INTERNATIONAL MARKETING

= When a company deals with actors not only in domestic (national) markets but also in foreign markets and deals
with all decisions that the company has to take when operating at global level.

Marketing mix decisions imply decisions about several factors:

§ Consumers (foreign consumers have different behaviors, cultures, languages... companies can adapt to
foreign markets, for example by changing the layout of stores or packages of their products because
some countries may prefer one layout or one package over another)
§ Competitors (two types of situation: when a company operates in a global industry, where competitors
are global usually it has the same competitors that it has in the local market; in other cases competitors
are more local, so when a company enters a foreign market it has to deal with local competitors that can
be very strong; in some industries local leader is a local competitor, in some others local leader is a
global competitor à it’s important for a company to analyze competitors in different countries, both
global and local competitors, and to adapt the strategy)
§ Suppliers (important when we consider modes of entry; in which way a company can operate in a foreign
market: through exporting goods selling them to an importer in the foreign country or through opening a
subsidiary in the foreign country or through franchising, through contract manufacturing or contract
management.... à channel of distribution and relationship with intermediaries, suppliers and buyers is
very complex and important especially when dealing with foreign markets)
§ Governments (see PESTEL analysis, analysis of social, legal, environmental, economic, technological
variables, as well as political variables: also government influences decisions taken by companies: in
some countries we need a lot of bureaucracy imposed by local government to enter the county; in some
countries you are allowed to enter only if you create a joint venture with a local company.... ->
government can have an influence)
§ Distributors (selection of distributors and different types of distributors have to be taken into
consideration).

WHAT IS MARKETING?
Marketing is “meeting needs profitably”: you have to develop an
offer that matches the needs of your consumers, and in the meantime
you have to consider that your company has to be profitable. So you
have a cost (improving quality of product, improve package, design...
it’s a cost, an investments for the company to get more revenue) but
at the same you have to pay attention to how much you can increase
costs to improve quality of the product and at the same time increase
profitability.

Big dilemma is equilibrium between profitability and customer satisfaction. You have to understand the revenue
that you get, that will determine your profit, and your costs: if the increase in costs (to improve quality of product)
is not really impact increase in revenue, or impact on customer satisfaction is only marginal, you risk to have a
decrease in profitability even though you increased costs to improve quality and features of the product you’re
selling.
Rule 1-3 1-10: one satisfied customer will spread a positive feedback to 3 people, but if customer is not satisfied
he will spread a bad word of mouth with 10 other people!
àA Customer satisfaction is key to increase in profitability!

Things a firm should do in producing and marketing a product/service:

§ Analyze needs of consumers (that can differ from country to country) that you want to meet.
§ Estimate Demand (important because when you want to enter an industry you need to make an
investment, and your investment can be small like when you opt for exportation, or very big like when
you want to enter another country directly by creating a subsidiary in a foreign market: creation of a
subsidiary is a FDI Foreign Direct Investment which is quite expensive; when making an investment you
have to calculate your break-even point and estimate your revenue, which depends on the size on the
market, thus on the size of the demand. Some markets can be very big, like China, which has a huge
population but this doesn’t mean that a lot of people will buy their product: some companies have
entered China thinking they would sell a lot because there are so many people living there, but actually
ended up selling only to a small segment of the population because the product they were selling wasn’t
really satisfying the needs of Chinese population, it wasn’t part of Chinese culture-> when you decide to
sell to a country like China you need to be able to adapt, adjust for example the packages to the Chinese
standards.
By estimating demand, you can understand how much time it takes to breakeven in a certain country
and decide whether it will be profitable or not to enter a new market. If a company should wait too many
years to make a profit after entering a new market, maybe it’s not the best choice to enter that market.)
 § Estimate Competition (identify competitors that are relevant for your business; in different countries
there will be different leaders for the same industry. In some cases it’s easy to identify competitors, in
other cases it’s not. There is a database (statista), where you can find a lot of data about markets,
competitors.
Local competitors can be even more aggressive that global competitors, because if they lose some
customers they lose profitability and could go out of business, while for global competitors losing one
region or one segment means losing one small part of their profits, so it doesn’t change a lot to them.
Local competitors sell only in one country, and if they lose profit coming from that country they lose it
all.)
§ Determine what (product: determine the marketing mix), where (distribution, through which channels,
through which stores).
§ Estimate price (considering also all intermediaries in the channel, then other costs like transportation
costs, taxes... which make estimation of price quite difficult).
§ Decide promotion (how to promote the product, decisions on advertising).
§ Provideservice

WHO PERFORMS MARKETING FUNCTIONS?

§ Producers: manufacturing company, they perform marketing functions in the marketing department
§ Consumers: target of companies, don’t develop real marketing activities but are involved in the
marketing process because they can give negative reviews, give bad word of mouth. Consumer develop
a sort of peer-to-peer evaluation with other consumers.
Today an index is used by companies (especially in the service business, where word of mouth of
consumers is really important because it can give an idea of the service performed to other potential
customers; before buying a service it’s impossible to evaluate it): NPS (Net Promoter Score) to check if
consumers are willing to advise other consumers to buy a specific brand (asking how much they would
advise other consumers to buy from their brand, from 1 to 10: grades near 10 mean that the customer is
willing to advice the brand to others).
§ Wholesalers (intermediaries).
§ Retailers: intermediaries, represent the link between producers and final consumers; sometimes we
have a long chain starting from producers and passing through wholesalers and retailers, sometimes
dealers, before reaching final consumers)
§ Other specialists
§ Ad agencies (advertising)
§ Transport firms: for delivery of the product, are external to the company but can still have an impact on
the reputation of the company. If the firm that has to deliver the product to the customer is not efficient,
it could give a bad image of the producer.
§ ISP’s (Internet Service Providers)
§ Product testing firms: test the product, when a new product is developed but also when you enter a
new market with a product that you were already selling in another country, to check if the product is
accepted by the population of the new country or if it needs corrections to adapt to the different culture
§ Research firms: support when a company wants to enter a big market

THE MARKETING SYSTEM

We always need to take into consideration several variables:

§ Political: when developing a marketing strategy, political variables can have an effect on the sales of a
company: when a company is entering a foreign market it need certifications, permits, it needs to go
throug a lot of bureaucracy. The country can create barriers to entry; for example, when the law is
complicated for companies entering the market; some countries don’t want foreign countries to enter
the country so they make it compulsory to pair with a local partner to operate in the country. In high risk
countries (from political point of view) you can’t enter with risky investments, but companies need to
enter through less risky investments.
 § Economic: income, GDP of a country has an effect on the portfolio of goods you can offer to a country
and on the characteristics of the product. You might have to decrease the price of the product, but to
be profitable you also have to decrease the cost of the product, for example creating a cheaper package,
or eliminating the perfume of the product...
We need distinction between high/medium/low income countries, how wealth is distributed: in some
countries a small percentage of the population holds the majority of the income of the country while the
majority of the population is really poor. People representing the majority of wealth of a company can be
a target of luxury companies.
§ Social: education (you have to target countries with different levels of education: some countries might
not know how to use that product), social characteristics in terms of family (how large families are on
average can impact how families decide to buy product: for example when you decide to make “family
size” packages, dimensions of the packages will be different in different countries).
§ Cultural: different cultures, different traditions (think about China, which is a “tea country”: Starbucks
had to develop good strategies to bring coffee to China, because the culture of China is based on tea
rather than on coffee); also there is different humor in different countries, sometimes countries don’t
appreciate humor proposed by some firms.
Example of a company that wanted to sell golf balls in packages of 4 in China didn’t have success
because in China number 4 has a meaning close to death.
When you enter a new country, you have to behave like a guest and respect the country’s traditions and
culture, you need to adapt; the same rule applies to firms which enter new markets, that want to operate
in a new country: they can’t impose they rules but they have to adapt to the country’s rules, even though
they might seem ridiculous to foreign companies’ eyes.
§ Technological: technology impacts the characteristics of the product we’re selling. In some countries,
level of technology is different from the level we have in our country; in these countries sometimes it’s
better to sell products with a lower level of technology because it’s the level of tech that they could easily
manage.
§ Environmental: you have to respect environmental laws, sustainability. Nowadays more and more
countries are becoming aware of the problem of sustainability.
§ + Physical variables: countries have different average temperature, which can have an impact on the
type of product that can be sold in a country (for example, clothes; as well as food like Nutella: countries
with high temperatures risk to have separation of oil from chocolate so Ferrero has to create a
thermoresistant Nutella that resists to high temperature Nutella); then there are some countries in which
most roads are ruined, so tires have shorter length of the guarantees because of the bad state of streets...

The marketing system is made of the main actors: company, competitors (considered external stakeholders
because they are not related specifically to the business of the company but the company always has to take
competitors into consideration, both local and global), suppliers (important to evaluate if it’s easy to find suppliers
when deciding to enter a new market, because otherwise it’s impossible to operate; there are some suppliers that
are characteristics of a specific industry that can be found only in specific areas, where normally are found experts
in that field), consumers, channels of distribution like wholesalers and retailers (sometimes retailers are the reason
why companies move abroad, when retailers move their business) .

CONTENTS OF MAKING A MARKETING PLAN

1. Executive summary
2. External and internal analysis
3. SWOT analysis
4. Objectives
5. Marketing strategy (targeting and positioning)
6. Marketing mix decisions and action programs
7. Budget
8. Control

Executive summary = brief summary of the main goals and recommendation of the plan for management review
à marketing plan

We analyze the structure of the marketing plan; we have to analyze differences in marketing plan when we enter
new markets, depending on the approach we decide to develop for our company in foreign markets.
We have to understand the characteristics of the marketing plan and what changes when we enter a foreign
market. (you can decide to enter a foreign market through export; we can have multinational companies that have
different marketing plans or a global company with another structure of marketing plan).
General scheme for marketing plan (see scheme)= document developed by marketing managers in which you
take decisions to reach your goals.
[marketing plan is only one of all the plans that a company has to develop; all “small” plans are part of a big unique
plan that is the business plan. Goals of the business plan are strategic goals, and among it there are a lot of
smaller plans with different goals which have to be coordinated to reach the final goals. à business plan
coordinated all decisions of a company. Marketing plan is related only to marketing decisions, so it includes all
analysis and strategies, operative decisions related to marketing].

If a company is small, it has only one marketing plan but usually companies have many marketing plans because
the products they sell are different from each other, so even if companies target the same segment of consumers
or the same market they need different marketing plans for different products. Similarly, if the company is selling
only one kind of product to different markets (for example men + women + kids... -> different targets) it needs to
develop different marketing plans, different ways of communicating with customers to meet the different needs
of consumers.
à Companies have to create a number of marketing plans that is equal to the number of different combinations
product-market: when you analyze a company you have to consider how many combinations product-market you
have in the company and the number of combinations must be equal to the number of marketing plans. If you
have one product, the best choice would be to focus on only one country, because otherwise you’d have to
develop more plans for the same product; only if the market is very homogeneous you can try to target more
countries (in this way, you identify a market that is not country-based but consumer-based).

Different divisions of the company work on different combinations product-market.

Marketing plan can be split in 3 parts: product/market/years

Years= when developing a marketing plan, make sure it is very operative for the year taken in consideration, but
then you also need to have a strategic approach (=in the medium and long-term) because the company will
operate for several years à you have to develop a marketing plan with decisions that are more strategic, more
general, a more flexible direction for the next years. So we can have a more detailed marketing plan for the current
year, a less detailed plan for 3 years and a strategic plan for 5 years. The number of years depends on what the
company is selling (for ex. when selling technology, long-term is probably 3 years because it’s changing a lot;
when selling olive oil long-term could be even 10 years).

+ Distinction in 3 parts: External analysis; Marketing strategy; Marketing mix (4Ps: Product;
Place=distribution, where you distribute the products, where consumers can find your product; Promotion; Price).
When making marketing decisions, first of all you need to get a lot of information about external environment and
about the internal environment (strengths, weaknesses in terms of capabilities of the company: level of production,
financial resources...). Once we have a lot of information, we can develop our strategy and then implement it by
taking operative decisions, which are the marketing mix (decisions about the product or service; about the
distribution network: where the company will sell its product=place; decisions about communication=promotion;
decisions about the price). Finally, I need control of what has been done, a continuous monitoring of decisions
taken.

Structure of the marketing plan: first of all you need to get information that is both external and internal the
company. Second step is to develop the marketing strategy and third step is developing the marketing mix
.
1. First step: external and internal analysis. We have to analyze:
§ Demand of the product àwhen targeting a specific market, we have to understand the demand
for that product in that market, who will buy the product, what is the size of demand in volume and
 in value (total sales for a specific product and, considering your market share, your future revenues);
depending on the size of demand you’ll decide to invest more or less in a country. Why do we need
this kind of analysis? To know the price to set, to understand whether it would be profitable to enter
the new market (if investments will be larger than costs), if you’ll have enough demand to breakeven
and how much time it will take to reach breakeven point; also you have to decide how to enter the
new country (what your company can afford considering the revenue): if you want to be profitable
soon you choose an investment that doesn’t require a lot of costs (so you won’t have to wait too
much time before reaching breakeven point).
Need estimation of market potential that we’ll do with different methods.
§ Segmentation à when targeting a market, we target only one segment, only part of it, the part of
population that matches with our product. For ex. luxury brands selling luxury products target only
the upper segment of the market (super rich population). So we need to develop segmentation to all
markets. When discussing export marketing plans /global plans there are differences in the way we
approach segmentation.
§ Buying behaviors à different buying behaviors, consumers might be more or less loyal to a brand...
different buying behavior might lead companies to changing the product package or layout for
example, to adapt to the behaviors of a specific country.
§ Market system à different distribution systems (like we have in Italy: small independent stores that
are not part of a supermarket, selling only fruit and vegetables or selling only meat...= fruttivendolo,
macellaio... while in some other countries you buy all these things only in supermarkets/discount
stores. In Italy, 30% of sales go through these small shops. In Asian countries like Vietnam, only 10%
of sales go through supermarkets, while the remaining is through small local street shops). à you
need to think about distribution systems and partners (wholesalers, retailers); availability of
advertising agencies that develop communication and support marketing strategy, + research
agencies that carry out research in a foreign country.
§ Competitors à need to develop a scheme and analysis of competitors.
§ Macroenvironment (elements of the PESTEL analysis).

After studying the external environment and demand of the market, it’s necessary to make also an internal analysis
of the company, to understand if the company is able to target certain markets. For example, small companies
that want to target markets where development of the brand is really important, they have to determine whether
they are able to deal with requirements of the new country, understand their kind of capacities and if the capacities
they have are enough to satisfy the needs of the new market.
When a company wants to enter a country, they can also decide to contact a company of that country to ask
them to make the production (without being part of production and distribution in the new market).
Another example: when selling a product like wine abroad, you have to go through intermediaries that decide who
will be the targets; the channel is very long, so sometimes companies can decide to open subsidiaries to enter in
contract directly with clients, but most times this decision is more expensive.

So we need to look at aspects like marketing, economics (how much money we have has an impact on how we
can decide to deal with and reach consumers in another country, what strategies we can develop) and operational
processes (everything about operations in the company, dealing with for example production capacity, that can
be low in small companies or higher in bigger companies, but it can be saturated; if a company like that with a
high production capacity but almost saturated decides to enter foreign markets it needs to make big investments
to extend the production capacity, but costs are high so companies make this investment only if it’s worth.
Example: case of a small company that wants to enter China: it needs to develop a strategy that targets only a
small segment of China because otherwise they wouldn’t be able to satisfy the requests of all consumers: small
companies targeting big markets have to pay attention because the demand will risk to be higher than the offer
and the company might not be able to satisfy the needs of population.

The same happens to big companies, that have a bigger production capacity, often almost saturated; they can
increase production capacity only if there is a big request, like when entering big countries and targeting new,
large markets).

To combine internal and external analysis we do a SWOT analysis: Strenghts, Weaknesses (internal,
specific of the company), Opportunities and Threats (coming from the market).

SECOND STEP: MARKETING STRATEGY.

There are 4 big decisions that we have to take:
o Define goals, objectives that we want to reach (in Business plan there are general goals stated). In the
marketing plan we have both costs (cost of developing the product, costs of distribution) and the price:
marketing managers have to estimate both revenues and costs; estimation on revenues depends on the
price (while other managers consider only costs). The goals you have will be goals for the marketing plan;
 reaching these goals means contributing to the goals of the business plan: you have to fix marketing
goals that contribute to reaching the general goals of the company.
Goals of a company can be quantitative or qualitative; we have different objectives, with different
performance criteria and main measures:

o Targeting: we split the market into segments and decide which segments to target.
For each target segment we need a different marketing plan.

FIRST STRATEGIC DECISION: we have to decide a TARGETING STRATEGY to adopt. Different strategies:
o Concentrated marketing, a concentration strategy:
you identify some segments in the market and you
decide to develop your marketing mix targeting only
one segment.
Advantages: less complex (you only have to develop
one marketing plan); might be cheaper (you invest in
only one segment); you are more focused on your goal
so that it should be easier to achieve it; you can be very
successful and increase market share.
Disadvantages: if you invest everything in only one
segment and you fail you end up with nothing, lose
everything;
o Differentiated marketing strategy: you develop a
marketing mix for each segment targeted. Advantages:
you split the risk in different markets, so that if revenues
from one segment decrease you can compensate with revenues from the other segments.
Disadvantages: risk to lose efficiency of your strategy.
o Undifferentiated marketing strategy: you target the entire market and create only one marketing plan
for the whole market, even if among that market there are different segments.
Advantage: less costs and less complex because you develop only one marketing plan.
Disadvantage: you have to be very general, you don’t take into consideration different need but you try
to satisfy everybody and in trying to satisfy everybody, you risk to satisfy nobody.
You can use this strategy when you are in the beginning of life cycle and when market is very small (it’s
difficult or unuseful to split it in different segments, so you prefer to target the whole market).

STRATEGIC DECISION 2: THE ANSOFF PRODUCT/MARKET MATRIX

Second strategic decision: Ansoff product/ Market matrix:
you have to decide whether you want to work on new
products or on an already existing product and if you want to
sell to new markets or markets where you’re already operating
in.
increase your sales and market share in the country.
STRATEGIC DECISION 3: POSITIONONING STRATEGY
Third strategic decision is positioning= promise you make to your target market to convince to buy your product
instead of competitive products.
It starts from your evaluation of your product and understand why consumers would buy your product rather than
someone else’s.
You need to make a good promise that creates differentiation against competitors; once you find the promise,
consumers don’t read your marketi

4 STRATEGIES:
- Market penetration: you sell an existing product in the same market in which you’re already operating,
you continue investing in the product you already have in your portfolio and try to increase your sales
and market share in the country.
- Product development: you decide to develop new product(s) and sell them in the same market where
you’re already operating, to the people that already know your products.
- Market development: you decide to sell your product(s) on your portfolio, that is selling a lot in your
market, in new markets. When you have a good product and good knowledge that is making good
revenue in a market you can decide to increase your revenue by trying to sell it to other markets.
- Diversification: you decide to sell new products to new markets. Riskiest and most complex strategy
because everything is new.

THIRD STEP: MARKETING MIX

The 7Ps of the marketing mix.
You have to make decisions about:
- Product, the good you’re selling;
- Price;
- Place where you want to sell your product,
where consumers can find it;
- Promotion (advertising, how people get to
know your product).

+ other 3 Ps:
- Physical evidence (experience in
stores,atmosphere in stores like music, smells,
touch);
- Process (process of offering the product);
- People (example: staff in stores are Marketing budget relevant in selling goods)

Data analysis is necessary for all marketing decisions,

quantitative analysis is necessary to understand if trend is
positive and indicates that the company is reaching its goal.
Marketing plan has to be supported by a marketing budget.

First of all, you have to determine, estimate gross sales value (it’s an estimation for following year), that depends
on price and on quantity (= p x q): it depends on demand and on your competitive position. Gross sales value is
a top line objective, a measure of effectiveness (efficacy=ability to reach the goal in terms of sales) and it’s an
estimation.
From gross sales value we deduct trade allowances (we can decide to give discounts, so we have to consider
them in our calculation) to get net product sales, what you get from sales.

From net product sales we deduct DDC (Direct Delivered Costs= costs of production, distribution and all costs
that are directly related to the product we produce and sell. These costs are very difficult to be eliminated) to get
gross profit.
Then you also have other costs (cots of promotion and communication, costs of the analysis that we made before
taking decisions about the marketing mix: collecting data is expensive): we need to subtract also marketing
appropriations (MA), that are marketing research costs and communication costs, to get PBI= Profit Before
Indirects= what we actually get from products.
PBI is bottom line objectives (measure of efficiency).

A company can sell products even without incurring marketing appropriations for a period of time, they don’t
always need to do this kind of research to sell their product, sometimes they can avoid incurring into these costs,
like communication costs, which are more flexible.
This is a big difference between DDC and MA: DDC are very difficult to avoid/reduce, while MA can be avoided
in some periods.
We can have a company with good efficacy but bad efficiency.
All these decisions are inlcuded in the budget and we can find them in the marketing plan (Place costs in DDC,
promotion in MA, cost of analysis in MA...).
PBI is the n°1 goal of a company.

STEPS IN DEFINITION OF THE BUDGET:

1. Estimation of gross value (estimation of demand when entering a market, estimation of market share
you could have in that market)
2. Expectation of PBI (profitability of ...% of gross sales value), without knowing what happens in the
middle from estimation of gross saless value and PBI; they set a PBI (in percentage of GSV) that they
want to reach. In this way they know the felxibility they need to have in the middle.
3. Estimation of DDC incurred to sell the quantity set. DDC are not flexible costs.
4. Estimate trade allowances, how much discounts to give clients.
5. Estimate investments in terms of marketing research and advertising.

We have flexibility in negotiation of trade allowances and marketing research and advertising costs. We can have
different alternatives:
- Give a lot of discounts in the negotiation (with retailers and wholesalers) and spend only few money in MAà
by not investing in promotion (public relations, advertising), in the image of the brand the risk is to have low
brand awareness, decrease value of the brand and brand equity; then in the future when doing the same
negotiation with retailers, retailers will ask for more discounts so that in future years you will keep spending
more on TA Trade Allowances and even less in MA
- Give less allowances and spend more on MA à maintain the value of the brand, you can even create a
stronger brand J and don’t have to give lots of allowances to retailers who ask for more and more allowances.
More MA means more bargaining power against retailers, the company has more power :ROI depends on
two dimensions: margin that retailer gets when selling the product (the markup of the retailer on the cost of
the product) and on the rotation on the shelf; company can decide to give only small discounts to retailers so
that retailers make money on the rotation on the shelf rather than on margin, the company can offer high
demand, high rotation on the shelf that will give returns to the retailer.
- Spend the same amount on TA and on MA.

MARKETING PLANS IN INTERNATIONAL MARKETING

Differences in marketing plan when we consider different types of companies that you can find in international
markets:

EXPORTING COMPANY: ethnocentric approach. Exporting companies are “local” companies (located in a
certain country) that export their products in foreign markets, in other countries.

Differences in marketing plan:

international segmentation in the
external analysis: the export company
is entering new markets and needs to
do segmentation done for each market
where the company operates (for ex. a
segmentation in Germany, one in
France...) to identify in the foreign
market the segment that is more
similar to the segment targeted in the
local market so that they can be strong
by proposing the same product; entry
mode in marketing strategy (decisions
about the way in which the company
wants to enter foreign markets, for
example through franchising, through
exportation); depending on the entry mode the company will have more or less control on its activity; all decisions
in marketing mix have possibility of adaptation or standardization: adaptation= after analyzing the markets the
company realizes that consumers want something different, so the company adapts the product/type of
distribution/the price/communication.

Export companies are typically very ethnocentric, focused on domestic markets: they will try to do the maximum
to standardize the product, to find a segment that is very similar so that they can sell the same product that they
sell in their local market. They’ll do adaptation only if they have no choice, try want to minimize adaptation. In
some cases it’s necessary to adapt the product, but adaptation will be reduced to the minimum.
When an export company is thinking of adaptation, they adapt to the domestic product, change something in the
local version of the product, in the version that is sold in the domestic market.

GENERALI has a polycentric approach. Genreali US is an independet company in the general group. also
GENERALI germany is independent. They have a limited coordination.

MULTINATIONAL COMPANY: polycentric approach.

Multinational companies adopt an
approach country by country, that’s
why they have a polycentric approach.
They have companies in different
countries. à every company can work
in its domestic market.
Multinational companies are
companies that are like domestic
companies in every market, that are
independent one from the other, but
we still need coordination between
countries: characteristics and prices
of the same product sold by the
multinational company in different
countries should be the same,
shouldn’t be too different. Differences
of prices can determine opportunistic
behaviors of retailers. Prices in different countries shouldn’t show differences larger than 20%.
Coordination is created with the existence of a global portfolio of products, of advertising, coordination of prices.
Coordination is needed to be more efficient; it’s impossible to have multinational companies with independent
subsidiaries.

GLOBAL COMPANY: global approach.

Differences in the marketing plan:

global segmentation in external
analysis, global positioning in
marketing strategy, in domestic
analysis you don’t have entry mode,
the target is a horizontal target; in the
marketing mix you have adaptation
and all elements of the mix are
global.

Export companies are typically domestic companies that decide to target also foreign markets, they develop
international segmentation (when they want to enter a country, they analyze the segments in that country that are
similar to the target identified in the domestic market); in global companies the approach is different: they develop
global segmentation, they have a global approach= it’s not really important if the company is located in a specific
country because their competitive arena (their market) is the global market: they don’t really care about the
domestic market because their market is global. When they make an analysis of the market they don’t make an
international segmentation but analyze the entire European market and identify segments that are similar in
different markets (=”transversal segments” or “horizontal segments”): the target of the company is a horizontal
segment, made of consumers with the same characteristics in different countries. These segments are global
segments, because they can be found all over the world.

To target a horizontal segment, you have to develop a global promise, a global positioning: a promise that
convinces the targeted segment. Here we have a similar global promise that will convince the global segment to
buy the company’s product instead of competitors’ product.

We need to implement it through a global marketing mix: the promise is the same, and we need to implement it
with the same global marketing strategy. There is adaptation: the segments in different parts of the world are not
exactly the same; when developing a global promise you have to identify communalities, you have to develop a
promise that can work for everybody but there could still be some differences.

But the adaptation of global companies is different from the adaptation of export companies.
In both cases, adaptation is done only if needed. In the case of export companies, they try to decrease adaptation
because when they do international segmentation, in the foreign country they try to identify a segment that is very
similar to the domestic segment, while global companies need adaptation because they have global consumers.

Export companiesà adaptation is in comparison to the product the company sells in the domestic market.
Global companiesà adaptation is in relation to the global product, they have to adapt the global product, global
marketing mix to the foreign market.

Another important feature is that of the entry mode: when we discussed about the export company, we said that
companies need a strategy to penetrate foreign markets, they need to find the best entry mode (subsidiaries,
franchising, export.... A lot of alternatives for entering foreign markets). Multinational companies have typically
headquarters which developed the strategy of creating subsidiaries in many countries (FDI Foreign Direct
Investments). We still need to put entry mode in the marketing strategy because in some cases there is a
subsidiary of the multinational company in a country targeting the market of that country while targeting also other
countries that are not worth investing in through subsidiaries (sometimes it’s not the best idea to create
subsidiaries in small countries, like Slovenia for example, so companies can locate a subsidiary in a bigger country
like Italy and that subsidiary will take care also of another small market included in the target strategy). This is an
exception, but it explains why we need to consider entry modes in multinational companies.
In global companies we still have a presence in foreign markets, they can enter foreign markets with subsidiaries,
they can combine subsidiaries with exportation (export the product from production subsidiaries to sales
subsidiaries for example), they can add franchising a way to strengthen the presence of the company in a market.
From strategic point of view, in terms of market share, what is the most important share of the market of an export
company, a multinational company or a global company? What is really relevant for the company, what is the goal
that they always want to control? What is the most relevant market, where market share is fundamental?

- Export companies à domestic market. Companies with an ethnocentric approach focus on the domestic
market, don’t want to lose their market share in the domestic market;
- Multinational companies à domestic market. Multinational companies are more focused on domestic market
than export companies! The single companies want to maximize their market share in the domestic market
- Global companies à global market, in particular if a company is targeting a global segment, the share is the
market share in the horizontal segment. The goal is to maximize the share in the global segment, but that
doesn’t mean that you maximize the share in each country. To be more profitable, companies might prefer
to have a lower market share in one country in order to have a larger market share in another one.

Ex. Unilever was in the past a multinational company but then became a global company (they believed it wasn’t
so profitable to be a multinational company anymore). Unilever owns Lipton. Lipton tea is sold in small bags.
Some countries like Mongolia (very big country but few inhabitants, most of which live in deserts, not really
accessible to western companies) were wondering why they didn’t sell it in boxes like they did in China. In case
of Mongolia, people who could buy product from the company were too little (small population). The manager in
headquarters said that if the company wanted to sell more in Mongolia, they should adapt the product BUT
adapting the product for the Mongolian market was not worth it, they risked to have an increase in costs to adapt
the product that is larger than the increase in revenue. The Mongolian market is so small that trying to adapt the
product was not worth it. The company decided to improve market share at global level in different markets to
maximize profitability. In global companies there is a centralization of decisions: in headquarters it’s fun, but if you
work in subsidiaries you only have to take orders and do what they tell you to do.

There are export/multinational companies that are becoming more and more global. For ex. Illy: is it an export
company or a global company? Until some years ago it was for sure an export company, bringing its products in
different markets; today sales are about 60% in international markets and 40% in domestic markets, but domestic
sales keep decreasing. So is it still an export company, even if it’s investing more and more in foreign markets?
Illy is looking more and more at global markets, it’s becoming more and more global; it’s selling coffee in global
markets; some product were developed first for global markets and not for domestic products, they were made
for markets with different cultures about coffee (like its coffee “cans”). In the past Illy was selling the same product,
the same coffee; today in China you can also find Illy tea, sold in small bags like tea but it’s actually coffee: you
put it in hot water to get a kind of American coffee.
à Illy is still an export company but it’s changing its mentality and becoming more and more global.

It’s common to have multinational companies with some features of global companies, or export companies that
are similar to global companies, or global companies that take into consideration the needs of single markets
working in some way like multinational companies. So we can also have “hybrid” companies, with some
characteristics of two types of companies and not only one.
To understand this, we have to understand the culture of a company.

Global companies are not afraid to hire managers from other countries to a company that was born in another
country. Multinational culture is when all documents are in the local language, develop product for the domestic
market... Export companies instead are very ethnocentric, located in a specific area, local territory always comes
first and sometimes the only language they speak is the local language, even though they are selling to other
countries; the only thing that matters for them is the domestic market.

CHAPTER 9: SEGMENTING, TARGETING AND POSITIONING FOR GLOBAL MARKETS

(STP)
§ Segmentation= analysis to do in the first part of the marketing plan, part of the external analysis:
analyze the market and profile the different segments. Comparison of different countries
(geographical segmentation) and comparison of segments in different countries to evaluate which
market is more attractive to the company.
Segmentation= segmenting the market and profiling the different segments.
§ Targeting= taking into consideration the segments identified, we have to analyze the attractiveness
and competitive position of the company for the segment.
Targeting is used to evaluate the segment attractiveness and competitive position for a specific
target segment.
§ Positioning= developing different positioning strategies for different target segments; you have to
convince different segments through different promises; communicating target segments to show
competitive advantage to competitors’ products. Analysis of POD (= Point Of Difference), analyze
the elements that support POD...
Positioning= develop positioning for different target segments. Communicating target segments to
show competitive advantage to competitors’ products.

When the STP process is used properly, it allows the company to create a marketing mix for each segment,
marketing plan will be split into smaller marketing plans.

STP ON GLOBAL MARKETS IS MORE COMPLEX than domestic markets because one must:
- Identify target countries based on macro-segmentation, prioritization and countries (identify which countries
have the priority) who hold the highest strategic value);
- Identify target consumers within global markets by micro-segmentation and targeting the micro- segments
that show the greatest opportunity (you have to identify the micro-segments within a country, within a market,
which adds complexity).
In domestic market you have just one country to focus on, meanwhile in global market you have many countries
you have to focus on at the same time and find the more attractive one. In fact, it costs a lot to make the analysis
and you have to choose wisely which country have priority and which can come later.

TWO OPTIONS FROM STP ON GLOBAL MARKETS:

- There can be a similar segmentation to the domestic market, making the marketing mix easier to use (you
can use more or less the same marketing mix you apply in domestic market, if you can find a segment in
another market that is very similar to the segment in your market)
- Segmentation can find a completely different market where a new marketing strategy is needed to succeed
(for example, markets that are culturally distant).

If we want to create global segments, we have to take in consideration the variables, and this can be done through
the use of technology.

Technology can provide information about the consumers. It is helpful for segmentation, because companies in
this way can track the consumers’ habits. Technology helps in identifying various segments of consumers. It also
allows to customize products, by having a lot of information regarding the consumers.
Technologies allows:
- Consumers to communicate their interests
- Customize communication for brands produced
- Help create an infinite number of relevant custom segments

The internet has already allowed:

- New levels of complex STP
- Access to large amounts of web data (cookies, searchers and site visits)
- Shows consumers preferred shopping methods and shipping habits

The only problem concerning technology is the analysis of data. People able to analyse such information are hired
when they are able to interpret big data.

CRITERIA FOR GOOD SEGMENTATION

We obtain a segment when we split consumers in different groups. To do so, there are some criteria we have to
take in consideration:
§ Homogeneity within the segment: guarantee similar response to marketing mix variables; in the
group identified consumers are very similar. Similarity will be based on the variables chosen for the
analysis (for the segmentation), variables that are relevant for the product. Consumers within the
segment are similar, have the same needs and can be satisfied by the product you offer, they
guarantee the same response to the marketing mix.
Homogeneity has to be evaluated according to the marketing mix of the company. Segment must
be homogeneous enough so that one single marketing mix can work for all the consumers within
that segment.
§ Heterogeneity between the segments: different enough to warrant changes in the marketing mix
in different segments. Segments should be different enough to justify the fact that there are different
marketing mixes, because otherwise, if they weren’t really different, they could be included in a
single segment and the company would save a lot of money because making more marketing plans
is more expensive, it requires more investments. So we have to make sure that the segments are
heterogeneous and could never be merged into one single segment.
§ Measurable: it is possible to calculate market potential, the sales that the company would be able
to get from that market segment, you have to know the size of segment and demand.
§ Substantial: large enough to be profitable. The evaluation of profitability is different depending on
the size of the company. Big companies usually target big segments, and small companies target
the niches.
It doesn’t mean that it absolutely needs a huge number of clients, but in some cases only a small
number of buyers can be enough to be profitable. For ex. Fincantieri à 2 or 3 cruise companies
buying from Fincantieri would be enough for the company to make profits.
§ Operational: dimensions of the segment allow ease with identifying consumers and help formulate
an effective marketing mix decision. Once a company has identified the group of consumers, then
they should be able to develop an action plan, and they should know if they are able to operate
inside that specific market. Depending on the type of company, they can adapt the production and
distribution.

Once you have a good segment, you have to evaluate if it has the characteristics to be operational from the
perspective of your company. Are you able to identify and reach consumers with your promise and develop an
effective marketing mix?

MARKET SELECTION PROCESS

When doing the selection process, you

need to make a screening. In targeting
countries, a company must consider
them one by one.

The market selection process is

composed of three steps. In this kind of
process, we have to make a screening of
the entire market without spending too
much money. Indeed, research could
not be replicated, but companies need
other information in order to individuate
some priorities.
Example: First you identify 15 countries in Europe that could be interesting: you make a first screening (Macro-
segmentation, macro screening) by macroeconomic indicators (PESTEL analysis), you consider just general
variables to narrow down decision to 8 countries that are more attractive.

Then through a second screening you find out that among these 8 countries only 4 can be targeted immediately,
can offer more opportunities. Prioritization is based on market attractiveness and competitive position. You don’t
eliminate the remaining countries, but you will focus first on those 4 countries that are more attractive.
Finally, you operate a micro-segmentation based on the identification of segments in each country = multinational
segmentation (segmentation of country by country) or across different countries (global/horizontal segmentation),
identify a transversal segment that you can identify in each country and can be targeted with the same marketing
mix.

FIRST SCREENING: AN EXAMPLE OF MACRO-SEGMENTATION

Best way to do first screening: use some general matrices (for example make a macrosegment based on the
population size and per capita income). Analyze countries.
The most attractive countries are big ones with high per capita income.
This first analysis is based on macro variables, that you can find in the PESTEL analysis (GNP size, GNP growth,
GNP per capita, population size, family size, etc.).

Such an approach enables a company to make a first segmentation and targeting without carrying out an in-depth
analysis of each country, which would be expensive and time consuming.

SECOND SCREENING: PRIORITIZATION

The second screening is based on market attractiveness and competitive position. A company has to identify
which countries are more interesting and find in them a priority. Some countries may not be interesting, so
companies operate a selection of which countries are more attractive. The purpose of prioritization is to find the
best foreign markets for expansion potential.
You have to analyze the markets, go a little bit in depth: you have to understand if the product matches. The
purpose is to find the best foreign markets for expansion potential.

Each firm must decide for itself which criteria are relevant to its performance and evaluate, in each screened
country, factors such as:
- market size and growth
- product match (The company should know if they have to make an adaptation of the product. They
should also know if the consumers are familiar with that kind of product. In case of a positive response,
the company won’t have to invest a lot of money.)
- intensity of competition
- required capabilities and resources (The company has to know how much to invest and if they can
increase the production)
- entry barriers (Entry barriers can include: taxes, bureaucracy, certifications, quality tests, insurance and
language)

It’s possible to use directional policy matrices to help prioritize countries, such as:
1. Portfolio analysis
2. McKinsey/General Electric Matrix (better than BCG)

Example: we have to analyze further the screened countries, to understand which countries can be targeted first
and those which are not ready to be targeted yet.
MCKINSEY/GENERAL ELECTRIC MATRIX

We can classify the 8 countries according to their

level of attractiveness and competitive strength.
Country A and H are very attractive and the
company could be successful in those countries;
country L is characterized by high attractiveness
but the company is not strong enough to be
competitive in tat country (probability to be
profitable is very low); countries E and P are in a
quite attractive market and the company could be
very successful in those countries (E and P are
interesting).

Countries Q and F are in the middle; country M is

in the area of low strategic value.
à All countries in top-left portion of the matrix are
countries where it is worth to operate, have a high
strategic value, the company should invest in those
countries; then there are countries “in the middle”,
with medium strategic value (they are not really so
strategic, are average)-> two possibilities: the company can decide to wait and see what happens, if the country
becomes more attractive (Q could improve attractiveness and gain high strategic value) or gains more competitive
strength (L could be stronger from a competitive point of view and reach the area of high strategic value) OR we
can apply selectivity strategy= make a selection of the right clients.

On the other side, in the bottom-right portion of the matrix there are countries that should be dropped.

The McKinsey matrix is used to measure the competitive strength of a company in a specific country.The
estimation has to be made personally. The evaluation is made with those variables included in the previous
analysis of market / country attractiveness.

We can select very attractive countries where the company is strong, in the area of the high strategic value, which
means that we can invest in that particular country.

Even countries with low strategic value can be selected, which means that it is advisable to drop it. There might
be some situations in which some countries are in the middle. In this case the problem is that the company may
be weak in the market; or the company is competitive, but the market is not attractive.

To solve this kind of situation, we can choose between two possibilities:

1. Wait and see
2. Selectivity strategies

To put countries in the right portion of the matrix, we have to make an analysis that allows us to create an index
of market attractiveness for different countries.
We make a table, identify some variables of market attractiveness and competitive position that are important for
your specific product. Normally you identify a maximum of 7 variables.
Then you have to attribute a weight to each variable according to how important the variable is for the product.
Sum of all weights = 1. Then you have to evaluate every country in relation to each variable, with a rating that
goes from 1 J to 5 L . (examples for attractiveness of the country: if intensity of competition high: market is not
so attractive à rating=1; high political risk: there are lots of risks-> rating=1; high entry/exit barriersà rating=1;
high government regulationsà rating=1). Ratings =5 mean the country is very attractive/ has an optimal
competitive position.

Finally, you multiply weight and rating to get the total score for that country for each specific variable. You sum
up all scores for all variables to get the overall result for each country and then you will be able to place all
countries in the McKinsey matrix.
Factors in market/country attractiveness Factors in market/competitive position

Limitation, criticalities of the matrix: its subjectivity: weight and rating are subjective, can be used by the company
in a very opportunistic way; the company that makes the analysis can choose the variables to consider, the weight
to attribute to each variable and the rating. There is subjectivity in the variables that you decide to include:
variables that are not really important for the company have a smaller weight and will contribute less to the total
score, or those variables that would have a low rating can be eliminated from the analysis to make a country look
more attractive; subjectivity in the weight (companies can attribute different weight to different variables according
to how much importance they attribute to them) and subjectivity in the rating.

AN EXAMPLE OF SECOND SCREENING BASED ON PORTFOLIO ANALYSIS

We can distinguish among some products that a company can offer a country: the company can have some
business units that produce those products and decides to make a qualitative analysis of the countries.
The company makes a qualitative analysis for each product and determine how much each country could be
interested in that product. You take into consideration the overall variables; analysis is more qualitative. -> You
can determine that certain SBU have high / moderate / low potential (depending on the level of demand for that
product in the country or the level of competition in that industry in the country...). Looking at columns we can
see overall evaluation by country: if a country shows high / moderate potential the company should invest in that
country; if a country shows mostly low potential, then the company should drop it; then there are countries that
are “in the middle”, to which we can apply the same measure as for the McKinsey matrix: we can decide either
to wait and see if potential increases or we can adopt a selectivity strategy.

METHODS OF ESTIMATING MARKET POTENTIAL:

I. Traditional method
II. Method by analogy
III. Competitor-based methods
IV. Methods based on import/export information.

Traditional method works well in theory but then it’s difficult to find all the information necessary to develop it in
the right way. Companies need to use other methods, that are not alternative one to each other but can be used
to support each other.

You can also apply the traditional method and in addition another method, and if you find that the results from
the two methods are the same, then you can use both of them, but if results differ you should use another method
to be more precise and right.
It’s better to compare different methods to have a better analysis.

[When calculating market potential, we consider the total size of the market; you have also to estimate the share
of the whole market that the company could be able to reach, to understand how much the revenue will be able
to make in that market]

I. Traditional method.
Based on the analysis of consumer demand and can be calculated as:
Total population x percent of potential clients x frequency of use x average unit sales per client.

Example: Consider a country with a population of 5 million people, of which about 15% can be target for the
product: if they buy the product about 8 times a year and in average every time they spend 40 $ à the estimated
market size is of 240 million $. à 5000000 x 15% x 8 times/year x 40$ = 240000000$.
Easy to find total population of a country, but it’s not so easy to find percentage of potential clients; average
frequency of use is normally difficult to find.

II. Method by analogy

When a company analyses a country based on another country with similar consumer behavior as benchmark.
You analyze a country basing your analysis on a country that you already know very well to evaluate market
potential of that country.

The method by analogy is used when a company is already selling in one country and they want to enter in another
country. So, the company can try to make an analysis based on the analogies of the two countries.
The country in which the company is already operating is used as a benchmark for another country, that can be
similar to the first one. The analysis is based on consumer behavior.

Example: consider the calculation of market potential for premium sport footwear in Country A. The company is
already present in Country Y, that is considered a benchmark because of similar consumer behavior. In country
Y, the sport footwear spending is about 40% of footwear. Using the data available, it‘s possible to calculate the
market potential of country A.

III. Competitor-based methods

In the competitor based method, we have to estimate the volume of the market. if there are few competitors in a
highly concentrated market, a company can use information from analyzing their competitors. If there are few
competitors in a highly concentrated market, a company can use information from analyzing their competitors.

Two ways to do this:

- Summing the sales of all competitors. Easier when there are few competitors, not too much. The only
problem is that we can find only the main competitors; and when we analyse the revenues of all
competitors, we cannot distinguish the sales for the specific data category. The only way I can obtain
some information is from distributors.
- Identifying one competitor and its share of the market. For example, if a competitor has sales for 5$ mln
and it is known that its market share is about 10%, the total market size will be approximately 50 mln$.
You just need to identify one competitor with its sales and market share, then you’ll be able to get total
market size.

The first method is usually more difficult due to lack of information on some competitors, it’s difficult to identify
all competitors and also all sales of all competitors. For some competitors you can identify sales of each product
in their portfolio.

How to find the market share of a company in an emerging market?

- meet some distributors, wholesalers, retailers (make interviews).
- if you are abroad, go to a regular supermarket and on the shelf look which brand is more present on it.
IV. Method based on import/export information.
Based on production, import and export figures.
It can be used only if the product has an identifiable customs position.
Can be calculated through the formula:
Local production + import – export +/- changes in stock size.
Local production + import / - export à you get total consumption in the country. Then (apart from considering
local production and consumption) you also have to consider changes in the stock of the product.
The result allows us to know what the consumption in the countries is. The only problem related to this kind of
method is statistics. Indeed, it works only for some product categories, the main problem concerns data.
To make a prudent analysis of the market it’s better to consider more than one type of analysis; if you’re not
prudent you risk to lose revenues because when making the analysis of the market you were too optimistic.

Dedicate time to get market information.

Traditional method Analogy method Competitor method Export/import

method
Total market 1000$ 800$ 1200$ 700$
Market share 100$ 80$ 120$ 70$
10%

Break-even point:
1. if we want to reach the BEP in two years, I need to sell 50$ à with this method, the lowest one, we enter
in the market. If we have this situation, everything makes us think that we will sell more than 50$.
2. if we want to reach the BEP in two years, I need to sell 110$ à it is risky to enter in this market. It is more
and less in the middle, but you will take a risk. The only alternative is trying to use for example a local
distributor and reduce cost of import/export. Try to change and decrease the BEP to at least 90$. You
cannot work on revenue, but you could work on the cost.
3. if we want to reach the BEP in two years, I need to sell 150$ à forget, do not enter in the market.

MICRO-SEGMENTATION: BASED ON DEMAND AND PRODUCT

= Segmentation done in each country, with different
variables: some are based on characteristics of the
product, some are based on characteristics of demand.

Once we have selected the country in macro

segmentation, we have to go in depth dedicating more
time and resources to our analysis.

In micro-segmentation, we have to identify segments of

consumers inside the country. In other words, we have
to operate similarly to the domestic company, who
identify consumers inside the domestic country.
Multinationals do not care so much about micro-
segmentation.

Here, the goal of the global company is to find horizontal segments that are transversal in the counties selected.
When we develop a micro-segmentation, we have two approaches:
- Segmentation by Product group
- Segmentation based on Demand

Product group and demand approaches can be used singularly, or together. Product group approach is based
on the offer of the company, whereas the demand approach is based on the consumers / buyers. Sometimes,
when informations about the consumers are not available, we have to use the Product group approach, and so
we have to rely on the products.
For example, if we have to target countries with a new product, we have to rely on the segmentation based on
demand.

The segmentation based on demand works well with industrial products, because it does not give information
about the consumers.

- Segmentation by product group is like analyzing when you have a catalog. You make distinctions
based on features of the product, the material used... à you identify different groups of products and
 split products into those groups. This segmentation only gives information about the product but not
about the people than could buy your product. However, there is also an association with the main clients
(main target) buying the product.
For example: Haribo sweets (target: kids); Tic Tac or Daygum (functional candies) target adults instead.
à kids and adults buy different kinds of candies.
The Accor group is based on the segmentation by productà It owns and operates brands in many
segments of hospitality: Luxury (Raffles, Fairmont, Sofitel), premium (MGallery, Pullman, Swissôtel),
midscale (Novotel, Mercure, Adagio), and economy (ibis, hotelF1).

- Segmentation based on demand. You have to determine if your market is made by individuals (BtoC=
Business to Consumer) or companies (BtoB= Business to Business) or by channels of distribution (online
channels, if you mainly sell online).
If market is made by individuals or companies, you can do a segmentation that can be based on
geographical, demographic, socio-economic, psychographic, behavioral or benefit aspects.

Example: cockatiel dresses, night dresses, office dresses à based on the behavior, on the life that you
do as a consumer.

VARIABLES OF MICRO-SEGMENTATION

[Socio-economic variables: we can split individuals into groups according to their income, companies can be
divided into groups according to their turnover; occupation= jobs of individuals, industry of companies depending
on the type of goods and services they provide. The distribution of income is very important and based on this,
we have to evaluate the product we are selling: sometimes, we have to make some changes in order to make it
available to the consumers with lower income.
The size of the family is also relevant, because based on this, we have to develop the sizes of the packages of
the product we are selling. For lifecycle of the family we intend the various phases, that are: single, couple, couple
with kids, couple with grown children, couple again and survivors. Considering these phases, a company as to
behave in different ways.
Segmentation based on psychographic variables works well for individuals but can be done also for companies:
we can determine personality of a company based on its corporate culture= how the company is organized, if it’s
bureaucratic, conservative, hierarchical, based on idea of respect of authority etc or if it’s flexible, dynamic,
creative.
Behavioral factors include shipping habits, product use, usage situation, frequency of use and loyalty. behavioural
habits split different countries. The product is the same, but the use people makes of it is different. Considering
the different use of products, these variables are not useful for global segmentation.
Segmentation based on the benefits that consumers and companies look for when buying a product: you can
group consumers and companies that, when buying, look for specific features. Some people when
buying only look at the price, some search for specific characteristics of the product...Consumers that buy
according to the price are usually unloyal consumers because they tend to buy the cheapest product, the one
with discounts]

Multinational segmentation consists of a company identifying different segments within a country and then
developing a targeting strategy country by country.
Countries will try to find similarities to help group different markets but sometimes they are completely different.
Multinational companies sometimes try to create cluster of countries, but this is very difficult.

Global segmentation aims to target segments that are similar between certain countries. Companies need global
horizontal segments in the market where they operate. They only work on similarities and develop a marketing
plan for each segment.

The best variables for global segmentation are psychographic and benefit segmentation. If you identify segments
based for example on age, it’ not a good segmentation because, if you consider all consumers of that age across
different countries, they are very different, so segmentation is not homogeneous within the segment. When you
make segmentation according to income you can get different results (a good salary and good income in Italy
could be a bad salary/income in another country like Switzerland) Homogeneity within the segment is a very
important criterion for segmentation. Psychographic and benefit sought variables are those that can guarantee
the most homogeneity within segments. NOT behavioral variables because there are also very different buying
behaviors. People from different countries with different traditions and lifestyles could use the same product in
different ways.
For international market segmentation, the variables vary with the type of products.

When a company selects some countries that it could

target, it can choose between:
shower approach: you target all the countries at the
same time
waterfall approach: target all countries but in different
steps, reach all countries one after the other

We can also decide to target the horizontal segments

1,2 and 3 and adapt the product in different countries
even though the segment is homogeneous.

VALS SYSTEM WITH THE CURRENT US MARKET

One of the most long-lived and authoritative systems that segment people on the basis of personality traits is
VALS, owned and operated by Strategic Business Insights (SBI);
The basic tenet of VALS is that people express their personalities through their behaviors.

VALS specifically defines eight consumer segments on the basis of those personality traits that affect behaviour
in the market place:
1. Innovators
2. Thinkers
3. Believers
4. Achievers
5. Strivers
6. Experiencers
7. Makers
8. Survivors

The company identifies these types of consumers by asking them a series of questions, that were used to point
out their behaviour towards a specific product. It is useful to find out the general personality of consumers.

TARGETING
Now we have to decide which segment(s) to target. Once all viable segments have been identified in the targeted
markets, the process of selecting the most promising segments (those with the highest potential to generate sales
and profits for the company) and deciding how to address their need begins. à concentration (focus on only one
segment) / diversification (target two or more segments, with your global strategy. If you target more segments,
you will need more marketing plans).
How do we decide which segment we want to target? It’s a question of giving priority to those segments that are
more attractive than the others, we have to select the most promising segments.
There are specific elements to take into consideration, but main criteria are:
§ Market size: the greater the market (= the larger the segment), the greater the probability of being successful,
the more sustainable and profitable it is likely to be.
§ Growth rate: the faster a segment is growing, the more sales it is likely to generate
§ Competitive position: the less competitive offerings are available for the target segment, the more likely the
company is to gain large market share. You have to take into consideration analysis like McKinsey matrix:
analyze very well competitive position, understand if the company is strong enough to grow and increase
market share.
§ Market accessibility: the more cost-effectively and quickly a segment can be reached, the more attractive
it will be. Sometimes it’s fast and easy to reach consumers, sometimes it’s too expensive and difficult.
§ Customer fit: the more compatible the segment is with the company’s brand and resource, the more likely
it is that sales will follow. Consider if the company fits well with distributors in the country (ex. if in the country
there are big distributors and you’re a small company they probably won’t consider you, taking into
consideration only bigger companies). Consider if the product fits well with final consumers; in some cases
you will need adaptation. (for example, Barilla created boxes of spaghetti cut in half only for Americans who
are used to cutting spaghetti in half).

CONCENTRATION VS. DIVERSIFICATION STRATEGIES

A company can decide to approach a segment in two ways: it has to decide if it wants to concentrate on only one
country or if it wants to diversify strategy and target more than one country.
- Concentration strategy= concentrate all efforts on one segment;
- Diversification = target more than 1 segment.

When considering resources (not only financial resources, but also human resources, intellectual resources...),
you have to consider that concentration strategy concentrates all resource on one segment, and you could get a
great result. If you have a lot of money, you have the possibility to split it into different countries, adopting a
diversification strategy, but, if you only have little money, it’s better to invest in only one country.
Given a fixed amount of resources, the amount assigned to each market in a diversification strategy would be
less than for concentration. For companies which are characterized by small amounts of resources, concentrating
marketing effort and resources in one or a few markets should determine larger market share and, subsequently,
higher profits.

When competition is strong, intense, small firms should avoid direct competition with larger firms. In this case, it
would be preferable to have small market shares in a larger number of markets. If competition is intense, you risk
losing the war, lose all you had invested in that market, and if you lose you lose everything. Better to avoid
competition, and to avoid competition it’s better to focus on a niche of the market, target only a small niche in the
market.
à If competition is strong, it’s better to have diversification strategy and target only small niches in every market,
especially for small firms.

There are market factors such as growth rates and sales stability in each market. If sales are not stable and/or
the market growth is limited, it is risky to concentrate only in one country and it’s better to diversify, not taking the
risk of only one country.

Another factor: need for standardization or adaptation: if you can enter different countries with
standardized products, it’s easier for the company. If you don’t have to adapt the product, it’s quicker, you can
opt for diversification. If you need to adapt the product, it’s better to focus only on one country at least in the
beginning (then if you’re successful you can target another country): if entering a foreign market requires
adaptation of the product or the advertising (higher costs), the company will probably opt for concentrating all its
effort in one country and only later expanding in other markets.

Another factor is the shape of the sales response function, that relates the value of investment (x-axis) in
marketing effort to the revenue generated (or profit/ units sold.. on y-axis).
The sales curve can be S-shaped or concave. Concentration is better if you have an S-shaped curve;
diversification if you have a concave curve.
 Two curves: concave curve and S curve. The S-shaped curve: you
start investing resources, to get a higher level of sales you need to
invest more resources. When you invest few resources you don’t
have an immediate response from the market.

Concave curve: consumers in the market respond immediately to

new product, when you start investing in resources sales increase
immediately, quick response from the market; then as you invest in
more and more resources the increase in sales is always smaller,
the response is limited, marginal. Only in the beginning, consumers
were responding well, immediately, but then response get slower.

Another factor is the short competitive lead time (=time it takes for other competitors to enter your country after
you, with your same product.). Time is very short= for competitors it’s easy to enter a country with your same
product (it takes them little time to enter the country an start selling your product), for example if your product is
not protected by a patent and it’s really easy to replicate it. à it’s better for you to target many countries, because
in the beginning you’re the only one selling that product but then there will be followers, try to target as many
countries as possible. Long time à you can enter a single country and decide to enter another one as you are
pretty strong in the first one.

High spillover effects between countries (=countries are very close one each other, one country can influence
another one à target them as if they were one only country) (for example the use of the same patents). If there is
a high spillover effect à enter different countries, you can gain competitive position.

Little gain from distribution from economies of scale. In some cases, companies rely a lot on economies of
scale both in production (=decrease costs of a product by increasing production, using all production capacity of
a product) and in distribution. If you can use all production capacity it’s better to enter more counties to
compensate all the costs you will face for decreasing the product cost.
If also distribution is complicated and you can get more money by selling more volume, it’s better to diversify and
sell to more countries. If there is little gain from distribution, better to concentrate.

DIFFERENTIATED AND UNDIFFERENTIATED APPROACHES

The differentiated approach aims to adapt the product and the marketing mix to each target market segment.
Most brands use this approach to stay competitive and appeal to more market segments. Differentiation can refer
to different targets but also to different features of the product line, with multiple versions of the same product: it
is used also in terms of characteristics of the product; it’s used as a synonym of adaptation: you differentiate your
approach in each market segment, you adapt your product. Concentrated can also be called niche targeting. It
focuses only on one segment and tailors their market specifically for that segment. here are some companies that
target niches in different countries, so they have developed a sort of global company, because they are
homogeneous, and they are standardised. Niche targeting focuses only on one segment and tailors their market
specifically for that segment.
You can concentrate on one country and then differentiate between the different segments in that country.
You can have diversification strategy and then have in each country a strategy of concentration. You can also
have differentiation in a context of diversification strategy.

Undifferentiated approach = “standardized marketing” or “mass marketing”: target different countries, but inside
each country you don’t make differences between segments. Here, consumers are assumed not to be different.
It assumes that customers across the world will accept the same product with no regard of their cultural,
behavioral or socio-economic differences.
Some products do not require differentiation among countries. It means that those products are culture free, but
we still can find some small adaptations of the products.

Marketing on the common needs of its customers is the base of the company instead of on the differences.
Typical of industrial products, commodities and business to business market.
Some companies develop a micro-marketing (customised) approach. This particular approach refers to a deeper
segmentation of products for every specific sub-segment. Through the use of an algorithm, companies create
this micro-marketing approach. The online environment has played a key role in the growth of the marketing
customization trend (ex. Amazon)
Especially, this happens when we buy online, to overcome the economies of scale.

Efforts have increased for GPS, internet cookies, and direct mail to make this type of marketing more cost effective.
Customized of micromarketing approach: when you’re able to target small segments, or even segments made by
one consumer.
Deeper segmentation of products for every specific sub-segments.

POSITIONING
It represents the way consumers, users, buyers and others view competitive brands or types of products à it
happens in the mind of consumers, it is uncontrollable by marketers due to perceptions of consumers.
We have to decide which promise to give consumers in order to convince them to buy our product instead of the
competitors’ products.

Positioning= the way consumers, buyers and other stakeholders view competitive brands and products.
Positioning from the perspective of consumers is the perception of the brand in comparison with other competitive
brands or the perception of the product in comparison to other product categories, the way consumers perceive
a product with respect to another. Once consumers decide which product they prefer, they have to decide from
which brand to buy it.
A specific brand occupies a specific place in the mind of consumers in relation to other brands.
From consumers’ side, they receive the promise and develop a perception in their mind; we use the term
positioning because we refer to the position occupied by the brand or the product category in the consumer’s
mind.

Marketers control through planned positioning (company’s promise to consumers) and perceived positioning
(the opinion of consumers mentally; consumers receive the promise and develop an opinion of the brand or of the
product, which occupies a specific place in the mind of the consumer).
When done successfully, consumers should have strong, long-term emotional ties to the brand, because the
company occupies a position in their mind, creates an opinion with functional and emotional characteristics that
can be strong and last a long time and cannot be changed easily, gives an idea of the product.
The promise is implemented through the marketing mix and the perceived promise represents the positioning in
the mind of consumers.

The critical point of this process in global marketing strategies is how consumers perceive the brand: in different
countries there are different competitors, different buying behaviors, different motivations, culture and attitudes;
consumers are different from one country to another. You might need to adapt your product because there are
differences from one country to another.
Multinational companies sometimes use the same product with different brands.

In case of global companies à they try to find out the communalities among consumers in different countries and
try to develop the promise according to communalities so that they can have the same promise in different
countries. The promise based on communalities should work, but you need to look at competitors, especially
local competitors. Different countries means different kinds of competition. Furthermore, the control of the
channel of distribution can be weak, and the distribution strategies and tactics can be implemented by
intermediaries in the wrong way; price sensibility can be different and communication requires adaptation. In the
channel of distribution, the company communicates the promise to wholesalers (when the company sells the
product to wholesalers, they lose the product because it belongs to wholesalers now; also the wholesaler has to
decide if they want to buy that company’s product instead of other companies’ productsà company has to
convince the wholesaler to buy its products rather than competitors’ products) and then the wholesaler will
communicate it to the retailer (which has to decide if they want to buy products from that wholesaler rather than
from other wholesalers) and finally the retailer will communicate its product to final consumers.
Problem of price sensibility: when we export products to foreign markets, if there are long channels of distribution
prices get higher because of escalation (also wholesalers and retailers want some margin on the product; the
longer the channel the higher the price increase because each intermediary wants a profit). Sometimes you need
to adjust prices when they get too high.

Sometimes the promise is the same but you have to change communication, you have to communicate in different
ways with consumer because there are differences between countries. When communication you have to adapt
communication style to the country; for example, a humor that works in England could not work in other countries.
We might need to change the commercial for example, adapt not the promise itself but the way we implement
the promise.

BRAND POSITIONING STRATEGY

In brand positioning we have to find a way to develop a promise, depending to the target. Once the promise is
developed, the company finds itself in a competitive environment.
What to do to develop the promise?
These are all the steps you need to define before the definition of the strategy.
§ First of all, the target of the brand has to be very clear.
§ Then brand.
§ Define the product type= product category where you decide to operate.
 Example: if you are coca cola, you can have
direct competitors selling your same
product (à write Cola beverages, of all Cola
beverages or you can write OF ALL
beverages and you write your product type,
or you can write of all soft drinks). If you
change product type you have to include
different competitors, and you have to
change the promise because you have to
face different competitors. Through product
category you define the competitive arena,
in which you can consider your direct
competitors but also the substitutes which
are still competitors because they can be
really strong (for example Coca cola vs
Pepsi or coca cola vs water, juice). Only if
we know the product type, we can define the competitive environment.
§ POD= Point of Difference= what the company delivers, offers to the target consumers with their product
type against what competitors can offer. You have to identify point of difference of the company against
competitors.
We can identify also POP= Points of Parity (where there is no differentiation. Example: you have a hotel in a
town, where transport system is not well organized. You can do anything, it’s a point of parity with other
hotelsà there is no difference in possibilities of different hotels) and POAI= Points of Accepted Inferiority
(which cannot be changed, you have to accept that you are inferior in some areas, but you can focus on other
aspects to compensate that inferiority). You have to determine where you have the same possibilities as other
companies and where instead you have to accept your inferiority.
You can make a scheme comparing competitors, showing their position, where competitors are equal and
points of accepted inferiority among all competitors.
§ Benefit that POD provides: what is provided by POD. We have to find a correlation between what the benefit
of the product is, and the promise developed by the company.
You can promote for example an emotional benefit or a functional benefit. For ex. when selling a cosmetic:
POD is that the product has specific ingredients, but then you have to write down the benefits of these
ingredients.
§ Supporting evidence: you have to make sure people trust you, trust the benefit you’re claiming your product
has. You have to support your promise with specific information. An example of supporting evidence could
be a test done on 100 women and 80% of them reported that they liked the product...
§ Brand personality: can be elegant, dynamic, friendly, rude, aggressive, conservative.... You have to describe
the personality that you want to be associated to your brand. For example, Illy was perceived as “snob”, but
then they decided to change the promise with a more friendly personality, they wanted to decrease distance
between company and consumers, to get closer to them; they changed colors, the approach of
communication...
§ USP= Unique Selling Proposition= sum up of the promise: what makes your brand different from the others?
What distinguishes your product? This is the synthesis and is the promise that makes the brand different
from the others. In this step we have to develop a slogan, that explains our promise.
Price, product, distribution are factors that need attention because they can create a perception in the mind
of the consumer. Communication is also important, because of the actors and the language used can create
also a perception in the mind of the consumer.

The difficulty is to coordinate all these decisions.

PERCEPTUAL MAP: AN EXAMPLE IN THE FASHION INDUSTRY

Positioning at brand level is often conceptualized with a positioning map,
also called perceptual map. Brands are positioned in the map in relation to
positioning bases (in this example price and style)

The map clearly points out the position occupied by the brand (for example
Brand A) and by competitive brands in the mind of consumers. In different
countries, due for example to cultural differences, consumers’ perception
can be different, and also competitive brands can vary.

In the map it is also possible to identify what is the position of the ideal
brand for the target segment.
A company can also plan a repositioning strategy in order to move closer to the ideal product. Repositioning
strategies can be very expensive, especially if carried out at a global level.

When a company develops a positioning strategy, it has to pay attention to the fact that we have to create a
perception, because we are selling a product and a brand.
In particular, attention must be paid to the position of the brand and the position of the product. SO, we have to
develop a perceptual map.
Positioning at brand level is often conceptualized with a positioning map, also called perceptual map, a map used
to analyze opinion of consumers of the brand and to analyze the position of competitors and
you find the position you want to occupy in consumers’ minds. Brands are positioned in the map in relation to
positioning bases.
A company should pay attention to the perception of the consumers towards a particular product. Indeed, it is
useful to make an analysis of the brand’s position in the market. If the position of the product is not close to what
the company expected, it should plan a repositioning strategy.

Two elements: price (low to high) and modernity of product (if it’s classic of modern).
You can see perception of your brand, see if consumers believe your brand is modern or classic and if they believe
your price is too high or too low or it’s in the average.
Ideal product for the target segment could be for example product with a higher price than average and with a
modern style. à the company should adopt a repositioning strategy to get there (if the company is already selling
in that market). If the company wants to enter a new market, it has to analyze the position of competitors and
understand the needs of consumer (what consumers want in terms of price and modernity) in order to place its
product the closer possible to the ideal product.

POD= POINT OF DIFFERENCE.

Positioning requires the identification and communication of the POD that will be operationalized through the USP.
The POD can be based on one or more of the following criteria:
§ Benefit, attribute or price. For example, IKEA offers low price (good price/quality ratio), good design and
wide choice of products, offers benefit of delivering product at home.
§ Usage situation: what the product is used for (for example association Mulino Bianco as the best brand for
biscuits for breakfast). The company promises their product is the best for a specific situation. Usage situation
usually refers to a moment of the day. For example: chocolates “After Eight”.
§ Product use: example: Perlana (product to wash wool, per lana: clear association of the brand with the use
of the product). If you create a strong connection product-product use, if the use of the product changes
even a little bit, promise is different.
Another example: Samsonite (used for travelling). Product use refers to something that you do (like washing
wool, travelling).
§ Users: there are some brands that are associated with specific sets of users. For example, Chicco is
associated to kids, because it sells only things for kids; some airlines are associated to businessmen...
§ Against competitors: What you say is basically that you’re better than the other brands. You can do
comparative advertising, but you have to respect some criteria. (ex. Nike vs. Adidas or Coca Cola against
Pepsi).
§ Product class: name of the brand is associated to the product class (for example brands that make products
to “lose weight”)
§ Company image: typical of industrial products, where you can communicate your reliability, international
presence... you associate your promise with the general image of the company; you work on the image of
the product.

Usually, you use 2 or 3 criteria to classify your product. For example: Samsonite: high-quality and design for
travelers (use criteria of attribute and class of users). It’s better to focus the promise on few criteria that make your
product good for consumers.

STRATEGIC TARGET-SUB CLUSTERS AND POSITIONING

Differences in clients: for example business clients; leisure clients and local community for hotel industry. Doubt
is whether you have to develop different strategies for the different kinds of clients; sometimes it’s better to create
different marketing plans, you need to make a distinction between your strategic target and (inside the strategic
target) you have to identify the sub cluster, for which you can make a description of their characteristics, you can
develop a promise that is slightly different, it’s a specific promise inside the general promise pf the brand.

The cluster promise has to be coherent with the general promise (positioning) of the brand.
Then you can list distinctive attributes you can emphasize, and what you can offer to single sub clusters. For
example to business clients you can promise professional business environment, where services are adapted to
needs of business clients; for leisure clients you can promise relaxing and pleasant environments; for local
community you can have a different promise.
You can emphasize different aspects (for example, specific services for business clients or possibility to hold
meetings in a room; for leisure clients you can offer room cleaning, availability of bikes to use..) you propose
distinctive attributes that could convince different clients to come to your hotel, to choose your business.

Example of global segmentation is the case of Moroso: strategic target is premium clients that buy furniture with
luxury product design. Moroso has developed several furniture with an iconic design (designed 20 years ago but
still very modern).

ENTERING GLOBAL MARKETS

STIMULI TO INTERNATIONALIZE
In business activities, a variety of stimuli are responsible for firms taking steps in a given direction.
When we analyze companies and why they enter foreign markets, there are some stimuli that push them to enter
foreign countries. The major motivations for firms to go international have been differentiated into proactive and
reactive.
Stimuli can be:
- Proactive motivations: stimuli to attempt strategic change, are decisions of the company. It is part of
the strategic decision of the company.
- Reactive motivations: influence firms that respond to environmental shifts by changing their activities
over time (you have to react to something that happens that could limit your profitability, you have to
react otherwise the company won’t survive). à saturation of the domestic market (for example the coffee
market in Italy is stable, it is not growing more, so Illy must go abroad, an expand its net in other markets).

PROACTIVE MOTIVATIONS to go abroad:

- Strategic asset seeking (the company wants to invest, to do vertical integration for example)
- Access to new markets and increase sales
- Seeking new technologies (companies do technological research, joint ventures, especially in sectors
that rely a lot on technology)
- Diversification (you can invest in new markets, new businesses)
- Seeking efficiency (this is the case of labor market: when you see companies that invest, locate their
production in countries like Vietnam, India, to have less labor costs and thus be more efficient. In some
cases when you are a company operating in BtoB market and you’re client of companies that enter
emerging markets, if you maintain production in a country like Italy you can lose to lose efficiency if your
clients move to another country like India-> you’re not able anymore to supply the company that moved
far away. Sometimes to maintain your efficiency you have to move. This is somehow also a reactive
motivation, because it’s something that makes you move abroad)
- Natural resource seeking (to be closer to natural resources like water, carbon, wood...)
- Increasing international competitiveness (with globalization of markets, you have to operate in many
markets to be competitive and not remain in only one market)

REACTIVE MOTIVATIONS:
- Competitive pressures (when in your country the competition is getting so intense that it’s necessary
to go abroad) à ex. Segafredo had to go abroad because in Italy there were already well-established Illy
and Lavazza.
The advantage of the first mover is the taste. Pizza Hut was the first mover in the China market for the
production of pizza. Chinese people associated the taste of good pizza with that of Pizza Hut, even if it
is not real Italian pizza.
- Excess capacity (when companies have lot of stock of products and go abroad to sell it because they
are not able to sell it all in domestic market)
- A declining or saturated domestic market (when the market is declining or saturated, the only way to
increase sales is to penetrate a foreign market)
MODES OF ENTRY
Three types of entry modes:
1. Export modes (based on export).
2. Intermediate modes (when the company is going abroad not only with support of intermediaries, but
they use a partner, you split decisions and duties with a foreign partner. Some intermediate modes are
contract based, some are equity based, with creation of a new company, an international joint venture).
3. Hierarchical modes (or FDI Foreign Direct Investments, where the company invests in the foreign
market; we can have an investor but we don’t have a partner).

Main distinction: in case of export

modes there is total externalization
with regard to decisions on foreign
partners or local partners, the
company is totally externalizing
activity using other intermediaries. In
the case of hierarchical modes, there
is a total internalization of activity,
the company decides everything
inside without partners. Intermediate
modes are in the middle, part of
activities are internalized and others
are externalized to the foreign partner.

Also important is the distinction in terms of 3 variables: investment, risk and control.

In the case of export modes, the investment of the company is close to 0 (the company doesn’t invest), the
minimum required to enter the market but most times it’s nearly 0; risk is very low because you don’t invest (no
invest = no risk). If instead you invest, you do all by yourself, you risk. à High investment = high risk.
If you externalize activity, you don’t have a good control because you rely on external partners; you lose ownership
of your good as soon as you sell it to the first intermediary in the channel of distribution. Instead, in the case of
hierarchical modes you have a good control over marketing channel and your sales. Luxury companies or
companies that have an image to protect prefer to have their own stores and prefer to invest in foreign markets
with their own stores, subsidiaries, their offices...

We don’t have situations where one mode of entry excludes other modes of entry. You can open a subsidiary in
a foreign market (=investment, hierarchical mode), and with this subsidiary you can control a franchising network
in the country (=combination of hierarchical and intermediate modes).

For X-Culture (small companies don’t have much money)à better export modes, licensing or you could have a
representative office in the country BUT remember they have a limited amount of resources to invest in foreign
countries, usually choices are among export and intermediate modes (like w. licenses)

EXPORT MODES
Export is the most common and low-risk method of entering overseas markets, and it is also the one requiring
the least financial, marketing and human resources and time investments. There is high flexibility, it’s getting
easier and easier to do exportation also thanks to the Internet. It’s probably the best way to test foreign markets
without investing a lot, to check if the market reacts well. If it turns out to be unprofitable, the company can easily
leave the market; if it’s interesting they can go further and decide to develop franchising networks or invest.
àit’s the preferred mode of entry for most small and entrepreneurial businesses, in particular for initial market
tests owing to the relative ease of pulling out of a market if said market turns out to be unprofitable.
Export is limited to actual physical products that are produced outside the target country market. You can’t export
services!
Exportation has been favored by the diffusion of the Internet.

Companies choose exportation to maintain the country of origin of the product, which can be one of the value-
drivers. One of the companies that has been able to maintain the origin of the product is L’Occitane, which
decided to maintain the strong French origin of the brand. They also do a lot of adaptation to the product and
combine export with other modes of entry loke franchising but maintaining exportation. They use more than one
mode of entry to be strong and have more control on entry in foreign markets. They are specialized in
manufacturing and distributing perfume, cosmetics and well-being product; they have a strong global brand
identity while conserving its underlining regional roots and the natural origin of its products.
France represents only 7% of all the business of L’Occitane; 16% in Japan and 16% in USA, 12& in China, 10%
in Hong Kong (most important markets).

To understand the difference, we need to look at national border: in indirect exporting, it is between intermediaries
and agents, wholesalers and retailers; in direct exporting national border is exactly after the company.
- Indirect exporting. The company is targeting foreign clients, but to do that they develop agreements
with intermediaries located in the domestic market. The company doesn’t have any contact with foreign
markets because they make business only with domestic intermediaries. Indirect exporting is when a
local company sells its products to an intermediary in the local market and this one sells them abroad.
- Direct exporting. The company is immediately crossing the national border and doing business directly
with other distributors, that sell to final foreign clients. In this case, the company has a direct relationship
with foreign markets, sells directly to a foreign client.

We can have two possibilities for direct exporting:

- Direct exporting with independent distributors: the distributors are independent from the company.
- Direct exporting with wholly owned subsidiary: the company exports to a subsidiary owned by the
company itself, of the same group, which in turn sells to the foreign market, establishing so a transfer
price. à export process combined with an investment in a foreign market. Then the subsidiary sells to
distributors that will sell to final foreign clients.

INDIRECT EXPORTING:

Export companies= commercial companies that undertake export activities of non- competing firms, often
belonging to the same industry, or at least the same sector. They usually develop export plans for companies,
and work for the same industry. The export company has a diversified portfolio and the only thing they have in
common are the clients. Such companies are used by the businesses who want to analyse the foreign market
and see if their products are successful or not abroad, in this way the business is taking information about the
direct export.
This mode of entry is often used by companies that have a commercial office but lack an export office. All
concluded contracts are negotiated on behalf of the producing company and all estimated prices and orders must
be confirmed by it (the producer has to confirm the contract).
This is indeed indirect control, managed by the export company, which does not allow on its own to start up a
gradual internationalization process. It’s a sort of export department outside the company. Everything is done by
the export company.

Buying offices= typically independent commercial operators representing some abroad- based companies that
wish to maintain continuous contact with the sellers operating in the importing countries. They are offices that
buy for foreign companies. usually they buy from different companies and put the products in the assortment of
their clients.
They operate as a single physical person or as a representative office, are located in the importing country and
buy the imported product on behalf of a third company. They may support the export activity, suggest adaptation
strategies, and offer controlling services and logistical platforms for the products, such as show-room or e-selling.
The “big buyers” refers to specialized and big-sized sales operators who establish contracts with abroad- based
sellers in order to insert their products in a catalogue sold under their own brand.

Trading companies= large-sized commercial intermediaries, able to undertake both export and import activities.
They may be present in both the domestic and the foreign market; they buy and sell either on their own behalf or
on behalf of a third party. In the latter case, they may support the exporting companies with finance, logistics and
managerial and marketing services necessary for the development of the exporting companies’ presence abroad.
If the trading company is in the foreign market, we are in the case of direct export.
Trading companies provide financial support, management support...
This support may be offered from the outset beginning with market research, feasibility study (analyze if market
is good for exporting in a certain country), negotiating assistance or, at more advanced stages (ex. preparation
and management of the export process) including contracting and documentation, transportation, logistics
management and storage.
The most famous trading companies are the sogoshosha of Japan.
The firms are organized to gather, evaluate, and translate market information into business opportunities.
Their vast transaction volume provides them with cost advantages.
Trading companies are good especially when you use them for the exploration of new markets.

Brokers= intermediary who doesn’t maintain a continuous relationship with the firm but is used rather
occasionally by the firm to sell the product in the short-term. A broker connects the exporting company with
potential clients abroad, eventually providing consulting support. Brokers usually operate in the national context
but are not directly involved in the buying and selling process.
While trading company offers support, services and management, the broker is typical when you have stock of
goods that you’re not able to sell in other markets.

Export consortia= voluntary aggregations constituted to organize common activities (ex. foreign export and
global communication), that represent all companies within the consortium.
There are some consortia based on Made in Italy for example; in our region we have consortium San Daniele
(ham). Another famous consortium is Parmigiano Reggiano consortium (located in the domestic market, in Emilia
Romagna, and it supports a lot of companies producing parmesan in Italy, works for the protection of the origin
of the product)
Consortia give support to companies in different ways, either for only promotion (consortia that work together for
the promotion of the company) or for selling (consortia that take all products of the company, create a big portfolio
of products and not only they promote the product but also sell it to companies that participate in the consortium).
They can be:
- Mono-sectorial or pluri-sectorial: a mono-sectorial consortium organizes firms within the same sector
but with competing products; a pluri-sectorial consortium includes firms from different sectors and often
undertakes activities that individual members are unable to perform on their own, includes companies
from different industries that somehow are linked (for example a consortium for Made in Italy groups
companies that sell different things but are all based on Made in Italy, the consortium represents all of
them).
- Promotion- focused or selling-focused: a promotion-focused consortium offers only supporting services
for international activities; a selling consortium undertakes not only the promotion but also the
commercialization of its members’ products, either under the consortium’s brand or under the
manufacturer’s individual brand, they are in charge of both promotion and sale of products of the brand.

All these intermediaries have specialization to support companies from the home base, they work for companies
that operate in their domestic country. They work for non-competing firms (that don’t compete with one another).

DIRECT EXPORTING
The company is directly in contact with the foreign intermediaries à we analyze the relationship between the
company and the foreign distributors (than can be agents, wholesalers, retailers... most times we have
independent distributors).
In direct export the products can be exported directly through agents and/or wholesalers or retailers in the target
country.
The commercial organization of the company is able to directly manage the selling process in a foreign market.
We can have:
- Negotiation with foreign clients (you just eliminate the intermediaries in the middle, you do business
directly with clients)
- Implementation of own distribution network
- Rely on intermediaries such as distributors, importers and dealers.

A company can negotiate directly with a foreign client, in order to have direct control on the export mode and on
the distribution channel.
The distribution method can be implemented through franchising, so, in this way, the company can sell directly
in the foreign market.
Or, as an alternative, the company can decide to rely on wholesalers, distributors and dealers.
EXAMPLE:

We can have more companies that collaborate together to do exportation of their products. The case of
cooperative exporting can occur when three firms jointly manage the exporting process, in order to target the
same clients. By choosing this alternative, the companies save costs.

EXAMPLE OF DISTRIBUTOR SELECTION PROCESS

The selection process of distributors is very long, complex, full
of criticalities, so we have to put a lot of attention to the
selection of distributors. We have to take into consideration
several variables in the process.
The selection and effective management of distributors is
extremely critical, especially in countries with a distinctive
different business culture, where manufacturers are required to
tailor channel governance strategiesto fit their distributors’
orientations.
A company has identify the possible distributors and evaluate
them, considering variables. After a first evaluation, the
company should select at least two of them, and make a first
negotiation with those distributors.
At the end of the negotiations, the company should be able to
select one distributor, make a final negotiation e sign a contract.
In the first period of business together, the company has to take
care of the distributor, helping them throughout the selling
process of the products.

Moreover, a company can measure the performance of the

distributor.
Example: we have to choose among 4 distributors. We
determine several characteristics of the distributors, and
according to those variables you make a selection of the best
distributors. Then you make negotiations and choose the best distributors, then you negotiate again and stipulate
and sign the contract; then you have business and management support (companies give support, marketing
research support, financial and organizational assistance, with technical advice, sales training, visit customers
together, develop new business ideas together) and finally you have to review and control, evaluate what they do,
if they develop well financial and marketing plans and evaluate distributor performance.

FACTORS TO CONSIDER WHEN ANALYZING DISTRIBUTORS

§ Company factors:
- Reputation
- International experience with other partners (to understand if they are able to deal with foreign markets)
- Business network and geographic coverage (which relations the distributor has, the meaning of
geographic coverage; if they are included in industrial organization, if they have a network and partners;
the bigger the business network and geographic coverage, the greater the possibilities for the company)
- Management expertise and culture

§ Financial factors:
- Economics and financial reliability (distributor must be reliable, and financially stable, otherwise you risk
to sign a contract with a distributor that doesn’t pay: you have to make an analysis, ask for a report) *
Ability to provide financial support to a marketing plan (a good distributor is able to provide financial
support to your marketing plan, is investing for you)
- Ability to maintain inventory (distributor must be able to sell a lot and buy big stock from the company)

§ Marketing & sales factors:

- Market share (if distributor is a leading distributor, you have the possibility to be more successful)
- Ability to formulate a marketing plan (to see if the distributor has enough marketing knowledge, if it’s
able to be successful)
- Understanding the vision and the strategy of my company (to see if distributors are able to understand
it and are coherent with it; to see if they are able to make understandable the message of the company)
- Knowledge of my products and the target market (if distributors know well and are in contact with your
target consumers and if they know well your product. It is the duty of the company to tell the
characteristics of the product, so that the retailers will be able to tell the differences between the
company’s product and the competitors’ one to the final consumer)
- Brands and complementary products represented by the distributor (brands that are not competitors,
understand if they are selling complementary products J your distributor could be more powerful; they
have to see if the bands are high or low positioned, in order to be able to understand the target consumer
of the distributor; and also to see if their product will fit in the brand portfolio.)
- Sales force effectiveness and customer service

§ Commitment factors (if distributor is not committed, it won’t be profitable àcommitment is very important):
- Volatility of product portfolio (high volatility = low commitment)
- Centrality of my business in the portfolio (based on the position of the company’s brand, the distributor
is more or less dedicated to the company. is your portfolio marginal or central? If it’s central, distributor
will make a lot of effort)
- Willingness to drop competing products (when negotiating with distributors, they often represent also
competitive brands but they can’t represent both brands, you and your competitor; they want to sell both
to make profit but you as a company would like them to drop competitive products and if they don’t it
means that they won’t be able to be very committed in selling your product)
- Willingness to achieve minimum sales target
- Willingness to invest in sales training (a product can be sold effectively if sales persons are trained to sell
it: is distributor willing to invest in sales training for you product? If they are willing to invest in training
they could be good distributors; sometimes they don’t care and don’t want to lose time ànot committed
enough L).

In the distributor selection process it’s important to:

evaluate carefully the costs that the exporting company will incur and to define a detailed distribution agreement,
covering the following points:
- Business and geographical areas (the business they are representing; portfolio can be wide, you have
to define the products that they will represent in which country and which area. Sometimes in the same
area you have more distributors; it’s also important to specify the area in which they will operate to avoid
overlapping of competing distributors in the same area)
- Target segments (and define the positioning for your target)
- International clients (manage the problem of international clients, which can be a problem: you risk that
the product is not homogeneous in different countries. You have to decide who is taking care of
international clients: is the local distributor taking care of all international clients or are headquarters
taking care of them and asking distributors only for a little help? Sometimes it’s better to use a centralized
 approach to provide a global product with the same features and global price; there could also be some
adaptation to target the local client that is part of an international chain)
- Products and the use of trademarks (which are the products that the brand is selling. Do the
distributors have the right to use the logo of the company? In some cases, they might not know what the
distributor is doing with the business’ image (there is the risk that, if the distributor is fat, they can do
what they want with the image and logo of the company).
- Distribution channels (define which distribution channels the distributor is in charge of; you could
decide to use different distributors for different channels. different kind of stores and online retailing
should be defined)
- Advertising and promotion
- Pricing and terms of payment (define possible prices, possible discounts, terms of payment....)
- Minimum volumes, orders, and supply conditions
- Length and termination of agreement

If you’re able to define all these issues in the distribution agreement, you can decrease the risk of having problems
when you terminate the agreement with the distributor.

INTERMEDIATE MODES
Contract-based: contract-based modes are non-equity agreements, such that there is no investment in risky
capital. These include the following different alternatives:
o International Licensing
o International Franchising
o Piggyback
o Contract Manufacturing or Outsourcing
o Assembly Contract and OEM-Original Equipment Manufacturing
o ContractManagement•TurnkeyContract•StrategicAlliances

Equity-based: In equity-based agreements,an organized entity is set up, with its social capital shared between
partners. These agreements are a form of Foreign Direct Investment (FDI), and they include minority joint ventures,
50/50 joint ventures, and majority joint ventures.

CONTRACT BASED
INTERNATIONAL LICENCING
International licensing is the process of transferring the rights of a firm’s products to a foreign company for the
purpose of producing or selling. For a set royalty fee, the licensor allows the licensee to use its technology,
trademarks, patents, characters, and other intellectual property in order to gain presence in the markets covered
by the licensee.
In some cases, the company’s core-products are licensed, and the technologydirectly necessary for producing
the product is provided, often at lower costs and, if necessary, the product is adapted to local demands.

However, companies do adopt strategies that allow reducing potential drawbacks associated with sharing their
intellectual property.

In other cases, if the innovative technology is required for manufacturing only part of the product, this part
isdirectly assembled in the final product as produced by the licensee, without requiring the licensor to transfer the
related knowledge.

The international expansion of famous brands has been often based on the use of licensing contracts. Also well-
known people or movie characters, who are employed for launching new products or collections in different
industries, can benefit of licencing.
INTERNATIONAL FRANCHISING: Under international franchising, the company (franchisor) is entering the
foreign market giving to a foreign independent company (the franchisee) the right to operate its business.
International franchising gives the franchisor greater control over the franchisee licensing the franchisor
company’s trademark, products and/or services and production and/or operation processes.
Usually in the franchising stores you find a smaller selection of products with respect to the original one.
Franchising concerns:
- The need for standardization
- Protection of the total business system (there is a logo, standard characteristics of the system that have
to be protected)
- Selection and training (selection of the franchisee that is good in managing; franchisor also provides
training to have people with a similar approach, able to provide the same service). A well-functioning
franchise provides a win-win arrangement for both parties: the franchisor gets to expand into new
markets with little or no risk and investment, while the franchisee get a proven brand, marketing exposure,
an established client base and management expertise to help it succeed.
International franchising can support the production systems of global companies. Franchising is
growing in emerging countries.

Direct franchising à the franchisor is crossing the border and

they deal directly with foreign franchisee or deal with them with
support of a branch or subsidiary of the company: the franchisor
manages directly the franchisee system; they control directly the
network of the franchisee.
the company is directly controlling the franchising network. This is
something you can do when you have few franchisees. Or you can
do direct franchising with another mode of entry, you create a
branch. You make an investment in a foreign country and that
subsidiary is controlling the franchising network in that country; you
combine a direct investment with a franchising agreement.

Indirect franchising à the franchisor is developing the franchisee

network in foreign markets but with the support of another partner. They can have a foreign investor that is
investing in the development of the network, or they can support the network with a joint venture (instead of
investing in a subsidiary they prefer to do a joint venture, a company with another independent partner to develop
a franchisee network); it’s indirect because the franchisor is not developing the network alone but using some
foreign investors or a joint venture.
We need to add the support of some foreign intermediaries: the Master Franchisor, Area Developer Agreement
and Area Representative Managers, which can be found in both cases of direct and indirect franchising, and
represent a support for the development of the franchising network, operating in each country:

The company (franchisor/joint venture or foreign investor/foreign brand

or subsidiary) is developing a contract with the Master Franchisor,
that is a Franchisor for the network: he has to develop a network for
foreign franchisees. You sign the contract directly with the Master
Franchisor, it/he has the right to sign new contracts.
The Master Franchisor has a right to replicate my business signing
contracts with independent franchisees. In the contract it is said that
the Caster Franchisor has the right to sign contracts with other
franchisees, in my place. They work for the company to develop new
business in the area for which they have the contract.

Area Developer also signs a contract; he is responsible for developing

new relations, franchising stores in an area, but this company is the
owner of the stores, and the employees are employees of the area
developer. Difference is that Master franchisor was selecting
independent franchisee to work in the umbrella of the company; Area
Develop has to develop new franchising stores owned by the Area
Developer, they don’t make a selection of franchisee, but it develops
new stores that create the franchising network.
The Master Franchisor is dealing with independent entrepreneur, while
the Area Developer takes the responsibility to develop stores in an area
of a country, and owns them.
 Area Developer is a sort of investor that decides to open new stores
for the company.
Area Representative Manager only represents the franchisor for
future franchisees, and also maintains the contact with actual
franchisees in order to provide services; he works like an agent
representing the company and looking for new potential franchisees.
He can’t sign a contract with the foreing franchisee

PIGGYBACK refers to being carried by someone. This kind of agreement stipulates that the company (rider) gets
international by inserting its own products in the product portfolio, and, consequently, in the distribution system
of another company (carrier), that sells complementary products in the foreign market. The carrier may be
localized in the export market (direct piggyback) or in the domestic market (indirect piggyback).
In some cases, indirect piggyback may be realized between companies from the same country; in this case the
rider does not develop any form of international culture because this is a simple business-to-business sale to a
company from its own country.

Piggyback is an interesting choice for small and medium-sized companies operating with high-quality product
niches.
It allows for maintaining distinction and control over the distribution channel in which the product is inserted.
Name piggyback comes from “pig the back” (= “salta in groppa”): you are carried by someone else. In this case
the company that wants to export in a foreign market is looking for another company that can include its product
in its portfolio sold in the foreign market. The two partners are the rider (the company looking for another company)
and the carrier (that sells complementary products in the foreign market).
For example, a company selling frozen food that is not selling ice cream is the carrier; it can decide to include ice
cream of another company (the rider): it includes ice cream in its portfolio, completes its product portfolio by
selling the other company’s product.
Carriers, by completing their portfolio, have more power in front of distributors.

In the case of direct piggyback we have the rider and

carrier located in another country that is offering a
complete portfolio now.

In the case of indirect piggyback we have a

relationship between two companies in the same
country, the rider asks the carrier to bring its products
in foreign markets.

CONTRACT MANUFACTURING (OUTSOURCING) = arrangement of using cheaper overseas labor for the
production of finished goods or parts by following an established production process. It is focused on production,
manufacturing.
Companies make a contract to manufacture the product in a foreign market; it’s an agreement to decrease the
cost of production.
I ask a company to produce something for me. I can ask a foreign company to do some of the manufacturing,
and this is based on a contract. A lot of imports from Asian countries are based on these agreements, where we
ask Asian companies to produce our products, and then we import them. The risk here is that you don’t have a
lot of control. The supplier may not respect ethics of production or Human Resources.
Companies using this mode of entry benefit not only from lowering the production costs but also by gaining entry
to a new market with small amounts of capital and no ownership hassles; involve less capital in the business (you
don’t have all the problems related to ownership).

The company outsourcing production (contractor) maintains control over the marketing and distribution channels,
but faces risks of losing the control over the manufacturing process and the working conditions in the facilities.
A key element of such a contract is indeed the choice of the supplier, which must offer not only quality, on-time
supply (supplier must always be on time) and financial stability (and solidity) but work as well with exclusive
supplying (pay attention to the ethic of the supplier).

ASSEMBLY CONTRACT AND OEM (ORIGINAL EQUIPMENT MANUFACTURING).

- In the assembly contract format, the company sends abroad product components for transformation or
assembly. The finished products are sent back for selling. Contract is just done for assembly
- n the Original Equipment Manufacturer (OEM) format, the company buys the “original product” from a foreign
partner to then finish and resell it as its own, hence appearing as the official producer in the market. A
company buys the original product from a foreign partner and then resells it as its own product.
For example, Valentino is buying ties from another company.
Here there is then a problem of ethics.

The difference between this and outsourcing is that in the latter you have to tell the company what to produce, in
the first they buy something that is complementary to their business.

MANAGEMENT CONTRACT. Widely used in the hotel and airline industries.

Under a management contract, a company in one country can utilize the expertise, technology or specialized
services of a company from another country to run its business for a set time and fee or percentage of sales.
While the management company is responsible for day-to-day operations, it cannot decide on ownership,
financial, strategic or policy issues pertaining to the business.
The company gives another the building to be managed for some years. It’s a contract through which I enter a
country with a local partner taking care of the building. They want a fee but we both have advantages; in my side
I can have a hotel in the country, the company is operating there, I can target global clients, and the local company
has the advantage of developing a business, and by the end of the contract the foreign company can decide not
to renew the contract but if they want they can go on managing the hotel without the brand.
It is suitable for companies that are interested in earning extra revenues abroad without getting entangled in long-
term financial or legal obligations in the foreign markets. Practically, the foreign company manages the productive/
commercial activity set up and financed by the local investor previously. Hence, the main advantage to the foreign
company is that its capabilities and brand are put into practice without it having to incur massive investment in
the form of start-up capital, as well as without having to deal with administrative matters such as permits and
authorization.
However, the foreign company has no guarantee of existing in the long-term because the owners may, at the end
of the contract, choose to retain the management of the business.
On expiry, a management contract may be renewed, but the foreign company managing the business may indeed
avail its option to buy back the business entity.

You get extra revenues and you don’t need to make big investments in a market that could be risky, but you have
to pay a percentage (a fee) to the owner; the owner can benefit of your expertise (you bring technology, new
services to the new country). Then the owner can decide to close the contract, but usually owners are investors,
banks and prefer to renew the contract.

TURNKEY CONTRACT. Turnkey operations typically involve the design, construction and equipment of a large
facility and often the initial personnel training, by a foreign company (exporter) which then turns over the key to
the ready-to-run facility to the purchaser (importer). Turnkey operations projects are usually contracted out by
governments for enormous developments such as dams, oil refineries, airports, energy plants... Nevertheless,
opportunities exist for the participation of smaller entrepreneurial firms as subcontractors.
Turnkey projects can be:
- “self-engineered”: the importer sets the performance requirements, while the exporter defines the
equipment and plant design (the risk of performance failure rests with the exporter). Importer just sets
the final goals; the exporter decides everything about design ecc
- “construction to specification”: the importer sets all the specifications, and the exporter constructs
accordingly (the importer bears the risk). The importer tells the exporter what it wants to do/have, and
the exporter constructs.
Such projects require long-term commitments in terms of personnel, financial reserves, supplies and
other resources; especially when you have to deal with governments in foreign markets (you have to pay
 attention).
A company should carefully examine whether it is ready to absorb the long-term currency exchange
fluctuations; extended drain on its resources; and other high political, economic, and financial risks that
are likely to crop up in such complex undertakings. à the company always has to consider criticalities
and risks (like long-term currency exchange fluctuations, financial risks...).

Example: I want to open a hotel in China but I have limited expertise, I don’t know how to do it so I ask
a company in China if we can make a Turnkey contract: they build the hotel and furnish it, they hire
people and start the activity and then they give you the keys. à You enter a foreign market just “turning
the key” of something that has been developed by someone else.
Typical of big constructions. A local person builds everything, starts the business and then gives the key
to another company.
Importer is the purchaser; the exporter is the one that builds the business and gets it ready. We can also
have multiple exporters to export all the business for the importer. Once you give the keys, it’s done.

STRATEGIC ALLIANCES (CONTRACTUAL JOINT VENTURES). A strategic alliance is a formal contractual

relationship between two or more firms that share resources to pursue a common goal. These are non-equity
agreements (contractual) in which partners to the alliance share some strategic assets such as technology,
trademarks, or other assets to create synergies or gain access to resources that one or both firms do not possess.
They can reach the same goals of an Equity joint venture but differently from Equity joint ventures, a strategic
alliance or contractual joint venture does not create a new company. Strategic= critical to a core business goal or
objective and to the achievement of a competitive advantage: they have a specific goal and it’s strategic for
different companies to put their resources together. he alliance is strategic because you have a strategic goal that
you plan to reach in a certain period of time. If we do it in less time the venture is over because we reached our
goal, if we haven’t after the time period in the contract this contract is over and we have to make a new one. What
matters here is the existence of a goal.

Strategic alliances have the potential: to lower transaction costs, hedge against strategic
uncertainties, acquire needed resources, overcome international entry barriers, protect a firm’s home market from
international competition, broaden a firm’s product line, enter new product markets, and enhance efficiency.
Firms utilizing strategic alliances could enhance their firm-specific resources (physical assets, intangible property,
patents and trademarks, human resources...), technical capabilities (R&D, manufacturing, marketing, sales and
market knowledge) and managerial competences (management skills and abilities).
Strategic alliances can face many difficulties related to managing a business jointly. Similarly to Equity joint
venture, they can be horizontal or vertical as well as upstream or downstream.

EQUITY BASED
INTERNATIONAL JOINT VENTURES. Equity-based JVs are a form of Foreign Direct Investment (FDI) when two
or more companies agree to share ownership of a third commercial entity and collaborate in the production of its
goods or services to pursue a common goal. Differently from Strategic Alliances (contractual jvs), where the
operations in foreign market are based on a contract, in International Equity jvs two or more parent companies
create a third new company in the foreign market of entry.
The result for the company that enters a foreign market can be:

- a minority joint venture (less than 50% of the shares)

- a 50/50 joint venture
a majority joint venture (more than 50% of the shares).

àwhen we talk about equity-based JVs we have to determine how equity is split, we can have different divisions
of shares.

Two companies make an investment and create a third company. You have to split the risk of this new business,
you share the knowledge and the expertise, you have to understand if it is convenient for you to create a joint
venture. You should create a partnership where both parties have an advantage in staying in the partnership. You
can have two companies of the same country, a domestic company with a foreign one, two companies from two
different countries form a JV in a third country. But also a foreign private business and a government, or a foreign
private firm and a government owned firm enter a third market with a JV.
IJVs are attractive to businesses because of their shared risk, shared knowledge and expertise and the potential
for synergy and competitive advantage in the global marketplace.

IJVs can take different forms:

o Two or more companies from the same country form an alliance to enter another country;
o An overseas company joins a local company to enter the local company’s domestic market;
o Firms from two or more countries band together in a JV formed in a third country;
 o A foreign private business and a government agree to join forces to pursue mutual interests;
o A foreign private firm enters into a JV with a government-owned firm (a company owned by another
government) to enter into a third national market.

A JV can involve companies of the same sector (horizontal JV) or different sectors (vertical JV).

In a strategic alliance, company A is making a contract with company B to do an activity together in a foreign
market.

In an International JV, company A and

company B don’t make a contract but create
a new company together: we call them
parents, and they create a “child” company
that is an independent company that is
created to carry out an activity to reach a
foreign country.

Both strategic alliances and IJVs are created

to reach a specific, clear final goal. Then you
have two possibilities: you can decide to sign
a contract, an agreement (strategic alliance)
or you can decide to create a third,
completely independent company (the
“child”).

TWO TYPES OF JOINT VENTURES:

Downstream: companies are creating a joint venture to
reach the final clients, they are managing together
marketing and sales & service activities (downstream
activities). Companies develop another company in order
to sell. Here they sell together, they’re not competitors.

Upstream: activities in the upstream part of value chain

(R&D, production), upstream joint venture. In this case,
companies are competitors in the market.
Upstream à companies have created a company together
to make extraction of materials and then use the result of
this company to sell to their clients.
X-

form: one company is in charge of the upstream activities,

the other of the downstream ones.
Here, Germany has created an equity joint venture where
German company is mainly involved in R&D and
production, while the Indian partners are in charge of marketing and sales & service. German company has
upstream capabilities, while the Indian company has downstream capabilities.

Y-form: Both partners are involved in all elements of the value chain, they do everything together.

PHASES IN THE FORMATION AND EVALUATION OF

IJV:
- Aim formulation: you have to set the goal. - Costs
and benefit analysis
 - Evaluation and partner choice
- Business plan development
- JV agreement and contract
- Performance evaluation

FAILURE OF IJV:
- Bad ideas for the venture
- Insufficient planning
- Inadequate capitalization (not enough capital)
- Lack of leadership (no one takes decisions, the team doesn’t work well)
- Lack of commitment (one company is not involved enough
- Cultural and ideological differences

HIERARCHICAL MODES
They are equity-based. They are a form of Foreign Direct Investment (FDI in which a company assumes direct
ownership of facilities in a foreign market.
The investment is a big investment, you have to take risks but you have more control.
We don’t have partners involved, we are taking all decisions regarding the foreign market: there is high degree of
internalization. Hierarchical entry modes are the riskiest, but they are the most suitable choice for companies
endeavoring to grow in the market while maintaining a high degree of control over operations.
Companies are making an investment, taking a risk, so we’re talking about subsidiaries, opening a branch, even
opening a representative office. This means that the investment doesn’t have to be big investment, it can be a
sales subsidiary, a production subsidiary, but also a representative office. Companies have direct ownership of
the facilities, they manage it and invest in it having high control of their operations.

TYPES OF FOREIGN DIRECT INVESTMENTS:

REPRESENTATIVE OFFICE: an office usually established to support marketing and service activities for the
company’s exports. This office only “represents” the parent company, but it cannot buy and sell goods or services.
They can support, they’re physically there, but they’re not an independent company: they’re part of the parent
company and cannot develop contracts.
àFor example: when a company has an office in Paris; the company is exporting but decide to open a
representative office to control more the French market. This office is a mode of entry that is an investment but it
is usually combined with another kind of mode of entry, like exportation or international licensing (you have a
licensee in France selling the product). The office only represents the parent company; in the office they can’t buy
or sell but it has only representative power.

BRANCH: it can carry out a much broader range of activities such as selling goods and signing contracts. A
branch should not be confused with a sales subsidiary. In fact, the branch is not a separate legal entity of the
parent corporation.
The branch is a sort of subsidiary: they can do lots of activities, they can sell goods and sign contracts but it is
not a sales subsidiary because they are not independent legal entities, they are not independent from the main
company à from fiscal point of view the branch doesn’t pay taxes, invoices are done by the parent company;
branches don’t have their own financial statements, all costs and revenues are included in the costs and revenues
of the parent company.

SALES SUBSIDIARY / SALES AND PRODUCTION SUBSIDIARY: it’s a society with its own juridical personality,
separate from the parent company, and it may operate as an importer as well as manage the distribution and
sales activity for the parent company in the foreign country. A subsidiary can be constituted as any type of
separate legal entity based on the laws of the foreign country of entry, with its own income, liabilities and local
taxation.
In sales subsidiary they do only sales; in sales and production subsidiary they are involved also in production
process of the good.
Subsidiaries are independent from the main company, so they have more responsibilities, they have to pay taxes
where they are set, they have their own costs and revenues.
TYPES OF SUBSIDIARIES.
Subsidiaries are the most complex instrument, since they are independent.
According to the degree of ownership of the parent company in another company abroad, these entities are
classified as:
§ Wholly owned subsidiary: if the parent company owns 100% of the subsidiary
§ Subsidiary: if the share of the parent company is higher than 50% (majority stake). The only difference from
a JV is that here there’s no goal.
§ Associate or Affiliate (synonymous): if the share of the parent company is lower than 50% (minority stake).

WHOLLY OWNED SUBSIDIARIES: two types of investments:

New establishment (Greenfield investment):
- Advantage of building a new ad hoc entity reflecting both the market and internal organizational needs
and goals à you build a new entity reflecting both the needs of the market and your internal needs and
goals
- New jobs are created and new technology is introduced.
- However it takes more time and leads to greater competition in the market
- Used to establish not only a new manufacturing company but also for Directly Operated/Owned Stores
(DOS).

Merger or acquisition (Brownfield investment):

- It consists of buying an existing foreign company
- It requires a shorter period, but the process of finding the best company to acquire can be time-intensive
- Additional time (and costs) required for integrating the new entity within its organization, which means
integrating its technology, production processes, informatics systems and organizational culture.
- Less aggressive from the competitive standpoint, but there is no job creation (you buy a company that
has already its employees).

FACTORS THAT INFLUENCE MODE OF ENTRY DECISION PROCESS

- Internal factors
- Financial resources
- Human resources
- Type of product and/or service
- Time horizons
- Risk tolerance
- Company value chain
- External factors
- Market
- Consumer factors
- Competitive environment
- Production conditions
 - Environmental conditions

Market entry is not static, and entry modes may have to be restructured as environmental conditions change:
you can decide to change entry mode (like you can close the subsidiary and decide to export instead, or you can
decide to decide joint venture in a subsidiary by buying all shares). Modes of entry evolve depending on the
context, on the target market, on the characteristics of the company. For example, at the beginning they don’t
have a lot of money and export, then with more money they might want to increase control.

The choice of the entry mode is not always sequential, as hypothesized in the Uppsala model. You don’t
necessarily start from the export and increase until the investment. Sometimes we need to start directly from the
investment, others from the joint venture and then they move to export.

In many cases, the company may choose more than one entry mode given the complexity of the market and
the multiplicity of targets. (you can have export to target retailers in the market and then also a representative
office dealing with key clients à different targets= different entry modes).

It is even possible to talk about hybrid entry modes, including JVs associated with distribution contracts, own-
property stores or franchising managed by subsidiaries.

Some companies are immediately global, since the beginning, they may target a transversal,
global niche of the market; they target small segments in many countries. Born global firms follow different
internationalization patterns; they immediately target multiple countries, usually target niches.