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Designing Global
Market Offering
Objectives
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Factors to Consider Before Going Global
Selecting Foreign Markets
The Major Ways of Foreign Market Entry
Product Adaption for Global Marketing
Management & Organization of Global
Activities
Competing on a global basis:
• The better way to compete is to continuously improve
products at home and expand into foreign markets.
• The risk are high.
• Huge foreign indebtedness
• Shifting borders
• Unstable governments
• Foreign exchange problems
• Tariffs and other trade barriers
• Corruption
• Technological pirating
A global firm
• A global firm is a firm that operates in more
than one country and captures R&D,
logistical, marketing and financial
advantages in its cost and reputations that
are not available to purely domestic
competitors. Global firms plan, operate and
coordinate their activities on a worldwide
basis.
Major Decisions in International
Marketing
Deciding whether
to go abroad
Deciding which
markets to enter
Deciding how to
enter the market
Deciding on the
marketing program
Deciding on the
marketing organization
1. Deciding whether to go abroad
• Most companies would prefer to remain
domestic if their domestic market were
large enough, managers would not need to
learn other languages and laws, deal with
volatile currencies, face political and legal
uncertainties, or redesign their products to
suit different customer needs and
expectations
Several factors are drawing more
and more companies into the
international arena:
1. Global firms offering better products or
lower prices can attack the company's
domestic market. The company might
want to counterattack these competitors in
their home markets.
2. The company discovers that some foreign
markets present higher profit opportunities
than the domestic market.
Several factors are drawing more
and more companies into the
international arena:
3. The company needs a larger customer
base to achieve economies of scale.
4. The company wants to reduce its
dependence on any one market.
5. The company's customers are going
abroad and require international servicing.
Before making a decision to abroad,
the company must weight several
risks:
• The company might not understand foreign customer preferences and
fail to offer a competitively attractive product.
• The company might not understand the foreign country's business
culture or know how to deal effectively with foreign nationals.
• The company might underestimate foreign regulations and incur
unexpected costs.
• The country might realize that it lacks managers with international
experience.
• The foreign country might change its commercial laws, devalue its
currency, or undergo a political revolution and expropriate foreign
property
2. Deciding which markets to enter:
• The company needs to define the marketing
objectives and policies. What proportion of
foreign to total sales will it seek?
• How many markets to enter?
The company must decide whether to market
in a few countries or many countries and
determine how fast to expand.
Generally speaking, it makes sense
to operate in fewer countries when:
• Market entry and market control costs are high.
• Product and communication adaptation costs are high.
• Population and income size and growth are high in the initial countries
chosen.
• Dominant foreign firms can establish high barriers to entry.
• Regional free trade zones:
Regional economic integration-trading agreements between blocs of
countries-has intensified in recent years. This development means that
companies are more likely to enter entire regions overseas than do
business with one nation a time.
(EU, NAFTA-North America Free Trade Agreement, MERCOSUL,
APEC)
Evaluating Potential markets:
In general a company prefers to enter
countries that
• Rank high on market attractiveness,
• That are low in market risk,
• In which it possesses a competitive
advantage.
3. Deciding how to enter the market:
• Once a company decides to target a
particular country, it has to determine the
best strategy of entry:
Five Models of Entry
Into Foreign Markets
Indirect
Exporting
Direct
exporting
Licensing
Joint
ventures
Direct
investment
Amount of commitment, risk, control, and profit potential
1. Indirect export:
• They work through independent intermediaries.
Domestic based export merchants buy the
manufacturer's products and then sell them
abroad.
• Has two advantage:
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It involves less investment, the firm does not have a
develop and export department, and overseas sales
force, or a set of foreign contacts.
It involves less risk; because international marketing
intermediaries bring know how and services to the
relationship, the seller will normally make fewer
mistakes.
2. Direct export:
A company may decide to handle their own
exports and can carry on direct exporting in
several ways:
• Domestic-based export department or
division.
• Overseas sales branch or subsidiary.
3.
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Licensing:
The simple way to become involved in international
marketing. The licensor licenses a foreign company to use
a manufacturing process, trademark, patent, trade secret, or
other item of value for a fee or royalty.
Advantages:
The licensor gains entry at little risk;
the licensee gains production expertise or a well-known
product or brand name.
Disadvantages:
Less control over the licensee
If and when the contract ends, the company might find that
it has created a competitor.
Contract Manufacturing:
• The firm hires local manufacturers to produce the
product.
• It gives the company less control over the
manufacturing process
• It offers a chance to start faster, with less risk and
with the opportunity to form a partnership or buy
out the local manufacturer later.
• It offers a chance to start faster, with less risk and
with the opportunity to form a partnership or buy
out the local manufacturer later.
Franchising:
More complete form of licensing. The
franchiser offers a complete brand concept
and operating system. In return the
franchisee invests in and pays certain fees
to the franchiser.
6. Joint Ventures:
• Foreign investor may join with local investors to
create a joint venture company in which they
share ownership and control
• May be necessary and desirable for economic or
political reasons
• The foreign firm might lack the financial,
physical or managerial resources to undertake the
venture alone.
• The foreign government might require joint
ownership as a condition for entry
• The partners might disagree over investment,
marketing or other policies.
4. Deciding on the Marketing Program
Companies that operate in one or more foreign markets
must decide how to adapt their marketing strategy
to local conditions.
• Standardized marketing mix (Product,
communication and distribution).
The argument for standardizing is that it saves costs and
allows the promotion of one central brand or
corporate image worldwide
Advantages of standardizing
marketing program
• Economies of scale in production and
distribution
• Lower marketing costs
• Consistency in brand image
• Ability to leverage good ideas quickly and
efficiently
Disadvantages
• Differences in consumer needs, wants, and
usage patters for products
• Differences in consumer response to
marketing-mix elements
• Differences in brand and product
development and the competitive
environment
• Differences in marketing institutions
• Differences in administrative procedures.
• Adapted Marketing Mix
Where the producer adjusts the marketing
program to each target market.
The argument for adaptation is that every
market is different and victory will go to the
competitor who best adapts the offer to the
local market.
Five adaptation strategies of product
and communications
Product
Do not change
promotion
Do not change
product
Adapt
product
Straight
extension
Product
adaptation
Product
invention
Promotion
Adapt
promotion
Develop new
product
Communication
adaptation
Dual
adaptation
Five Strategies for a Foreign Market
• Straight product extension means marketing
a product in a foreign market without any
change
• Communication adaptation involves
modifying the message so it fits with
different cultural environments (one
message or one theme, media).
• Product adaptation involves changing the
product to meet local conditions or wants
(regional version, country, city, retailer)
• Dual adaptation when the company adapts
both the product and communication
• Product invention consists of creating
something new for the foreign market
(Backward invention , Forward invention).
Pricing Challenges
Multinationals face several pricing problems
when selling abroad.
1. Price Escalation
2. Transfer Prices
3. Dumping Charges
4. Gray Markets
Price Escalation
1. Set a uniform price everywhere
This strategy would result in the price being too
high in poor countries and not high enough in rich
countries.
2. Set a market-based price in each country:
It could lead to a situation in which intermediaries
in low-price countries reship their Coca-Cola to
high-price countries.
3. Set a cost –based price in each country:
This strategy might price the company out of the
market in countries where its costs are high.
Transfer Price
• If the company charges too high a price to a
subsidiary, it may end up paying higher
tariff duties, although it may pay lower
income taxes in the foreign country. If the
company charges too low a price to its
subsidiary, it can be charged with dumping.
Dumping charges
• It occurs when a company charges either
less than its costs or less than it charges in
its home market, in order to enter or win the
market.
Gray Market
• Consists of branded products diverted from
normal or authorized distributions channels
in the country of product origin or across
international borders. Dealers in the lowprice country find ways to sell some of their
products in higher-prices countries.
Distribution Channels
Seller
Seller’s international
marketing headquarters
Channels between
nations
Channels within
foreign nations
Final buyers
Building Country Images
• Governments now recognize that the images
of their cities and countries affect more than
tourism and have important value in
commerce.
• Attracting foreign business can improve the
local economy, provide jobs, and improve
infrastructure. Countries all over the world
are being marketed like any other brand.
Consumer perceptions of Country of
Origin
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Country-of-origin perceptions can affect
consumer decision making directly and
indirectly. The perceptions may be included as
an attribute in decision making or influence
other attributes in the process.
• Several studies have found the following:
1. People are often ethnocentric and favorably
predisposed to their own country’s products,
unless they come from a less developed country.
2. The more favorable a country’s image, the
more prominently the “Made in…” lable
should be displayed.
3. The impact of country of origin varies
with the type of product.
4. Certain countries enjoy a reputation for
certain goods.
5. Sometimes country of-origin perception
can encompass an entire country’s
products.
5. Deciding on the Marketing
Organization
Companies manage their international
marketing activities in three ways:
• Export Department
• International Division
• Global Organization
Export Department
• A firm normally gets into international
marketing by shipping out its goods. If its
sales expand, the company organizes an
export department consisting of a sales
manger and a few assistants. As sales
increases, the export department is
expanded to include various marketing
services. If the firms moves into joint
ventures or direct investment, the export
department will no longer be adequate to
manage international operations.
International Division
• When companies become involved in
several international markets and ventures
they will create international divisions to
handle all their international activity, this
division is headed by a division president,
who sets goals and budgets and is
responsible for the company's international
growth. The international divisions
corporate staff consists of functional
specialists who provide services to various
operating units.
Global Organization
• Three organizational strategies:
1. a global strategy treats the world as a single
market
This strategy is warranted when the forces for
global integration are strong and the forces
for national responsiveness are weak. This
is true of the consumer electronics market.
A multinational strategy treats the
world as a portfolio of national
opportunities
• This strategy is warranted when the forces
favoring national responsiveness are strong
and the forces favoring global integration
are weak. This is the situation in the
branded packaged-goods business (food
products, cleaning products).
“A global” strategy standardizes
certain core elements and localize
other elements
• This strategy makes sense for an industry
(such as telecommunications) where each
nation requires some adaptation of its
equipment, but the providing company can
also standardize some of the core components.