INTERNATIONAL MARKET ENTRY STRATEGIES

Exporting is the simplest method of entering a foreign market. By exporting to a foreign country,
a company is able to enter this country without actually establishing itself in the country. The
company must simply manufacture products that can then be shipped to the foreign country.
Exporters can take two forms, direct exporters and indirect exporters. Direct exporters sell
directly to foreign buyers and may have sales teams in those countries. Indirect exporters rely on
domestic intermediaries who broker the relationship with foreign buyers.

Licensing
Licensing is a good strategy for a company that has an in demand product or brand, but lacks the
resources to expand internationally. When a company licenses its products in a foreign country,
it sells the rights to manufacture the product in a foreign country to another manufacturer. This
means that a company does not need to invest in developing the market but can simply collect
payment from a foreign firm

Joint Venture
A joint venture involves entering a new market with a local partner. Joint ventures have the
advantage of providing companies with a partner who knows the local environment well. This
means that there is less risk of failing due to an inability to understand local customs, laws or
culture. The disadvantage of a joint venture is that it does not give a company total control over
the operation; the firm must be able to work well with its foreign partner to succeed.

Wholly Owned Subsidiary

Entering a foreign market with a wholly owned subsidiary involves creating a local firm without
the aid of a local partner. There are two ways of doing this. The first is through what is called
greenfield development. This involves creating a new organization in the foreign country from
the ground up. The second method is what is referred to as brownfield development. This
involves purchasing an existing company in a foreign country. Brownfield developments can be
beneficial because they offer local expertise, but they can be difficult because there may be
resistance from those in the company to new ownership.
Partnering
Partnering can be almost a necessity when companies enter certain foreign markets, for example
Asia. Partnering can be a simple co-marketing arrangement or a sophisticated strategic alliance
for manufacturing. Partnering can work well in those markets where the culture, both business
and social is vastly different that the company’s home market. The local partners will bring local
market knowledge, contacts and even potential customers.

Turnkey Projects
Turnkey projects are normally associated to companies that provide services such as
environmental consulting, architecture, construction and engineering. A turnkey project is where
the facility is built from scratch and turned over to the customer and ready to go – turn the key
and the factory is operational. This can be a good way to enter foreign markets as the customer is
normally a government and often the project is being financed by an international financial
agency such as the World Bank so the risk of not being paid is dramatically reduced.

Franchising
. Franchising works particularly well for companies that have a good brand that has repeatable
business. For example, food outlets which can be easily relocated into other markets. Two points
of importance are required when considering using the franchise strategy. First, is that your
business model should be unique or have a strong brand that can be leveraged internationally.
The second is that you may run the risk of creating your future competition in your franchisee.

Meaning of Multinational Companies (MNCs):

A multinational company is one which is incorporated in one country (called the home country);
but whose operations extend beyond the home country and which carries on business in other
countries (called the host countries) in addition to the home country.It must be emphasized that
the headquarters of a multinational company are located in the home country.

Some popular examples of multinationals are given below:

Features of Multinational Corporations (MNCs):

Following are the salient features of MNCs:
(i) Huge Assets and Turnover:
Because of operations on a global basis, MNCs have huge physical and financial assets. This
also results in huge turnover (sales) of MNCs. In fact, in terms of assets and turnover, many
MNCs are bigger than national economies of several countries.
(ii) International Operations Through a Network of Branches:
MNCs have production and marketing operations in several countries; operating through a
network of branches, subsidiaries and affiliates in host countries.

(iii)  Unity of Control:

MNCs are characterized by unity of control. MNCs control business activities of their branches
in foreign countries through head office located in the home country. Managements of branches
operate within the policy framework of the parent corporation.

iv) Mighty Economic Power:

MNCs are powerful economic entities. They keep on adding to their economic power through
constant mergers and acquisitions of companies, in host countries.

(v) Advanced and Sophisticated Technology:

Generally, a MNC has at its command advanced and sophisticated technology. It employs capital
intensive technology in manufacturing and marketing.

(vi) Professional Management:
A MNC employs professionally trained managers to handle huge funds, advanced technology
and international business operations.

(vii)Aggressive Advertising and Marketing:

MNCs spend huge sums of money on advertising and marketing to secure international business.
This is, perhaps, the biggest strategy of success of MNCs. Because of this strategy, they are able
to sell whatever products/services, they produce/generate.

(viii) Better Quality of Products:

A MNC has to compete on the world level. It, therefore, has to pay special attention to the
quality of its products.

Advantages and Limitations of MNCs:

Advantages of MNCs from the Viewpoint of Host Country:
We propose to examine the advantages and limitations of MNCs from the viewpoint of the host
country. In fact, advantages of MNCs make for the case in favour of MNCs; while limitations of
MNCs become the case against MNCs.

(i) Employment Generation:

MNCs create large scale employment opportunities in host countries. This is a big advantage of
MNCs for countries; where there is a lot of unemployment.
(ii) Automatic Inflow of Foreign Capital: MNCs bring in much needed capital for the rapid
development of developing countries. In fact, with the entry of MNCs, inflow of foreign capital
is automatic. As a result of the entry of MNCs, India e.g. has attracted foreign investment with
several million dollars.
(iii) Proper Use of Idle Resources:
Because of their advanced technical knowledge, MNCs are in a position to properly utilise idle
physical and human resources of the host country. This results in an increase in the National
Income of the host country.

(iv) Improvement in Balance of Payment Position:

MNCs help the host countries to increase their exports. As such, they help the host country to
improve upon its Balance of Payment position.

(v) Technical Development:
MNCs carry the advantages of technical development 10 host countries. In fact, MNCs are a
vehicle for transference of technical development from one country to another. Because of
MNCs poor host countries also begin to develop technically.

(vi) Managerial Development:
MNCs employ latest management techniques. People employed by MNCs do a lot of research in
management. In a way, they help to professionalize management along latest lines of
management theory and practice. This leads to managerial development in host countries.
(vii) End of Local Monopolies:
The entry of MNCs leads to competition in the host countries. Local monopolies of host
countries either start improving their products or reduce their prices. Thus MNCs put an end to
exploitative practices of local monopolists. As a matter of fact, MNCs compel domestic
companies to improve their efficiency and quality.

In India, many Indian companies acquired ISO-9000 quality certificates, due to fear of
competition posed by MNCs.

Limitations of MNCs from the Viewpoint of Host Country:

(i) Danger for Domestic Industries:
MNCs, because of their vast economic power, pose a danger to domestic industries; which are
still in the process of development. Domestic industries cannot face challenges posed by MNCs.
Many domestic industries have to wind up, as a result of threat from MNCs. Thus MNCs give a
setback to the economic growth of host countries.

(ii) Repatriation of Profits:
(Repatriation of profits means sending profits to their country).MNCs earn huge profits.
Repatriation of profits by MNCs adversely affects the foreign exchange reserves of the host
country; which means that a large amount of foreign exchange goes out of the host country.

(iii) No Benefit to Poor People:

MNCs produce only those things, which are used by the rich. Therefore, poor people of host
countries do not get, generally, any benefit, out of MNCs.

(iv) Danger to Independence:
Initially MNCs help the Government of the host country, in a number of ways; and then
gradually start interfering in the political affairs of the host country. There is, then, an implicit
danger to the independence of the host country, in the long-run.

(v) Disregard of the National Interests of the Host Country:

MNCs invest in most profitable sectors; and disregard the national goals and priorities of the host
country. They do not care for the development of backward regions; and never care to solve
chronic problems of the host country like unemployment and poverty.

(vi) Careless Exploitation of Natural Resources:

MNCs tend to use the natural resources of the host country carelessly. They cause rapid
depletion of some of the non-renewable natural resources of the host country. In this way, MNCs
cause a permanent damage to the economic development of the host country.

Advantages from the Viewpoint of the Home Country:

Some of the advantages of the MNCs from the viewpoint of the home country are:
(i) MNCs usually get raw-materials and labour supplies from host countries at lower prices;
specially when host countries are backward or developing economies.

(ii) MNCs can widen their market for goods by selling in host countries; and increase their
profits. They usually have good earnings by way of dividends earned from operations in host
countries.

(iii) Through operating in many countries and providing quality services, MNCs add to their
international goodwill on which they can capitalize, in the long-run.

Limitations from the Viewpoint of the Home Country:

Some of the limitations of MNCs from the viewpoint of home country may be:
(i) There may be loss of employment in the home country, due to spreading
manufacturing and marketing operations in other countries.
(ii) (ii) MNCs face severe problems of managing cultural diversity. This might distract
managements’ attention from main business issues, causing loss to the home country.
(iii) MNCs may face severe competition from bigger MNCs in international markets. Their
attention and finances might be more devoted to wasteful counter and competitive advertising;
resulting in higher marketing costs and lesser profits for the home country.

WORLD’S REASON FOR VENTURING INTO INTERNATIONAL TRADE:

1. Increase sales. If your business is succeeding in the U.S., expanding globally will likely
improve overall revenue. Approximately 96% of the world’s population lives outside of
the U.S. and 90% of the world’s population does not speak English – this suggests
customers are global and that if your company looks beyond the shores of the domestic
market, you have some real upside potential. If your company has a unique product or
technological advantage not available to international competitors then this advantage
should result in major business success abroad..
2. Improve profits. Many export markets are not as competitive as the U.S. and therefore
price pressures are far less – ever wonder why a Jaguar car made in Coventry, England
costs more in Coventry than California? It is common practice for U.S. products to be
sold at a higher price (and margin) in many export markets – software translated into
German is much appreciated by users in Germany and they will become loyal customers
and pay a premium. A U.S. company will often enjoy a far less competitive landscape if
it goes to the trouble of localizing.
3. Short-term security. Your business will be less vulnerable to periodic fluctuations and
downturns in the U.S. economy and marketplace.
4. Long-term security. The U.S. is a large, mature market with intense competition from
domestic and foreign competitors. Additionally, the U.S. currently has excess capacity so
international business trade may become a necessity if you want to keep up in an
increasingly global marketplace and enjoy the potential for cost savings.
5. . Increase innovation. Extending your customer base internationally can help you
finance new product development.
6. Exclusivity. Your company’s management may have exclusive market information
about foreign customers/prospects, marketplaces or market situations that are not known
to others.
7. Economies of scale. Exporting is an excellent way to expand your business with products
that are more widely accepted around the world. In many manufacturing industries, for
example, internationalization can help companies achieve greater scales of economy,
especially for companies from smaller domestic markets. In other cases, a company may
seek to exploit a unique and differentiating advantage (intellectual property), such as a
brand, service model, or patented product. The emphasis should be on “more of the
same,” with relatively little adjustment to local markets, which would undermine scale
economies.

GATT AND WTO

The Uruguay round of GATT (1986-93) gave birth to World Trade Organization. The members
of GATT singed on an agreement of Uruguay round in April 1994 in Morocco for establishing a
new organization named WTO.

It was officially constituted on January 1, 1995 which took the place of GATT as an effective
formal, organization. GATT was an informal organization which regulated world trade since
1948.

Contrary to the temporary nature of GATT, WTO is a permanent organization which has been
established on the basis of an international treaty approved by participating countries. It achieved
the international status like IMF and IBRD, but it is not an agency of the United Nations
Organization (UNO).

Structure:

The WTO has nearly 153 members accounting for over 97% of world trade. Around 30 others
are negotiating membership. Decisions are made by the entire membership. This is typically by
consensus.

A majority vote is also possible but it has never been used in the WTO and was extremely rare
under the WTO’s predecessor, GATT. The WTO’s agreements have been ratified in all
members’ parliaments.

WTO Agreements:
The WTO’s rule and the agreements are the result of negotiations between the members. The
current sets were the outcome to the 1986-93 Uruguay Round negotiations which included a
major revision of the original General Agreement on Tariffs and Trade (GATT).

GATT is now the WTO’s principal rule-book for trade in goods. The Uruguay Round also
created new rules for dealing with trade in services, relevant aspects of intellectual property,
dispute settlement and trade policy reviews.

The complete set runs to some 30,000 pages consisting of about 30 agreements and separate
commitments (called schedules) made by individual members in specific areas such as, lower
customs duty rates and services market-opening.

Through these agreements, WTO members operate a non-discriminatory trading system that
spells out their rights and their obligations. Each country receives guarantees that its exports will
be treated fairly and consistently in other countries’ markets. Each country promises to do the
same for imports into its own market. The system also gives developing countries some
flexibility in implementing their commitments.
(a) Goods:
It all began with trade in goods. From 1947 to 1994, GATT was the forum for negotiating lower
customs duty rates and other trade barriers; the text of the General Agreement spelt out
important, rules, particularly non-discriminations since 1995, the updated GATT has become the
WTO s umbrella agreement for trade in goods.It has annexes dealing with specific sectors such
as, agriculture and textiles and with specific issues such as, state trading, product standards,
subsidies and action taken against dumping.

(b) Services:Banks, insurance firms, telecommunication companies, tour operators, hotel chains

and transport companies looking to do business abroad can now enjoy the same principles of free
and fair that originally only applied to trade in goods.

These principles appear in the new General Agreement on Trade in Services (GATS). WTO
members have also made individual commitments under GATS stating which of their services
sectors, they are willing to open for foreign competition and how open those markets are.

(c) Intellectual Property:

The WTO’s intellectual property agreement amounts to rules for trade and investment in ideas
and creativity. The rules state how copyrights, patents, trademarks, geographical names used to
identify products, industrial designs, integrated circuit layout designs and undisclosed
information such as trade secrets “intellectual property” should be protected when trade is
involved.

(d) Dispute Settlement:
The WTO’s procedure for resolving trade quarrels under the Dispute Settlement Understanding
is vital for enforcing the rules and therefore, for ensuring that trade flows smoothly.

Countries bring disputes to the WTO if they think their rights under the agreements are being
infringed. Judgments by specially appointed independent experts are based on interpretations of
the agreements and individual countries’ commitments.

The system encourages countries to settle their differences through consultation. Failing that,
they can follow a carefully mapped out, stage-by-stage procedure that includes the possibility of
the ruling by a panel of experts and the chance to appeal the ruling on legal grounds.

Confidence in the system is bourne out by the number of cases brought to the WTO, around 300
cases in eight years compared to the 300 disputes dealt with during the entire life of GATT
(1947-94).

(e) Policy Review:
The Trade Policy Review Mechanism’s purpose is to improve transparency, to create a greater
understanding of the policies that countries are adopting and to assess their impact. Many
members also see the reviews as constructive feedback on their policies.

All WTO members must undergo periodic scrutiny, each review containing reports by the
country concerned and the WTO Secretariat.

UNIT 3

Difference Between Domestic and International Marketing

Marketing is defined as the set of activities which are undertaken by the companies to provide
satisfaction to the customers through value addition and making good relations with them, to
increase their brand value. It identifies and converts needs into products and services, so as to
satisfy their wants. There are two types of marketing namely, domestic and international
marketing. Domestic marketingis when commercialization of goods and services are limited to
the home country only.

On the other hand, International marketing, as the name suggests, is the type of marketing
which is stretched across several countries in the world, i.e. the marketing of products and
services is done globally. In this article excerpt you can find the difference between domestic and
international marketing in detail.

Key Differences Between Domestic and International Marketing

The significant differences between domestic and international marketing are explained below:

1. The activities of production, promotion, advertising, distribution, selling and customer

satisfaction within one’s own country is known as Domestic marketing. International
marketing is when the marketing activities are undertaken at the international level.
2. Domestic marketing caters a small area, whereas International marketing covers a large
area.
3. In domestic marketing, there is less government influence as compared to the
international marketing because the company has to deal with rules and regulations of
numerous countries.
4. In domestic marketing, business operations are done in one country only. On the other
hand, in international marketing, the business operations conducted in multiple countries.
5. In international marketing, there is an advantage that the business organisation can have
access to the latest technology of several countries which is absent in case domestic
countries.
 6. The risk involved and challenges in case of international marketing are very high due to
some factors like socio-cultural differences, exchange rates, setting an international price
for the product and so on. The risk factor and challenges are comparatively less in the
case of domestic marketing.
7. International marketing requires huge capital investment, but domestic marketing
requires less investment for acquiring resources.
8. In domestic marketing, the executives face less problem while dealing with the people
because of similar nature. However, in the case of international marketing, it is quite
difficult to deal with customers of different tastes, habits, preferences, segments, etc.
9. International marketing seeks deep research on the foreign market due to lack of
familiarity, which is just opposite in the case of domestic marketing, where a small
survey will prove helpful to know the market conditions.
International Marketing - Advantages
1.Provides higher standard of living
International marketing ensures high standard life style & wealth to citizens of nations
participating in international marketing. Goods that cannot be produced in home country due to
certain geographical restrictions prevailing in the country are produced by countries which have
abundance of raw material required for the production and also have no restrictions imposed
towards production.
2.Ensures rational & optimum utilization of resources
Logical allocation of resource & ensuring their best use at the international level is one of the
major advantages of international marketing. It invites all the nations to export whatever is
available as surplus. For example, raw material, crude oil, consumer goods & even machinery &
services.
3.Rapid industrial growth
Demand for new goods is created through international market. This leads to growth in
industrial economy. Industrial development of a nation is guided by international marketing.
For example, new job opportunities, complete utilization of natural resources, etc.
4.Benefits of comparative cost
International marketing ensures comparative cost benefits to all the participating countries.
These countries avail the benefits of division of labor & specialization at the international level
through international marketing.
5.International cooperation and world peace
Trade relations established through international marketing brings all the nations closer to one
another and gives them the chance to sort out their differences through mutual understanding.
This also encourages countries to work collaboratively with one another. This thereby designs a
cycle wherein developed countries help developing countries in their developmental activities
and this removes economic disparities and technological gap between the countries.
6.Facilitates cultural exchange
International marketing makes social & cultural exchange possible between different countries
of the world. Along with the goods, the current trends and fashion followed in one nation pass
to another, thereby developing cultural relation among nations. Thus, cultural integration is
achieved at global level.
7.Better utilization of surplus production
Goods produced in surplus in one country are shipped to other countries that have the need for
the goods in international marketing. Thus, foreign exchange of products between exporting
country & importing countries meets the needs of each other. This is only possible if all the
participating countries effectively use surplus goods, service, raw material, etc. In short, the
major advantages of international marketing include effective utilization of surplus domestic
production, introduction of new varieties of goods, improvement in the quality of production &
promotion of mutual co-operation among countries.
8.Availability of foreign exchange
International marketing eases the availability of foreign exchange required for importing capital
goods, modern technology & many more. Essential imports of items can be sponsored by the
foreign exchange earned due to export.
  Types of Distribution Channels:
There are different types of channels of distribution and a manufacturer may select any one of
these channels.

These channels may be broadly divided into two parts:

i. Distribution Channel of Consumer Goods:
The channels of distribution for consumer products may be as follows:

1. Manufacturer → Agent → Wholesaler → Retailer → Consumer:
In this method of distribution channel, product reaches the agent from the manufacturers and
from the agent to wholesaler and then to consumers through retailers. In India, most of the textile
manufacturers adopt this method of distribution.
2. Manufacturer → Agent → Retailer → Consumer:
In this method of distribution, the wholesaler is eliminated and goods reach from manufacturer to
agent and then consumers through retailers only. Manufacturers who want to reduce cost of
distribution adopt this method.
3. Manufacturer → Agent → Consumer:
As per this method of distribution channel, there is only one middleman that is the agent. In
India, for the distribution of medicines and cosmetics, this channel of distribution is commonly
adopted.
4. Manufacturer → Wholesaler → Retailer → Consumer:
A manufacturer may choose to distribute his goods with the help of two middlemen. These two
middlemen may be wholesalers and retailers.
5. Manufacturers → Retailer → Consumer:
In this method of distribution channel, manufacturers sell their goods to retailers and retailers to
consumers. In India, Gwalior Cloth Mills and Bombay Dyeing adopt this channel of distribution
to sell textiles.
6. Manufacturers → Consumers:
A producer of consumer goods may distribute his products directly to consumers. The goods
may be sold directly to consumers through vending machines, mail order business or from mill’s
own shops.

ii. Distribution Channel of Industrial Products:

The channels for industrial products are generally short as retailers are not needed.
However, following methods may be adopted:
1. Manufacturer → Agent → Wholesaler → Industrial Consumer:
Under this method, product reaches from manufacturer to agent and then to industrial consumer
through the wholesaler.
2. Manufacturer → Agent → Industrial Consumer:
Under this system, goods reach industrial consumer through the agent. Thus there is only one
middleman.
3. Manufacturer → Wholesaler → Industrial Consumer:
This distribution channel is the same as above, the only difference is that in place of agent, there
is wholesaler.
4. Manufacturer → Industrial Consumer:
Under this channel there is no middleman and goods are directly sold to industrial consumer.
Railway engines, electric production equipment are sold by this system.
Direct channel is popular for selling industrial products since industrial users place orders with
the manufacturers of industrial products directly.