International Strategic Management

International Marketing

May 17th, 2004

What is International Marketing ?

Kahler 1977: Bradley 1991: Export or international Business Establishment of organizations to do business in international markets in two or more countries All activities of a company to attract customers in selected countries

Stahr 1993:

Czinkota/ Ronkainen 1998: Planning and executing transactions across border ...
Backhaus/ Bschken/Voeth : International Marketing, 2000

Major Decisions in International Marketing

1. Deciding whether to go abroad

2. Deciding which markets to enter

3. Deciding how and when to enter the market

5. Deciding on the marketing organization

4. Deciding on the marketing program

1. Deciding whether to Go Abroad

Traditional Motivation Key suppliers Seeking new markets Lower cost of production
?

New Motivation Increasing EOS Balloning R&D investments Shorter production life cycle ...
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1. Deciding whether to Go Abroad

Risks when going abroad...
? ?

Most companies would prefer to remain domestic businesses Major concerns of going abroad: Unstable governments Foreign-exchange problems Foreign-government entry requirements and bureaucracy Tariffs and other trade barriers Corruption Technological Pirating High cost of product and communication adaptation .....

2. Deciding which Markets to Enter

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Company must also decide on the types of countries to consider Pre-selection of highest potential markets (candidate selection) Therefore, it has to analyse: Market potential (macro-economic view) Foreign country strategy

2. Deciding which Markets to Enter : Enter: Analysis of Market Potential (Phase 1)

Macroenvironmental Factors Population and income of target country Structure of Consumption ? producer vs. consumer goods ? luxury vs. necessity Production indicators ? of key industries, cars , steel, etc. Prices ? of raw materials, financing, etc. Economic Systems

2. Deciding which Markets to Enter

Analysis of Foreign Country Strategy (Phase 2)
Info needed for this analysis: Consumer decision making process ? Use of product ? Who buys? When? Why? Where? How often? Competitor analysis ? Barriers of entry? PLC analysis ? Product launch possible in appropriate stage of foreign country`s PLC?

2. Deciding which Markets to Enter : Enter: Information Needs

Comparability of information: Problem of equivalence in standardized international market research Construct equivalence ? functional equivalence Products may be used for different purposes in different country environments (e.g.: bikes in the USA or in Holland) ? conceptual equivalence Concepts have different meanings in different cultural environments (e.g.: family in USA: parentes + child; Italy: clan ) ? category equivalence are the examined concepts, objects or behavior patterns classified in the same categories in different countries? (e.g.: in some countries beer is considered a soft drink;

? ? -

Berndt/ Altobelli/Sander: Internationales Marketing Management, 1999, S.44ff

2. Deciding which Markets to Enter : Enter: Information Needs

Measure equivalence - Calibration equivalence (use of corresponding monetary and physical units as well as considering the different interpretations of colors, shapes, etc.) - Translation equivalence (equivalence of the general sense of verbal, as well as non-verbal stimuli through retranslating or parallel translation ) - Metric equivalence (reaction of the test persons on e.g. 5- or 6-point, increasing or decreasing scales; meaning of identical scores in different countries) Sampling equivalence - Individual vs. group (selection of country specific and relevant test persons depending e.g. on the number of persons involved in decision making processes) - Sample representativity (establishing the comparability of the national representative s amples)

Market Selection Techniques

Segmentation approach International segmentation
approach step

heuristical sequential evaluation approach - Checklistapproach - Pointevaluation approach Risk-Pointevaluation approach Port-folioAnalysis

Analytical

Rough Selection: 1 Analysis of general consumption requirements 2. Analysis of political risks

Fine Selection: 1. Analysis of country specific chances for success Intranational segmentation 2. Analysis of segment specific chances for success

Classic decision rules

- Investment theoretical approaches - decision-tree approach

Meffert/Bolz: Internationales Marketing Management, 2. Auflage, 1994, S. 113

3. Deciding how to Enter the Market

? ? ? ? ?

Indirect Export Direct Export Licensing Joint Ventures Direct Investment

Risk
Dir Inv JV Licensing Dir Export Ind Export
Prof. Dr. Michael Dowling Universitt Regensburg

Return

3. Deciding how to Enter the Market

Capital emplyoment Indirect Export Direct Export Licensing Joint Ventures Direct investment Very low Low Low Middle high High

Control Low High Low Middle High

Dependency Low Low Middle High Low

Institutional settlement Home Home Home Foreign Country Foreign Country

Meffert/Bolz: Internationales Marketing Management, 2. Auflage, 1994, S. 119

3. Deciding how to Enter the Market Licensing

The international company (= licensor) agrees to make available to another company abroad (=licensee) use of its patents and trademarks, its manufacturing know-how, its trade secrets and its managerial and technical services. The foreign company agrees to pay the licensor a royalty or other form of payment

3. Deciding how to Enter the Market Licensing

Pros.: ? A way of getting a foothold in a foreign market without a large capital investment ? most attractive to firms that are new to the international business area ? fewer exchange rate risk ? circumvent trade barriers (e.g. no duties) ? circumvent production restriction in the domestic market ? test foreign markets Cons.: ? Danger of establishing a future competitor ? less control over licensees operations, which could result in damage to the licensors reputation ? limited licensing returns

Source: Phatak, A.: International Management, 1996, S.250,

3. Deciding how to Enter the Market Franchising

? ?

Another form of licensing Usually: a company initially establishes a brand name for its products, service, quality etc. in the home market and a standardized business system to operate the business. It then franchises the entire business system in a foreign country Examples: McDonalds, Hollyday Inn, Bang & Olufsen

3. Deciding how to Enter the Market Joint Ventures

? ? ? ?

Foreign investors join local investors to create a JV Shared ownership and control JVs often necessary or desirable for economic or political reasons Characteristics: Direct control of distribution channels: company owned points of sales International business is critical part of headquarter strategy Joint ownership may lead to management conflicts

3. Deciding how to Enter the Market Direct Investment

? ?

Direct ownership of foreign-based assembly or manufacturing facilities Advantages: Cost economies (e.g. cheaper labor or raw materials, freight savings) Better relationship with foreign government, customers, local suppliers, etc. Full control of marketing mix Disadvantages: Country-specific economic and political risks Investment (also in time and education)

3. Deciding how to Enter the Market Direct Investment

Pros for direct investment by acquiring another company:
? rapid

Pros. for direct Investment by building a own factory:

? implementation ? better

market entry and start of production ? acquisition of contacts, a performing organization, local knowledge and a qualified labor force ? gain of time saves money ? no creation of additional production capacities

of modern technology image within the host country due to new job creation

3. Deciding how to Enter the Market Factors influencing market entry choice
Company related Factors Strategy Cost Situation ? Internat ? tech ionali nology zation strate - ? loca gy tion factor ? chosen cost market ? pro seg ments ducti vity ? compe titive ? EOS strate gy ? sales cost ? market position ? capa city utili zation Product related Factors ? ? pro duct life cycle level de gree of pro duct dif feren tiation Market related Factors Legal Situation ? export/ import bar riers ? Economic Situation ? market growth ? market volume market struc ture exchan ge rate infla tion Competitive Situation ? amount and strength of compe tition ? substitut ion Trade Situation ? amount and power of agents ? terms of trade struc ture Consumer Situation ? income ? price elasti city consu mer beha vior market trans paren ce

? dum ping regu lation ? tax price con trol local con tent regul ation ?

? ?

Meffert/Bolz: International Marketing Management, 2. Aufl., 1994, S.136

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3. Deciding how to Enter the Market Timing of Market Entry

After deciding HOW to enter the market: WHEN should the selected markets be entered? Two strategies: - sprinkler approach - waterfall approach

3. Deciding how to Enter the Market

Timing of Market Entry

Sprinkler-Approach: a company enters several markets within a very short period of time.

Entry

Country A Time line 0 0

Country B

Country C

Country D

Country E

Country F 1 Year 1 Years

Reasons for choosing the sprinkler approach: - short product life cycles (e.g. like in the computer industry) - high R & D investments have to be amortized - gain first mover advantages and building up barriers for follower Source: Backhaus et al: Internationales Marketing, 3 Auflage, 2000 S.137

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3. Deciding how to Enter the Market Timing of Market Entry

Waterfall-Approach : companies expand there abroad business step by step in a sucessivemanner

Entry Country A Country B Country C Country D Country E Country F

Years

Reasons for choosing the waterfall approach: -- the expected product life cycle is very long -- low competition on the selected country markets

Source: Backhaus et al: Internationales Marketing, 3 Auflage, 2000 S.127

3. Deciding how to Enter the Market Timing of Market Entry

Advantages of the Waterfall-approach: - possibility to grow with its foreign business in terms of organization and resources - less resources required than with the sprinkler approach - less risky than the sprinkler approach - extention of the product life cycle

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4. Deciding on the Marketing Program

Companies must decide how much to adapt their marketing to local conditions Two Extremes: Standardized marketing worldwide Differentiated marketing (adjustment to each target market)

Prof. Dr. Michael Dowling Universitt Regensburg

4. Deciding on the Marketing Program

Scope of Standardization

Strategic level - Marketing strategy Contents

Instrumental level - physical product - brand policy - communication policy - distribution policy - pricing policy - advertisement planning - distribution planning

- Information systems Processes - Segmentation models - Controlling systems

Source:

Meffert/Bolz: Internationales Marketing -Management, 1994, S 148

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4. Deciding on the Marketing Program Product Policy

refers to decisions about product, program, branding and service in an international setting:

Extended Product Tangible Product Product Core

Installation Branding Styling Quality

Basic Function
Packaging

Features

After Sales Service

Guarantee

According to Bernd/ Fantapi Altobelli / Sander : Internationale Marketing -Politik, S. 58, 1997

4. Deciding on the Marketing Program Product Policy

Dependency on culture culture-free ? high-tech ? high-touch ? high-interest ? Rank 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Products/Industry Airlines Photographic devices Heavy equipment Machine tools Consumer electronics Computer software Long-lasting household-appliances Wine and spirituous beverages Soft drinks Tobaccos Stationeries Cosmetics Beer Detergents Toiletries Publishing products Foodstuff Sweets Textiles

Potential to Standardize ofComputer hardware different Product Categories 1

Source: Meffert/Bolz: Internationales Marketing , 2. Auflage, 1994, S. 174

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4. Deciding on the Marketing Program Product Policy

Solution Standardized products Intermediary Solution Modular approach cars: standardized core product; adaptation to national markets by e.g. using different exhaust gas filter in accordance to specific country standards. Shaver switching from 110 to 220V Traditional or culturally sensible products (e.g. food) Examples high-tech or luxury products (e.g. films, luxury watches etc.)

Built-in flexibility Differentiation

According to Kreutzer: Global Marketing, 1989,S. 281,

4. Deciding on the Marketing Program

Product Policy

Branding using...

Standardization pitfalls... ...with respect to pronouncability, associations, meaning, protectability of a product name

...Product names

...Products signs ...when the product sign is equal with the brand name (e.g. Coca Cola)

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Product Policy
Barriers to Standardization
? ? ? ? ? ?

Legal barriers: quality standards and norms, Technological barriers: e.g. different standards in power supply, Linguistic barriers: pronouncability of the products name Image barriers: e.g. linkage between package and perceived quality Physiological barriers: e.g. different body sizes Consumption patterns: function of a product

4. Deciding on the Marketing Program Communication Policy

Path of Standardization

C. T A R G E T S

C. S T R A T E G Y

C. -I N S T R U M E N T S

Public Relations

Advertising

Corporate Identity Public Relations Commercial Design Media Selection

Message Tonality Pictures Color Music Text

Sales Promotion

Source: Backhaus/ Bschgen/ Voeth 1996, S. 191

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4. Deciding on the Marketing Program Communication Policy

Example: Advertising/ Language

GER

ITA

UK

FRA

SPA

NETH

BEL

POR

GRE

DEN

SWE

AUS

SWI

NOR

FIN

E F D I

44 16 100 3

16 16 4 100

100 21 9 2

31 100 9 6

12 10 1 1

72 31 67 2

34 71 19 5

25 30 3 3

28 8 5 2

61 9 45 1

73 9 35 1

42 11 100 5

40 63 88 24

58 2 17 0

48 5 14 1

Language knowledge in Europe (%);

Source: Mooij, Advertising Worldwide, 2nd Edition, New York, 1994, S. 288

4. Deciding on the Marketing Program Communication Policy

Example: Advertising / Media Selection
TV North America Latin America Western Europe Eastern Europe Middle East Africa South Corea Sri Lanka 2017 292 817 592 318 150 1006 197 Radio 789 150 444 308 250 23 210 35

Communication Infrastructure in selected Countries and Regions (per 1000 citizen)

Source: Sookdeo: The New Global Consumer, in: Fortune, Autumn-Winter 1993, pp. 68-77

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4. Deciding on the Marketing Program Communication Policy

Element
stewardess serves champagne to passengers

Country/Culture
Europe/USA Islamic countries

Interpretation
demonstration of good service attempt to influence religious values (Violation of standards concerning food and behavior)

perfume, background of raindrops

Central- and Southern Europe parts of Africa

rain as a symbol for freshness

rain as a symbol for fertility

Marlboro-Cowboy

USA Hong Kong Argentina

symbol for freedom and manliness cowboy looks like a coolie cowboy has a low social standing; useless tramp

Source: Cateora, International Marketing, 1993, pp. 524; Ricks, Big Business Bl unders, 1983, pp. 63

4. Deciding on the Marketing Program Communication Policy

Barriers to Standardization

?Legal barriers: prohibition of comparative advertising, prohibition of advertising for certain products, prohibition of foreign languages in advertising
? Technological barriers: media diffusion ? Linguistic barriers: knowledge of foreign languages, understanding and

interpretation of words, symbols, color and music

? Image barriers: link between media characteristics and product quality ? Consumption patterns: media usage ? Competitive situation: e.g. average advertising budget, cost for media,

typical forms of communication

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4. Deciding on the Marketing Program Pricing Policy

Determinants of international pricing
Intern determinants ? international organizational structure ? cost structure
? ?

way of transfer pricing decisions on other parts of the marketing mix

Extern determinants
? ? ? ? ?

political, legal and economical framework behaviour and preferences of customers competitive structure and behaviour exchange rate volatility occurance of gray markets

4. Deciding on the Marketing Program Pricing Policy

Country DK S FIN IRL B F A I GR GB NL P E D L VAT 25 % 25 % 22 % 21 % 21 % 20,6 % 20 % 20 % 18 % 17,5 % 17,5 % 17 % 16 % 16 % 15 %

Source: http://europa.eu.int/comm/dg10/publications/autres/voy2000/txt_de.html

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4. Deciding on the Marketing Program Pricing Policy

Example: Sales Promotion
Discounts Belgium permitted Extras prohibited Sales only winter and summer sales and closingdown sale always permitted prohibited but still usual always permitted always permitted Opening hour regulations until 8 p.m., Fridays: 9 p.m.

France Greek Luxemburg U.K.

permitted prohibited but still usual max. 3% permitted

prohibited prohibited prohibited permitted

no regulations no regulations until 8 p.m.; in Winter: 7 p.m. until 8.p.m.; once a week until 9 p.m.

Source: ZAW-service Nr. 181, Mai 1994, S. 13

4. Deciding on the Marketing Program Pricing Policy

Sale of a product by exporting Devaluation of the Billing in domestic foreign currency currency Profit (in domestic currency) is constant; price is increasing from a foreign customers view Billing in foreign currency Profit (in domestic currency) is decreasing; price remain constant from a foreign customers view Sale of a product by a foreign subsidiary Billing in foreign currency Profit in foreign currency remains constant, Profit in domestic currency is decreasing, price remain constant from a foreign customers view Profit in foreign currency remains constant, Profit in domestic currency is increasing, price remain constant from a foreign customers view

Appreciation of the Profit (in domestic foreign currency currency) is constant; price is decreasing from a foreign customers view

Profit (in domestic currency) is increasing; price remain constant from a foreign customers view

Source: Sanders, InternationalesPreismanagement, 1997, p. 52

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4. Deciding on the Marketing Program Pricing Policy

Terms of payment and customer behaviour

Country Belgium France Germany Italy Netherlands United Kingdom Spain Portugal
P

Term of payment 45-90 60-90 30-60 60-120 25-40 30-60 60-90 60-90

Mean delay 18 15 11 17 17 16 n.n. n.n.

Source: LP international 12/00, p.9.

4. Deciding on the Marketing Program Pricing Policy

Gray markets:
Country A Authorized Export Production site Cost per unit k = 2, price pA = 8 Reimport Paral-el imtort Country C Lateral grey import price pC = 10 Authorized Export

Country B price p B = 6

Transport cost per unit - between A and B: 0,50 - between A and C: 1,00 -between B and C: 1,50

Source: Simon, Wiese: Internationale Preispolitik, p.245 in: Hermanns, Wissmeier : internationales Marketing-Management, 1994

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4. Deciding on the Marketing Program Pricing Policy

Basic Strategies in International Pricing: - Standardization - Dual pricing strategy - Differentiation - Price corridor

4. Deciding on the Marketing Program Pricing Policy

Barriers to Standardization
? ?

Legal barriers: e.g. restrictions on discounts Technological barriers: Existence of facilities for electronic data exchange, inter-bank payment etc. Image barriers: importance of price as an indicator for quality Consumption patterns: typical price behavior, economic limitations of customers; Conditions expected, e.g. respite for payment Competitive situation: average price level

? ?

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4. Deciding on the Marketing Program Distribution Policy

Issues of an international distribution policy:

?

distribution structure: structure of distribution channel through which goods pass f rom producer to user ? key issues: characteristics of middlemen, selection criteria of distributors, contractual producer-distributor relationship
?

distribution process: - physical handling and distribution of goods - passage of ownership - buying and selling negotiations (producer-middlemen, middlemen-customer) ? key issues: choice of locations, choice of logistic partners, technical and organizational handling

4. Deciding on the Marketing Program Distribution Policy

Basic decisions with strategic character: ? outsourcing degree of distribution tasks ? length of distribution channel ? variety of distribution systems ? exclusivity arrangements with channel members

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4. Deciding on the Marketing Program Distribution Policy Barriers to Standardization

? ? ? ? ? ?

Legal barriers: regulations on store design and size, Technological barriers: existence of infrastructure Geographical barriers: climate, natural barriers Image barriers: customers association between outlet type and product quality Consumption patterns: typical outlets for certain products Competitive situation: channel blockage, channel cost

Effects of Standardization & Differentiation

Cost and turnover effects of Standardization ? Decreasing costs for research and development of ? products ? More effective co -ordination and control ? ? Cost de- ? Scale and experience effects in production, marketing, logistics crease ? Easy transferability of human resources (less ? training requirements) ? Reduction of losses incurred due to arbitrage ? Differentiation ? Possible downward adaptation of product quality in ? technically less developed markets ? Limited service problems in technically less ? developed markets with inexperienced users ? Differentiation of prices may lead to higher sales ? volume (quantity) in different country markets and, as a consequence, to sinking costs (economies of scale + scope)

? Unified product and corporate image across cou ntry ? Adaptation to customer needs and expectations ? ? markets leads to increased brand equity leads to higher national price level ? ? Differentiation of prices may lead to higher sales in ? Turn - ? Positive spill over effects between markets over different national markets and to increased overall ? Possible homogenization of country markets ? increase turnover through standardized products ? Possibility of serving niche markets in certain ? ? Elimination of parallel imports through price ? countries with specialized products standardization Common aspects of standardization: the imitation of ideas and concepts by competitors can be prevented. Three basic risks: 1. Restraint of innovative processes 2. Danger of conflicts between headquarter and subsidiaries 3. Danger of a global mega flop (e.g.: The New Coca Cola) Source: Segler (1986), p. 213.

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Deciding on the Marketing Organization

Organizational Configuration: - multinational - international - global - transnational

Deciding on the Marketing Organization Basic Strategy Structure Relationships in international Marketing
high

Integration advantage

Global
Product organization

Transnational
Matrix organization

International
Export division

Multinational
Country organization

low

low

Differentiation advantage

high

Source: Meffert/Bolz: Internationales Marketing , 2. Auflage, 1994, S. 2470

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Additional Literature
?

Berndt/ Fantapi Altobelli/ Sander: Internationale Marketing-Politik, 1997, Sig.: 40/QP 680 B524 Hnerberg: Internationales Marketing, 1994, 40/QP 680 H887 Meffert/ Bolz: Internationales Marketing-Management, 2. Auflage, 1994, 40/QP 680 M492 (2)

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