Global marketing - week 10

Triggers for Expansion to Global Markets

Domestic Market Conditions

  • Companies often look to international markets when domestic scenarios are less favorable, such as:

    • Small market size.

    • Low growth potential.

    • Saturated domestic markets.

Customer Drivers

  • Customers may demand that their suppliers have a global presence to maintain competitiveness and service accessibility.

Competitive Forces

  • The actions of competitors can also drive companies to expand internationally, particularly when competitors seek opportunities in overseas markets.

Cost Factors

  • Rising domestic costs can prompt companies to seek cheaper production options abroad, as exemplified by Samsung's shift to Vietnam for production.

Portfolio Balance

  • Companies may diversify by entering markets with varying growth rates to balance performance across regions.

Deciding Which Markets to Enter

Macroenvironmental Factors

  • Essential considerations include:

    • Economic conditions: Impact of per capita income and infrastructure.

    • Socio-Cultural environment: Assessing cultural proximity.

    • Political-Legal environment: Stability and potential trade barriers.

    • Technological landscape: Availability and penetration of internet connectivity.

Microenvironmental Factors

  • Market attractiveness and company capabilities are crucial:

    • Market size and competitors to assess growth potential (consider first-mover advantages).

    • Company profile in terms of skills and competitive edges.

Entry Mode: Exporting

Types of Exporting

  1. Direct exporting: Companies sell directly to overseas customers.

  2. Indirect exporting: Products are sold through home country intermediaries.

Advantages of Exporting

  • Low financial commitment compared to direct investment in foreign manufacturing.

  • Gradual market entry allowing firms to build knowledge and experience.

Disadvantages of Exporting

  • Exposure to import tariffs, exchange rate fluctuations, and rising transportation costs may present challenges.

Entry Mode: Cooperative Licensing

Licensing

  • Licensing contracts enable local licensees to access technology or know-how for financial compensation.

  • Patent or trademark rights are typically transferred.

Franchising

  • A form of licensing providing a whole package of services.

    • The franchiser offers products, systems, and management services.

    • The franchisee invests capital and manages the operations.

Advantages and Disadvantages of Licensing

  • Advantages:

    • Low financial risk and access to local market knowledge.

    • Avoidance of trade barriers like tariffs.

  • Disadvantages:

    • Risk of knowledge leakage and difficulties in maintaining quality control.

Joint Ventures

Contractual Joint Ventures

  • Formed by two or more companies sharing investment costs and profits without creating a new legal entity.

Equity Joint Ventures

  • Involves creating a separate legal entity where both foreign and local investors share management and ownership.

Example of Joint Ventures

  • A partnership between Danone and Wahaha ended due to issues surrounding trust and brand control, highlighting challenges in international cooperation.

Direct Investment

Establishing New Facilities

  • Greenfield investment: Involves establishing a wholly owned subsidiary from scratch tailored to meet parent company operations.

Advantages and Disadvantages of Direct Investment

  • Advantages: Better control over operations and protection of know-how.

  • Disadvantages: Significant capital investment required, cultural adaptation challenges, and slow market penetration.

Standardization vs. Adaptation

Standardization

  • Keeping a consistent marketing mix across all markets.

Adaptation

  • Altering marketing strategies and products to fit specific local market needs, as seen in Coke's branding in Japan.