Strategic Approach to Entering Foreign Markets
Strategic Approach to Entering Foreign Markets Module: International Marketing Management International marketing – marketing of goods and services outside the country of deployment of the company’s head office (Cant et al, 2007). Multinational marketing is a complex form of international marketing, which relates to organizations conducting marketing operations in many foreign countries. Multinational firms include Nestle, Unilever, Shell, Exxon and Coca-Cola. These companies own the trademarks, well-known around the world as well as perform extensive international operations.
Large multinational organizations often allocate company resources across national boundaries, although related to a particular country in terms of ownership and senior management (Cant et al, 2007). Fundamental differences between marketing to internal (in the national market) and international, including export, does not exist. In both cases the same principles. However, due to the specific external international trade cannot be specific to foreign country markets, especially the economic, political, legal, social, and cultural environment of a country must be borne in mind particularly in international trade.
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What also need to be taken into account are international agreements, trade practices and customs. The sequence of the main tasks of the following: the study of international marketing environment, preparing a decision on whether to enter the foreign market, the choice of specific markets, the development of methods to market, the formation of the marketing, development of marketing (Kotler and Armstrong, 2010). The emergence and development of the concept of international marketing as a kind of marketing activities were 60-70 years of the twentieth century.
It was at this period was the necessary prerequisite for the restructuring of the market on an international scale, based on the principles of marketing (Pickton and Masterson, 2010), which has proven in the previous period to be effective as an effective system of corporate governance and a means of competition in the national markets. In modern conditions of the economic aspects of society, which is characterized by further increasing competition in world markets, more complex and diversified, both technological and organizational odels of production, emergency information saturation and communication, effects of foreign economic activity, as well as the economic activity in general, as closely linked to the objectives and methods of marketing tools. And its international aspects significantly updated, thanks to the further internationalization of the world economy, the expansion of international trade, a more dynamic and massive movements of capital and labour (Boone and Kurtz, 2012). According to Kleindl (2008), international economic relations are becoming more and more visible part of the economic activity of enterprises and organizations.
There is interest to participate in the economic, industrial, scientific and technical cooperation with partners from other countries. In these conditions, a growing number of manufacturing workers, small businesses and government agencies in need of objective information on the world market, its structure, organization and technology commercial operations. For many businesses, the study and application of international marketing is necessary because of the increasing openness to foreign markets and to improve their relationships with these markets.
Most companies would prefer to work on a sufficiently large domestic market, as in this case, the conduct of business would be easier and safer. However, the influence of several factors pushing companies to enter the international market. 1. Domestic market of the company can be attacked by global companies offering better or more shower products. 2. Some foreign markets offer the possibility of higher returns. 3. To achieve economies of scale necessary to expand the market for the company. 4.
To reduce the risk of the company aims to reduce dependence on a single market. 5. Customers are companies operating abroad may require service and across national borders (Pickton and Masterson, 2010). When making a decision to enter the foreign market it is highly important that all possible risks are carefully assessed. These risks can be the following: 1. Misunderstanding preferences of foreign consumers, offering uncompetitive, unattractive products. 2. Someone else’s business culture, the inability to communicate effectively in the “natives. 3. Ignorance of the rules regulating business abroad and unforeseen costs. 4. The lack of managers with international experience. 5. Foreign country can change trade laws, devalue the currency, it can happen coup that would expropriate the property of foreign firms. Competitive advantages in the country and the high risks of international activities delayed the company’s entry into the world arena, as long as someone: the domestic exporter, a foreign importer or a foreign government – do not push it to the export of goods.
Another incentive can be a need to find new markets for products (Czinkota and Kotabe, 2001). When deciding on the foreign market should set goals and develop a policy of international marketing. Management company should ask the following questions and receive answers to produce its own marketing strategy: * How much output will be exported? * What is the scope in future overseas operations – minor or equal to the internal volume of the production company, or even more? * What would be the scope of activity – a limited number of markets or global expansion? Gilligan and Hird, 2010) The most appropriate presence in several countries with great depth coverage of the market in each of them. The company must limit the number of foreign countries in which it operates, if: – High costs of entry and control over them; – Significant adjustment costs of production and means of communication; – Originally selected country is characterized by a high number of people whose income is constantly growing; – Dominated by foreign firms set high barriers to entry. Which group of countries will be considered? The attractiveness of a country depends on the type of products manufactured by the company, geography, population size and income, political climate. * Which of pre-selected markets is the most promising? Many companies prefer to export products and to organize production in neighbouring countries, since this can be considered more cost efficient in many ways (e. g. logistically). Another important factor is the psychological closeness of people in different countries.
When choosing the market applicant countries may be initially divided into groups according to three main criteria: attractiveness of the market, competitive advantages and risks. Despite the fact that the basic principles of marketing apply to international marketing, often between the domestic and foreign markets, there are significant differences that must be considered. Each market must be assessed separately. Warren Keegan (2012) said: “There is no such thing as a multi-ethnic market. We have national markets around the world, but none of the multinational.
Each one is unique, unlike any other, and so is the national market. ” In the development of an international marketing strategy should take into account the cultural environment of each market. Culture is transmitted from generation to generation, varies across countries and continents, and it is not easy to change. National company, unfamiliar or insensitive to it, may be trying to sell goods and services that are inappropriate or misunderstood given culture. Sometimes the fault lies with the company, because it acts from the national headquarters and receives small amount of local information from other countries.
In other cases, such as marketing in developing countries, information on the population is poor, and sometimes postal and telephone services are not satisfactory. According to Czinkota and Kotabe (2001) cultural awareness can be improved through the use of foreign personnel in key positions, hiring of foreign experts in marketing research, placing a single firm in each country where it operates, actively explore cultural differences and respond to changes in the culture. The economic environment of the country shows the current and potential consumption of goods and services.
Indicators of economic performance include the level of life, the gross domestic product, and the level of economic development and the stability of the currency. It also characterizes the average standard of living of the quantity and quality of goods and services consumed in the country. Gross national product (GNP) means the total value of goods and services produced in a country in a year. Data on the amount of per capita GDP can be misleading. First, these figures show the average values, not the distribution of income.
Second, the same income provides a different standard of living in each country, income of 20 thousand dollars in the United States may be the same level as income of 10 thousand dollars in another country. Opportunities for marketing may be determined by identifying the level of economic growth (Boone and Kurtz, 2012). Little scope for marketing commonplace in developed countries due to higher levels of discretionary income and life. However, the population in these countries are generally stable and the sale of certain products may have reached saturation level.
In these countries, from the perspective of international marketing there is long-term potential. Another factor, which the firm should take into account in its international marketing, is the stability of the currency, as the fluctuations of foreign currency to local currency firms can significantly affect sales and profits. For example, 17 August 1998 economic crisis in Russia has led to a devaluation of the national currency by 300%. This meant that Russian goods became much cheaper for consumers in other countries, while for the Russians any consumption of foreign goods become a very costly affair.
As a result, many companies were faced with enormous difficulties in exporting to Russia, because their prices were relatively high (Pickton and Masterson, 2010). The following step is working out penetration strategies to foreign markets. Having made the decision to enter the market of the country, the firm should develop an optimal strategy of penetration, which can be one of the following: – Indirect exports; – Direct exports; – Licensing; – Joint ventures; – Direct investments (McDonald and Dunbar, 2004). Each subsequent strategy of the above implies increased responsibility, risk, control and profit potential.
Indirect exports A natural way to enter the foreign market – exports. Exports, on the occasion – passive version of participation in international trade, when the company goes to the foreign market from time to time, on its own initiative or upon receipt of overseas orders. Active export occurs when a company decides to expand the supply of products to a particular market, but in any case, makes production in the country, adapting the product to the foreign market. Exports suggests some changes in the value chain of the company, organizational structure, investment policies and objectives.
According to Onkvisit and Shaw (2009), companies usually start with indirect exports through independent intermediaries: – Domestic intermediary exporter buys the product from the manufacturer and then selling it abroad. – The domestic agent exporter looking for buyers abroad and arranges for delivery, hoping to get a commission. This group also includes the trading companies. – Cooperative Organization and exports on behalf of several producers and partly under their administrative control. Often used by manufacturers of simple foods – fruits, nuts, etc. Management company manages export activities for a specified fee. There are two advantages, which can be considered when choosing indirect export: 1. It is relatively easy to implement it as it is not expensive, there is no need for the export department, which will sell abroad or establish contracts with foreign partners. 2. Such export less risky as intermediaries acting on their own initiative, based on the knowledge of foreign markets, and offering additional services to the manufacturer (Gilligan and Hird, 2010). Direct exports
When deciding on a self-certified products, please note that the work on the international market is associated with significant costs and the increased risk, offset by savings pay for the mediator (Brady, 2011). Here are some ways to organize direct exports. – The export department or division, whose responsibilities include the implementation of sales abroad and the organization of the cathedral the necessary information about the market. The export department can become a self-contained unit that will accumulate the information and guidance of all export activities (Cant et al, 2007). Foreign sales department or subsidiary. Foreign sales allow the manufacturer to use the effect to be present in the market and monitor the implementation of marketing programs. Foreign sales and distribution of implements of production, sometimes The functions of the organization, storage and product promotion, demonstration and service centre (Wilson and Gilligan, 2002). – Sales representatives. To search for foreign clients the company uses its sales representatives. – Foreign distributors or agents.
For organizing the sale of products, the company refers to foreign distributors or agents that can be given exclusive or limited rights to represent the manufacturer in the country. The best way to salute the company’s products with the direct or indirect export are participating in overseas exhibitions. Licensing According to Czinkota and Kotabe (2001) licensing is the easiest way to take advantage of the international division of labour. Usually for a fee, the licensor to provide foreign companies the right to use its manufacturing and trade secrets, trademark or patent, and so with minimal risk have access to foreign markets.
Licensee also receives production expertise or a well-known product (brand). However, the company licensor is not able to exercise strict control over the activities of the licensee. Moreover, the licensee’s success leads to a reduction of licensor’s income. At the end of the contract term the company may discover that “the hands” is now an established competitor. To avoid this metamorphosis, the licensor is practicing supply any proprietary ingredients or components. The best strategy for a licensor is leadership in innovation, which restricts the freedom of action by the licensee (Boone and Kurtz, 2012).
There are several options license agreements, and in particular the management of the contract, when a certain company for a fee manages foreign hotels, airports, hospitals, and other organizations. In this case, it does not export products, and management services. This type of export is characterized by low risk and from the beginning to bring good income. Agreement of this type are particularly attractive if the management companies are the opportunity to buy some part of the property of a foreign partner for a specified period, or it provides that effective management company receives high rewards.
Management contract relieves the company from the competition by the client (Boone and Kurtz, 2012). Pride and Ferrell (2012) say that another way to access to foreign markets is the production of the contract, when the production of certain products, the company instructs local firms. The disadvantages of the production contract is the lack of a foreign company increased control over the production process. However, this form allows us to speed up access to foreign markets, a low level of risk and facilitates later own or joint venture. The company also may enter the international market with the franchise – developed form of licensing.
Franchise seller offers the buyer the trade mark, and seamless manufacturing system. A popular access to foreign markets is through joint ventures when the company shares ownership and control of production with a local company. Creation of a joint venture may be necessary or desirable for economic or political reasons. Perhaps foreign digging lack of financial, material or managerial resources or a joint venture – a precondition to entry for government. Joint ventures to enter the closed markets have even corporate giants. In a joint venture, there are some drawbacks.
Partners may differ in opinion as to the direction of investment, marketing, use of profits (Pride and Ferrell, 2012). Moreover, the joint venture may make implementation of multinational special production and marketing policy in the world. Direct investment Last form of output to foreign markets is to create your own assembly or manufacturing plant. This may be due to the following factors: 1. As you gain experience by industrial activity on a large foreign market, it is able to take advantage of low labour costs, raw materials, benefits provided by the government. 2.
Creation of new jobs promotes a positive image of the company in its host country. 3. Maintaining good relations with the authorities, customers, local suppliers and distributors, the company adapts its products to the needs of the market. 4. The company has full control investments and conducts production and marketing policy that best meets its long-term goals (Carson, Gilmore and Perry, 2005). However, the main disadvantage of direct investment is that the company is not immune to the deterioration in market conditions, currency devaluation or expropriation of her property in the event of any political upheaval.
When operating in foreign markets, companies must somehow adjust their marketing strategies to local conditions. Some have a policy of maximum standardization of products, advertising companies, distribution channels, which can significantly reduce costs. Others consider it necessary to develop specific marketing strategies for each target market (Kotler and Armstrong, 2010). There are 5 different strategies to adapt the product and its promotion on foreign markets. Direct distribution means offering external market of the original product without any changes.
However, the firm must pre-answer the question of whether foreign consumers of similar products. Direct distribution is attractive in that it requires no additional costs for research and development, re-production or changes in the way of progress. At the same time, the long-term prospects of this savings can be costly for the firm. Product adaptation involves changing the product in accordance with the conditions of each country and the preferences of local consumers. There are several levels of adaptation. The company can produce a regional model – for the Western European, North American, etc. arket or a particular model for each country (Brady, 2011). Products often vary according to local conditions and needs, in some cases, included religious beliefs or prejudices of the local population. In Asia, the religion has a direct impact on sales. The invention of the goods means the creation of a new product. Re-invention – a re-submission of the old, but perfectly suited to the demands of foreign markets the product model. Progressive invention – the creation of a new product that meets the needs of customers of any country.
The invention of the goods is an expensive strategy, however, and profits can be very high. In international trade, the share of services is constantly increasing. The pace of growth of the world market is twice the growth rate of trade in goods (Wilson and Gilligan, 2002). The largest companies in the field of accounting, advertising, banking, communications, construction, insurance, law and management consulting, continued global expansion. The success of the service representatives strive to develop retail, using the latest technology and know-how (Cant et al, 2007).
Many states have introduced business, complicating the penetration of foreign companies from the scope of services in their home markets. To promote products in foreign markets, companies can use proven marketing concepts and promotional activities or change in accordance with market conditions. This process is called communication adaptation. If the company adapts to the demands of the foreign market and product and promotional activities, the process is called a double adaptation. Treatment of the consumers can be transformed to four different levels. 1. only change the language of the product name and colour; . the use of one, but adapted to the local market issues; 3. development of a global fund for advertising, from which to select the most suitable option for each country (McDonald and Dunbar, 2004); 4. funding for the development of advertising for individual countries. Promotion requires adaptation and practice of using different media. In Norway and Sweden banned TV advertising, in Belgium and France – television advertising of cigarettes and alcohol, and in Russia it is limited to the time display. Companies need to adapt to local conditions and methods of promotion.
For example, in Greece banned coupons, and in France – the lottery, in addition, in the country stipulates that the cost pr6emy and gifts should not exceed 5% of the price of goods (Gilligan and Hird, 2010). The Europeans and Japanese are usually bought goods by mail, not by phone. Companies operating in the foreign market, prefer to place the responsibility for moving goods to local managers, well-versed in regional characteristics. According to Onkvisit and Shaw (2009) in the foreign market multinationals face specific problems of prices for products: sliding, transfer, dumping prices and the shadow market.
The export of goods to the actual price of the manufacturer added transport costs, customs duties, surcharges importers, wholesalers and retailers. Depending on the value added and changes in exchange rates on the foreign market goods can be sold at a price of 2-5 times the price of the manufacturer, that the latter can get the same profit, and in the domestic market. The companies have to develop a special pricing policy for each country. The establishment of uniform prices. In establishing a unified product price margins will fluctuate depending on the economic conditions of the various countries.
The result of this strategy is the establishment of high in comparison to other similar drinks prices in underdeveloped countries and inadequate in countries with high living standards. The establishment of market prices in each country. In applying this strategy, you can set the price of each country that is developing at the moment on the market. However, this strategy does not take into account the difference in production costs between countries, speculators will buy the product in the country in which it is sold cheaper, and send it to where it is more expensive (Cant et al, 2007).
Cost-based pricing in each country. This strategy involves setting prices by the amount of costs plus a standard margin. But such a policy would force the company to leave the markets in which production costs are too high (Wilson and Gilligan, 2002). With considerable challenges face us, practicing transfer prices (i. e. prices used in the exchange of products between the various divisions of the company) for the overseas subsidiary companies. If the company sets high transfer prices, it has to pay high import duties, although income tax of the subsidiary in the host country will decrease.
If a company sets a low transfer prices, this practice can be seen as dumping (pricing of the product below the cost of production or below the level existing at the moment on the international market). In connection with the antidumping laws of other countries, national governments have to ensure that national manufacturers are not abused, often forcing companies to set prices at competitors’ prices for similar items (Kotler and Armstrong, 2010). A scourge for many multinational companies becomes black market, where one and the same product is sold at different prices in different countries.
Dealers out of the country with low prices find ways to sell the product in the country with high prices and earn it. Brady (2011) says that some companies find that some enterprising distributors buying more goods than they can sell in their country, and forward those to the neighbouring states, profiting from the difference in prices. Multinational companies are fighting the emergence of the black market by monitoring the distributors, increased selling prices, modifying the characteristics of goods or warranty service in different countries.
Distribution channels As McDonald and Dunbar (2004) say, company operating in the international market, should have a clear understanding of the status of all the channels of distribution of goods to the final consumer. Communication between the manufacturer and the end user through: 1. International Marketing manufacturer, make decisions on the distribution channels and other components of a marketing strategy; 2. International distribution channels through which the goods are delivered from border to border.
Decisions related to these channels, provide a definition of types of intermediaries (agents, trading companies), modes of transportation (air, sea, etc. ), financing and agreement on the levels of risk. 3. Channels within the foreign country. National differences in the number and types of intermediaries that serve different markets may be very different. Another difference is the size and nature of the retail trade of various countries (Onkvisit and Shaw, 2009). With the rapid development of new industries international marketing strategy should be aimed at the development of future contours of new markets in its own advantage.
Capturing the leading position in the emerging, not yet fully formed and are not divided by the market provides an opportunity to dictate their own terms (standards, technical specifications, prices, production and marketing) in the future. Of particular importance is the marketing strategy of push technique (McDonald and Dunbar, 2004). A strategy based on technological advancement, compared with a strategy of “market retraction” likely to result in a breakthrough innovation and create the basis for long-term benefits to achieve a competitor will not be easy. Wordcount: 4078)
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