TAPPING INTO GLOBAL MARKET
Introduction:
With faster communication, transportation and financial flows, the world is rapidly shrinking. Products developed in one country can find enthusiastic market in others. A German businessman may wear an Armani suit to meet an English friend at a Japanese restaurant, who later returns home to drink Russian vodka and American soap on TV.
Although the opportunities for companies to enter and compete in foreign market are significant, the risks can also be high. Companies selling in global industries, however, really have no choice but to internationalize their operations. In this chapter, we review the major decisions in expanding into global markets.
Emerging from a highly protected economy and an insulated business environment, many companies in India have come a long way in their quest to become global players. Indian companies have started to venture into the global businesses arena by acquisition, joint venturing, and direct investments.
Competing on a Global Basis:
A global industry is an industry in which the strategic positions of competitors in major geographic or national markets are fundamentally affected by their overall global positions. A global firm is a firm that operates in more than one country and captures R&D, production, logistical, marketing and financial advantages in its costs and reputation that are not available to purely domestic competitors.
For a company of any size to go global, it must make a series of decisions. We will examine each of these decisions here.
Major Decisions in International Marketing
Deciding Whether to Go Abroad:
Business would be easier and safer while going global. Yet several factors are drawing more and more companies into the international arena:
Higher profit opportunities
Larger customer base
Reduce dependence on any one market
Counterattacking on competitors in their home markets
Customers are requiring international services
Before making a decision to go abroad, the company must weigh several risks:
Co. might not understand foreign customer
Co. might not understand foreign country’s business culture
Co. might underestimate foreign regulations
Lack of managers with international experience
Problems with commercial laws, currency, politics and foreign property
Deciding Which Market to Enter:
In deciding to go abroad, the company needs to define its marketing objectives and policies.
How Many Markets to Enter:
The company must decide how many countries to enter and how fast to expand.
Developed v/s. Developing Markets:
o Regional Free Trade Zones: “group of nations organized to work toward common goals in the regulation of international trade.”
One such community is the European Union (EU).
The European Union
NAFTA
MERCOSUL
APEC
SAFTA and India’s Trade Partnership: The ultimate objective of SAFTA is to form a South Asian Union with a common currency, similar to EU. Under this agreement, tariffs will be reduced significantly.
Evaluating Potential Markets: Suppose, a company has assembled a list of potential market to enter. How does it choose among them? Many countries prefer to sell to neighboring countries because they understand these countries better and can control their costs more effectively.
Deciding How to Enter the Market:
Once a company decides to target a particular country, it has to determine the best mode of entry. Its broad choices are indirect exporting, direct exporting, licensing, joint ventures and direct investment.
Indirect and Direct Export: The normal way to get involved in an international market is through export.
Using a Global Web Strategy: With the web, it is not necessary to attend trade shows to show one’s wares: Electronic communication via the internet is extending the reach of companies large and small to worldwide markets.
Licensing: Licensing is the simple way to become involved in international marketing. The licensor issues a license to a foreign company to use a manufacturing process, patent, trade secrets, or other item of value for a fee or royalty.
Joint Ventures: Foreign investors may join with local investors to create a Joint Venture company in which they share ownership and control.
For instance: Tata AIG, Birla SunLife, ICICI Prudential, HDFC Standard etc.
Direct Investment: The ultimate form of foreign involvement is direct ownership of foreign based assembly or manufacturing facilities. The foreign company can buy part or full interest in a local company or build its own facilities.
Deciding on the Marketing Program:
International companies must decide how much to adapt their marketing strategy to local conditions. At one extreme are companies that use a globally standardized marketing mix worldwide. Standardization of the product, communication, and distribution channels promises the lowest costs. At the other extreme is an adapted marketing mix, where the producer adjusts the marketing program to each target market.
Cultural differences cam often be pronounced across countries. Hofstede identifies four cultural dimensions that can differentiate countries:
Individualism v/s collectivism
High v/s low power distance
Masculine v/s feminine
Weak v/s strong uncertainty avoidance
Product: Some type of products travel better across borders than others – food and beverages marketers have to contend with widely varying tastes.
Straight Extension means introducing the product in the foreign market without any change.
Product Adaptation involves altering the product to meet local conditions or preferences.
Product Invention consists of creating something new. It can take two forms,
Backward Invention is reintroducing earlier product forms that are well adapted to a foreign country’s need.
Forward Invention is creating a new product to meet a need in another country.
Communications: Companies can run the same marketing communications programs as used in the home market or change them for each local market, a process called communication adaptation. If it adapts both the product and the communications, the company engages in dual adaptation.
Price: Multinationals face several pricing problems when selling abroad. They must deal with price escalation, transfer prices, dumping charges, and gray markets. When companies sell their goods abroad, they face price escalation problem. Because the cost escalation varies from country to country, the question is how to set the prices in different countries. Companies have three choices:
1) Set a uniform price everywhere
2) Set a market-based price in each country
3) Set a cost-based price in each country
Distribution Channels: Companies should pay attention to how the product is distributed within a foreign country. They should take a whole channel view of the problem of distributing products to final users.
SELLERS
HEAD QUARTERS
CHANNEL BETWEEN NATIONS
CHANNEL WITHIN FOREIGN NATIONS
FINAL BUYERS
Deciding on the Marketing Organization:
Companies manage their international marketing activities in three ways: through export departments, international divisions, or a global organization.
Export Department: A firm normally goes into international marketing by simply shipping out its goods. If its international sales expand, the company organizes an export department consisting of a sales manager and a few assistants.
International Division: Many companies become involved in several international markets and ventures. Sooner or later they will create international divisions to handle all their international activity. The international division is headed by a division president, who sets goals and budgets and is responsible for the company’s international growth.
Global Organization: Several firms have become truly global organizations. The global operating units report directly to the chief executive or executive committee, not the head of international division.
Bartlett and Ghosal have proposed circumstances under which different approaches work best. They distinguish three organizational strategies:
1) A global strategy treats the world as a single market
2) A multinational strategy treats the world as a portfolio of national opportunities
3) A “glocal” strategy standardizes certain core elements and localizes other elements
Introduction:
With faster communication, transportation and financial flows, the world is rapidly shrinking. Products developed in one country can find enthusiastic market in others. A German businessman may wear an Armani suit to meet an English friend at a Japanese restaurant, who later returns home to drink Russian vodka and American soap on TV.
Although the opportunities for companies to enter and compete in foreign market are significant, the risks can also be high. Companies selling in global industries, however, really have no choice but to internationalize their operations. In this chapter, we review the major decisions in expanding into global markets.
Emerging from a highly protected economy and an insulated business environment, many companies in India have come a long way in their quest to become global players. Indian companies have started to venture into the global businesses arena by acquisition, joint venturing, and direct investments.
Competing on a Global Basis:
A global industry is an industry in which the strategic positions of competitors in major geographic or national markets are fundamentally affected by their overall global positions. A global firm is a firm that operates in more than one country and captures R&D, production, logistical, marketing and financial advantages in its costs and reputation that are not available to purely domestic competitors.
For a company of any size to go global, it must make a series of decisions. We will examine each of these decisions here.
Major Decisions in International Marketing
Deciding Whether to Go Abroad:
Business would be easier and safer while going global. Yet several factors are drawing more and more companies into the international arena:
Higher profit opportunities
Larger customer base
Reduce dependence on any one market
Counterattacking on competitors in their home markets
Customers are requiring international services
Before making a decision to go abroad, the company must weigh several risks:
Co. might not understand foreign customer
Co. might not understand foreign country’s business culture
Co. might underestimate foreign regulations
Lack of managers with international experience
Problems with commercial laws, currency, politics and foreign property
Deciding Which Market to Enter:
In deciding to go abroad, the company needs to define its marketing objectives and policies.
How Many Markets to Enter:
The company must decide how many countries to enter and how fast to expand.
Developed v/s. Developing Markets:
o Regional Free Trade Zones: “group of nations organized to work toward common goals in the regulation of international trade.”
One such community is the European Union (EU).
The European Union
NAFTA
MERCOSUL
APEC
SAFTA and India’s Trade Partnership: The ultimate objective of SAFTA is to form a South Asian Union with a common currency, similar to EU. Under this agreement, tariffs will be reduced significantly.
Evaluating Potential Markets: Suppose, a company has assembled a list of potential market to enter. How does it choose among them? Many countries prefer to sell to neighboring countries because they understand these countries better and can control their costs more effectively.
Deciding How to Enter the Market:
Once a company decides to target a particular country, it has to determine the best mode of entry. Its broad choices are indirect exporting, direct exporting, licensing, joint ventures and direct investment.
Indirect and Direct Export: The normal way to get involved in an international market is through export.
Using a Global Web Strategy: With the web, it is not necessary to attend trade shows to show one’s wares: Electronic communication via the internet is extending the reach of companies large and small to worldwide markets.
Licensing: Licensing is the simple way to become involved in international marketing. The licensor issues a license to a foreign company to use a manufacturing process, patent, trade secrets, or other item of value for a fee or royalty.
Joint Ventures: Foreign investors may join with local investors to create a Joint Venture company in which they share ownership and control.
For instance: Tata AIG, Birla SunLife, ICICI Prudential, HDFC Standard etc.
Direct Investment: The ultimate form of foreign involvement is direct ownership of foreign based assembly or manufacturing facilities. The foreign company can buy part or full interest in a local company or build its own facilities.
Deciding on the Marketing Program:
International companies must decide how much to adapt their marketing strategy to local conditions. At one extreme are companies that use a globally standardized marketing mix worldwide. Standardization of the product, communication, and distribution channels promises the lowest costs. At the other extreme is an adapted marketing mix, where the producer adjusts the marketing program to each target market.
Cultural differences cam often be pronounced across countries. Hofstede identifies four cultural dimensions that can differentiate countries:
Individualism v/s collectivism
High v/s low power distance
Masculine v/s feminine
Weak v/s strong uncertainty avoidance
Product: Some type of products travel better across borders than others – food and beverages marketers have to contend with widely varying tastes.
Straight Extension means introducing the product in the foreign market without any change.
Product Adaptation involves altering the product to meet local conditions or preferences.
Product Invention consists of creating something new. It can take two forms,
Backward Invention is reintroducing earlier product forms that are well adapted to a foreign country’s need.
Forward Invention is creating a new product to meet a need in another country.
Communications: Companies can run the same marketing communications programs as used in the home market or change them for each local market, a process called communication adaptation. If it adapts both the product and the communications, the company engages in dual adaptation.
Price: Multinationals face several pricing problems when selling abroad. They must deal with price escalation, transfer prices, dumping charges, and gray markets. When companies sell their goods abroad, they face price escalation problem. Because the cost escalation varies from country to country, the question is how to set the prices in different countries. Companies have three choices:
1) Set a uniform price everywhere
2) Set a market-based price in each country
3) Set a cost-based price in each country
Distribution Channels: Companies should pay attention to how the product is distributed within a foreign country. They should take a whole channel view of the problem of distributing products to final users.
SELLERS
HEAD QUARTERS
CHANNEL BETWEEN NATIONS
CHANNEL WITHIN FOREIGN NATIONS
FINAL BUYERS
Deciding on the Marketing Organization:
Companies manage their international marketing activities in three ways: through export departments, international divisions, or a global organization.
Export Department: A firm normally goes into international marketing by simply shipping out its goods. If its international sales expand, the company organizes an export department consisting of a sales manager and a few assistants.
International Division: Many companies become involved in several international markets and ventures. Sooner or later they will create international divisions to handle all their international activity. The international division is headed by a division president, who sets goals and budgets and is responsible for the company’s international growth.
Global Organization: Several firms have become truly global organizations. The global operating units report directly to the chief executive or executive committee, not the head of international division.
Bartlett and Ghosal have proposed circumstances under which different approaches work best. They distinguish three organizational strategies:
1) A global strategy treats the world as a single market
2) A multinational strategy treats the world as a portfolio of national opportunities
3) A “glocal” strategy standardizes certain core elements and localizes other elements
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