Download ANALYSIS OF MARKET ENTRY STRATEGIES ADOPTED BY

Analysis of Marketing Strategies Selection,
The Experience of Australian and New Zealand Firms
Henry F.L. Chung, Manukau Institute of Technology
Abstract
Drawing on the findings of previous theoretical and empirical studies, this study proposes a
“marketing programme and process” framework. The study examines the proposed framework,
using the experience of 120 Australian and 72 New Zealand manufacturing firms operating in the
Greater China markets (host markets). The results suggest that similarity of consumer behaviour,
marketing infrastructure and political environment between the home and host market is
significantly related to the selection of standardised marketing strategies. Consumer behaviour has
a significant impact on four elements: price, place, promotion and process. Marketing
infrastructure’s effect is evident on the decision of product, place, promotion and process elements.
Political environment is reported to be positively related to the decision of price and promotion
strategy. Industrial and consumer durables are also suggested to be more likely to be standardised
than consumer non-durables. However, firms employing a low resource commitment entry mode
(e.g. exporting) are more likely to adopt a universal process than those which adopt a FDI mode
(e.g. wholly owned subsidiary). The results of the present study also suggest that managers
should understand that an across-the-board standardisation strategy is not realistic but it is
possible to employ a highly standardised marketing programme and process when operating in the
Greater China markets. The ranking of market importance for New Zealand firms was China→
Taiwan→ Hong Kong. For Australian firms it was China→ Hong Kong→ Taiwan. The majority
of Australian firms were operating in the industrial goods sector while most New Zealand firms
were operating in the consumer nondurables sector. The three most often used market entry modes
by the respondents were direct exporting, overseas marketing subsidiaries and joint ventures.
Introduction
It has been argued that the worldwide marketplace has become so homogenized that multinational
corporations can market standardised products all over the world (Levitt, 1983). Standardisation
of marketing strategy refers to offering a common product, price, distribution and promotion
programme on a national, regional or worldwide basis (Sorenson and Wiechmann, 1975). Despite
its many recognised limitations (Barker and Aydin, 1994), standardisation of international
marketing practices has still received a large amount of research attention (Buzzell, 1968; Jain,
1989), mainly because of the potential economies of scale in production, promotion, distribution
and research and development associated with this strategy (Baalbaki and Malhotra, 1995).
Marketing programme refers to various aspects of the marketing mix – product, price, distribution
and promotion while marketing management process represents the tools that are used to develop
and implement the marketing programme (Cavusgil, Zou and Naidu, 1993; Akkah, 1991).
Even with the fact that a significant amount of research has been published on marketing strategy
in international markets, the guidance provided by the literature seems to be incomplete. Previous
studies have focused on examining issues relating to the choice between standardisation and
adaptation of selected marketing programme elements (e.g. Johnson & Arunthanes, 1995;
Cavusgil, Zou and Naidu, 1993). Although these studies have generated useful results, some
important elements such as marketing process, political systems and market entry modes have
often been ignored in their research frameworks.
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This study is designed to fill this research gap. It will examine the impact of issues such as the
political system, marketing infrastructure, consumer behaviour, and firm related factors on the
selection of marketing programme and process elements. This study will employ a research
framework to examine the experience of Australia and New Zealand companies conducting
business in the Greater China region - i.e. the People’s Republic of China (China), Taiwan, and
Hong Kong. The current study contributes in a number of ways. Its findings could provide some
guidance for firms intending to operate in the Greater China markets. Secondly, a more complete
framework including marketing process and new factors such as political system and market entry
mode will be drawn in the study.
Literature Review and Research Hypotheses
The findings of previous studies are helpful in formulating a research framework. Several studies
have revealed that marketing environmental factors such as the political system and marketing
infrastructure (Jain, 1989; Whitelock and Pimblett, 1997) are keys to the choice of standardisation
strategy. Other studies have found that consumer characteristics and behavioural similarity
between the home and host countries are a factor for standardising strategy (Akaah, 1991). Some
authors have cited that factors such as market entry mode selection (Grosse and Zinn, 1990) can
affect the choice of marketing strategy. It has further been suggested that industrial products and
consumer durables are more likely to be standardised than are consumer nondurables (Whitelock
and Pimblett, 1997).
Thus in light of the results of previous studies, especially those by Jain (1989), Buzzell (1968),
Sorenson and Wiechmann (1975), Hill and Still (1984), a conceptual framework for examining the
marketing programme/process activity of firms operating in the Greater China region is
established.
Marketing Mix and Process Elements
Although far from conclusive, it is generally agreed that across-the-board standardisation of
marketing strategy is inconceivable (Killough, 1978). Among the elements of the marketing
programme and process, product related strategies are probably the most often standardised
(Quelch and Hoff, 1986). It has also been suggested that process standardisation is important for a
firm’s success internationally (Sorenson and Wiechmann, 1975). On the other hand, pricing,
promotion and distribution are suggested as the most adaptable marketing mix elements (Grosse
and Zinn, 1990).
H1: The extent of standardisation of elements in the marketing programme/process will vary.
Product and process are likely to be highly standardised while price, promotion and distribution
are likely to be highly adapted.
Marketing Environmental Factors- Political System
Jain (1989) suggested that the political environment of the host country could also force foreign
firms to change their operations, policies and strategies in the country. Political intervention from
the host country often makes standardisation difficult to be used (Vernon, 1971). Though
important, this factor has not received much attention among empirical studies (e.g. Sorenson and
Wiechmann, 1975; Johnson and Arunthanes, 1995).
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H2: The extent of standardisation of marketing strategy is positively related to the degree of
similarity of political systems between the home and host countries.
Marketing Environmental Factors-Marketing Infrastructure
It has been suggested that international marketing decisions are influenced by the marketing
infrastructure of a host country, including media availability and distribution infrastructure
(Akkah, 1991; Britt, 1974; Dunn, 1976). Jain (1989) posits standardisation strategy is more likely
to succeed if the basic marketing infrastructure is similar in the home and host countries.
H3: The extent of standardisation of strategy is positively related to the degree of similarity of the
marketing infrastructure between the home and host countries.
Consumer Behaviour Factors
Jain (1989) suggested that foreign markets can be segmented based on occupation, needs or
shopping traits of a particular group. Jain believes that a standardisation strategy is more effective
if customers, not countries, are the basis of identifying the segments to serve. Akkah (1991) and
Hill and Still (1984) endorsed this view and found that firms are more likely to employ a
standardisation strategy if the characteristics and behaviour of their customers in the home and
host countries are similar.
H4: The extent of standardisation of marketing strategy is positively related to degree of similarity
in consumer behaviour in the home and host countries.
Firm Related Factors
It has been suggested that firms which market products overseas principally through exporting
modes, are more likely to adopt a standardisation strategy. Because of the high cost of adaptation,
such firms tend to choose export markets which are more likely to accept standardised products.
Standardisation strategy usually represents a smaller amount of involvement (Terpstra and Sarathy,
2000). On the other hand, firms which enter a foreign market using a high resource commitment
entry mode, such as a wholly owned production subsidiary are more likely to adapt their
marketing mix elements (Grosse and Zinn, 1990).
H5: Firms which adopt a low resource commitment entry mode (e.g. exporting) to service the
market are more likely to adopt a highly standardised marketing strategy.
Product Factors
Research has indicated that selection of international marketing strategy is also related to the
nature of the product (Jain, 2001). It has been suggested that consumer products are more likely to
be adapted while industrial products are more likely to be standardised. Among consumer goods,
non-durables often require greater customisation than durables because they are related more to
local tastes, habits and customs (Whitelock and Pimblett, 1997).
H6: The degree of standardisation of consumer durables or industrial products is likely to be
greater than that of consumer non-durables.
Research Measurement and Sampling Frame
This study was designed to examine marketing strategies used by Australian and New Zealand
based manufacturing firms which were currently operating in the Greater China markets at the
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time when the survey was conducted. Respondents were asked to answer questions concerning
their operation in the most important Greater China market. They were instructed to examine
the similarity/dissimilarity of the marketing programme/process used in the home and host
countries. They were also asked to examine the similarity/dissimilarity of the marketing
environments faced in their home and host countries.
In total, 23 items were used to measure various aspects of marketing programme/process
(Sorenson and Wiechmann, 1975; Quelch and Hoff, 1986)– five items for product elements
(e.g. brand, packaging, design), four for pricing (e.g. pricing method) , five for distribution (e.g.
types, channel management), six for promotion (e.g. theme, copy, creative expression) and
three for planning and implementation (planning, budgeting and orientation). The measurement
for explanatory variables was also based on the suggestion of previous studies (e.g. Jain, 1989;
Hill and Still, 1984). These items were all measured by a 5-point scale (1=very similar; 5=very
different). The market entry mode effect was measured relative to the most important entry
mode used to service the host market. Results were coded in two categories (FDI vs non-FDI
modes). In total two types of FDI modes were chosen by the respondents – wholly owned
subsidiaries and joint ventures.
The postal survey was conducted in April (New Zealand) and September, 2001 (Australia). The
useable sample consisted of 72 New Zealand and 120 Australian manufacturing firms. The
useable response rates were 28% in New Zealand and 16.8% for the Australian study. The
reliability of the research constructs was all above the acceptable level (alpha > 0.61).
Correlation coefficient results suggested that no multicollinearity problems existed in this study.
Findings and Discussion
The average size of Australian and New Zealand firms in this study was 525 full time
employees. The average number of employees of New Zealand firms was about 729, in
comparison with 403 employees hired by the Australian firms. These firms are classified as
medium sized firms by New Zealand and Australian standards. A study classifies firms based in
New Zealand which hire 1000 or more employees as large sized firms (Akoorie, 1993). The
majority of the firms studied were operating in the industrial (42.7%) and consumer nondurable
(39.1%) sector while a smaller number of them were operating in the consumer durable sector
(18.2%). The most important Greater China markets were China (44.3%), followed by Hong
Kong (33.3%) and Taiwan (21.9%). In total 25% of respondents used FDI modes while 74% of
firms used non FDI modes. Only 1 firm used the Internet to service the Greater China markets.
The results suggested that only six out of 23 items (26%) used in the marketing
programme/process were moderately or highly adapted. These 6 items included one pricing
element (offer of price discounts), one distribution element (role of middlemen/dealers), and
four promotional mix elements (advertising copy, creative expression, advertising media
allocation and role of sales promotion). The remaining items were all highly standardised. The
three items used to measure the marketing process effect were all highly standardised. This
result suggests that H1 is supported.
Consumer behaviour is suggested to be positively significantly related to the adaptation of
price, place, promotion and process. This suggests that when the differences in the consumer
behaviour are low between the home and host markets, a highly standardised
programme/process is likely to be adopted. This result is consistent with that of Hill and Still
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(1984) whose study concludes that consumer preferences and consumer purchasing habits are
important factors for an adaptation strategy. Based on this finding, H4 is supported.
Similarly, marketing infrastructure is reported as being positively related to the adaptation of
product, place, promotion and process. This result is not difficult to understand. Past studies
have suggested that the degree of adaptation of promotional elements is affected by the
availability of a host country’s media infrastructure (Britt, 1974; Dunn, 1976). Other studies
have also concluded that factors relating to a host country’s distribution system are regarded as
an uncontrollable elements, which have an impact on the selection of distribution strategy
(Buzzell, 1968; Toyne and Walters, 1989). Based on this result, H3 is supported.
Political factors are suggested as being positively related to price and promotion adaptation
strategy. This result is consistent with initial expectations. Based on this result, H2 is partially
supported. As suggested in Jain (1989), a host government’s political interference often forces
firms to change their operations, policies and strategies. He notes that pricing guidelines may
be guided more by a political factor instead of economic realties. When operating in a host
market, foreign firms often try to avoid a direct conflict with the host government’s political
policies.
Product type is also suggested as a factor for product adaptation. The results suggest that
consumer non-durables are more likely to be adapted than consumer durables and industrial
goods. As discussed in the literature, consumer nondurables are more likely to be affected by
local tastes and customs (Whitelock and Pimblett, 1997). Based on this result, H6 is confirmed.
Market entry mode is identified as having a negative impact on process adaptation strategy.
Firms using non FDI type of entry modes are more likely to employ a standardised process for
their operations. Based on this finding, H5 is partially confirmed. This finding is consistent
with that of previous studies (Grosse and Zinn, 1990; Terpstra and Sarathy, 2000).
Implications and Limitations
Consistent with the findings of other studies (Jain, 1989; Killough, 1978), the results of the
present study confirm the proposition that an across-the-board standardisation strategy is not
realistic in the home-host scenario. Managers should understand that some elements of their
programme/process (e.g. product) are more likely to be standardised than other elements (e.g.
promotion).
The results of this study suggest that managers often need to modify their marketing programmes
if the consumer behaviour in the host countries is considered to be highly different from that of the
home countries. When operating in a host market whose marketing infrastructure is less developed
than that of in the home country, managers should be prepared to adapt their marketing
programme and process in order to be in line with local infrastructure. Likewise managers should
carefully evaluate the extent of influence of political interference in a host country. This effect has
a significant impact on selection of price and promotion strategies. Furthermore firms should
consider employing a low resource commitment entry mode if a standardised process is important
to their international marketing activities. Lastly, the findings of this study suggest that it is
possible to employ a highly standardised marketing programme and process when operating in the
Greater China markets if a careful analysis of these markets is conducted.
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The findings of this study could be examined in other regions or countries. This study suggests
that it is possible to adopt a highly standardised marketing strategy if a target market is chosen
carefully. The benefits of standardisation can be realised if the host market shares a similar
environment in the areas of consumption behaviour, marketing infrastructure and political
system. The findings generated by this study might be refined by including other important
factors such as cultural, technology and performance in the research framework (Hill and Still,
1984; Levitt, 1983; Jain, 1989).
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