Global Marketing Strategies Study Notes

Global Marketing Strategies

Introduction

  • A growing business must look for potential markets and explore new markets.

  • Essential tasks include:
      - Locating supporting resources and supplies of raw materials and labor.
      - Raising required capital.
      - Exploring the availability of skilled manpower and hiring personnel.
      - Developing a marketing plan.
      - Establishing distribution channels and identifying retail outlets.

  • Management must establish controls and feedback systems as well as accounting, finance, and personnel functions as an overlay upon this comprehensive system.

  • An international business firm must contend with:
      - Establishing an international element in addition to domestic operations.
      - A significant involvement of environmental factors that differ from their own:
        - Cultures
        - Economies
        - Government policies
        - Political systems

International Business Challenges

  • Business enterprises require significant time, energy, and personnel at the domestic level.

  • Venturing into international boundaries intensifies the number of steps essential for the firm, including:
      - Increased reach, effort, and activity.
      - Necessity for international components and discrete units in every establishment.

  • A domestic firm typically enters foreign markets progressively:
      - Starting with exporting, which is less risky and requires lower foreign investment.
      - As confidence in business opportunities grows, firms increase investments through:
        - Franchising
        - Joint ventures
        - Direct investments

  • Firms must evaluate their resources before entering international business, considering:
      - Personnel
      - Assets
      - Experience in overseas markets
      - Suitability and demand for products in foreign markets
      - Level of control necessary for managing overseas operations
      - Competition expected in international markets and the availability of business opportunities

Entry Strategies

1. Export-Based Entry

  • Exporting is a popular method for beginners entering international trade, involving low resource allocation.

  • The firm utilizes its domestic market for production and administration while marketing a portion abroad via:
      - Various transportation modes: air, ship, rail, truck, pipelines

  • Key considerations for initiating export:
      - Identifying product/service opportunities abroad.
      - Deciding to be a direct or indirect exporter.

a) Direct Exporting

  • Direct exporting means a producer directly sells goods/services in the international market through:
      - Channels like distributors, foreign retailers, intermediaries.
      - Direct sales to end users.

b) Indirect Exporting

  • Indirect exporting involves selling products to an intermediary (third party) who then markets the goods abroad.

  • Easiest and low-risk method:
      - Selling to an intermediary in the home country specializing in exports.
      - Relieves the producer of challenges regarding payments and logistics.

Advantages and Disadvantages of Exporting

Advantages

  • Low risk due to minimal allocation of resources in foreign countries.

  • Increased sales and reduction in inventory.

  • Exporter is typically shielded from foreign operating environment conditions.

  • A straightforward way to identify market potential and establish a brand in foreign territories.

  • Easy exit strategy if demand is low or the venture is unprofitable without significant capital loss.

Disadvantages

  • High per unit cost of exporting due to misunderstandings around fees, commissions, export duties, taxes, and transportation.

  • Potential for suboptimal market penetration due to inappropriate packaging or promotion.

  • Exported goods may not meet specific overseas market requirements.

  • Difficulty in tracking changes in business environment factors abroad.

  • Challenges in maintaining market share and contacts due to distance.

  • Risk of market share loss if local firms imitate products/services.

  • Possible restrictions against products from the host country.

2. Licensing

  • An international licensing agreement involves a licensor allowing a foreign licensee to sell its products in exchange for royalty fees.

  • Typically covers intangible property like trademarks, patents, and production techniques.

Advantages

  • The licensor is not responsible for costs and risks associated with the foreign venture.

Disadvantages

  • Licensing offers moderate returns and involves loss of control over proprietary property.

3. Franchising

  • Franchising involves replicating a business model with a limited-time agreement between a franchisor and franchisee.

  • Unlike licensing, the franchisee agrees to strict operational rules and continues to receive support from the franchisor.

  • Royalty fees are based on the franchisee's revenue.

Advantages

  • Franchisor is relieved from costs and risks associated with foreign market setup.

  • Franchisee assumes setup and operational costs, incentivizing efficient operations.

Disadvantages

  • Quality control can be challenging; maintaining consistent service and experience across locations is crucial and may be difficult in foreign settings.

4. Joint Venture

  • A strategy for sharing risks and costs through collaboration between two companies to create an independently managed third company.

  • Key Components:
      - Can be based on equal stake, minority stake, or controlling stake.
      - In certain countries, local partnerships may be a requirement.

Advantages

  • Benefits from local partner’s knowledge of:
      - Market conditions
      - Competition
      - Culture and language
      - Political system and social environment

  • Reduces the risks associated with starting from scratch in a foreign market.

  • Provides protection against political unrest and government policy changes.

Disadvantages

  • Loss of control over technology.

  • May prevent tight operational control for efficiency or sales volume increases.

5. Wholly Owned Subsidiaries

  • This entry mode involves owning 100% of the subsidiary and can be established through:
      - Acquisition: Purchasing an existing firm in the host country.
      - Greenfield Venture: Building a new operation from scratch.

Advantages of Wholly Owned Subsidiaries

  • Protects proprietary technology—important for high-tech firms.

  • Provides complete operational control, allowing firms to achieve economies of scale and reduce costs.

Disadvantages

  • Requires significant capital investment and is not typically the most cost-effective entry method.

  • Challenges in learning cultural business practices in the host country.

a) Acquisition

  • Acquisition entails controlling another firm by purchasing its stock or outright buying the company.

  • It provides rapid establishment in the target market and integrates operations.

  • Challenges include managing cultural integration, which may lead to high turnover rates and loss of local knowledge.

b) Greenfield Venture

  • Involves creating a subsidiary from scratch, which grants maximum control and potential for high returns.

  • Challenges include time required to establish operations and generate revenue.

Activity 1

  1. Describe licensing, including its advantages and disadvantages.

  2. Explain franchising with specific examples.

Conclusion

  • Choosing the right market entry strategy is critical to achieving sustainable success in new markets.

  • Factors to analyze include:
      - Market potential
      - Competitive landscape
      - Regulatory environment
      - Internal capabilities

  • The selected approach should balance risk and reward effectively, aligning with long-term objectives and operational strengths.

  • Ongoing market research, adaptability, and local partnerships are essential for mitigating risk and optimizing performance.