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Tapping into Global Markets

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Max Kuesters

on 8 October 2014

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Transcript of Tapping into Global Markets

Chapter 21 - Tapping into Global Markets
Describe the factors that a marketer should review before deciding to go abroad.

Describe how marketers evaluate and select specific foreign markets to enter.

Differentiate between marketing in a developing and a developed market.

Discuss the major ways of entering a foreign market.

Explain the extent to which the marketer can adapt its products and marketing program to each foreign country.

Explain how marketers influence country-of-origin effects.

Describe how a company should manage and organise its international activities.

After studying this chapter, you should be able to:
A global firm is one that operates in more than one country and captures its R&D, production, logistical, marketing and financial advantages in its costs and reputation that are not available to purely domestic competitors.

WHAT IS A GLOBAL FIRM?
Starting point for international activities

Using independent Intermediaries

Small investment and risk

Less control

Indirect Export
What do you think is this?
Devon Lailvaux
Nazle Jasson
Max Kuesters

1. DECIDING WHETHER OR NOT TO GO ABROAD
Most companies would prefer to remain domestic if their domestic market were large enough. Managers would not need to learn other languages and laws, deal with volatile currencies, face political and legal uncertainties or redesign their products to suit different customer needs and expectations.

REASONS FOR PURSUING GLOBAL MARKETS:
Some international markets present better profit opportunities than the domestic market.
The company needs a larger customer base to achieve economies of scale.
The company wants to reduce its dependence on any one market.
The company decides to counterattack global competitors in their home markets.
Customers are going abroad and require international service.

e.g. Every legal system has its own principles relating to international trade. Even if increasingly converging with other countries, South Africa’s law of international trade displays its own unique features in comparison to that of Germany, France or England.

RISKS OF GOING ABROAD
Before making a decision to go abroad, the company must weigh several risks:

The company might not understand foreign preferences and could fail to offer a competitively attractive product.
The company might not understand the foreign country’s business culture.
The company might underestimate foreign regulations and incur unexpected costs.
The company might lack managers with international experience.
The foreign country might change its commercial laws, devalue its currency, or undergo a political revolution and expropriate foreign property.

THE INTERNATIONALISATION PROCESS
Companies are driven by events which thrust them into the international arena. The internationalisation process typically has four stages:

STAGE 1: No regular export activities.
STAGE 2: Export via independent representatives (agents).
STAGE 3: Establishment of one or more sales subsidiaries.
STAGE 4: Establishment of production facilities abroad.

Ideally, the company’s first task is to move from stage 1 to stage 2. Most firms work with an independent agent and enter a nearby or similar country. Later, the firm establishes an export department to manage its agents relationships. Later, it replaces agents with its own subsidiaries in its larger export markets. Next, to manage subsidiaries, the company replaces the export department with an international department or division. By this time, it’s operating as a multinational and optimising its sourcing, financing, manufacturing and marketing as a global organisation.

e.g s 6 (1) of the South African Law of International Trade states that a number of geographical places have been designated by the commissioner as places of entry for South Africa through which goods may be imported or exported or where they may be entered for customs and excise purposes.

HOW MANY MARKETS TO ENTER?
The company must decide how many countries to enter and how fast to expand. Typical entry strategies:


The waterfall approach: Gradually entering countries in sequence.
The sprinkler approach: Entering many countries simultaneously.
Born Global: Firms market to the entire world from the outset.

DEVELOPED versus DEVELOPING MARKETS
One of the sharpest distinctions in global marketing is between developed and developing or emerging markets such as Brazil, Russia, India, China and South Africa (BRICS).

Two other developing markets with much economic and marketing significance are Indonesia and South Africa. The unmet needs of the developing world represent huge potential markets for food, clothing, shelter, consumer electronics, appliances and many other goods.

Food for thought………
In an interview with The Economic Times of India, Gerard Minack, Global Developed Market Strategist at Morgan Stanley picks the developing over the developed world.

“It is possibly the most dangerous cycle we have been through in this four-year-long crisis,” he says about the sovereign debt problem in the advanced economies. ” In the developed world, the question I get asked most is what can policymakers do? What is really starting to eat away the investors now is this sense that policymakers had given their best shot. The recovery seems to be faltering and as a consequence we just do not know what options I have left or at least options that could be effective over any medium-term horizon. In that sense in the developed world, it is almost a cycle that none of us has seen before,” he says, adding that in Asia — where he is based — policy makers have more room to respond to the crisis.

EVALUATING POTENTIAL MARKETS
How does a company choose among potential markets to enter? Many prefer to sell among neighboring countries because they understand them better and can control their entry costs more effectively.

At other times, psychic proximity determines choices. Given more familiar language, laws and culture, many South African firms will sell to its neighboring states of Namibia, Botswana, Zimbabwe, Mozambique, Lesotho and Swaziland.

How to Enter the Market
Five Modes of Entry into Foreign Markets - Fig. 21.2
Direct Export
Domestic-based export department

Overseas sales branch or subsidiary

Traveling export sales representatives

Foreign-based distributors or agents

For example, small Wine Producing Companies can choose to sell their products overseas through intermediaries or by direct exporting.

Licensing
Licensor issuing a license to a foreign company to use a manufacturing process, trademark, patent, ...

Management Contracts

Contract Manufacturing

Franchising (manufacturing/wholesaling/service)

Less control, loss of intellectual property possible

Joint Ventures
Shared ownership and control over a new formed company

Necessary or Desirable for economic or political reasons

Relationship of Partners crucial

Direct Investment
Full interest in a local company or building own facilities as the ultimate form of foreign involvement

Advantage of most possible profit through cost economies, image improvement, deeper relationships within the host country, full control and assured access to the market

Disadvantage → greatest risk

The Marketing Program
Globally Standardized Marketing
Table 21.2
Cultural Dimensions (Hofstede)
Individualism versus Collectivism

High versus Low Power Distance

Masculine versus Feminine

Weak versus Strong Uncertainty Avoidance

What Aspects Might Be Adapted for International Marketing?
Sales Promotion
Ten Commandments of Global Branding
Understand Similarities and Differences in the Global Branding Landscape
Do not take Shortcuts in Brand Building
Establish a Marketing Infrastructure
Embrace Integrated Marketing Communications
Establish Brand Partnerships
Balance Standardization and Customization
Balance Global and Local Control
Establish operable Guidelines
Implement a Global brand-equity Measurement System
Leverage Brand Elements

Global Product and Communication Strategies
Fig. 21.3
Product
Do not change Product
Communication
Global Product Strategies
Product Standardization

Product Adaption
Straight extension
Product adaption
Product invention - Backward and Forward

Brand Element Adaptation
Global Communication Strategies
Communication adaption process
- Changing marketing communications for each local market

Dual adaption process
- Adapting both the product AND communications

3 Approaches to communication:
- One message
- Same message BUT adapted execution
- Global pool of ads

Global Adaptions
Legal and Cultural adaptions
Alcohol – cannot be advertised in Muslim countries
Tobacco – subject to strict regulation in many places
Toys – no TV ads directed at children under 12

Appropriateness
Comparative Ads – companies specifically showing its product/service to be superior over competitors and why competitors are inferior
Varying appeal – Products appeal to some consumers and not others, E.g shampoo

Change in Personal selling tactics

GLOBAL PRICING STRATEGIES
Challenges faced by multinationals selling abroad

Price Escalation
Multinationals selling abroad need to add the cost of transportation, tariffs, importer margins, wholesaler margin and retailer margin to its factory price.
These added costs with currency fluctuation risk can increase the price by 2 to 5 times to earn the same profit in another country.
Companies have 3 choices for setting prices in different countries:
E-Commerce – Selling over the internet allows for price transparency and price differentiation between countries declines, E.g. online training course vs classroom delivered training in different countries

Price cuts and Devalued currencies – Countries with over capacity, cheap currency and the need to export push prices down E.g. China

Transfer Prices
A
Transfer price
is the price one unit charges another unit within the same company for goods it ships to its foreign subsidiaries

High Transfer price - High tariffs but lower income taxes

Low Transfer price - company can be accused of
dumping



Dumping
– Charging either less than it costs or less than it charges at home

Arm’s-length price – Governments often force companies to charge the same price as competitors

Evidence of dumping will lead to a dumping tariff to be imposed

Gray Market
Gray markets
– Diversion of branded products from authorised distribution channels to other regions or countries.
Grey market activity accounts for billions of dollars of revenue each year
Harm distributor relations
Tarnish the manufacturers brand equity
Pose a risk to consumers – product damaged, remarked, obsolete or without warranty

Avoiding Gray Markets
Policing distribution channels
Raising prices to low cost distributors
Altering product characteristics or service warranties for different countries

Counterfeit Products
Counterfeit products
- fake copies or replicas of popular brands’ products that are sold, taking a huge proportion of the profits of luxury brands.

It is estimated to cost over a trillion dollars a year
Counterfeit products don’t only steal money but can also be a safety hazard.
E.g. Fake break pads



Solutions

Web crawling technology searches for counterfeit storefronts online

GLOBAL DISTRIBUTION STRATEGIES
Whole Channel Concept for International marketing

Channel Entry
Sellers International marketing headquarters
- export department or international division makes decisions about channels

Channels between nations

Gets products to the borders of foreign nation
Decision of type of intermediary preferred
Transport, finance etc.

Channels within foreign nations
– Gets product from their entry point to final buyers and users


When multinationals first enter a country they prefer to work with local distributors with good local knowledge.

Channel Differences
Distribution channels across countries vary in
:

Size – number of intermediaries involved
Composition – type of intermediary involved
Size and character of retail units – large scale retail chains
Small shop retailers – Price comes down through haggling or bargaining

Breaking bulk
- Important function of intermediaries

Process of buying products in bulk for a cheaper price per unit and selling the product in a smaller quantity with a mark up

Country-of-Origin Effects

and

Deciding on the Marketing Organization
self study
Article
Workbook, p. 289

David K. Tse, Kam-hon Lee, Ilan Vertinsky, and Donald A. Wehrung

"Does Culture Matter? A Cross-Cultural Study of Executives´ Choice, Decisiveness, and Risk Adjustment in International Marketing"
Thank you for your attention!
Feel free to ask any questions...
Full transcript