PRINCIPLES OF MARKETING / 05B IBMS / University of Applied Sciences Raymond Reinhardt 3R Business Development raymond.reinhardt@3r-bdc.com 3R 1 2 Deciding whether to go international O Various motives to go international: F Expansion of sales and turn-over F Enlargement of turn-over in order to obtain economies of scale (the larger the organization or production is, the lower the costs per unit gets) F As a response to market niche opportunities F Recession or a considerable drop in sales in the home country F Extension of a product s PLC (product life cycle) 3
Deciding whether to go international O Various motives to go international: (cont d) F Continuation of a certain production elsewhere in view of obsoleteness (Morris Minor) F Continuation of a certain production in view of seasonal changes (umbrella s, clothing, etc.) F In order to spread financial risks F Follow the leader, go with the flow F In order to obtain international prestige for certain products (cosmetics, exclusive clothing, etc.) 4 Deciding which markets to enter O Various indicators of market potential: F Demographic characteristics (size of population, growth-rate of population, degree of urbanization, population density, age structure, composition of the population, etc.) F Geographic characteristics (physical size of a country, topographical characteristics, climate conditions) F Economic factors (GDP per capita, income distribution, rate of growth of GNP, rate of investment to GNP) [GNP (Gross National Product) = GDP (Gross Domestic Product) plus balance of non-domestic production income] 5 Deciding which markets to enter O Various indicators of market potential: (cont d) F Technological factors (level of technological skills, existing production technology, existing consumption technology -how consumers buy-, education levels) F Sociocultural factors (dominant values -religion, political-, lifestyle patterns, ethnic groups, linguistic fragmentation) F National policies (industrial priorities, infrastructural investment plans, etc.) 6
O In general: 2 ways to enter F Export: firms can either: - export indirectly (through independent international marketing intermediaries), or: - export directly (by setting up their own sales operations abroad) F Manufacturing / assembly: firms can either: - manufacture / assemble through joint venture, or: - manufacture / assemble though direct investment The following 2 diagrams show various possibilities concerning these 2 ways to enter a foreign market. 7 8 9
O Export: F In export situations, the firm produces all its goods in its home country F Indirect exporting involves relatively low investment; sales abroad takes place through home-based -and sometimes foreign-basedintermediaries (such as: export merchants, agents, export wholesalers, cooperative organizations, government export agencies, export management companies, etc.)! Example: Harley-Davidson Inc.: internationally represented by more than 1500 independent dealers in some 55 countries. 10 O Export: (cont d) F Direct exporting involves more investment and risk, by setting up overseas sales operations (such as: sending a sales person or sales force abroad, taking part in a foreign exhibition, merging with or, taking over another firm that is already exporting directly, setting up a sales department / sales branch abroad that handles sales, distribution and promotion, etc.) 11 O Manufacturing / assembly through joint venture F Joint venturing: involves joining with a foreign company to produce or assemble products or services, and/or to market them as well F Basically, there are 4 types of joint venturing: - licensing - contract manufacturing - management contracting - joint ownership 12
O Manufacturing / assembly through joint venture F Licensing: a method of entering a foreign market, in which the firm (the licensor) enters into an agreement with another firm overseas (the licensee), offering that firm the right to use a manufacturing process, trademark, patent, trade secret or other item of value, for a fee or royalty F Licensing is often used in countries which have high import tariffs or import quota s 13 O Manufacturing / assembly through joint venture F Franchising: a special variation of licensing is franchising. Franchising is one of the fastestgrowing market-entry strategies. F Today, there are more than 12.000 different franchise systems throughout the world that are operated by over 800.000 franchisee s. F Franchises include soft-drink industry, hotels, retailing, fast food and various business services focused on businesses and/or on consumers. G Example: McDonald s (> 70% franchised) 14 O Manufacturing / assembly through joint venture F Contract manufacturing: a method of entering a foreign market, in which the firm contracts with a manufacturer in the foreign market to produce its product or to provide its service. F Contract manufacturing is often used as a form of outsourcing or in situations where the foreign market has high import tariffs. G Example: Flextronics International Ltd., an international supply chain solutions company that offers design, manufacturing, distribution and aftermarket services to OEM s, such as Microsoft and Motorola. 15
O Manufacturing / assembly through joint venture F Management contracting: a method of entering a foreign market, in which the firm supplies management know-how to a foreign company (the foreign company supplies the investment capital needed). F Here the home-based firm exports management services rather than products. F Major hotels use management contracting as a way of managing their hotels worldwide. 16 O Manufacturing / assembly through joint venture F Joint ownership: a method of entering a foreign market, in which the firm joins investors in a foreign market to create a local business (a manufacturing or assembly plant) in which the firm shares joint ownership and control. F Joint ownership may be needed for economic or political reasons. Sometimes it is required as a condition for entry (such as in China until it became a member of the WTO in 2001). 17 O Manufacturing / assembly through direct investment F Direct investment: a method of entering a foreign market, in which the firm develops foreign-based manufacturing or assembly facilities. F Obviously this way of entering a foreign market can be considered as the largest involvement in international marketing; it also requires the greatest commitment by the firm. G Examples: car manufacturers such as VW, Toyota and GM with their own plants in various countries. 18
O Manufacturing / assembly through direct investment F Advantages of direct investment: - lower costs due to cheaper labour, costs of raw materials, government incentives, freight savings; - image improvement by creating jobs; - better relationships with customers, suppliers, etc. resulting in better products; - full control over own investment. 19 O Manufacturing / assembly through direct investment F Disadvantages of direct investment: - risk of restricted or devalued currencies; - risk of declining markets; - risk of government takeover. 20 O 2 extreme marketing mixes: F standardized marketing mix versus differentiated (adapted) marketing mix. F Standardized marketing mix: an international marketing strategy for using basically the same product, advertising, distribution channels and other elements of the marketing mix in all the company s international markets. G Examples: IKEA, Coca-Cola, Gillette, Levi s. 21
O 2 extreme marketing mixes: (cont d) F differentiated (adapted) marketing mix: an international marketing strategy for adjusting the marketing mix elements to each international target market, usually bearing more costs, focused on creating a larger market share and more return in due time. G Examples: Procter & Gamble, Exxon, Nestlé. 22 O 2 extreme marketing mixes: (cont d) F Standardized vs. differentiated marketing mixes: the matter of standardizing or adapting the marketing mix depends greatly on the possibilities a foreign market offers in view of the needs and wants of consumers, their backgrounds, spending power, product preferences and shopping patterns. 23 O 2 extreme marketing mixes: (cont d) F Standardized vs. differentiated marketing mixes: furthermore the matter of standardizing or adapting the marketing mix also depends on the amount of (differentiated) costs a firm is willing to make in view of product adaptation, distribution and promotion. 24
O 3 Product-adapting strategies: F (Straight) product extension F Product adaptation F Product innovation 25 O 3 Product-adapting strategies: (cont d) F (Straight) product extension: the marketing of a product in a foreign market (virtually) without any change (Coca-Cola, Wrigley s Gum, Levi s) F Product adaptation: involves changing a product in some way to make it more appropriate for a country s climate or preferences (Exxon gasoline, Unilever) 26 O 3 Product-adapting strategies: (cont d) F Product innovation: involves inventing totally new products or services, designed to satisfy common needs across countries (Black & Decker with their Snake Light flexible flashlight; originally created to meet a global need for portable lighting, this product became a best-seller in the America s, Europa and Australia) 27
O 2 Communication strategies: F Identical (or: uniform) promotion F Communication adaptation. 28 O 2 Communication strategies: F Identical (or: uniform) promotion: involves using an identical promotion message for the product extension and product adaptation strategies around the world. G Examples: Gillette, the best a man can get; Always Coca-Cola; Nike s Just do it; etc. 29 O 2 Communication strategies: (cont d) F Communication adaptation: the global communication strategy of fully adapting advertising messages to local markets. G Example: L Oréal s Helena Rubenstein, promoting their Golden Beauty skin care product as a dark tanning product in Northern Europe, and as a wrinkle protection product in Southern Europe. 30
O Pricing strategy: F Global companies face many challenges in determining a pricing strategy as part of their worldwide marketing effort. F Foreign prices are often higher than domestic prices, mainly due to price escalation (transportation, tariffs, margins). F Setting prices too low is often considered as dumping: selling a product below its domestic price or below its actual cost. 31 O Pricing strategy: F When companies price their products very high in some countries, but competitively in others, they may face a gray market (parallel import) problem. F In a gray market individuals buy the lowerpriced products from authorized resellers, ship them to higher-priced countries and sell them below the manufacturer s suggested retail price through unauthorized resellers. 32 O Distribution channels: F Distribution is of critical importance in global marketing. F Availability and quality of retailers and wholesalers, as well as transportation, communication and warehousing are mostly determined by a country s stage of economic development. F The sophistication of a country s distribution channels increase as its economic infrastructure develops. 33
Deciding on the global marketing organization O 3 ways to manage international marketing: F Most companies first organize their international marketing through an export department. Later on they might create an international division and they might even finally become a global organization. 34 Deciding on the global marketing organization O 3 ways to manage international marketing: F Export department: a form of international marketing organization that typically consists of a sales manager and a few assistants who organize the shipping out of the company s goods to foreign markets. 35 Deciding on the global marketing organization O 3 ways to manage international marketing: F International division: a form of international marketing organization in which the division handles all of the company s international activities. The international division s corporate staff consists of marketing, manufacturing, research, finance, planning and personnel specialists, who are all organized into operating units in accordance to geography, world product groups or as international subsidiaries. 36
Deciding on the global marketing organization O 3 ways to manage international marketing : F Global organization : a form of international organization whereby top corporate management and staff plan worldwide manufacturing or operational facilities, marketing policies, financial flows and logistical systems. 37