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GLOBALIZATION - INTERNATIONAL MARKETING

It is hoped that we will reduce the mystique of Globalization by simple looking at it as

an attempt to be with the extended family (nations) and to recognize them as our

customers or “brothers and sisters”, near and far, home and abroad. Wherever they are,

people have almost the same basic needs as you do.

They have created cultures, mores, political structures and religious institutions almost

similar to what you know but a little different.

As CEO, you MUST recognize that your market is where ever a need is and you have the

ability and capacity to fill it. Actually, the key ingredient in Marketing is “finding needs

and filling them”. In short, needs satisfaction or satisfying needs, here or abroad.

What is Globalization?

Globalization refers to the worldwide phenomenon of technological, economic,

political and cultural exchanges, brought about by modern communication,

transportation and legal infrastructure as well as the political choice to consciously

open cross-border links in international trade and finance. It is a term used to

describe how human beings are becoming more intertwined with each other around

the world economically, politically, and culturally. Although these links are not new,

they are more pervasive than ever before. Trending towards the Global village.

Globalization has become identified with a number of trends, most of which may have

developed since World War II. These include greater international movement of

commodities, money, information, and people; and the development of technology,

organizations, legal systems, and infrastructures to allow this movement. The actual

existence of some of these trends is debated.

Why Globalization? Why not just fill customer needs domestically/at home?

Sometimes a business’s size, expertise, and resources might force it to focus on the

domestic market only. Its level of operations and profits might even surpass its

objectives, and this might be sufficient to keep the owners of the business happy.

However, even if the company is focusing on the domestic market, it should be proactive

and be aware of other globally competitive companies that will be looking to enter the

local or domestic market. The best form of defence is a good offence.

In general, companies go international because they want to grow or expand

operations, generate more revenue, compete for new sales, gain investment

opportunities, diversify the business, reduce costs, recruiting new talent, gain

competitive advantage and build brand image.

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Reasons to go overseas:

1. A great way to expand and grow the business portfolio is by entering overseas

market. Ansoff model calls it market development strategy. This means selling

the current products to new markets and locations.

2. Gain new customers and more revenue. Building customer base overseas will

result in more sales and profits.

3. Foreign exchange earnings from sales. This provides a flow of hard currency

which will help with its sourcing of supplies and make the company more

proactive.

4. Underutilized capacity. Excess production can be sold overseas therefore

operating machines near optimum levels.

5. Spreading risks. Low sales in domestic market can be offset by exports or

overseas sales.

6. Reputation and brand recognition. Many customers believe brands that are sold

internationally are of better quality than those sold only domestic. This level of

etnocentricism propel firms to sell products internationally.

7. Gain access to new technologies and industry ecosystems, which may

significantly improve their operations

8. Operating in international markets also gives you access to a larger and more

diversified talent pool. Employees who speak different languages and

understand different value schemes.

9. gain a competitive edge over their opponents. For example, businesses that

expand in markets where their competitors do not operate often have a first-mover

advantage, which allows for them to build strong brand awareness with

consumers before their competitors.

10. Competing. The best defence is a good offence. Operating in competitors

market will help level the playing field.

11. Investment opportunities

12. increase a company’s perceived image, as global operations can help build name

brand recognition to support future business developments.

Let’s summarized a few reasons why some companies should consider the global village

and operate in international markets. Let’s dub it SCAG.

1. Spreading risks across national boundaries (having eggs in more than one basket

concept)

2. Capitalize on its core competences and build brand image. (Does what it does best

anywhere, elsewhere)

3. Achieve lower cost and increase profitability due to economies of scale and

learning curve effects

4. Gain access to new customers, technology, diversified talent pool

The SCAG will set the back drop as we now look more deeply at global issues using

parts of our SWOT D PEST technique.

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The Global dynamics

Selling goods and services in the local or domestic is similar to selling goods and services

in international markets. As for local markets the marketing equation is APIC + 4Ps =

CS. However, everything gets amplified.

Indeed, we still analyze the marketing environment, then we make our marketing plans

based on the 4Ps or marketing mix, then implement and control these plans in order to get

customer satisfaction.

The major differences between local and international marketing is the “inter “ (between)

and the “national” (other countries). No two countries have the same environment and

dealings between them should be done accordingly.

This chapter looks at some of the environmental factors faced by international marketers.

Again, we will use the local marketing jargon for familiarity sake.

The environment is the factor or forces that affects the company’s ability to satisfy its

customers. As with domestic marketing we will call these external factors: Demographic,

Political, Economical, Social and Technological. (D PEST).

1. DEMOGRAPHIC

“Demo” meaning people and “graphic” to draw or give clear and vividly explicit details means studying people in terms of size, density, location, age, gender, race occupation, and other statistics. Demography is very important because it involves people, and people make up markets.

a. The size of the country is estimated by counting the population or the

number of the people in that country. The composition of population can be assessed by classifying it into Age compositions/generations such as child, working class and retirees. The current baby boomers and millenniums are examples.

b. Race/Ethnicity: In Jamaica, 90% of the population Negroes while in China the majority are Mongoloids while in the USA more than 60% are Caucasians. Diversity of race can affect the stability and attractiveness of the country.

c. Religion. Although the major religion ion Jamaica is Christianity, in amny countries this is not so. For example in India major religions include Hindu, and Muslim.

d. Education profile is assessed by assessing the number of the population level of attaining a specified level of education. Education level also often influences income, product choices, standard of living and occupation

e. Occupation: The type of work done by the population in terms of brown, blue or white collar worker are important indicators of thbge atgtractiv eness of a country.

f. Income: or earnings is a primary measure of well-being of a person. It influences purchasing power and choices. The per capita income of a country indicates its well being to an extent. Products are developed for high, medium and low income earners.

g. Gender composition: Many literature suggest men and women have different psychological and physiological needs and they shop differently. Gender

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largely reflects the underlying social, economic, and cultural patterns of a society.

2. POLITICAL

Politics is the policies that are used to influence and affect the operations

of companies and countries. Do not confuse politics with partisans such as

JLP, PNP parties in Jamaica or Republican and Democratic parties in

USA.

Companies deciding to operate in foreign countries must be aware of the

political climate in each country where it wants to sell its products.

i. Nationalism. Many countries are promoting nationalism and

sovereignty by encouraging their citizens to buy and consume local

products. This can negatively affect international marketing

thrusts.

ii. Formation or development of a set of universal values despite

nationalism.

iii. Increase in the number of standards applied globally; e.g.

International Standards Organization, and the registration and

enforcement of trademarks, brand names, labeling and

patents

iv. The spread of democracy and freedom of choice vs totalitarianism.

v. The push by many advocates for an international criminal court

and international justice movements

vi. Bureaucratic and administrative hurdles in order to effect

contracts for the supply and delivery of goods and services

vii. regulation of marketing communications material and their

content

viii. pricing and foreign exchange rates and controls set by

government vs free market. Confidence in the market and

level of control

ix. product safety, acceptability, and environmental issues

x. political satiability. The extent to which a country is

volatile and prone to upheavals or unrest.

xi. Trading blocs. Existence of one or more regional trade

agreements between countries. Such agreements are

designed to facilitate trade through the establishment of a

Preferential Trade Areas free trade area, customs union or

customs market.

a. Preferential Trade Areas (PTAs) exist when countries within a geographical region agree to

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reduce or eliminate tariff barriers on selected goods imported from other members of the area. This is often the first small step towards the creation of a trading bloc.

b. Free trade areas where two or more countries

in a region agree to reduce or eliminate

barriers to trade on all goods while

maintaining trade barriers with nonmember

countries.

c. NAFTA consisting of United States of

America, Canada and Mexico is an example

of a free trade area. However, this trading

arrangement is being negotiated to the the United States-Mexico-Canada Agreement, or USMCA. Dominican Republic-Central American Free Trade Area (DR-CAFTA), which includes the Dominican Republic, Costa Rica, El Salvador, Nicaragua, Honduras and Guatemala. The European Free Trade

Association (EFTA) was created in 1960 by the outer seven (as a looser alternative to the then-European Communities) but most of its membership has since joined the Communities/EU leaving only four countries (Iceland, Norway, Switzerland and Liechtenstein) still party to the treaty.

d. Customs unions involves the removal of tariff

barriers between members, plus the acceptance of a common (unified) external

tariff and rate against non-members countries. This means that members may negotiate as a single bloc with 3rd parties, such as with other

trading blocs, or with the WTO. (CARICOM).

The key distinction between customs unions and free trade areas, however, involves their approach to non-treaty nations. While a customs union, by definition, requires all parties to the agreement to establish identical external tariffs with regard to trade with non-treaty

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nations (those nations that are not signatories to the agreement), members of a free trade area are free to establish whatever tariff rates with respect to foreign imports from non-signatory nations that they deem necessary or desirable.

e. A ‘common market’ (or single market) is the first significant step towards full economic integration, and occurs when member countries trade freely in all economic resources – not just tangible goods. This means that all barriers to trade in goods, services, capital, and labour are removed. In addition, as well as removing tariffs, non-tariff barriers are also

reduced and eliminated. (CSME). the European Single Market (ESM).

Difference between single market and custom union. A single market is a deeper form of integration than a customs union.

A single market involves the free movement of goods and services, capital and labour.

In addition to a common external tariff, a single market also tries to cut back on the use of non-tariff barriers such as different rules on product safety and environmental standards replacing them with a common set of rules governing trade in goods and services within the common market.

Countries such as Norway and Switzerland are outside of the European Union, but they are members of the EU single market, paying into the EU budget to take advantage of some of the benefits of the free flow of capital, labour, goods and services.

Advantages from trading blocs 1) provide free access to members’ markets; 2) provide easier access to each other’s markets such that trade between members is likely to increase; 3) . application of scale economies for producers; 4) jobs creation, due to increased trade between member economies and 5) firms inside the bloc are protected from cheaper imports from outside.

Disadvantages of trading blocs include 1) since blocs are dealt with as a group, possible benefits of free trade between countries in different blocs is lost; trading

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blocs encourage trade amongst member countries to the detriment of global trade. Inefficient producers within the bloc can be protected from more efficient ones outside the bloc resulting in domestic and local market paying higher prices.

3. ECONOMIC factors:

i. Increase in international trade at a faster rate than the growth in the world

economy.

ii. Increase in international flow of capital including foreign direct

investment. Development of global financial systems with influences

from international organizations such as WTO, WIPO, IMF, ISO that deal

with international transactions

iii. Creation of international agreements leading to organizations like the

WTO and OPEC

iv. Development of custom unions and common markets such as NAFTA and

the CSME

v. increase of economic practices like outsourcing, by multinational

corporations

vi. market factors such as homogeneous markets needing global customers

vii. Shortening product life cycles, transferable brands and advertising, and the

ability to globalize distribution channels.

A nation’s economic situation represents its current and potential capacity to

produce goods and services. The key to understanding market opportunities lies

in the evaluation of the stage of a nation’s economic growth.

A way of classifying the economic growth of countries is to divide them into

three groups: (a) industrialized, (b) developing, and (c) less-developed nations.

COUNTRY EDUCATION TECHNOLOGY PER CAPITA

INCOME • Norway.

The world's most developed country is Norway with an Human Develop Index of 0.944. Australia. Second on the list is Australia. Switzerland. Netherlands.

high literacy, modem

technology,

stable population

bases, and market

saturation for

many products

already exists.

higher per capita

incomes.

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United states of America. Germany.

New Zealand. Canada.

private enterprise

and a consumer

orientation

Developing

China, Iran,

Russia, Syria,

Jamaica, Trinidad

and Tobago,

Turkey,

Zimbabwe

Latin American

nations

rising levels of

education,

technology, and

per capita

incomes,

transition from

economies based

on agricultural

and raw materials

production to

industrial

economies.

growing

population bases,

currently import

limited goods and

services,

the long-run

potential for

growth in these

nations exists.

Less-developed

These nations

have low

standards of

living,

Angola,

Cambodia,

Ethipopa,

Tanzania, Yemen,

Afghanistan, Haiti

literacy rates are

low,

and technology is

very limited.

satisfy basic

needs–food,

clothing, housing,

medical care, and

education.

Marketers in such

nations must be

educators,

emphasizing

information in

their market

programs.

International Trade is the sale of goods and services across national boundaries. Anything

that restricts, hinders or prevents international trade is called “barrier to trade”. Barriers

to trade can be as a result of “Natural” factors such as sea, distance, and mountains or

government imposed such as “Tariff” barriers which are monetary hindrance such as

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taxes or duties and “Non-tariff barriers” which are non-monetary hindrance such as

import restrictions, embargos and exchange controls.

Most government trade barriers are imposed to protect local industries, especially infant

industries and to protect local jobs. Government rules that give special privileges to domestic manufacturers and retailers are called buy-national regulations. Almost all countries have these rules.

Following are the main reasons for trade barriers,

• Infant Industries: trade barriers and restrictions tend to protect young and

undeveloped industries that are not large enough to completive with more mature foreign

markets and products. With governments help these industries have not been grown enough

are given a chance to create recognition , a brand name and develop grove in a healthy

economical environment. With Trade barriers young industries will be protected from foreign

competition while they are developing.

• Domestic Employment: Another major reason of trade barriers is protection of

domestic employment. By putting the trade barriers in front of the imported products

governments are promoting domestic produced product or services. While demand on

domestic products increases the domestic production and domestic employment increases

along.

• Unfair Trade: In some cases foreign products may be sold in the domestic economy

at a price actually below of its actual cost as a result of foreign governments subsidize their

producers. With This practice of dumping foreign products may take over the domestic

market and give less change to domestic products compete. That will allow increase of

foreign products in the domestic market.

• National Security : trade barriers also needed for protection of industries and

companies those produce important products to the defense and security of the nations. The

aim is to prevent the country from depending on these vital products or services to another

nation.

Trade barriers prevent foreign producers from unfairly gaining a competitive advantage in the

domestic economy and help to level the playing field. If it will be used fairly by the

governments they could be great tools for international trade and control the trade deficit of a

country.

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Advantages

If a country is trying to grow strong in a new industry, tariffs will protect it from foreign competitors. That gives the new industry’s companies time to develop their own competitive advantages.

Protectionism also temporarily creates jobs for domestic workers. The protection of tariffs, quotas, or subsidies allows domestic companies to hire locally. This benefit ends once other countries retaliate by erecting their own protectionism.

Disadvantages

In the long term, trade protectionism weakens the industry. Without competition, companies within the industry have no need to innovate. Eventually, the domestic product will decline in quality and be more expensive than what foreign competitors produce.

Tariffs

A tariff is a tax imposed by a country on imported goods. It may be a charge on each

item of goods or a percentage of the value of the goods or a combination. No matter how

it is assessed, tariff makes imported goods more costly, by raising the price of the traded

products so they are less able to compete with domestic products. If two or more nations

repeatedly use trade barriers against each other, then a trade war results. The current

impasse between China and the USA, since 2018 is an example of a trade war.

Non-tariff barriers to trade

• Import licenses

• Export licenses

• Import quotas

• Embargo

• Subsidies

• Voluntary Export Restraints

• Local content requirements

• Currency devaluation

• Trade restriction

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The World Trade Organization and the CSME

After World War 2, the winning powers and allies wanted to create a world trade

organization but were unable to have a common understanding and instead they

developed the General Agreement on Tariffs and Trade (GATT) in 1948. The main

features of GATT are

1. Tariffs: All the signatories agreed not to increase tariffs beyond their existing

levels

2. Quotas: The signatories agreed to work towards the abolition of quotas.

3. Most favoured nation: Every signatory was a “most favoured nation”, i.e. trading

privileges could not be extended by one member to another without extending

them to all. (Existing systems of preferences, such as the commonwealth

preference with banana and sugar were allowed to continue …but the USA and

the Chiquita brand successfully contested this arrangement and won. has

questioned t6hisd continuation”

4. Trading blocs: The establishment of common-market type agreements such as the

EC and CARICOM (CSME) were allowed to continue, but were encouraged to be

more outward looking rather than insular.

As a result of the GATT, barriers to international trade have been considerably

lowered since World War II through rounds of talk. Some of the initiatives carried out

as a result of GATT (now monitored by the World Trade Organization, WTO)

include:

Promotion of free trade

1. Reduction or elimination of tariffs; construction of free trade zones with small or

no tariffs

2. Reduced transportation costs, especially from development of containerization for

ocean shipping

3. reduction or elimination of capital controls

4. Reduction, elimination, or harmonization of subsidies for local businesses

Intellectual property restrictions

5. Harmonization of intellectual property laws across nations (generally speaking,

with more restrictions)

6. Supranational recognition of intellectual property restrictions (e.g. patents granted

by China would be recognized in the US)

4. SOCIAL

The social/cultural environment

Culture is the systems of knowledge, beliefs, and values shared by a relatively large group of

people. The cultural environment consists of the influence of religious, family,

educational, and social systems in the marketing system. These include: (a)

language, (b) color, (c) customs and taboos, (d) values, (e) aesthetics, (f) time,

(g) business norms, (h) religion, and (i) social structures.

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As with politics, some countries embrace greater international cultural exchange,

spreading of multiculturalism, and better individual access to cultural diversity. However,

ethnocentrisms (favouring one’s own culture) is also prevalent and this can hinder

international marketing.

Failure to consider cultural differences is one of the primary reasons for marketing

failures overseas. McDonald once made the error of trying to sell its beef burgers in

India, where the cow is revered. Naturally, it failed, and its stores were damaged. Since

then, they have opened vegan stores in India.

Language

Although we take English for granted in Jamaica, there are almost 3,000

languages in the world. Language differences will influence marketers in

designing advertising campaigns and product labels. Jamaica’s nearest

neighbour is Cuba which is a Spanish speaking country. The challenge

increases in a multilingual country as Canada, India and China. Spanish is

slowly becoming a major language in the USA.

Colors

Colours also have different meanings in different cultures. For example, purple

is royalty in many Western countries but in Hispanic nations it is associated

with death. In Jamaica and Japan black are colours of mourning and brides

rarely wear a black outfit for weddings.

Customs and taboos

All cultures have their own unique set of customs and taboos. It is important for

marketers to learn about these customs and taboos so that they will know what

is acceptable and what is not for their marketing programs. McDonald’s once

made the error of trying to sell its beef burgers in India, where the cow is

revered.

TECHNOLOGICAL environment

Technology is the collection of techniques, skills, methods, and processes used in the production of goods or services or in the accomplishment of objectives. Basically, anything that helps us produce things faster, better or cheaper is technology.

A country’s level of technological development will affect the type of

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operations that are possible and its ability to attract business ventures whether

by locals or by overseas investors.

Although machinery, transportation systems, production and physical

distribution systems are important technological factors, telecommunication

development has been the most important factor in considering the

attractiveness of doing business in a country. While these factors are taken for

granted in most developed and developing countries, some lesser developed

nations might find these as challenges.

The Strength and Weaknesses of the SWOT analysis would focus on internal factors that

can either facilitate or impede the company’s efforts to undertake a global approach.

These include

1. Structure: The ease of installing a centralized global authority and the absence of

rifts between present domestic and international divisions or operating units.

2. Management processes: The capabilities and resources available to perform

global planning, budgeting, and coordination activities, coupled with the ability to

conduct global performance reviews, and implement global compensation units.

3. Resources: does the company have the required Land, work force, capital and

entrepreneurial ability to undertake globalization.

national customs, it is unlikely that the European Union (EU) will ever become

the “United States of Europe”.

Marketing objectives

Having identified stakeholder expectations, carried out a detailed situation

analysis, and made an evaluation of the capabilities of the company, the overall

marketing goals can be set. It is important to stress that there is a need for

realism in this, as only too frequently corporate plans are determined more by

the desire for short-term credibility with shareholders than with the likelihood

that they will be achieved.

The process adopted for determining long-term and short-term objectives is

important and varies significantly, depending on the size of the business, the

nature of the market and the abilities and motivation of managers in different

markets. At an operational level, the national managers need to have an

achievable and detailed plan for each country, which will take account of the

local situation, explain what is expected of them and how their performance

will be measured. Examples of objectives might be:

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• financial performance, including return on investment and profitability;

• market penetration, including sales (by volume and value), market share by

product category;

• customer growth, by volume and profitability;

• distribution, including strength in supply chain, number of outlets;

• brand awareness and value;

• new product introductions and diffusion;

• company image, including quality and added value (or service).

International marketing and globalization

We had looked at the different terminology used to describe a company’s involvement in

international or global marketing. A recap follows:

Multicountry or multidomestic competition is merely the idea that the market

conditions are such that each country market is self contained. The market conditions in

one country differ from that in other countries. Thus, each country market in which the

enterprise operates is distinct and requires a unique marketing mix. Thus the marketing

mix applied in Jamaica would be different from that done in USA or Europe. The

enterprise sees its operation as “just a collection of self contained or independent

markets).

In the case of Global competition, the world is seen as one big market and the marketing

mix is integrated and applied to all countries.

The more the market conditions differ, the more the need to see the market as

multidomestic while the more similar the market, the more the scope for global.

CONCLUSION

Whether a company should undertake a multidomestic or global approach to organizing

its international operations will largely depend on the nature of the company and its

products, how different foreign cultures are from the domestic market, and the company’s

ability to implement a global perspective. in their quest to go global.

Operating in the local or national market has always been a given for most companies as

it allows them not to worry about foreign languages, or deal with strange currencies; or

face political and legal uncertainties or even adapt the product to different customer

needs and culture.

Today’s fast moving world and information explosion as well as the use of technology,

have made national marketing give way to include international marketing. International

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marketing is basically the marketing of products across national boundaries. In short,

international marketing is similar to marketing locally but it is done across national

borders into other countries. A Global firm is one that does international marketing by

operating in more than one country, gains R&D, production, marketing, financial

advantages in its costs and reputation that are available to purely domestic competitors.

International trade affects and influences international marketing. International trade is

the trading of goods between countries. It is growing rapidly and mirroring the level of

intensified global competition amongst companies.

International marketing requires the firm to ask itself some serious questions such as:

1. Looking at the global marketing environment

2. Deciding whether to go global

3. Deciding which markets to enter

4. Deciding how to enter the market

5. Deciding on the global marketing plan

6. Deciding on the global marketing organization

1. The global marketing environment. See above for a look at the DPEST of the

global marketing environment

2. Deciding whether to enter global markets – As mentioned above, these include

competition in home market; stagnant or shrinking home market; expanding

customer base overseas. The companies strategies and resources will also affect

the decision to go international.

3. Deciding which markets to enter: - based on the company’s objective, sales target

and volume the company can look at the attractiveness of a set of countries and

decide which one to enter.

4. Deciding how to enter the market- After deciding which country it wants to enter,

the company can select one or more of a number of entry methods. The entry

methods are 1) exporting 2) Joint Ventures and 3_ Direct Investment.

i. Exporting is entering a foreign market by selling goods produced

in the company’s home country, often with little modification

ii. Joint Venturing

a. Licensing is a method of entering a foreign market

in which the company enters into an agreement with

a licensee in the foreign market. Usually restricted

to merchandising and manufacturing goods.

b. Franchising, similar to licencing but usually for

services.

c. Contract Manufacturing: a joint venture in which a

company contracts with manufacturers in a foreign

market to produce the product or provide its service

d. Management contracting is a joint venture in which

the domestic firm supplies the management know-

ho-to z a foreign company that supplies the capital.

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e. Joint ownership is a joint venture where a company

joins investors in a foreign market to create a local

business in which the company shares joint

ownership and control. This is the only way to enter

some countries that have strong political overtone

for foreign ownership of resources in the country.

iii. Direct Investment. The is where a company enter a foreign market

by developing and establishing foreign-based assembly and

manufacturing facilities.

5. Deciding on the Global Marketing programme

6. Deciding on the Global marketing organization

Exporting is a typically the easiest way to enter an international market, and therefore most firms begin their international expansion using this model of entry. Exporting is the sale of products and services in foreign countries that are sourced from the home country. The advantage of this mode of entry is that firms avoid the expense of establishing operations in the new country. Firms must, however, have a way to distribute and market their products in the new country, which they typically do through contractual agreements with a local company or distributor. When exporting, the firm must give thought to labeling, packaging, and pricing the offering appropriately for the market. In terms of marketing and promotion, the firm will need to let potential buyers know of its offerings, be it through advertising, trade shows, or a local sales force.

Partnerships and Strategic Alliances

Another way to enter a new market is through a strategic alliance with a local partner. A

strategic alliance involves a contractual agreement between two or more enterprises

stipulating that the involved parties will cooperate in a certain way for a certain time to

achieve a common purpose. To determine if the alliance approach is suitable for the firm, the

firm must decide what value the partner could bring to the venture in terms of both tangible

and intangible aspects. The advantages of partnering with a local firm are that the local firm

likely understands the local culture, market, and ways of doing business better than an

outside firm. Partners are especially valuable if they have a recognized, reputable brand

name in the country or have existing relationships with customers that the firm might want

to access. Fo

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Strategic alliances are also advantageous for small entrepreneurial firms that may be too

small to make the needed investments to enter the new market themselves. In addition, some

countries require foreign-owned companies to partner with a local firm if they want to enter

the market. For example, in Saudi Arabia, non-Saudi companies looking to do business in the

country are required by law to have a Saudi partner. This requirement is common in many

Middle Eastern countries. Even without this type of regulation, a local partner often helps

foreign firms bridge the differences that otherwise make doing business locally impossible.

Walmart, for example, failed several times over nearly a decade to effectively grow its

business in Mexico, until it found a strong domestic partner with similar business values.

The disadvantages of partnering, on the other hand, are lack of direct control and the

possibility that the partner’s goals differ from the firm’s goals. David Ricks, who has written a

book on blunders in international business, describes the case of a US company eager to

enter the Indian market: “It quickly negotiated terms and completed arrangements with its

local partners. Certain required documents, however, such as the industrial license, foreign

collaboration agreements, capital issues permit, import licenses for machinery and

equipment, etc., were slow in being issued. Trying to expedite governmental approval of

these items, the US firm agreed to accept a lower royalty fee than originally stipulated.

Despite all of this extra effort, the project was not greatly expedited, and the lower royalty fee

reduced the firm’s profit by approximately half a million dollars over the life of the

agreement.”David A. Ricks, Blunders in International Business (Hoboken, NJ: Wiley-

Blackwell, 1999), 101. Failing t

Acquisitions

Prepared for Marketing Equation Lecture notes by Clifton Neil July 2019

An acquisition is a transaction in which a firm gains control of another firm by purchasing its

stock, exchanging the stock for its own, or, in the case of a private firm, paying the owners a

purchase price. In our increasingly flat world, cross-border acquisitions have risen

dramatically. In recent years, cross-border acquisitions have made up over 60 percent of all

acquisitions completed worldwide. Acquisitions are appealing because they give the company

quick, established access to a new market. However, they are expensive, which in the past

had put them out of reach as a strategy for companies in the undeveloped world to pursue.

What has changed over the years is the strength of different currencies. The higher interest

rates in developing nations has strengthened their currencies relative to the dollar or euro. If

the acquiring firm is in a country with a strong currency, the acquisition is comparatively

cheaper to make. As Wharton professor Lawrence G. Hrebiniak explains, “Mergers fail

because people pay too much of a premium. If your currency is strong, you can get a bargain.

New, Wholly Owned Subsidiary

The proess of establishing of a new, wholly owned subsidiary (also called a greenfield

venture) is often complex and potentially costly, but it affords the firm maximum control and

has the most potential to provide above-average returns. The costs and risks are high given

the costs of establishing a new business operation in a new country. The firm may have to

acquire the knowledge and expertise of the existing market by hiring either host-country

nationals—possibly from competitive firms—or costly consultants. An advantage is that the

firm retains control of all its operations.

Table 8.1 International-Expansion Entry Modes

Type of Entry Advantages Disadvantages

Prepared for Marketing Equation Lecture notes by Clifton Neil July 2019

Type of Entry Advantages Disadvantages

Exporting Fast entry, low risk Low control, low local knowledge, potential negative environmental impact of transportation

Licensing and Franchising

Fast entry, low cost, low risk

Less control, licensee may become a competitor, legal and regulatory environment (IP and contract law) must be sound

Partnering and Strategic Alliance

Shared costs reduce investment needed, reduced risk, seen as local entity

Higher cost than exporting, licensing, or franchising; integration problems between two corporate cultures

Acquisition Fast entry; known, established operations

High cost, integration issues with home office

Greenfield Venture (Launch of a new, wholly owned subsidiary)

Gain local market knowledge; can be seen as insider who employs locals; maximum control

High cost, high risk due to unknowns, slow entry due to setup time