambers of commerce International Market Intelligence Centre (DTI) Business Links Embassies Banks Trade associations n n n Export councils Overseas distributors Overseas sales subsidiaries Foreign brokerage houses Foreign trade organisations such as JETRO n (Japanese Export Trade and Research Organisation)
3 RD AREA OF INTERNATIONAL MARKET ANALYSIS Carrying out primary marketing for input into the development of marketing strategies
ORGANISING THE RESEARCH STUDY #1 n Questions the International Marketing Manager should address: Should the research be carried out by foreign local subsidiaries or should all marketing research be centralised at headquarters? n Should the fieldwork be carried out in house or by an agency? n
ORGANISING THE RESEARCH STUDY #2 n Options when choosing an agency: n n n Local agency in the market under investigation Domestic agency with offices overseas Domestic agency with overseas associate companies Domestic agency which subcontracts fieldwork to an agency in the market under investigation Domestic agency with competent foreign staff Global agency with offices around the world
MULTI-COUNTRY STUDIES n n n The project is discussed at length with the client The fieldwork agencies in each country are selected The questionnaire is designed centrally It is translated locally and the translation is checked centrally It is piloted locally It is finalised centrally Hibbert (1993) n n n The interviewers are briefed locally by an executive of the central company The fieldwork is carried out locally The coding and editing plan is provided for the local agencies The edited and coded questionnaires are returned to head office A coding and editing check is carried out centrally Computing and analysis are carried out centrally
EVALUATION OF SURVEY METHODS + = advantage - = disadvantage Malhotra et al (1997)
INTERNATIONAL MARKETING PLANNING AND ORGANISATION
THE BENEFITS OF PLANNING n Planning encourages: n n n proactivity in new and old markets a systematic process of analysis clear statement of objectives and policies more focused thinking quick and decisive reaction to environmental changes co-ordination of strategies familiar product or service ‘offers’ in each market company-wide performance and quality standards increased managerial ownership and loyalty reduced internal company conflict standardised information transfer systems integrated short-term action and control
INTERNATIONAL PLANNING PROBLEMS Headquarters n Management n n n n Unclear allocation of responsibilities & authority Lack of multinational orientation Unrealistic expectations Lack of awareness of foreign markets Unclear guidelines Insensitivity to local decisions Insufficient provision of useful information n Processes n n n Lack of standardised bases for evaluation Poor IT systems & support Poor feedback & control systems Excessive bureaucratic control procedures Excessive marketing & financial constraints Insufficient participation of subsidiaries in process
INTERNATIONAL PLANNING PROBLEMS Overseas Subsidiary n Management n n n n Resistance to planning Lack of qualified personnel Inadequate abilities Misinterpretation of information Misunderstanding requirements & objectives Resentment of HQ involvement Lack of strategic thinking Lack of marketing expertise n Processes n n n n Lack of control by HQ Incomplete or outdated internal & market information Poorly developed procedures Too little communication with HQ Inaccurate data returns Insufficient use of multi-national marketing expertise Excessive financial & marketing constraints
THE CONCEPTUAL FRAMEWORK OF A FIRM Strategic level Management level Operational level Production Marketing Personnel R&D
FUNCTIONS OF DIFFERENT MANAGEMENT LEVELS Strategic • Identify the stakeholder requirements • Define the corporate aims and objectives • Evaluate global opportunities • Organise the business structure • Control the corporate performance Management • Set the SBU objectives and allocate resources • Control the SBU programme • Organise opportunity analysis and research • Control international marketing planning Feedback Implementation • Set and achieve the budgets • Manage the functions (marketing, production, R&D, logistics) • Carry out marketing campaigns, manage advertising agents and distributors
ASPECTS OF THE INTERNATIONAL MARKETING PLAN Stakeholder Expectations Shareholders, customers, host government, employees in each country, pressure groups Situation Analysis Evaluation of the environment & individual markets Resource & Capabilities Individual SBU strengths & weaknesses analysis Capability to deal with threats and opportunities Corporate Aims & Objectives Financial, market, area, brand & mix objectives Marketing Strategies Growth strategies Standardisation & adaptation Implementation of the Plan Individual SBU & marketing mix plans Regional, global or multidomestic integration Control & Feedback Setting standards, measuring performance, correcting deviations
SOME TYPICAL STAKEHOLDERS OF MULTINATIONAL ENTERPRISES Shareholders Expatriate staff Individual politicians and civil servants Suppliers Distributors & retailers Customers Local competitors Home country government The Firm Host country government Local workers and their organisations Pressure groups Competitor MNEs
INTERNATIONAL NICHE MARKETING STRATEGIES FOR SMEs
STRATEGIES FOR SME INTERNATIONALISATION n n n Exporting International niche marketing Domestically delivered or developed niche services Direct marketing including electronic commerce Participation in the international supply chain
KEY MOTIVATORS TO INTERNATIONAL MARKETING Source: Katsikeas (1996) n Reactive stimuli: n n n adverse domestic market conditions opportunity to reduce inventories availability of production capacity favourable currency movements opportunity to increase the number of country markets and reduce market related risk unsolicited orders from overseas customers n Proactive stimuli: n n n n attractive profit and growth opportunities ability to easily modify products for export markets public policy programmes for export promotion foreign country regulations possession of unique products economies resulting from additional orders Managerial elements: n n n presence of export minded manager opportunity to better utilise management talent and skills management believes about the value of exporting
BARRIERS TO INTERNATIONALISATION n n n Too much red tape Trade barriers Transportation difficulties Lack of trained personnel Lack of export incentives Lack of coordinated assistance Unfavourable conditions overseas Slow payments by buyers Lack of competitive products Payment defaults Language barriers
SUSTAINING AND DEVELOPING THE NICHE n The firm must: n n n n n have good information about the segment needs have a clear understanding of the important segmentation criteria understand the value of the product niche to the targeted segment provide high levels of service carry out small scale innovations seek cost efficiency in the supply chain maintain a separate focus (eg by being content to remain relatively small) concentrate on profit rather than market share evaluate and apply appropriate market entry and marketing mix strategies to build market share in each country they wish to become involved in
THE DIFFERENCE BETWEEN EXPORTING & INTERNATIONAL NICHE MARKETING Exporting International Marketing strategy Selling production capacity Meeting customer needs Financial objective To amortise overheads To add value Segmentation Usually by country and customer characteristics By identifying common international customer benefit Pricing Cost based Market or customer based Management focus Efficiency in operations Meeting market requirements Distribution Using existing agents or distributors Managing the supply chain Market information Relying on agent or distributor feedback Analysing the market situation and customer needs Customer relationship Working through intermediary Building multiple level relationships
FACTORS AFFECTING SME INTERNATIONALISATION Generic Strategy Segmentation, Targeting, Positioning Industry Competitive Structure Market Factors Customer Segment SME Internationalisation Strategy Motivations Barriers Support Network Country Selection Stage of Internationalisatio Company Factors Owner’s ambition, capabilities and attitude to risk
LEVELS OF INTERNATIONALISATION
CHARACTERISTICS OF SUCCESSFUL INTERNATIONAL BUSINESS-TO-BUSINESS MARKETERS n Successful international business-to-business marketers have : n n n n n a clear competitive focus in international markets place and a specific directional policy as to where the top management intended taking the firm. high levels of repeat business and operate tight financial controls in export markets. the tenacity and the resilience to face challenges and drive through change. a perception that risk indicates a problem to be solved, not an insurmountable barrier; and View themselves as international niche marketers, not necessarily as good exporters Fully invest in ensuring they have a thorough knowledge of the international markets in which they operate. Are able to exploit distinctive product advantages in international markets. Are strongly committed to supplying quality products and services to all their customers wherever they were in the world. Build close relationships throughout the supply chain and invest in maintaining regular communications with their overseas partners. Have a well defined communications strategy and invested in good quality promotional materials.
MULTILATERAL ASPECTS OF THE INTERNATIONALISATION PROCESS Johannson and Vahline (1992)
GEOGRAPHIC DEVELOPMENT OF SMEs Birth High tech firms, born globals, Home market direct marketing, is trading bloc e. Commerce Global Domestic Piggybacking on OEM internationalisation Regional Contracts through family, friends, business & supply chains Concentration Expansion Network Supply Chain
MNE OUTSOURCING n Reasons for outsourcing n n n n reducing capital requirements of business Managing difficulty of developing quickly improving flexibility firms reluctant to take risks in noncore areas economies of scale of suppliers expertise of business support service providers downsizing may leave management resources stretched and unfocused n Disadvantages n n loss of know-how costs of managing outsourced supplies
OUTSOURCING FOR SMES n Advantages n n n opportunities for learning from OEM (Original Equipment Manufacturer) security of reliable and predictable ordering able to focus on production and technical issues n Disadvantages n n need for dependence on one/two major customers internationalisation driven by demands of OEM continual pressure to improve product and operations weakening external marketing
GLOBALISATION
MEANING OF ‘GLOBALISATION’ n n n n Market access Market opportunities Industry standards Sourcing Products & services Technology Customer requirements n n n Competition Co-operation Distribution Communication The company’s strategy, business programmes & processes
TOP 15 TRANSNATIONAL COMPANIES BY FOREIGN ASSETS SOURCE: ‘At a location near you’ (1997) The Economist
TRANSNATIONAL COMPANIES SOURCE: UNCTAD (1997)
BENEFITS OF GLOBAL SOURCING n n n n Cheaper labour rates Better or more uniform quality Better access to the best technology, innovation and ideas Access to local markets Economies of scale advantages Lower taxes and duties Potentially lower logistics costs More consistent supply
THE INTERNATIONAL COMPETITIVE POSTURE MATRIX Barons Kings Commoners Crusaders Product Strength Geographic Coverage Source: Gogel, R and Larreche, JC (1989)
ALTERNATIVE WORLD WIDE STRATEGIES Multi-Domestic Regional Global Individual Country Strategy Region is One Market One Global Segment Transnational Strategy Standardised Identity & Values With Composite Strategies
CONTINUUM OF STANDARDISATION Pricing Distribution Sales Force Sales Promotion Product Image Objectives Strategy Differentiation Standardisation
GLOBALISATION PUSH & PULL FACTORS ‘Globalisation Pull’ Globalisation of Markets Homogenisation of demand Global market segments Globally active customers Source: Meffet and Bolz (1993) in Hallibuton and Hunerberg (eds) European Marketing Readings and Cases Addison Wesley 1993 Marketing Standardisation Programme standardisation Process standardisation Globalisation of Industries R&D expenses Reduced pay back cycles Experience curve effects Globalisation of Competitors Market interdependence Global competitors Cross subsidisation ‘Globalisation Push’
FORCES DRIVING A MULTI-DOMESTIC APPROACH n n n Industry standards remain diverse Customers continue to demand locally Being an insider remains critically important Global organisations are difficult to manage Management myopia
TRANSNATIONAL STRATEGIES #1 n Transnational companies aim to build three strategic capabilities: Global scale efficiency and competitiveness n National level responsiveness and flexibility n Cross market capacity to leverage learning on a world wide basis n
TRANSNATIONAL STRATEGIES #2 n Challenges for firms wishing to build global presence: n n n Achieving truly global reach Building global appeal and responding to the changing basis of competitive advantage Managing the firm’s marketing strategy in less developed countries Building the global brand Customising the standardised product and service offer to individual customer tastes sometimes called ‘global one-to-one marketing’ For service firms, globalising presents additional and specific implementation challenges
DEMAND FOR CUSTOMISED SOLUTIONS n n n n customers cannot be classified into simple, stable segments the customer in not monodimensional desires guide consumption functional and technological attributes of products or services are balanced by its aesthetics and cultural attributes quality is now more subjective a wide permanent variety of products is required the quest for authenticity orientates consumption Source: Halliburton (1994)
GLOBAL ONE TO-ONE MARKETING Source: Halliburton (1994)
UNSEEN DANGERS IN FOREIGN INVESTMENT SOURCE: Report by Export Today (1997)
DRIVING FORCES OF RETAIL INTERNATIONALISATION SOURCE: Mc. Goldrich and Davies (1995)
MARKET ENTRY STRATEGIES
MARKET ENTRY METHODS & THE LEVELS OF INVOLVEMENT IN INTERNATIONAL MARKETS Levels of involvement Wholly-owned subsidiary Company acquisition Assembly operations Joint venture Strategic alliance Licensing Contract manufacture Direct marketing Franchising Distributors and agents Sales force Trading companies Export management companies Piggyback operations Domestic purchasing
SUCCESSFUL MARKET ENTRY #1 n Criteria for Selecting Appropriate Market Entry Method n n n The company objectives and expectations relating to the size and value of anticipated business The size and financial resources of the company Existing foreign market involvement The skills, abilities and attitudes of the company management towards international marketing The nature and power of the competition with the market
SUCCESSFUL MARKET ENTRY #2 n Criteria for Selecting Appropriate Market Entry Method n n n The nature of existing and anticipated tariff and non-tariff barriers The nature of the product itself, particularly any areas of competitive advantage, such as trademark or patent protection The timing of the move in relation to the market and competitive situation
RISK & CONTROL IN MARKET ENTRY Control Co-operation Strategies Joint ventures Strategic alliances Manufacturing Own subsidiary Acquisition Assembly Direct Exporting Distributors Agents Direct marketing Franchising Management contracts Indirect Exporting Piggybacking Trading companies Export management companies Domestic purchasing Risk
INDIRECT EXPORTING #1 n Domestic Purchasing n n n Foreign organisation purchases the product for export to another country Gives access to and limited knowledge of the international market Little control over choice of markets entered For longer term, need a more proactive approach Export Management Companies (EMCs) n n n Specialist companies act as the export department for a range of companies Help SMEs to initiate/develop/maintain international sales Deal with documentation, government regulation
INDIRECT EXPORTING #2 n Trading Houses n n n Their extensive operations and controls enable operation in more difficult trading areas Manage countertrade activities Piggy Backing n n n An established international distribution network of one manufacturer used to carry products of a second Particularly good for firms from developing countries Often poorly considered terms and conditions
THE COMPONENTS OF THE EXPORT MARKETING MIX Pricing: Policy, strategies, discount structures & trading terms Product: Selection, development & sourcing Distribution: Sales force management, agents, distributors & logistics Promotion: Corporate promotions & local selling, trade shows & literature EXPORT MARKETING MIX Technical: Specifications, testing & product quality Services: Market research, training & sales servicing Finance & Administration: Budgets, order processing, insurance & credit control
INITIATION AND DEVELOPMENT OF EXPORT PRODUCT POTFOLIOS
IMPORTANT FACTORS FOR SUCCESSFUL EXPORTING n n n commitment of the firm’s management exporting approach reliant on strong skills base good marketing and information communication system production capacity & capability, product superiority, competitive pricing effective market research effective national export policy Source: Katsikeas et al (1996)
AGENTS #1 n Selection Criteria for Finding a Suitable Agent Financial strength of the agent n Their contacts with potential customers n The nature and extent of their responsibilities to other organisations n Their premises, equipment and resources (including sales representatives) n
AGENTS # 2 n Achieving Satisfactory Manufacturer-agent Relationship n n n Allocate time and resources to find a suitable agent Ensure that both understand what each expects of the other Ensure that the agent is motivated to improve performance Provide adequate support on a continuing basis Ensure that there is sufficient advice and information transfer in both directions
REASONS FOR SETTING UP OVERSEAS MANUFACTURE n n n n n Nature of product e. g. perishable Costs of transporting and warehousing Barriers to trade e. g. tariffs and quotas Government regulations e. g. local investment Local manufacture viewed favourable by market Contributions to local economy Market information feedback International culture in firm Faster response and just-in-time delivery Lower labour cost
LICENSING # 1 n Techniques to Minimise the Potential Problems of Licensing n n Develop a clear policy and plan Allocate licensing responsibility to a senior manager Select licences carefully Draft the agreement carefully to include duration, royalties, trade secrets, quality control and performance measures
LICENSING # 2 n Techniques to Minimise the Potential Problems of Licensing Supply the critical ingredients n Obtain equity in the licensee n Limit the product and territorial coverage n Retain patents, trademarks, copyrights n Be an important part of the licences business n
FOREIGN MANUFACTURING STRATEGIES WITH DIRECT INVESTMENT n Reasons for investment in local operations n n n To gain new business: local production demonstrates strong commitment To defend existing business To move with an established customer To save costs: e. g. labour, raw materials and transport To avoid government restrictions
WHO PROVIDES WHAT IN EAST-WEST PARTNERSHIPS SOURCE: Florescu and Scibor-Rylski (1993)
DRIVING FORCES FOR THE FORMATION & OPERATION OF STRATEGIC ALLIANCES n n n n Insufficient resources Pace of innovation and market diffusion High research and development costs Concentration of firms in mature industries Government co-operation Self protection Market access
INTERNATIONAL PRODUCT MANAGEMENT
THE 3 ELEMENTS OF THE PRODUCT OR SERVICE Standardisation Adaptation The core product benefit or service Image BENEFITSPerceived Value Performance Quality Features Brand name ATTRIBUTES Packaging Design Size & colour variants After-sales service MARKETING Guarantees SUPPORT Installation SERVICES Delivery
EVALUATING THE PRODUCT n n n For what purpose has the product been developed and how would it be used in that country? What distinctive properties does it have? What benefits is the consumer expected to gain? How is it positioned and what image do consumers perceive it to have? Which consumer segments are expected to buy it, on what occasions and for what purpose? How does it fit into the total market?
REASONS FOR ADAPTATION OF THE PRODUCT n n n Long term aims, objectives and strategies One-year marketing objectives and individual SBU strategies Country-by-country forecasts and targets Country-by country marketing plans for all activities Plan for regional and global integration
Determining the Product Range n n n n n Overall growth/profit objectives Experience, philosophies and attitude of the company to international development Characteristics of the market Requirements, expectations and attitudes of the consumers in the market The products and services themselves Ease of distribution Support required from other elements of the marketing mix Environmental constraints Level of risk that the company is prepared to take
THE INTERNATIONAL PRODUCT LIFE CYCLE Sales Market DDomestic Market C Market B Market A Time
THE PORTFOLIO APPROACH TO STRATEGIC ANALYSIS High G Ne J Sp S Market Growth Stars Question Marks US I Fr Low Cash Cows High Key: Dogs Relative Market Share Low Ne - Netherlands G - Germany S - Sweden US - United States F - France I Italy Sp - Spain J - Japan
THE BRAND VALUE EQUATION Tangible & Intangible Benefits BRAND = VALUE Benefits Received by Customers Costs to the Customer of Brand Purchase Total Cost of Ownership
WORLD’S MOST VALUABLE BRANDS (2000)
BRAND VALUATION n The most basic criteria for brand evaluation include: n n title to the brand has to be clear and separately disposable from the rest of the business the value has to be substantial and long term, based on separately identifiable earnings that have to be in excess of those achieved by unbranded products
INTERNATIONAL BRANDING MODEL
NEW PRODUCT CATEGORIES
NEW PRODUCT DEVELOPMENT PROCESS n n n Idea generation Initial screening Business analysis Development Market testing Commercialisation and launch
RESEARCH & DEVELOPMENT STRATEGIES n International companies must take decisions on: n n n Location of their own internal R&D facilities Extent to which they contract out certain parts of their R&D programme Whether or not they might acquire a company which can provide either the required new technology or a new product Licensing the technology and process from another company Funding joint ventures or strategic alliances with companies that have complementary technology
THE ARGUMENTS FOR & AGAINST CENTRALISATION OF R&D ARGUMENTS FOR ARGUMENTS AGAINST CENTRALISATION • economies of scale • pressure from subsidiaries • easier and faster communication • pressure from governments • better co-ordination • benefits of public relations • greater control over outflow of • use of a wider range of skills and information with implications for abilities secrecy • financial savings • greater synergy • benefits from comparative • avoiding duplication advantage • overcoming problems of • greater sensitivity to local tastes ownership • better monitoring of local
FAILURE OF NEW PRODUCT DEVELOPMENT n n n n Tariff and non-tariff barriers Local competitor subsidiaries Cultural insensitivity Poor planning Lack of unique selling proposition Product deficiencies Misguided enthusiasm of top management
INTERNATIONAL COMMUNICATIONS AND INTERNET MARKETING
EXTERNAL, INTERNAL AND INTERACTIVE MARKETING
THE DIMENSIONS OF EXTERNAL MARKETING COMMUNICATIONS EXTERNAL STAKEHOLDERS Using Communications To Build Relationships Communication with existing and potential customers regularly & systematically to build close Communicating The Product, The Service Corporate Differentiation Identity Communication of a Communication to all distinctive brand image, stakeholders of a clear the unique positioning and distinctive corpor of the product and the identity for the firm reasons to buy, supported by sponsor by advertising, personal& public relations selling and sales promotion
FAILURE IN INTERNATIONAL MARKETING COMMUNICATIONS #1 l Internal Factors: n Inconsistency of messages conveyed to customers n Different styles of presentation of corporate identity, brand product image n Lack of co-ordination of messages eg press releases, advertising campaigns n Differences in fields of perception of sender and receiver
FAILURE IN INTERNATIONAL MARKETING COMMUNICATIONS #2 l The Effects of External Factors: n Counterfeiting n Parallel importing n Competitors, governments or pressure groups
PROMOTIONAL OBJECTIVES #1 n Sales Related: Increasing market share at the expense of local/international competitors n identifying new potential customers or obtaining a specific number of responses to a promotional campaign n Reducing the impact of competitors in the market n Source: Wilson R & Gilligan C (1997)
PROMOTIONAL OBJECTIVES #2 n Brand/Product Communications Related: n n Increasing the value of the corporate brand the product image Helping to establish the position or re-position the product or brand Increasing awareness levels especially in new country markets Changing consumers’ perceptions or products, brands or the firm Source: Wilson R & Gilligan C (1997)
PUSH AND PULL STRATEGIES
INTERNAL & EXTERNAL INTERNATIONAL COMMUNICATION PROGRAMME #1 n Internally Focused Programmes n n n n Corporate identity Internal marketing communications Salesforce, dealer and distributor training and development Retailer merchandising First contact customer service After sales service Quality management Brand management
INTERNAL & EXTERNAL INTERNATIONAL COMMUNICATION PROGRAMME #2 n Externally Focused Programmes (Marketing Mix) n Product attributes n Distribution channel n Price n Product/service promotion n People n Customer service process n Physical evidence for the service delivery
MARKETING COMMUNICATION TOOLS #1 n n Personal selling and word of mouth Exhibitions and trade fairs Trade missions Advertising n n n TV advertising Press advertising Use of agencies and consultancies n n Financial Specialist knowledge Creative input External perspective
TOP 15 ADVERTISING SPENDERS OUTSIDE THE USA
MARKETING COMMUNICATION TOOLS #2 n n Sales promotions Direct Marketing Cyberspace advertising Communicating with a wider range of stakeholders n n n Corporate identity Sponsorship Public Relations
FUTURE MARKETING CHALLENGES FACING THE USE OF INTERNET n n Customers in some countries place a higher emphasis on using verbal interactions Brand values dependent on image, reputation, word of mouth etc e. Commerce favours global players Design of web site critical in winning customers from domestic company
THE DIMENSIONS OF TRANSACTION AND RELATIONSHIP MARKETING n Transaction n n n Purchaser-marketer interaction Features-benefits offer Discrete interactions Competitive Winning new customers Top down directives Quality, value and service n Relationship n n n n Team based, integrated interactions Value added Continuous interactions Co-operation Retaining customers Horizontal interactions Customer satisfaction
BRAND VALUE BASED ON CUSTOMER SERVICE Promotion The standard Product brand mix Price Customer service Customer satisfaction (with luck) Distribution Brand perception (the promise) (the reality)
BRAND VALUE BASED ON CUSTOMER SATISFACTION Price Distribution Customer satisfaction Customer Service The flexible mix Promotion Product Brand perception (no compromise)
TRADITIONAL RELATIONSHIP
PARTNERSHIP LINKAGES
FOCUSING ON THE SIX MARKETS
MANAGING CURRENCY FLUCTUATIONS #3 l. When the domestic currency is strong: n. Compete on non-price factors (quality, delivery, service) n. Improve productivity and reduce costs n. Prioritise strong currency countries for exports n. Use counter-trade for weak currency countries n. Reduce profit margins and use marginal costs for pricing
MANAGING CURRENCY FLUCTUATIONS #4 l. When the domestic currency is strong: n. Keep the foreign earned income in the local country n. Maximise expenditures in local country currency n. Buy services abroad in local currencies n. Borrow money for expansion in local markets n. Invoice foreign customers in their own currency
COUNTER-TRADE #1 n Forms: Barter n Compensation trading n Counter-purchase n Offset n Switch deals n Buyback n
COUNTER-TRADE #2 n Advantages of Counter-trade New markets n Sell off surplus or poor quality products n Disguise dumping n Strengthens inter-government ties n Entry to high risk areas n Circumvent government restrictions n
COUNTER-TRADE #3 n Disadvantages of Counter-trade Lack of flexibility n Exchange products difficult to sell n No price guide n Difficult profit evaluation n May create new competition n
THE EXPORT ORDER PROCESS Initial Enquiry Pro-Forma Invoice 2 C O M P A N Y 6 7 8 9 C O N F I R M I N G B A N K 1 5 Confirmed Order 3 Letter of Credit 4 Shipping Goods Shipment of Documents Commercial Invoice & Documents in Letter of Credit Payment I S S U I N G B A N K 10 C U S T O M E R
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