B207B

Shaping Business Opportunities II

 Block 2
Session 13: International marketing
in a global context
The global marketplace
Today’s businesses operate in a global marketplace.
most companies will find themselves competing
against global businesses
Operating only in their domestic markets, wishing to
expand by offering their services or goods to
international market

Session 13: International marketing in a global context

Block 2- Reading 20
International marketing- the
global marketplace
The global marketplace
 Transnational company (a multinational company):
defined as ‘a firm that has the power to coordinate and
control operations in more than one country, even if it does
not own them’.
 Global firm defined as ‘a firm that, by operating in more
than one country, gains R&D, production, marketing, and
financial advantages in its costs and reputation that are not
available to purely domestic competitors and ‘sees the world
as one market’’

Reading 20: International marketing- the global marketplace

Globalization
Globalization refers to “greater permeability and
interdependence across national boundaries and is an
economic, political and cultural phenomenon”
Risks
 possible economic and government instability
 different legislative restrictions
 trade barriers
 diverse cultural preferences and practices.

Reading 20: International marketing- the global marketplace

Globalization
When considering whether to operate globally, an
organization goes through the marketing process:
 pursuing the organization's mission, vision and values by
analyzing the market, choosing a marketing strategy,
formulating the offering and implementing, monitoring and
evaluating the marketing programmed.

Reading 20: International marketing- the global marketplace

Triggers for international expansion
1. Saturated domestic markets: This is where there are limited
opportunities in an organization's domestic market.
2. Small domestic markets: For organizations in some industries,
larger markets are necessary for survival where the scope of
domestic markets is too small. Technology industries that involve
large investments into research and development need large
markets to cover their costs.
3. Low-growth domestic markets: Economic recession in an
organization's domestic market can motivate it to seek growing
markets overseas.
4. Customer drivers: An organization might extend its operations
globally as a result of expectations by customers for the
organization to have global presence (for example, airlines) or to
serve customers who have themselves expanded globally.

Reading 20: International marketing- the global marketplace

Triggers for international expansion
5. Competitive forces: Global expansion by an organization’s
competitors might provoke it to follow suit or to compete
against global organizations encroaching on an
organization's domestic market.
6. Cost factors: An organization might try to reduce its costs
by taking advantage of lower labor, energy or raw material
costs overseas or benefiting from economies of scale by
serving a larger market.
7. Portfolio balance: Operating in variety of markets allows
temporarily unfavorable conditions in one country to be
offset by more favorable ones in others.

Reading 20: International marketing- the global marketplace

The macro environment: STEEPLE
STEEPLE stands for:
Social
Technological
Economic
Environmental
Political
Legal
Ethical

Reading 20: International marketing- the global marketplace

Additional aspects to STEEPLE
 Trading systems: Individual governments and trading blocs may try to
protect domestic companies, control trade and raise revenues through a
variety of means. These may include imposing charges (tariffs or duties) on
foreign companies, setting quotas on goods that can be imported, etc..

Socio-cultural considerations: It can be easier for an organization to

operate, at least initially, in countries that are socially and culturally similar to
its domestic market and also close geographically before expanding further
afield.

Technological considerations: The level of technological development of

a country can affect the viability of operating in it.

Reading 20: International marketing- the global marketplace

Additional aspects to STEEPLE
Economic considerations
Organizations need to take account of a range of economic
considerations in prospective foreign markets, including:
 economic development
 Income distribution
 employment level
 exchange rate differences and stability
 transport and communication infrastructure.

Reading 20: International marketing- the global marketplace

Additional aspects to STEEPLE
Political and legal considerations: Some countries are more
encouraging to international trade than others. Countries also vary in
their political stability and level of regulation, which can affect their
attractiveness to companies considering trading in them.

Ethical and legal considerations: In a globally connected world,

news spreads fast and revelations of any ethical issues arising from
an organization's operations in less developed countries can be
damaging to its reputation and business. So while organizations may
seek to minimize costs by operating in countries with lower costs,
they also need to consider the potential risk of ethical issues that
could arise, such as subcontracting that involves child labor.

Reading 20: International marketing- the global marketplace

The micro environment
a range of factors in both an international market and an
organization that need to be taken into account include: Market
attractiveness includes assessment of:
 the market’s size and growth rate: growth rate is particularly important
for predicting future demand.
 competition: the strength and volatility of competition.
 costs of serving the market: principal costs include distribution and
control, which increase with distance, but other costs that may need to be
considered are labor and marketing expenditure.
 profit potential: characteristics of the market may limit the potential for
profit.
market access: existing links between suppliers, distributors and
customers may inhibit access to a market.

Reading 20: International marketing- the global marketplace

The micro environment
The organization's capabilities include:
 skills: whether the organization already has or can buy in
the necessary skills to market abroad
 resources: whether the organization has the necessary
resources to service the market to compete in it.
 product adaptation: whether the offering can be adapted
to the needs of the market if required (either because of
local preferences or regulations)
 competitive advantage: whether the organization has a
competitive advantage in the market.
Reading 20: International marketing- the global marketplace
Advantages and disadvantages of globalization in
the micro environment
Disadvantages Advantages Stakeholders
Greater risks Potential for greater The
profitability organization
Erosion of own Potential to meet needs - Consumers
culture Separation Lower prices
from production
Regulation by MNC Opportunities for work Marketing
intermediaries
Regulation by MNC Opportunities for orders Suppliers
Increased Some consumers will Competitors
competition from value individuality and
MNCs authenticity
Erosion of national Convergence of culture Publics
culture

Reading 20: International marketing- the global marketplace

Block 2- Reading 21
International marketing-
Entering and operating in international
markets
International markets
Learning outcomes:

 Modes of entry
Globalization vs. customization

Reading 21: International marketing – entering and operating in international

Mode of entry
1. Indirect exporting
2. Direct exporting
3. Joint ventures
4. Strategic alliances
5. Global strategic partnerships
6. Licensing
7. Franchising
8. Contract manufacturing
9. Management contracting
10. Direct investment
Reading 21: International marketing – entering and operating in international
Indirect exporting
An organisation may choose to start by exporting
indirectly through an independent organisation based
in the organisation’s domestic market, by buying its
goods to sell abroad, selling them on behalf of the
organization as an agent, allowing the organisation
to use its distribution or as a cooperative acting for a
number of producers
This approach enables an organisation to utilise the
independent organisation’s exporting expertise, so
requires less investment and less risk.
Reading 21: International marketing – entering and operating in international
Direct exporting
Direct exporting is where an organisation exports
its offerings itself and manages contracts in its
international markets, transportation and
documentation and the marketing mix.
Exporting may be handled by a domestic-based or
foreign-based office, through intermediaries in the
international markets and/or via the internet.
An example of direct exporting using
intermediaries and/or the internet is niche sports
equipment and clothing, such as for figure skating.
Reading 21: International marketing – entering and operating in international
Joint ventures
Joint ventures involve two or more organisations
forming a partnership, in which the costs, risks and
profits are shared between the domestic and foreign
organisations.
If they create a separate entity for the partnership,
it is called an equity joint venture, otherwise it is
known as a contractual joint venture
For example, airlines engage in contractual joint
ventures to pool routes to provide passengers with a
more extensive range of travel options
Reading 21: International marketing – entering and operating in international
Strategic alliances
Strategic alliances are similar to joint
ventures, being defined as ‘cooperation
between two or more industrial
corporations, belonging to different
countries, whereby each partner seeks to
add to its competencies by combining its
resources with those of its partner’

Reading 21: International marketing – entering and operating in international

Global strategic partnerships
Global strategic partnerships are defined as ‘link-
ups between companies from two or more regions
which jointly decide to pursue a marketing
opportunity, share resources and combine ideas’.
These are common in high technology, automotive
and power technology industries, with partners
sometimes dividing up markets between them or
each using their own brand but the same
technology or design to pursue market
opportunities individually.
Reading 21: International marketing – entering and operating in international
Licensing
Licensing involves an organisation selling the
rights to use its technology, patent, trademark or
know-how to one or more organisations in foreign
markets
for an agreed time period in exchange for royalty
payments based on the volume of sales or some
other consideration.
A prominent example is the wide range of Star
Wars-themed products licensed to many different
companies globally by Lucas Film Ltd.
Reading 21: International marketing – entering and operating in international
Franchising
Franchising is a type of licensing, whereby
companies in foreign markets pay to use the product
or trade name belonging to an organisation.
This allows an organisation to enter foreign markets
using resources and local knowledge supplied by the
franchisees.
A key difference is that franchising agreements offer
an organisation more control over the use of its
intellectual property than licensing through the
provision of support services.
Reading 21: International marketing – entering and operating in international
Contract manufacturing
Contract manufacturing involves contracting a
manufacturer in a foreign market to produce an
organisation’s product or service.
Some clothing and automobile brands use
contract manufacturing.
It saves an organisation on plant investment
and transportation and may reduce tariff costs,
but at the expense of some reduction in control

Reading 21: International marketing – entering and operating in international

Management contracting
Management contracting involves the export
of management services rather than products;
The domestic organisation supplies the know-
how and the foreign organisation provides the
capital
The management by Hilton Hotels of locally
owned hotels around the world that use the
DoubleTree by Hilton brand and are managed
by Hilton.
Reading 21: International marketing – entering and operating in international
Direct investment
Direct investment involves the greatest level of
commitment to a foreign market and the highest
level of control through ownership of a foreign
subsidiary or division, but also entails many risks.
Foreign subsidiaries may operate with a high
degree of autonomy that enables them to adapt to
local markets.
Examples include car companies such as
Volkswagen (VW) and Renault and the fast-
moving consumer goods company Unilever.
Reading 21: International marketing – entering and operating in international
Globalisation versus customisation
Globalisation involves the permeability across borders
of more than just goods and services; it also involves
social and cultural trends
Organisations therefore need to decide how much they
can standardise their approach and how much
adaptation is needed when entering foreign markets.
Different segments (customer groups that have similar
needs) have differing characteristics and the same
applies when serving international markets; they cannot
be treated as having identical needs and preferences

Reading 21: International marketing – entering and operating in international

Globalisation versus customisation
An organisation might also invent a new product for
an international market.
For example, the global health company Vestergaard
developed the LifeStraw® water filter that converts
contaminated water into safe, clean drinking water for
people who don't have access to safe drinking water
Recognising the needs of different groups of people,
Vestergaard subsequently adapted the LifeStraw®
technology to produce water-purifying products for
in-home use and for purifying larger volumes of water

Reading 21: International marketing – entering and operating in international

Globalisation versus customisation
Marketing communications may also be adapted to
varying degrees. Some advertisements may be suitable for
using in multiple international markets,
whereas others need tailoring to cultural conventions and
national contexts.
Some products such as perfumes and cars need little in the
way of dialogue, as the short storyline of an advertisement
can be communicated visually with perhaps a brief voice-
over at the end and perhaps a disclaimer that the model
featured may differ from the specification in a particular
country in which the advertisement is shown.

Reading 21: International marketing – entering and operating in international

Globalisation versus customisation
There are also international differences in the
use and reach of marketing communications
channels.
For example, there are differences between
countries in advertising regulations, coverage
by national versus local newspapers, magazine
readership and internet penetration, as well as
cultural differences in taste, humour and what
is considered acceptable.
Reading 21: International marketing – entering and operating in international
Globalisation versus customisation
The cost to service international markets will be higher
owing to the need to transport goods, pay tariffs, etc.,
but customers in foreign markets may or may not be able
to pay higher prices, so the formulation of the product may
need to be adjusted to provide cheaper versions.
Distribution networks can also vary considerably in
different international markets, depending on local
customs and infrastructure.
For example, available transport networks will influence
distribution options and the retail patterns vary from many
small local stores to large out-of-town retail parks.
Reading 21: International marketing – entering and operating in international
Companies considering entering emerging
markets need to consider the characteristics of
three main market segments
1. premium segment – customers with high purchasing
power, a willingness to pay for internationally
admired brands and seeking highend products with
advanced features
2. middle-market segment – customers with a mid-
level income, seeking value and choosing products
with a ‘good enough’ performance versus price ratio
3. low-end segment – customers only able to pay for
basic products at a meagre price.

Reading 21: International marketing – entering and operating in international

Globalisation Difficulties
MNCs may find it difficult to compete against local
companies in low-end segments, but this segment
does encourage innovation.
Set against the opportunities, developing and
emerging markets present a range of challenges
including a lack of operational infrastructure; weak
legal protection for intellectual property; limited
capabilities among suppliers, including
unpredictable customer behaviour; and potential
weakening of a premium brand image
Reading 21: International marketing – entering and operating in international