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INTERNATIONAL MARKETING Topic 4: International Niche Marketing for SMEs Theories of Internationalisation LEARNING OUTCOMES After completing this topic, you should be able to: Explain the barriers to internationalisation that SMEs face, and suggest methods to overcome Analyse the various internationalisation options available to the SME Apply strategic management models to SMEs in international markets Discuss the critical success factors for the international SME SMES & INTERNATIONALISATION Definition of SME is dependent on nature of business SMEs becoming more important Internationalisation now more accessible to smaller firms KEY MOTIVATORS TO INTERNATIONAL MARKETING (KATSIKEAS, 1996) Reactive stimuli (see last weeks lecture) Proactive stimuli Managerial elements (PERCEIVED) BARRIERS (ALBAUM ET AL, 2005) Controllable Lack of knowledge Lack of information Control of activities Physical arrangements Service support Perceived risk? Uncontrollable DEPICTS factors Red tape Financing Lack of assistance &/or incentives OVERCOMING THE BARRIERS Look to existing customers Make a commitment Seek advice Use trade shows Pick markets carefully Manage growth Use letters of credit Be patient Choose partners carefully (BARRETT, ‘95) INTERNATIONALISATION FACTORS SME generic strategy Segmentation, targeting and positioning Growth options Competitive advantage SME internationalisation strategy Customer base Industry structure and competition Supply chain SME generic strategy Market factors Motivations and barriers Country and market entry selection Company factors Stage of internationalisation Ambition, capabilities and attitudes to risk SME INTERNATIONALISATION OPTIONS Exporting Niche marketing of domestically delivered services International niche marketing Direct marketing and ebusiness Piggybacking – on Multi-national Enterprise (MNE) TYPES OF EXPORTER (LOWE & DOOLE, 1997) MOTIVATIONS TO EXPORT (DOOLE AND LOWE 2004) Government support programmes Attractive profits Growth opportunities Economies of scale Unique product offering Export orientated management team BARRIERS TO EXPORTING Red Tape Slow payment from buyers Lack of competitive products Danger of payment defaults Lack of experience and skill Language barriers DOMESTICALLY DELIVERED SERVICES Leisure & tourism, health care, education Need USP that justifies extra travel costs incurred INTERNATIONAL NICHE MARKETING Different from exporting Occurs when a firm becomes strong in a narrow specialised market of one or two segments across a number if country markets. These segments need to be too small to attract larger interests (Brown and McDonald 1994) To be successful the product must be distinctive, highly differentiated and recognisable. McDonalds and Coca Cola EXPORTING & INTERNATIONAL NICHE MARKETING: DIFFERENCES Marketing strategy Segmentation Management focus Market information Pricing Distribution Relationships SUSTAINING AND DEVELOPING THE NICHE Understand customers Deliver on service Innovate Seek out cost efficiencies Profits before market share Evaluate entry strategies & marketing mix for each new country Maintain focus Provide high levels of service Be content to remain small PORTER’S GENERIC STRATEGIES Competitive advantage Low cost Differentiation Broad Cost Leadership Differentiation Cost Focus Differentiatio n focus Scope Narrow Cost Leadership Efficiency - producing high volumes of standardized goods Economies of Scale and experience curve effects. Low cost product to large customer base. Strategy = constant cost reductions throughout the business Distribution = strategy Promotional = low cost product features. For success you need large market share advantage and or preferential access to raw materials, components, labour etc Examples: Aldi and Ryanair, Differentiation Strategy Unique offering. Must provide unique value to custome Inelastic demand High loyalty Premium pricing strategy. Success requires: innovation, creativity, research, distributio, ability to communicate the differentation, high skills level (marketing, service staff etc) Focus/Niche Strategy Select few target markets. Targeting and tailoring to one or two narrow market segments allows the firm to better satisfy the needs and wants of that target market. Suitable for relatively small firms and in instances larger firms. Internationally allows you to select markets less attractive to competition Maybe company cannot afford other two strategies Niches can dissapear CRITICISMS OF THE GENETIC STRATEGIES They lack specificity and flexibility. Apply generic strategies is possibly ineffective in the long run "caught in the middle“ given that there is a middle ground between the strategies. Being stuck in the middle looses your competitive advantage. ANSOFF’S GROWTH MATRIX Products Old New Old Penetration Product development Market development Diversification Markets New HBR (1957) 'Strategies for Diversification'. Concerned with strategic options for growth objectives Helps select product and market growth strategy. Grow depends on whether it markets new or existing products in new or existing markets. Market Penetration Market/selling existing products to existing customers: promotion, repositioning, pricing etc. Product is not altered Not seeking new customers. Four objectives Maintain or increase the market share of current products Secure dominance of growth markets Restructure a mature market by driving out competitors Increase usage by existing customers Market Development Market/sell existing product range in a new market. Product remains the same New target market Strategies: New geographical markets (export) New product dimensions or packaging Different pricing policies to attract or create new market segments New distribution Product Development New product to be marketed to existing customers. Innovate new product offerings to replace existing ones. Marketed to existing customers Car Markets Diversification Market completely new products to new customers. Two types of diversification: Related diversification staying in familiar markets – food industry. Kellogg’s/Nestle cereal bars Unrelated diversification - no market experience. Caterpillar and clothing INTERNATIONAL E-MARKETING x x x Internet overcomes geographic barriers Size of firm is no longer a barrier Facilitates faster internationalisation Information access Lack of know-how Need for multi lingual options Still large numbers not got access MCKINSEY 7S FRAMEWORK Strategy Structure Systems Skills Shared values Style Staff The 7-S framework is a Value Based Management (VBM) model Company orientated – how to operate How to holistically and effectively organise a company. 1. Shared Value The interconnecting center Organization world view, mantra, beliefs and attitudes – Bennetton, Google 2. Strategy The plans for resource allocation to achieve objectives. Environment, competition, customers. 3. Structure Interorganisational functionality. Centralized, functional divisions (top-down); decentralized (the trend in larger organizations); matrix, network, holding, etc. 4. System Procedures, processes ect hiring, finance, promotion etc 5. Staff 6. Style Cultural style Management Styles 7. Skill Company capabilities –Core competencies of the firm Useful for Interrelationship of strategy formulation and implementation. Helps managers to link a strategy to a variety of activities and so improve strategic implementation. It’s an effective assessment of the viability or plausibility of a strategy Convention is get the strategy right first and the right org structure will fall into place. This is a limiting perspective To assess a new strategy you have to assess organisational capabilities The 7’s allow this possibility. When the 7’s are in sync the company is organises and ready to implement a new strategy CRITICAL SUCCESS FACTORS (D OOLE, 2000) Organisational culture that fosters learning & innovation Effective relationship building Clear focus & positioning strategy ALTERNATIVE INTERNATIONAL DEVELOPMENT FOR SME’S Useful to segment firms based on their level of internationalisation: The passive exporter – focus domestic, new to exporting, reaction to unsolicited orders, poor research The reactive exporter – seeks exports markets as secondary to domestic, doesn’t invest in attracting foreign orders but follows up on existing ones, has basic knowledge The experimental exporter – beginning to commit, structuring organisation accordingly, relationship building, making adaptations for foreign markets The proactive exporter – entering and developing new markets, regular research, promotional mix adaptations, exports accounting for up to 50% Established exporter – integral to business, generates majority of business, substantial investments. Networks and relationships Internationalisation of SME’s Factors giving rise to the Born Globals Increasing Role of Niche markets Advances in Technology (production) Flexibility of SME’s Global Networks Advances in information technology (speed) SUMMARY Many factors drive the SME to internationalise Many of the barriers to internationalisation are perceived rather than actual There is a range of internationalisation options open to the SME Maintaining a strategic focus & fostering an appropriate organisational culture will assist the SME in international markets