International Marketing

Signposts
Selecting Foreign Markets
Market Entry Decision
Market Entry Alternatives
Bases for International Market Segmentation
Strategic Alliances

Critical Questions for a
Product-Market Profile: The 9 W´s
1. Who buys our product?
2. Who does not buy our product?
3. What need or function does our product serve?
4. What problem does our product solve?
5. What are customers currently buying to satisfy the need and/or solve the problem for which our product is targeted?
6. What price are they paying for the products they are currently buying?
7. When is our product purchased?
8. Where is our product purchased?
9. Why is our product purchased?

International Market Expansion Strategies
Diversification versus concentration
Ayal and Zif (1979)
Waterfall versus sprinkler

Waterfall Versus Sprinkler Strategy

Example Colgate
Global Roll-out:
Colgate Total (104 countries)
European Roll-out:
Sensation (10 countries)
National Roll-out:
Stand-up’s in Germany (specific local need)
Liquid toothpaste in Spain (follow Henkel)
Tonygencyl in France (maintain local brand)
Lead Country:
Sensation in UK and Italy

Opportunity Analysis:5 Step Process
Step 1: Identification of candidate countries
Step 2: Preliminary screening
Step 3: In-depth screening
Step 4: In-country visits
Step 5: Final selection

Step 1: Country Identification
Global scope
Regional focus
Candidate identification
Parameters - population, GNP, politics, economics, physical distance, cultural distance, climate etc.
Comparisons are key - Indonesia 231 million people; Malaysia 17 million people

Step 1: Estimating Market Size
Macro factors - indirect estimation
Geographic - country size, climate
Demographic - population, growth, density, age distribution
Economic - GNP, GNP per capita, income distribution

Step 2: Preliminary Screening
Macro level indicators - aim to eliminate countries from consideration based on:
Political stability
Geographic distance
Cultural distance
Economic development
Financial risks (including currency and exchange)

Step 2: Preliminary Screening
Macro level anticipated costs:
Costs of entry matched to financial and other resource constraints
Transportation costs
Customs/tariffs/duties
Storage/warehousing
Distribution in country
Supporting products in the market

Step 3: In-depth Screening
The core of the opportunity evaluation
Data collection at industry, market and (ideally) segment level
Key criteria:
Market size
Market growth and potential
Competitive intensity, competitors’ strengths and weaknesses
Trade barriers
tariffs, taxes, duties

Step 4: In-country Visits
Direct experience:
on the spot information
hands-on evaluation
Essential for measuring qualitative criteria, eg cultural factors
Key in determining relative weight of evaluation criteria

Step 5: Final Selection
Match candidate countries to company objectives
Forecast revenue, profit and costs are compared to find the country/market which best leverages the resources available
The ideal?
lower entry costs, less risk, quicker/higher returns?
maximum long term competitive advantage?

Visiting the Potential Market
... is essential after assessment and selection of potential market(s)
goals:
to confirm (or contradict) assumptions regarding market potential
to gather additional (primary) data; eg meeting potential distributors face to face
to develop a marketing plan in co-operation with the local agent or distributor

Market Entry Alternatives
Source: Adapted from Günther Müller-Stewens and Christoph Lechner, ”Unternehmensindividuelle und gastlandbezogene Einflußfaktoren der Markteintrittsformen,” in: Klaus Macharzina and Michael-Jörg Oesterle (eds.), Handbuch Internationales Management, Gabler, Wiesbaden, 1997, p. 237; Gunter Stahr, Auslandsmarketing, Vol. 1, Kohlhammer, Stuttgart, 1979, p. 162

Market Entry Decision: 3 Key Questions
1. How many resources and what investment are necessary to enter the market?
2. How much control of activities in the foreign market is desired?
3. How much market knowledge can the manufacturer gain by a specific market entry alternative?

Direct Exporting
Direct market representation
via wholesalers or retailers or directly to the consumers
Independent representation
independent distributor
Piggyback marketing
distribution through another distributor´s channel
Advantages?
Economies of scale
Lowest capital cost
Lowest risk
Quality control
Authenticity
- e.g. Perrier
Disadvantages?
Logistics costs
Adaptation harder
Service (delays)
Market access/intelligence
Exchange rate fluctuations
Cultural distance

Licensing
Contractual arrangement where one company (the licensor) makes an asset available to another company (the licensee) in exchange for compensation
The licensed asset may be a patent, trade secret or name
Advantages?
Export technology and know how
Low capital risk
Limited resources
Market access
Disadvantages?
Can be short term
Limited participation
Lack of control
Loss of technology
Creates competitors
Loss of profit
Loss of brand coherence

Franchising
Franchising is a special form of licensing
Franchisor is provided with an entire business concept (product and marketing package, managerial know-how)
Franchisor has extensive influence on the franchisee`s operations, but commits few financial resources
Internationally uniform brand image
Advantages?
To franchisor - rapid expansion/ minimum capital and resources
To franchisee - high success rate/ capital available/ proven method/ brand/ product training/ management support
Disadvantages?
To franchisor - quality control/ risk to brand/ loss of profit
To franchisee - cost/ control

Wholly-owned Subsidiaries/Acquisition
A subsidiary represents the most extensive engagement abroad is subsidiary
Subsidiary is either established through the creation of a new facility or the acquisition of an existing firm
Company has complete decision power and control
Investor achieves greater flexibility
In many countries majority or 100% ownership by foreign companies is forbidden
Acquisition
gain market share
gain distribution
gain personnel
lose identity
harder to integrate
New Venture
meet specific requirements
obtain government incentives/grants etc
slow to set up
cultural distance and learning

Selection of Country Clusters
Determine countries’ largest segments
Define consumer behaviour patterns
usage and decision making
Cluster countries/consumer with common characteristics
Rank countries via attractiveness

Strategic Alliances and Joint Ventures
Company run by two or more partner firms
Influence depends on degree of ownership
Advantages
Allows for sharing of risk (both financial and political)
Provides opportunity to learn new environment
Good opportunity to build on local know-how: JV finds greater acceptance by local authorities
Provides opportunity to achieve synergy by combining strengths of partners
May be the only way to enter market given barriers to entry
Disadvantages
Requires more investment than a licensing agreement
Must share rewards as well as risks
Requires strong coordination
Potential for conflict among partners
Partner may become a competitor

Demands on Strategic Alliances
Competitive collaborations that offer significant advantages
Characteristics:
Participants remain independent following to the formation of the alliance
Participants share the benefits of the alliance as well as control over the performance of assigned tasks
Participants make ongoing contributions in technology, products and other key strategic areas

Global Strategic Partnership
Two or more companies develop a joint long-term strategy
The relationship is reciprocal
Transfer of resources between partners
Partner must know their core strength and be able to defend their position
When in new markets, partners must retain identities

Types of Strategic Alliances
Strategic versus tactical alliances
Not traditional partnerships - often with competitors
Four types - contractual (specific arrangement)/ equity exchange/ equity share in new venture/ consortia (3 or more)
Joint ventures
Complementary/ joint activities
R&D/marketing/distribution/technology/customer service

Success Factors of Alliances
Mission
Strategy
Governance
Culture
Organisation
Management

Co-operative Strategies in Japan:
Keiretsu
Interbusiness alliance or enterprise group, where different companies or company groups are intertwined
A keiretsu operates in a broad spectrum of markets
keiretsu executives can sit on each other`s boards and share information
Foreign competitors interpret keiretsu relations as cartels which dominate the market and restrict competition
The most famous keiretsu are Mitsui and Mitsubishi

Cooperative Strategies in Korea:
Chaebol
Composed of dozens of companies, centered around a bank or holding company, and dominated by a founding family
Samsung
LG
Hyundai
Daewoo

Beyond Strategic Alliances
Information, communication technologies and globalisation have fostered new forms of strategic alliances:
Relationship enterprise
Groups of firms in different industries will be held together by common goals that encourages them to act like a single firm
Virtual corporation
Multiple co-operations which are employed only when needed
OEMs (original equipment manufacturer)