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M. Fatih Akkaya Undersecretariat of Foreign Trade Expert
Index: 1) Executive Summary 2) Global Marketing Strategies 3) Global Market Entry Strategies 4) Appendices 5) References
1) Executive Summary: Usually, selling focuses on the needs of the seller, marketing on the needs of the buyer (customer). The purpose of business is to get and keep a customer. Or, to use Peter Drucker`s more refined construction to create and keep a customer. (through product differentiation and price competition) International marketing involves the marketing of goods and services outside the organization`s home country. Multinational marketing is a complex form of international marketing that engages an organization in marketing operations in many countries. Global marketing refers to marketing activities coordinated and integrated across multiple markets. A firm`s overseas involvement may fall into one of several categories: 1- Domestic: Operate exclusively within a single country. 2- Regional exporter: Operate within a geographically defined region that crosses national boundaries. Markets served are economically and culturally homogenous. If activity occurs outside the home region, it is opportunistic. 3- Exporter: Run operations from a central office in the home region, exporting finished goods to a variety of countries; some marketing, sales and distribution outside the home region. 4- International: Regional operations are somewhat autonomous, but key decisions are made and coordinated from the central office in the home region. Manufacturing and assembly, marketing and sales are decentralized beyond the
home region. Both finished goods and intermediate products are exported outside the home region. 5- International to global: Run independent and mainly self-sufficient subsidiaries in a range of countries. While some key functions (R&D, sourcing, financing) are decentralized, the home region is still the primary base for many functions. 6- Global: Highly decentralized organization operating across a broad range of countries. No geographic area (including the home region) is assumed a priori to be the primary base for any functional area. Each function including R&D, sourcing, manufacturing, marketing and sales is performed in the location(s) around the world most suitable for that function. Technology and globalization shape the world. The first helps determine human preferences; the second, economic realities. Standardized consumer products, low price and technology are key points for successful globalization. The globalization of markets is at hand. With that, the multinational commercial world nears its end, and so does the multinational corporation. The world`s needs and desires have been irrevocably homogenized (market needs). This makes the multinational corporation obsolete and the global corporation absolute. Nobody is safe from global reach and the irresistable economies of scale (reduction of costs and prices) and scope. The multinational and global corporation are not the same thing. The multinational corporation operates in a number of countries and adjusts its products and practices in each at high relative costs. The global corporation operates with resolute constancy at low relative cost (price) as if the entire world (or major regions of it) were a single entity; it sells markets the same high-quality things similarly everywhere. But, many global firms
produce the same products the same way for a global market but tailor their selling approaches to local variations in the global market. (Standardization vs Localization) The modern global corporation contrasts powerfully with the aging multinational corporation. Instead of adapting to superficial and even entrenched differences within and between nations, it will seek sensibly to force suitably (more or less) standardized products and practices on the entire globe. (think globally, act locally) 2) Global Marketing Strategies: Although some would stem the foreign invasion through protective legislation, protectionism in the long run only raises living costs and protects inefficient domestic firms (national controls). The right answer is that companies must learn how to enter foreign markets and increase their global competitiveness. Firms that do venture abroad find the international marketplace far different from the domestic one. Market sizes, buyer behavior and marketing practices all vary, meaning that international marketers must carefully evaluate all market segments in which they expect to compete. Whether to compete globally is a strategic decision (strategic intent) that will fundamentally affect the firm, including its operations and its management. For many companies, the decision to globalize remains an important and difficult one (global strategy and action). Typically, there are many issues behind a company`s decision to begin to compete in foreign markets. For some firms, going abroad is the result of a deliberate policy decision (exploiting market potential and growth); for others, it is a reaction to a specific business opportunity (global financial turmoil, etc.) or a competitive challenge (pressuring competitors). But, a decision of this magnitude is always a strategic
proactive decision rather than simply a reaction (learning how to business abroad). Reasons for global expansion are mentioned below:
a) Opportunistic global market development (diversifying markets) b) Following customers abroad (customer satisfaction) c) Pursuing geographic diversification (climate, topography, space, etc.) d) Exploiting different economic growth rates (gaining scale and scope) e) Exploiting product life cycle differences (technology) f) Pursuing potential abroad g) Globalizing for defensive reasons h) Pursuing a global logic or imperative (new markets and profits) Moreover, there can be several reasons to be mentioned including comparative advantage, economic trends, demographic conditions, competition at home, the stage in the product life cycle, tax structures and peace. To succeed in global marketing companies need to look carefully at their geographic expansion. To some extent, a firm makes a conscious decision about its extent of globalization by choosing a posture that may range from entirely domestic without any international involvement (domestic focus) to a global reach where the company devotes its entire marketing strategy to global competition. In the development of an international marketing strategy, the firm may decide to be domestic-only, home-country, host-country or regional/global-oriented. Each level of globalization will profoundly change the way a company competes and will require different strategies with respect to marketing programs, planning, organization and control of the international marketing effort. An industry in which firm competes is
also important in applying different strategies. For example, when a firm which competes in the pharmaeutical industry which is heavily globalized, it has to set its own strategies to deal with global competitors. (constant innovation) Tracking the development of the large global corporations today reveals a recurring, sequential pattern of expansion. The first step is to understand the international marketing environment, particularly the international trade system. Second, the company must consider what proportion of foreign to total sales to seek, whether to do business in a few or many countries and what types of countries to enter. The third step is to decide on which particular markets to enter and this calls for evaluating the probable rate of return on investment against the level of risk (market differences). Then, the company has to decide how to enter each attractive market. Many companies start as indirect or direct export exporters and then move to licensing, joint-ventures and finally direct investment; this company evolution has been called the internationalization process. Companies must next decide on the extent to which their products, promotion, price and distribution should be adapted to individual foreign markets. Finally, the company must develop an effective organization for pursuing international marketing. Most firms start with an export department and graduate to an international division. A few become global companies which means that top management plans and organizes on a global basis (organization history). Typically, these companies began their business development phase by entrenching themselves first in their domestic markets. Often, international development did not occur until maturity was reached domestically. After that phase, these firms began to turn into companies with some international business, usually on an export basis. But, this process
may vary dramatically with the size of the domestic market. For example, when we contrast the Netherlands market for Philips vs the US market for GE, we see that smallness of Netherlands`s market resulted in rapid globalization of Philips` activities when compared with GE`s activities in US. As the international side of their sales grew, the companies increasingly distributed their assets into many markets and achieved what was once termed the status of a multinational corporation (MNC). Pursuing multidomestic strategies on a market-by-market basis, companies began to enlarge and build considerable local presence. Regions are treated as single markets and products are standardized by region or globally; promotion projects a uniform image. Although this orientation improves coordination and control, it often discounts national differences. The French automobile industry offers a good illustration of the evolution of an international marketing strategy. In the 1980s, according to an industry analyst for Eurofinance: “For years, the French industry depended on the domestic market. Then in the 1970s, it developed a Europewide market. Now it finds it must crack the world market if it expects to survive. And it is getting a late start.” France`s Renault was moving quickly into the world market. It purchased 10 percent of Sweden`s Volvo and planned to design a new car in conjunction with Volvo. But, the Volvo deal fell apart which is one of the reasons that they went to Nissan. Only during their latest phase have these firms begun to transform themselves into global marketing behemoths whose marketing operations are closely coordinated across the world market rather than developed and executed locally. This traditional sequencing of the growth from domestic to international, to multi-domestic or multinational to global seems to be followed by most firms and also by many newly formed companies. However, some
newer firms are jumping right into the latest or global category and not necessarily going through the various stages of development (management vision). Once a company commits to extending its business internationally management is confronted with the task of setting a geographic or regional emphasis. A company may decide to emphasize developed nations such as Japan or those of Europe or North America. Alternatively, some companies may prefer to pursue primarily developing countries in Latin America, Africa or Asia. Management must make a strategic decision to direct business development in such a way that the company`s overall objectives are congruent with the particular geographic mix of its activities. Other factors in this decision of foreign market selection include in addition to macro-environmental issues (economic, socio-cultural and political-legal factors), micro-environmental issues such as market attractiveness and company capability profile (skills, resources, product adaptation and competitive advantage). Developed economies account for a disproportionately large share of world gross national product (GNP) and tend to create many new companies. In particular, firms with technology-intensive products have concentrated their activities in the developed world. Although competition from both other international firms and local companies is usually more intense in those markets, doing business in developed countries is generally preferred over doing business in developing nations. Because the business environment is more predictable and the investment climate is more favorable. Emerging markets differ substantially from developed economies by geographic region and by the level of economic development. Markets in Latin America, Africa, the Middle East and Asia are also characterized by a higher degree of risk than markets in developed
countries. Because of the less stable economic climates (income, employment, prices, development, etc.) in those areas, a company`s operation can be expected to be subject to greater uncertainty and fluctuation. The issues are infrastructure such as transportation, technology, telecommunications, stable banking, convertibility of currency, protection of Intellectual Property Rights, enforceability of contracts, and transparency in the legal system (government agencies&systems, laws and ordinances, etc.). Moreover, huge foreign indebtedness, unstable governments, foreign exchange problems, foreign government entry requirements, tariffs and other trade barriers, corruption, bureaucracy, technological pirating and high cost of product and communication adaptation can be issues in those countries. Furthermore, the frequently changing political situations in developing countries (war, nationalism, etc.) often affect operating results negatively. As a result, some markets that may have experienced high growth for some years may suddenly experience drastic reductions in growth. In many situations, however, the higher risks are compensated for by higher returns, largely because competition is often less intense in those markets. Consequently, companies need to balance the opportunity for future growth in the developing nations with the existence of higher risk. The economic liberalization of the countries in Eastern Europe opened a large new market for many international firms. The market typically represents about 15 percent of the worldwide demand in a given industry, about two-thirds of that accounted for by Russia and other countries of the former Soviet Union. Although many companies consider this market as long-term potential with little profit opportunity in the near term, a number of firms have moved to take advantage of opportunities in areas where they once were prohibited from doing business. Many
countries are changing from a centrally planned economy to a market-oriented one. East Germany has made the fastest transformation because its dominant western half was already there. Eastern European nations like Hungary and Poland have also been moving quickly with market reforms. Many of the reforms have increased foreign trade and investment. For example, in Poland, foreigners are now allowed to invest in all areas of industry, including agriculture, manufacturing and trade. Poland even gives companies that invest in certain sectors some tax advantages. At some point, the development of any global marketing strategy will come down to selecting individual countries in which a company intends to compete. There are more than two hundred countries and territories from which companies have to select, but very few firms end up competing in all of these markets. The decision on where to compete, the country selection decision is one of the components of developing a global marketing strategy. Why is country selection a strategic concern for global marketing management? Adding another country to a company`s portfolio always requires additional investment in management time and effort and in capital. Although opportunities for additional profits are usually the driving force, each additional country also represents both a new business opportunity and risk. It takes time to build up business in a country where the firm has not previously been represented and profits may not show until much later on. Consequently, companies need to go through a careful analysis before they decide to move ahead. They can analyze the investment climate of the country and determine market attractiveness of it.
In the context of selecting markets for special emphasis, the lead market concept can help in identifying those countries. Lead market is the market where a company should place extra emphasis. It is essential for globally competing firms to monitor lead markets in their industries or better yet to build up some relevant market presence in those markets. As global marketers eye the array of countries available for selection, they soon become aware that not all countries are of equal importance on the path to global leadership. Markets that are defined as crucial to global market leadership, markets that can determine the global winners among all competitors, markets that companies can ill afford to avoid or neglect-such markets are “must win” markets. Contrary to other markets, “must win” markets can not be avoided if global market leadership is at stake. Firms need to understand their competitors because corporate success results from providing more value to customers than the competition. Industry structure is the framework within which companies compete. Five forces determine the attractiveness of an industry: the threat of new entrants, the bargaining power of suppliers, the bargaining power of buyers, the presence of substitute products and the intensity of the rivalry between firms in the industry. Firms need to manage these factors so that industry structure is favorable. Generic strategies are general classifications of prototype strategies that help us understand different approaches to globalization. The concept has been widely used by writers on business and corporate strategies including Michael E. Porter. Generic strategies such as differentiation, cost leadership and the like are archetypes that describe fundamentally different ways to compete. Creating and sustaining a competitive advantage can be achieved by offering superior value through a differential advantage or
managing for cost leadership. Firms can gain a competitive advantage through differentiation of their product offering or marketing mix which provide superior customer value or by managing for lowest delivered cost. These two means of competitive advantage when combined with the competitive scope of activities (broad vs narrow) result in four generic strategies: differentiation, cost leadership, differentiation focus and cost focus. The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments whereas differentiation focus and cost focus strategies are confined to a narrow segment. When we consider the idea of sustainability of competitive advantage here, many of these advantages are only temporary and can easily be copied. The sources of competitive advantage are the skills and resources of the company. Analysing these factors can lead to the definition of the company`s core competences. These are the skills and resources at which the company excels and can be used to develop new products and markets. To many readers, the term “global marketing strategy” probably suggests a company represented everywhere and pursuing more or less the same marketing strategy. However, global marketing strategies are not to be equated with global standardization, although they may be the same in some situations. A global marketing strategy represents the application of a common set of strategic marketing principles across most world markets. It may include but does not require similarity in products or in marketing processes. A company that pursues a global marketing strategy looks at the world market as a whole rather than at markets on a country-by-country basis which is more typical for multinational firms. Globalization deals with the integration of the many country
strategies and the subordination of these country strategies to one global framework. As a result, it is conceivable that one company may have a globalized approach to its marketing strategy but leave the details for many parts of the marketing plan to local subsidiaries. Few companies will want to globalize all of their marketing operations. The difficulty then is to determine which marketing operations elements will gain from globalization. Such a modular approach to globalization is likely to yield greater return than a total globalization of a company`s marketing strategy. To a large extent, international firms operating as multi-domestic firms have organized their businesses around countries or geographic regions. Although some key strategic decisions with respect to products and technology are made at the central or head office, the initiative of implementing marketing strategies is left largely to local-country subsidiaries. As a result, profit and loss responsibility tends to reside in each individual country. At the extreme, this leads to an organization that runs many different businesses in a number countries-therefore the term multi-domestic. Each subsidiary represents a separate business that must be run profitably. Multinational corporations tend to be represented in a large number of countries and the world`s principal trading regions. Many of today`s large internationally active firms may be classified as pursuing multidomestic strategies. Companies might globalize production or "back office" operations while maintain multiple local brands. Economic conditions, changes in consumer attitudes and behavior and the rise of generic brands have all contributed to a decline in brand loyalty. More consumers have been selecting products from among manufacturers`
brands, distributors` brands and generic products. Often a coupon, price special or a desire for variety will influence the purchase decision. Regional marketing strategies focusing on Europe, Asia or Latin America represent a halfway point between multi-domestic and truly global strategy types. Conceptually, they are not global because the coordination takes place across one single region only, with pan-European strategies standing out as the first real regional marketing strategies created because of the run up to the European Union integration. The marketing research surveys study and analyze various factors within foreign markets and their importance to the decision about which foreign markets to enter. These factors include: economic-financial factors, political-legal factors, cultural factors, demographic factors and trade agreements. (economic integration) (See appendix 1) Integrated Global Business Strategies: Looking at global business strategies,
companies have several choices to make: first, the global focus strategy and second, the global business unit. Formulating Global Focus Strategies: Geographic extension is one of two key dimensions in the strategy of an international company. The second dimension is concerned with the range of a firm`s product and service offerings. To what extent should a company become a supplier of a wide range of products aimed at several or many market segments? Should a company become the global specialist in a certain area by satisfying one or a small number of target segments, doing this in most major markets around the world? Even some of the largest companies can not pursue all available initiatives. Resources for most companies are limited, often requiring a tradeoff between product expansion and
geographic expansion strategies. Resolving this question is necessary to achieve a concentration of resources and efforts in areas where they will bring the most return. We can distinguish between two models: on the one hand, we have the broad-based firm marketing a wide range of products to many different customer groups, both domestic and overseas; on the other hand, we have the narrowly-based firm marketing a limited range of products to a homogenous customer group around the world. Both types of companies can be successful in their respective markets. Creating Global Business Units: Many firms have come to realize that a strong global presence in one given product was becoming a strategic requirement. Since traditional multinational firms often competing through a multi-domestic strategy have realized the weakness of their unfocused patterns of global coverage, they have begun to assemble business units that have a better global focus. Many are striving to change their business to reflect more a coherent market position whereby a business consists of strong units in major markets. Avoiding globally unfocused strategies, international firms have either retrenched to become regional specialists or changed their business focus to adopt global niche strategies, selective globalization or complete globalization. A strategy of complete globalization is selected by firms that essentially globalize all of their business units. Selective globalization is adopted by firms that globalize several or many businesses but also exit from others because financial resources may be limited. Global niche strategies are selected by firms that focus on one or very few businesses worldwide and exit from others to make up for a lack of resources. In general, companies with a narrow product or business focus but globally marketed perform better than firms with a broad product line. Since the establishment of strong global marketing positions
requires substantial resources, many firms have begun to adopt the narrow focus model by spinning off business no longer viewed as part of the company`s core operations. Global Marketing Strategies: A global marketing strategy that totally globalizes all marketing activities is not always achievable or desirable (differentiated globalization). In the early phases of development, global marketing strategies were assumed to be of one type only, offering the same marketing strategy across the globe. As marketers gained more experience, many other types of global marketing strategies became apparent. Some of those were much less complicated and exposed a smaller aspect of a marketing strategy to globalization. A more common approach is for a company to globalize its product strategy (product lines, product designs and brand names) and localize distribution and marketing communication. Integrated Global Marketing Strategy: When a company pursues an integrated global marketing strategy, most elements of the marketing strategy have been globalized. Globalization includes not only the product but also the communications strategy, pricing and distribution as well as such strategic elements as segmentation and positioning. Such a strategy may be advisable for companies that face completely globalized customers along the lines. It also assumes that the way a given industry works is highly similar everywhere, thus allowing a company to unfold its strategy along similar paths in country by country. One company that fits the description of an integrated global marketing strategy to a large degree is CocaCola. That company has achieved a coherent, consistent and integrated global marketing strategy that covers almost all elements of its marketing
program from segmentation to positioning, branding, distribution, bottling, advertising and more. Reality tells us that completely integrated global marketing strategies will continue to be the exception. However, there are many other types of partially globalized marketing strategies; each may be tailored to specific industry and competitive circumstances. Global Product Category Strategy: Possibly the least integrated type of global marketing strategy is the global product category strategy. Leverage is gained from competing in the same category country after country and may come in the form of product technology or development costs. Selecting the form of global product category implies that the company while staying within that category will consider targeting different segments in each category or varying the product, advertising and branding according to local market requirements. Companies competing in the multi-domestic mode are frequently applying the global category strategy and leveraging knowledge across markets without pursuing standardization. That strategy works best if there are significant differences across markets and when few segments are present in market after market. Several traditional multinational players who had for decades pursued a multi-domestic marketing approachtailoring marketing strategies to local market conditions and assigning management to local management teams- have been moving toward the global category strategy. Among them are Nestle, Unilever and Procter&Gamble, three large international consumer goods companies doing business in food and household goods. Global Segment Strategy: A company that decides to target the same segment in many countries is following a global segment strategy. The company may develop an understanding of its customer base and leverage that experience around the world. In both
consumer and industrial industries significant knowledge is accumulated when a company gains in-depth understanding of a niche or segment. A pure global segment strategy will even allow for different products, brands or advertising although some standardization is expected. The choices may consist of competing always in the upper or middle segment of a given consumer market or for a particular technical application in an industrial segment. Segment strategies are relatively new to global marketing. Global Marketing Mix Element Strategies: These strategies pursue globalization along individual marketing mix elements such as pricing, distribution, place, promotion, communications or product. They are partially globalized strategies that allow a company that customize other aspects of its marketing strategy. Although various types of strategies may apply, the most important ones are global product strategies, global advertising strategies and global branding strategies. Typically companies globalize those marketing mix elements that are subject to particularly strong global logic forces. A company facing strong global purchasing logic may globalize its account management practices or its pricing strategy. Another firm facing strong global information logic will find it important to globalize its communications strategy. Global Product Strategy: Pursuing a global product strategy implies that a company has largely globalized its product offering. Although the product may not need to be completely standardized worldwide, key aspects or modules may in fact be globalized. Global product strategies require that product use conditions, expected features and required product functions be largely identical so that few variations or changes are needed. Companies pursuing a global product strategy are interested in leveraging the fact that all investments for producing and developing a given product have already been
made. Global strategies will yield more volume, which will make the original investment easier to justify. Global Branding Strategies: Global branding strategies consist of using the same brand name or logo worldwide. Companies want to leverage the creation of such brand names across many markets, because the launching of new brands requires a considerable marketing investment. Global branding strategies tend to be advisable if the target customers travel across country borders and will be exposed to products elsewhere. Global branding strategies also become important if target customers are exposed to advertising worldwide. This is often the case for industrial marketing customers who may read industry and trade journals from other countries. Increasingly, global branding has become important also for consumer products where cross-border advertising through international TV channels has become common. Even in some markets such as Eastern Europe, many consumers had become aware of brands offered in Western Europe before the liberalization of the economies in the early 1990s. Global branding allows a company to take advantage of such existing goodwill. Companies pursuing global branding strategies may include luxury product marketers who typically face a large fixed investment for the worldwide promotion of a product. Global Advertising Strategy: Globalized advertising is generally associated with the use of the same brand name across the world. However, a company may want to use different brand names partly for historic purposes. Many global firms have made acquisitions in other countries resulting in a number of local brands. These local brands have their own distinctive market and a company may find it counterproductive to change those names. Instead, the company may want to leverage a certain theme or advertising approach that
may have been developed as a result of some global customer research. Global advertising themes are most advisable when a firm may market to customers seeking similar benefits across the world. Once the purchasing reason has been determined as similar, a common theme may be created to address it. Composite Global Marketing Strategy: The above descriptions of the various global marketing models give the distinct impression that companies might be using one or the other generic strategy exclusively. Reality shows, however, that few companies consistently adhere to only one single strategy. More often companies adopt several generic global strategies and run them in parallel. A company might for one part of its business follow a global brand strategy while at the same time running local brands in other parts. Many firms are a mixture of different approaches, thus the term composite. Competitive Global Marketing Strategies: Two types of approaches emerge as of particular interest to us. First, there are a number of heated global marketing duels in which two firms compete with each other across the entire global chessboard. The second, game pits a global company versus a local company- a situation frequently faced in many markets. One of the longest running battles in global competition is the fight for market dominance between CocaCola and PepsiCo, the world`s largest soft drink companies. Global firms are able to leverage their experience and market position in one market for the benefit of another. Consequently, the global firm is often a more potent competitor for a local company. Although global firms have superior resources, they often become inflexible after several successful market entries and tend to stay with standard approaches when flexibility is
called for. In general, the global firms` strongest local competitors are those who watch global firms carefully and learn from their moves in other countries. With some global firms requiring several years before a product is introduced in all markets, local competitors in some markets can take advantage of such advance notice by building defenses or launching a preemptive attack on the same segment. 3) Global Market Entry Strategies: Exporting as an Entry Strategy: Exporting represents the least commitment on the part of the firm entering a foreign market (See appendix 2). Exporting to a foreign market is a strategy many companies follow for at least some of their markets. Since many countries do not offer a large enough opportunity to justify local production, exporting allows a company to centrally manufacture its products for several markets and therefore to obtain economies of scale. Furthermore, since exports add volume to an already existing production operation located elsewhere, the marginal profitability of such exports tends to be high. A firm has two basic options for carrying out its export operations. The form of exporting can be directly under the firm`s control or indirect and outside the firm`s control. It can contact foreign markets through a domestically located (in the exporter`s country of operation) intermediary-an approach called indirect exporting. Alternatively, it can use an intermediary located in the foreign market-an approach termed direct exporting. Indirect Exporting: Indirect exporting includes dealing through export management companies of foreign agents, merchants or distributors. Several types of intermediaries located in the domestic market are ready to assist a manufacturer in contacting international markets or buyers. The major advantage for managers using a domestic
intermediary lies in that individual`s knowledge of foreign market conditions. Particularly, for companies with little or no experience in exporting, the use of a domestic intermediary provides the exporter with readily available expertise. The most common types of intermediaries are brokers, combination export and manufacturers` export agents. Group selling activities can also help individual manufacturers in their export operations. Direct Exporting: Direct exporting includes setting up an export department within the firm or having the firm`s sales force sell directly to foreign customers or marketing intermediaries. A company engages in direct exporting when it exports through intermediaries located in the foreign markets. Under direct exporting, an exporter must deal with a large number of foreign contacts, possibly one or more for each country the company plans to enter. Although a direct exporting operation requires a larger degree of expertise, this method of market entry does provide the company with a greater degree of control over its distribution channels than would indirect exporting. The exporter may select from two major types of intermediaries: agents and merchants. Also, the exporting company may establish its own sales subsidiary as an alternative to independent intermediaries. Successful direct exporting depends on the viability of relationship built up between the exporting firm and the local distributor or importer. By building the relationship well, the exporter saves considerable investment costs. The independent distributor earns a margin on the selling price of the products. Although the independent distributor does not represent a direct cost to the exporter, the margin the distributor earns represents an opportunity that is lost to the exporter. By switching to a sales subsidiary to carry out the distributor`s tasks, the exporter can earn the same
margin. With increasing volume, the incentive to start a sales subsidiary grows. On the other hand, if the anticipated sales volume is small, the independent distributor will be more efficient since sales are channeled through a distributor who is maintaining the necessary staff for several product lines. The lack of control frequently causes exporters to shift from an independent distributor to wholly owned sales subsidiaries. Many companies export directly to their own sales subsidiaries abroad, sidestepping independent intermediaries. The sales subsidiary assumes the role of the independent distributor by stocking the company's products and/or services, sometimes jointly advertising and promoting the products, selling to buyers and assuming the credit risk. The sales subsidiary offers the manufacturer full control of selling operations in a foreign market. Such control may be important if the company`s products require the use of special marketing skills such as advertising or selling. The exporter finds it possible to transfer or export not only the product but also the entire marketing program that often makes the product a success. The operation of a subsidiary adds a new dimension to a company`s international marketing operation. It requires the commitment of capital in a foreign country, primarily for the financing of account receivables and inventory. Also, the operation of a sales subsidiary entails a number of general administrative expenses that are essentially fixed in nature. As a result, a commitment to a sales subsidiary should not be made without careful evaluation of all the costs involved. Foreign Production as an Entry Strategy: Many companies realize that to open a new market and serve local customers better, exporting into that market is not a sufficiently strong commitment to realize strong local
presence. As a result, these companies look for ways to strengthen their base by entering into one of several ways to manufacture. Licensing: Licensing is similar to contract manufacturing, as the foreign licensee receives specifications for producing products locally, but the licensor generally receives a set fee or royalty rather than finished products. Licensing may offer the foreign firm access to brands, trademarks, trade secrets or patents associated with products manufactured. Under licensing, a company assigns the right to a patent (which protects a product, technology or process) or a trademark (which protects a product name) to another company for a fee or royalty. Using licensing as a method of market entry, a company can gain market presence without an equity (capital) investment. The foreign company, or licensee gains the right to commercially exploit the patent or trademark on either an exclusive (the exclusive right to a certain geographic region) or an unrestricted basis. Due to advantages of low risk and low investment, licensing is a particularly attractive mode for small and medium-sized firms. Licensing also is an effective mode for testing the future viability of more active involvement with a foreign partner. Licenses are signed for a variety of time periods. Depending on the investment needed to enter the market, the foreign licensee may insist on a longer licensing period to pay off the initial investment. Typically, the licensee will make all necessary capital investments (machinery, inventory and so forth) and market the products in the assigned sales territories, which may consist of one or several countries. Licensing agreements are subject to negotiation and tend to vary considerably from company to company and from industry to industry.
Companies use licensing for a number of reasons. For one, a company may not have the knowledge or the time to engage more actively in international marketing. The market potential of the target country may also be too small to support a manufacturing operation. A licensee has the advantage of adding the licensed product`s volume to an ongoing operation thereby reducing the need for a large investment in new fixed assets. A company with limited resources can gain advantage by having a foreign partner market its products by signing a licensing contract. Licensing not only saves capital because no additional investment is necessary but also allows scarce managerial resources to be concentrated on more lucrative markets. Also, some smaller companies with a product in high demand may not be able to satisfy demand unless licenses are granted to other companies with sufficient manufacturing capacity. In some countries where the political or economic situation appears uncertain, a licensing agreement will avoid the potential risk associated with investments in fixed facilities. Representing an export of technology rather than goods (as in exporting) or capital, licensing is an attractive mode in markets where political and economic uncertainties make a greater involvement risky. Both commercial and political risks are absorbed by the licensee. In other countries governments favor the granting of licenses to independent local manufacturers as a means of building up an independent local industry. In such cases, a foreign manufacturer may prefer to team up with capable licensee despite a large market size, because other forms of entry may not be possible. A major disadvantage of licensing is the company`s substantial dependence on the local licensee to produce revenues and thus royalties usually paid as a percentage on sale volume only. Once a license is granted, royalties are paid only if the licensee is capable
of performing an effective marketing job. Since the local company`s marketing skills may be less developed, revenues from licensing may suffer accordingly. Another disadvantage is the resulting uncertainty of product quality. A foreign company`s image may suffer if a local licensee markets a product of substandard quality. Ensuring a uniform quality requires additional resources from the licenser that may reduce the profitability of the licensing activity. Thus, the producer loses some control in certain situations. The risk of losing control of intellectual property and/or technological advantages can also be mentioned as another disadvantage of licensing. Another potential problem is that the licensee may adapt the licensed product and compete head on with the licensor. The possibility of nurturing a potential competitor is viewed by many companies as a disadvantage of licensing. With licenses usually limited to a specific time period, a company has to guard against the situation in which the licensee will use the same technology independently after the license has expired and therefore turn into a competitor. Although there is a great variation according to industry, licensing fees in general are substantially lower than the profits that can be made by exporting or local manufacturing. Depending on the product, licensing fees may range anywhere between 1 percent and 20 percent of sales, with 3 to 5 percent being more typical for industrial products. Conceptually, licensing should be pursued as an entry strategy if the amount of the licensing fees exceeds the incremental revenues of any other entry strategy such as exporting or local manufacturing. A thorough investigation of the market potential is
required to estimate potential revenues from any one of the entry strategies under consideration. Franchising: Franchising is a special form of licensing in which the franchiser makes a total marketing program available including the brand name, logo, products and method of operation. Usually the franchise agreement is more comprehensive than a regular licensing agreement in as much as the total operation of the franchisee is prescribed. It differs from licensing principally in the depth and scope of quality controls placed on all phases of the franchisee`s operation. The franchise concept is expanding rapidly beyond its traditional businesses (such as service stations, restaurants and real-estate brokers) to include less traditional formats such as travel agencies, used car dealers, the video industry and professional and health improvement services. About 80 percent of all McDonald`s restaurants are franchised and as of 1999 the firm operated about 24,500 stores in 116 countries. Local Manufacturing: A common and widely practiced form of market entry is the local manufacturing of a company`s products. Many companies find it to their advantage to manufacture locally instead of supplying the particular market with products made elsewhere. Numerous factors such as local costs, market size, tariffs, laws and political considerations may affect a choice to manufacture locally. The actual type of local production depends on the arrangements made; it may be contract manufacturing, assembly or fully integrated production. Since local production represents a greater commitment to a market than other entry strategies, it deserves considerable attention before a final decision is made.
Under contract manufacturing, a company arranges to have its products manufactured by an independent local company on a contractual basis. This is an entry mode in which a firm contracts with a foreign firm to manufacture parts or finished products or to assemble parts into finished products. The manufacturer`s responsibility is restricted to production. Afterward, products are turned over to the international company which usually assumes the marketing responsibilities for sales, promotion and distribution. In a way, the international company rents the production capacity of the local firm to avoid establishing its own plant or to circumvent barriers set up to prevent the import of its products. Contract manufacturing differs from licensing with respect to the legal relationship of the firms involved. The local producer manufactures based on orders from the international firm but the international firm gives virtually no commitment beyond the placement of orders. Typically, the contracting firm supplies complete product specifications to the foreign firm, sets production volume and guarantees purchase. Lower labor costs abroad are the major incentive for using this entry mode. Typically, contract manufacturing is chosen for countries with a low-volume market potential combined with high tariff protection. In such situations, local production appears advantageous to avoid the high tariffs, but the local market does not support the volume necessary to justify the building of a single plant. These conditions tend to exist in the smaller countries in Central America, Africa and Asia. Of course, whether an international company avails itself of this method of entry also depends on its products. Usually, contract manufacturing is employed where the production technology involved is widely available and where the marketing effort is of crucial importance in the success of the product.
By moving to an assembly operation, the international firm locates a portion of the manufacturing process in the foreign country. Typically, assembly consists only of the last stages of manufacturing and depends on the ready supply of components or manufactured parts to be shipped in from another country. Assembly usually involves heavy use of labor rather than extensive investment in capital outlays or equipment. Motor vehicle manufacturers and electronics industries have made extensive use of assembly operations in numerous countries. Often, companies want to take advantage of lower wage costs by shifting the laborintensive operation to the foreign market; this results in a lower final price of the products. In many cases, however, the local government forces the setting up of assembly operations either by banning the import of fully assembled products or by charging excessive tariffs on imports. As a defensive move, foreign companies begin assembly operations to protect their markets. However, successful assembly operations require dependable access to imported parts. This is often not guaranteed and in countries with chronic foreign exchange problems, supply interruptions can occur. To establish a fully integrated local production unit represents the greatest commitment a company can make for a foreign market. Since building a plant involves a substantial outlay in capital, companies only do so where demand appears assured. International companies may have any number of reasons for establishing factories in foreign countries. Often, the primary reason is to take advantage of lower costs in a country, thus providing a better basis for competing with local firms or other foreign companies already present. Also, high transportation costs and tariffs may make imported goods uncompetitive.
Some companies want to build a plant to gain new business and customers. Such an aggressive strategy is based on the fact that local production represents a strong commitment and is often the only way to convince clients to switch suppliers. Local production is of particular importance in industrial markets where service and reliability of supply are main factors in the choice of product or supplier. Many times, companies establish production abroad not to enter new markets but to protect what they have already gained through exporting. Changing economic or political factors may make such a move necessary. The Japanese car manufacturers who had been subject to an import limitation of assembled cars imported from Japan, began to build factories in United States in the 1980s to protect their market share. As mentioned above, Japanese manufacturers` reasons for the local production were partly political as the United States imposed import targets for several years. Also, with the value of the yen increasing to one hundred yen per US dollar, exports from Japan became uneconomical compared with local production. Thus, to defend market positions, Japanese car companies instituted a longer-term strategy of making cars in the region where they are sold. Moving with an established customer can also be a reason for setting up plants abroad. In many industries, important suppliers want to keep a relationship by establishing plants near customer locations; when customers build new plants elsewhere, suppliers move too. Another reason can also be shifting production abroad to save costs. Ownership Strategies:
Companies entering foreign markets have to decide on more than the most suitable entry strategy. They also need to arrange ownership, either as a wholly owned subsidiary, in a joint venture, or more recently in strategic alliance. Joint Ventures: In a joint venture, an investing firm owns roughly 25 to 75 percent of a foreign firm, allowing the investing firm to affect management decisions of the foreign firm. Under a joint venture (JV) arrangement, the foreign company invites an outside partner to share stock ownership in the new unit. The particular participation of the partners may vary, with some companies accepting either a minority or majority position. In most cases, international firms prefer wholly owned subsidiaries for reasons of control; once a joint venture partner secures part of the operation, the international firm can no longer function independently, which sometimes lead to inefficiencies and disputes over responsibility for the venture. If an international firm has strictly defined operating procedures, such as for budgeting, planning and marketing, getting the JV company to accept the same methods of operation may be difficult. Problems may also arise when the JV partner wants to maximize dividend payout instead of reinvestment or when the capital of the JV has to be increased and one side is unable to raise the required funds. Experience has shown that JVs can be successful if the partners share the same goals with one partner accepting primary responsibility for operations matters. Despite the potential for problems, joint ventures are common because they offer important advantages to the foreign firm. By bringing in a partner the company can share the risk for a new venture. Furthermore, the JV partner may have important skills or contacts of value to the international firm. Sometimes, the partner may be an important customer who is willing to contract for a portion of the new unit`s output in return for an equity participation. In
other cases, the partner may represent important local business interests with excellent contacts to the government. A firm with advanced product technology may also gain market access through the JV route by teaming up with companies that are prepared to distribute its products. Many international firms have entered Japan, China and Eastern Europe with JVs. But, not all joint ventures are successful and fulfill their partners` expectations. Despite the difficulties involved, it is apparent that the future will bring many more joint ventures. Successful international and global firms will have to develop the skills and experience to manage JVs successfully often in different and difficult environmental circumstances. And in many markets, the only viable access to be gained will be through JVs. Strategic Alliances: A more recent phenomenon is the development of a range of strategic alliances. Alliances are different from traditional joint ventures in which two partners contribute a fixed amount of resources and the venture develops on its own. In an alliance, two entire firms pool their resources directly in a collaboration that goes beyond the limits of a joint venture. Although a new entity may be formed, it is not a requirement. Sometimes, the alliance is supported by some equity acquisition of one or both of the partners. In an alliance, each partner brings a particular skill or resourceusually they are complementary-and by joining forces, each expects to profit from the other`s experience. Typically, alliances involve either distribution access, technology transfers or production technology with each partner contributing a different element to the venture. Alliances can be in the forms of technology-based alliances, productionbased alliances or distribution-based alliances.
Although many alliances have been forged in a large number of industries, the evidence is not yet in as to whether these alliances will actually become successful business ventures. Experience suggests that alliances with two equal partners are more difficult to manage than those with a dominant partner. In particular, it is important to recognize that the needs and aspirations of partners may change over the life of an alliance and do so in divergent ways. Predicting what the goals and incentives of the various parties will be under various circumstances is a critical part of effective planning. Furthermore, many observers question the value of entering alliances with technological competitors, such as between western and Japanese firms. The challenge in making an alliance work lies in the creation of multiple layers of connections or webs that reach across the partner organizations. Eventually such connections will result in the creation of new organizations out of the cooperating parts of the partners. In that sense, alliances may very well be just an intermediate stage until a new company can be formed or until the dominant partner assumes control. Entering Markets Through Mergers and Acquisitions: Although international firms have always made acquisitions, the need to enter markets more quickly than through building a base from scratch or entering some type of collaboration has made the acquisition route extremely attractive. This trend has probably been aided by the opening of many financial markets, making the acquisition of publicly traded companies much easier. Most recently even unfriendly takeovers in foreign markets are now possible. Nevertheless, international mergers and acquisitions are difficult to make work. A major advantage of acquisitions is that they can quickly position a firm in a new business. By purchasing an existing player, a firm does not have to take the time to
establish its presence or develop for itself the resources it does not already possess. This can be particularly important when the critical resources are difficult to imitate or accumulate. Acquiring an existing firm also takes a potential competitor out of the market. Despite these advantages, acquisitions can have serious drawbacks. First and foremost, acquisitions can be a very expensive way to enter a market. In addition to the likelihood of overbidding, acquisitions pose a number of other challenges. Most targets contain bundles of assets and capabilities, only some of which are of interest to the acquirer. Disposing of unwanted assets or maintaining them in the portfolio is often done at significant cost, either in real terms or in management time. Although these obstacles are serious, a number of acquisitions fail on another account: the post acquisition integration process fails. Integrating an acquired company into a corporation is probably one of the most challenging tasks confronting top management. Preparing An Entry Strategy Analysis: Of course, assembling accurate data is the cornerstone of any entry strategy analysis. The necessary sales projections have to be supplemented with detailed cost data and financial need projections on assets (managerial, financial, etc. resources). The data need to be assembled for all entry strategies under consideration. Financial data are collected not only on the proposed venture but also on its anticipated impact on the existing operations of the international firm. The combination of the two sets of financial data results in incremental financial data incorporating the net overall benefit of the proposed move for the total company structure. For best results, the analyst must take a long-term view of the situation. Asset requirements, costs and sales have to be evaluated over the planning horizon of the
proposed venture, typically three to five years for an average company. Furthermore, a thorough sensitivity analysis must be incorporated. Such an analysis may consists of assuming several scenarios of international risk factors that may adversely affect the success of the proposed venture. The financial data can be adjusted to reflect each new set of circumstances. One scenario may include a 20 percent devaluation in the host country, combined with currency control and difficulty of receiving new supplies from foreign plants. Another situation may assume a change in political leadership to a group less friendly to foreign investments. With the help of a sensitivity analysis approach, a company can quickly spot the key variables in the environment that will determine the outcome of the proposed market entry. The international company then has the opportunity to further add to its information on such key variables or at least to closely monitor their development. It is assumed that any company approaching a new market is looking for profitability and growth. Consequently, the entry strategy must support these goals. Each project has to be analyzed for the expected sales level, costs and asset levels that will eventually determine profitability. Sales, costs and assets levels have to be estimated before. Also, profitability has to be estimated (past sales analysis, market test method). In order to do this, assessing international risk factors, maintaining flexibility and assessing total company impact are required. Market research that focuses on buying patterns, customer segmentation on ability to pay especially in developing countries, etc. (survey of buyers` intentions, composite of sales force opinion, expert opinion) (SWOT Analysis-strenghts, weaknesses, opportunities, threats) Entry Strategy Configuration:
In reality, most entry strategies consist of a combination of different formats. We refer to the process of deciding on the best possible entry strategy mix as entry strategy configuration. Rarely do companies employ a single entry mode per country. A company may open up a subsidiary that produces some products locally and imports others to round out its product line. The same foreign subsidiary may even export to other foreign subsidiaries, combining exporting, importing and local manufacturing into one unit. Furthermore, many international firms grant licenses for patents and trademarks to foreign operations, even when they are fully owned. This is done for additional protection or to make the transfer of profits easier. In many cases, companies have bundled such entry forms into a single legal unit, in effect layering several entry strategy options on top of each other. Bundling of entry strategies is the process of providing just one legal unit in a given country or market. In other words, the foreign company sets up a single company in one country and uses that company as a legal umbrella for all its entry activities. However, such strategies have become less typical-particularly in larger markets, many firms have begun to unbundle their operations. When a company unbundles, it essentially divides its operations in a country into different companies. The local manufacturing plant may be incorporated separately from the sales subsidiary. When this occurs, companies may select different ownership strategies, for instance, allowing a JV in one operation while keeping full ownership in another part. Such unbundling becomes possible in the larger markets such as the United States, Germany and Japan. It also allows the company to run several companies or
product lines in parallel. Global firms granting global mandates to their product divisions will find that each division will need to develop its own entry strategy for key markets. Portal or E-Business Entry Strategies: The technological revolution of the Internet with its wide range of connected and networked computers has given rise to the virtual entry strategy. Using electronic means, primarily web pages, e-mail, file transfer and related communications tools, firms have begun to enter markets without ever touching down. A company that establishes a server on the Internet and opens up a web page can be connected from anywhere in the world. Consumers and industrial buyers who use modern Internet browsers, such as Netscape, can search for products, services or companies and in many instances even make purchases online. Whatever the forecasts, most experts agree that the opportunity for Internet-based commerce will be huge. The Internet will eliminate some of the hurdles that plagued smaller firms from competing beyond their borders. Given the low cost of the Internet, it is very likely that many more established firms will use the Internet as the first point of contact for countries where they do not yet have a major base. However, there are many challenges to would-be Internet-based global marketers. One of the biggest is language. The second big challenge is the fulfillment side of the e-business. Here, we are dealing with completing a sale, shipping, collecting funds and providing after-sales service to customers all over the world. Exit Strategies: Circumstances may make companies want to leave a country or market. Other than the failure to achieve marketing objectives, there may be political, economic or legal reasons for a company to want to dissolve or sell an operation (management myopia).
International companies have to be aware of the high costs attached to the liquidation of foreign operations; substantial amounts of severance pay may have to be paid to employees and any loss of credibility in other markets can hurt future prospects. Sometimes, an international firm may need to withdraw from a market to consolidate its operations. This may mean a consolidation of factories from many to fewer such plants. Production consolidation when not combined with an actual market withdrawal is not really what we are concerned with here. Rather, our concern is a company`s actual abandoning its plan to serve a certain market or country. This is differentiation between production withdrawal or consolidation and brand withdrawal. A firm can consolidate production elsewhere while retaining a strong brand and marketing presence. Changing political situations have at times forced companies to leave markets. Changing government regulations can at times pose problems, prompting some companies to leave a country. Exit strategies can also be the result of negative reactions in a firm`s home market. Several of the markets left by international firms over the past decades have changed in attractiveness, making companies reverse their exit decisions and enter those markets a second time. Summary: Global marketing is the process of focusing an organization`s resources on the selection and exploitation of global market opportunities consistent with and supportive of its short and long-term strategic objectives and goals. In this paper, I tried to analyze the ways a company competes in global environment by using different tactics. Those tactics differ in a way a company’s capabilities and
willingness permit. A company must be careful in using those tactics before globalizing its operations. Because sometimes those tactics may fail and result in loss of profit or even closure of the company. I suggest to reader to obtain additional information about this subject. For example, they may contact my organization, Undersecretariat of Foreign Trade, closest Chambers of Commerce or any other public or private organization located in Turkey or abroad. They may also use any library or internet resources.
Ozet: (Turkce) Global pazarlama, bir orgutun kaynaklarinin onun kisa ve uzun donemli stratejik hedefleriyle uyumlu ve destekleyici global pazar firsatlarinin secimi ve kullanimina odaklanmasi surecidir. Bu calismada, bir sirketin global cevrede farkli taktikleri kullanarak rekabet etme yollarini analiz etmeye calistim. Bu taktikler, bir sirketin yetenek ve istekliliginin izin verdigi bir yolla degisir. Bir sirket, faaliyetlerini globallestirmeden once bu taktikleri kullanmada dikkatli olmalidir. Cunku, bazen bu taktikler basarisiz olabilir ve kar kaybi veya sirketin kapanmasiyla bile sonuclanabilir. Okuyucuya bu konu hakkinda ilave bilgi bulmasini oneriyorum. Ornegin, onlar benim kurumum Dis Ticaret Mustesarligiyla, en yakin Ticaret Odasiyla, veya herhangi diger Turkiye`de veya yurtdisinda yerlesik kamu veya ozel kurumla temasa gecebilirler. Onlar herhangi kutuphane veya internet kaynaklarini da kullanabilirler.
4) Appendices: Appendix 1: Economic-Financial Factors: • • • • • Amount of foreign debt carried Income distribution within the market Amount of foreign investment already in the market Natural resource base Inflation rate
Political-Legal Factors: • • • • Role of government in business activities (free or not free markets) Stability of government Barriers to international trade (whether or not favorable trade policies) Laws and regulations affecting the marketing mix (marketing regulations)
Laws and regulations affecting business activities (acceptance of foreign investment, etc.)
Stability of the workforce Political relations with trading partner
Cultural Factors: • • • • • Style of business within the market Attitudes toward bribes and questionable payments Language, race and nationalities, geographic divisions Role of institutions, religious groups, educational system, mass media, family Sociocultural (social interaction, hierarchies, interdependence, etc.)
Demographic Factors: • • • • • Number of organizations within the market Size and quality of workforce Population size and growth rate Composition of house holds Geographic distribution and density of population
Trade Agreements (blocks): • • • • • WTO EU NAFTA APEC MERCOSUR
Appendix 2: Entry modes into international markets:
Exporting Contract Manufacturing Licensing Joint Venturing Wholly Owned Subsidiaries Increasing involvement by the firm
5) References: 1) Collis, Montgomery, Corporate Strategy, A Resource-Based Approach- 1998 2) David Jobber, Principles and Practice of Marketing3) David J. Reibstein, Marketing, Concepts, Strategies and Decisions4) Jeannet, Jean-Pierre, Global Marketing Strategies- 5th edition, 2001 5) Joel R. Evans, Barry Berman, Marketing6) Philip Kotler, Ronald E. Turner, Marketing Management- seventh edition, 1993 7) Subhash C. Jain, International Marketing Management- 5th edition, 1996 8) Theodore Levitt, Harvard Business Review, The Globalization of Markets-MayJune 1983 9) Theodore Levitt, Harvard Business Review, Marketing Myopia-SeptemberOctober 1975 10) Thomas C. Kinnear, Kenneth L. Bernhardt, Principles of Marketing-
11) David Gertner, Ph.D., International Marketing Management (IMM) Course Slides and Notes, Thunderbird, The American Graduate School of International Management- Summer 2001