International

Marketing
Methods of entry into international markets

International marketing can be defined as the marketing of an organization’s

products in overseas markets. The most successful multinational
corporations in the world generate most of their sales turnover from outside
of their home country. This section of the syllabus looks at the various
methods used by firms to enter overseas markets, which includes strategies
such as:

● Exporting
● E-commerce
● Direct investment
● Franchising
● Strategic alliances
● Joint ventures
 Exporting
Exporting, as a method of entering international markets, involves a business selling its products to
overseas customers without having to physically establish production or distribution facilities abroad.
Hence, this is considered as an internal method of entry into international market (as this strategy
does not require the business to have a physical presence in foreign countries). This is perhaps the
simplest method of entering overseas markets and involves domestic businesses selling their
products straight to customers in other countries.
The advantages of exporting include:

● There is no need to establish overseas operations (such as production facilities and distribution
networks) as the domestic business sells its products directly to customers in other countries.
Hence, exporting drastically cuts costs for a business that sells its products in overseas
markets.
● It is also a moderately low risk strategy for marketers – if exporting is unsuccessful, the
business can pull out without incurring major financial losses.

However, there are limitations to exporting, such as:

● Exporters can be exposed to the uncertainties and fluctuations in exchange rates. Sales and
profitability of exported products may fall if the exchange rate appreciates in value (because of
the higher export prices).
● There are also transportation costs to consider, such as the costs of postage, couriering and/or
shipping products to clients in overseas markets.
● Exporting to overseas markets can be costly if foreign governments impose tariffs (taxes on
foreign goods) and other restrictive practices.
 E-commerce

Exporting has become even easier and more widespread with the growing use of
e-commerce. E-commerce refers to the buying and selling of goods and services
via electronic means, most notably the Internet. E-commerce has proved to be a
highly popular way for many businesses to market their products abroad.
American Internet giants Amazon and eBay rely heavily on this method to expand
their operations as multi-billion dollar businesses.
A major benefit of e-commerce is its cost advantage, e.g. there is no need to rent
premises in central business districts, nor is there a need to finance foreign direct
investment (FDI) in foreign markets. Hence, e-commerce greatly minimises the
financial risks for international marketers. The main drawback is Internet fraud
(such as online credit card fraud), which can be costly to both customers and
businesses.
 Direct investment

Direct investment (or foreign direct investment) involves a business setting up

operations in other countries, such as production facilities or distribution services. For
example, according to its website, Toyota has manufacturing plants in 18 different
countries: Argentina, Belgium, Brazil, Canada, Colombia, France, Indonesia, Mexico,
Philippines, Portugal, Russia, South Africa, Thailand, Turkey, the UK, the USA,
Venezuela and, of course, Japan. German luxury car maker BMW has manufacturing
plants in India and China in order to have direct and easier access to the world's top
two most populous nations.
The advantages of direct investment include:

● Direct investment ensures the business operates closer to its customers. This
can help to cut transportation and distribution costs.
● Being located closer to customers also helps international marketers to be more
aware of local preferences.
● Unlike exporters, foreign direct investment (FDI) enables a business to avoid the
risks of exchange rate fluctuations by operating within the foreign country.
● Also, FDI can help a business to avoid international trade protectionist
measures. For example, an American firm operating in Spain or Greece can
avoid tariffs and quotas imposed on US exports sold in the European Union.
The main drawback of direct investment for international marketers include:

The high cost of foreign direct investment, i.e. the costs of investment (such as the
cost of set uip production facilities and distribution networks in foreign countries)
needed to establishing their operations in other countries.

Hence, direct investment is a riskier strategy than exporting or e-commerce. Coca-

Cola, for instance, spent 210 million yuan (around $24,234,000) on setting up two
production plants in China in 2009.

International marketers also need to be aware of the different external influences in

overseas markets; a marketing mix that is successful in one country might not
necessarily work in other countries.

They also need to time and resources to consider and formulate appropriate
strategies due to different cultures, customs and laws that may exist in international
markets.

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 Franchising

Franchising involves international marketers seeking a third party organization (the

franchisee) to supply the goods and services of another business (franchisor). For this
privilege, the franchisee pays a licensing fee and royalties (a percentage of sales revenue)
to the franchisor. Franchising is a very popular method of entering international markets. It is
used by a large number of well-known businesses such as: 7-Eleven, Burger King, Hertz,
McDonald’s, Pizza Hut, Starbucks, and Subway. KFC has used franchising extensively to
become the largest fast-food chain in China, with twice as many stores as McDonald’s, its
nearest rival.
Franchising is less risky and less costly than direct investment. This is because it is the
franchisee who finances the overseas operations of the franchised business. In addition, the
franchisee pays the franchisor a license fee (for the right to use its brand and products) and
the costs of setting up in other countries.
A drawback of franchising is the difficulty in monitoring consistency and quality standards.
The lack of control can result in lower quality output and services, which ultimately creates a
negative image for the franchisor.
 Strategic alliance

International marketers can use strategic alliances to sell their products in overseas markets.
Strategic alliances involve using partner firms in other countries, working in collaboration on
specific projects or developments. These partner businesses pool their human, capital and
financial resources together for the shared business venture or project. For example, according to
its website, pharmaceutical giant Eli Lilly has been using strategic alliances for almost 100 years.
Strategic alliances are also very common in the airline industry. For example, the Star Alliance
was established in 1997 and has 27 member airlines. Alliance members enjoy shared marketing
and branding to facilitate travellers making inter-airline connections within and between countries.
Using a local partner, with shared resources and a share of the profits for both parties, can help
the business to take care of possible issues of operating in unknown markets in overseas
countries. For example, the partner is likely to have local knowledge of social, cultural and
linguistic differences.
Hence, using a strategic alliance is a relatively safe way for international marketers to enter
overseas markets. However, there is still a risk that the local partners can break (pull out of) the
strategic alliance with relative ease, without much of a financial loss. Hence, such possibility can
endanger the longevity and success of the strategic alliance.
 Joint ventures
Another common way for international marketers to sell their products in overseas markets is
to use joint ventures when two or more firms share the investment costs, risks and potential
returns in a business project by creating a new separate business entity. This means the joint
venture has its own legal status, formed by the parent companies who share their human
and physical capital resources, thus creating synergy in the joint venture. A large number of
European car manufacturing companies, such as Volkswagen, BMW and Mercedes Benz,
have formed joint ventures with Chinese and Indian businesses in order to gain access to
these fast growing markets.
As with strategic alliances, international marketers can reduce the risks of operating in
overseas markets by using foreign partners as they have the local knowledge, experience
and expertise to succeed. Expanding in overseas markets without local partners can be risky
as the business is new to and unfamiliar with operations in overseas markets.
One drawback of a joint venture compared to a strategic alliance, is that joint ventures are a
more expensive option. They require permanent legal entities to be established. However,
this also means that the partners tend to be more committed to the long-term success of the
joint venture, whereas partners in a strategic alliance can pull out without much notice or
repercussions. Like any strategic alliance, management conflict and cultural disparities can
cause many joint ventures to fail.
Key terms

Direct investment involves a business setting up operations in other countries, such as

production facilities and/or distribution services.
E-commerce is the buying and selling of goods and services via electronic means,
most notably the Internet.
Exporting is the selling of products to overseas customers without having to physically
establish production or distribution facilities abroad.
Franchising involves international marketers seeking a third party organization (the
franchisee) to supply the goods and services of another business (franchisor).
International marketing is the marketing of an organization’s products in overseas
markets.
Joint ventures involve two or more firms sharing the investment costs, risks and
potential returns in a business project by creating a new separate business entity.
Strategic alliances involve using partner firms in other countries, working in
collaboration on specific projects or developments.
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