International Strategic Management International Strategic ...

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International Strategic ManagementInternational Strategic Management

International Marketing

May 17th, 2004

What is International Marketing ?What is International Marketing ?

Kahler 1977: Export or international Business

Bradley 1991: Establishment of organizations to do business in international markets – in two or more countries

Stahr 1993: All activities of a company to attract customers in selected countries

Czinkota/Ronkainen 1998: Planning and executing transactions across border...

Backhaus/Büschken/Voeth: International Marketing, 2000

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Major Decisions in International MarketingMajor Decisions in International Marketing

1. Deciding whether to go abroad

2. Deciding which markets

to enter

3. Deciding how and when

to enter the market

4. Deciding on the marketing

program

5. Deciding on the marketing organization

1. Deciding whether to Go Abroad1. Deciding whether to Go Abroad

? Traditional MotivationKey suppliersSeeking new marketsLower cost of production

? New MotivationIncreasing EOSBalloning R&D investmentsShorter production life cycle...

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1. Deciding whether to Go Abroad1. Deciding whether to Go Abroad

? Most companies would prefer to remain domestic businesses? Major concerns of going abroad:

– Unstable governments– Foreign-exchange problems– Foreign-government entry requirements and bureaucracy– Tariffs and other trade barriers– Corruption– Technological Pirating– High cost of product and communication adaptation– .....

Risks when going abroad...

? Company must also decide on the types of countries to considerPre-selection of highest potential markets

(„candidate selection“)

? Therefore, it has to analyse:– Market potential (macro-economic view)– Foreign country strategy

2. Deciding which Markets to Enter2. Deciding which Markets to Enter

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Analysis of Market Potential (Phase 1)Analysis of Market Potential (Phase 1)

Macroenvironmental Factors– Population and income of target country– Structure of Consumption

? producer vs. consumer goods? luxury vs. necessity

– Production indicators? of key industries, cars , steel, etc.

– Prices? of raw materials, financing, etc.

– Economic Systems

2. Deciding which Markets to Enter2. Deciding which Markets to Enter::

Analysis of Foreign Country Strategy (Phase 2)Analysis of Foreign Country Strategy (Phase 2)

Info needed for this analysis:– Consumer decision making process

? Use of product? Who buys? When? Why? Where? How often?

– Competitor analysis? Barriers of entry?

– PLC analysis? Product launch possible in appropriate stage of foreign country`s PLC?

2. Deciding which Markets to Enter2. Deciding which Markets to Enter

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Comparability of information:Problem of equivalence in standardized international market research

Construct equivalence? functional equivalenceProducts may be used for different purposes in different country environments(e.g.: bikes in the USA or in Holland)

? ? conceptual equivalenceConcepts have different meanings in different cultural environments

- (e.g.: family in USA: parentes + child; Italy: clan )? ? category equivalence- are the examined concepts, objects or behavior patterns classified in the same

categories in different countries? - (e.g.: in some countries beer is considered a soft drink;

Berndt/Altobelli/Sander: Internationales Marketing Management, 1999, S.44ff

2. Deciding which Markets to Enter2. Deciding which Markets to Enter::Information Information NeedsNeeds

Measure equivalence- Calibration equivalence (use of corresponding monetary and physical units as well as considering the different interpretations of colors, shapes, etc.) - Translation equivalence (equivalence of the general sense of verbal, as well as non-verbal stimuli through retranslating or parallel translation )- Metric equivalence (reaction of the test persons on e.g. 5- or 6-point, increasing or decreasing scales; meaning of identical scores in different countries)

Sampling equivalence- Individual vs. group (selection of country specific and relevant test persons depending e.g. on the number of persons involved in decision making processes)- Sample representativity(establishing the comparability of the national representative s amples)

2. Deciding which Markets to Enter2. Deciding which Markets to Enter::Information Information NeedsNeeds

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Market Selection Techniques Market Selection Techniques

2. Analysis of segment -specific chances for success

Intranationalsegmentation

- Investment theoretical approaches

- decision-tree approach

Classic decision rules

Fine Selection:1. Analysis of country -specific chances for success

Port-folio-Analysis

Risk-Point-evaluation approach

2. Analysis of political risks

- Checklist-

approach- Point-evaluation approach

sequential evaluation approach

Rough Selection: 1 Analysis of general consumption requirements

International segmentation

AnalyticalheuristicalSegmentation approach

Meffert/Bolz: Internationales Marketing Management, 2. Auflage, 1994, S. 113

stepapproach

Prof. Dr. Michael Dowling -Universität Regensburg

3. Deciding how to Enter the Market3. Deciding how to Enter the Market

? Indirect Export? Direct Export? Licensing? Joint Ventures? Direct Investment

Risk

Return

IndExport

Dir Export

Licen-sing

JV

Dir Inv

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Meffert/Bolz: Internationales Marketing Management, 2. Auflage, 1994, S. 119

Foreign CountryLowHighHigh

Direct investment

Foreign Country

HighMiddleMiddle – highJoint Ventures

HomeMiddleLowLowLicensing

HomeLowHighLowDirect Export

HomeLowLowVery lowIndirect Export

Institutional settlement

DependencyControlCapital emplyoment

LicensingLicensing

? The international company (= licensor) agrees to make available to another company abroad (=licensee) use of its patents and trademarks, its manufacturing know-how, its trade secrets and its managerial and technical services.

? The foreign company agrees to pay the licensor a royalty or other form of payment


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LicensingLicensing

Pros.:? A way of getting a foothold in a foreign

market without a large capital investment

? most attractive to firms that are new to the international business area

? fewer exchange rate risk? circumvent trade barriers (e.g. no

duties)? circumvent production restriction in the

domestic market? test foreign markets

Cons.:? Danger of establishing a future

competitor? less control over licensees

operations, which could result in damage to the licensor‘s reputation

? limited licensing returns

Source: Phatak, A.: International Management, 1996, S.250,


FranchisingFranchising

? Another form of licensing? Usually: a company initially establishes a brand name for its products,

service, quality etc. in the home market and a standardized business system to operate the business. It then franchises the entire business system in a foreign country

? Examples: McDonald‘s, Hollyday Inn, Bang & Olufsen


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Joint VenturesJoint Ventures

? Foreign investors join local investors to create a JV? Shared ownership and control? JVs often necessary or desirable for economic or political reasons? Characteristics:

– Direct control of distribution channels:company owned points of sales

– International business is critical part of headquarter strategy– Joint ownership may lead to management conflicts


Direct InvestmentDirect Investment

? Direct ownership of foreign-based assembly or manufacturing facilities? Advantages:

– Cost economies (e.g. cheaper labor or raw materials, freight savings)

– Better relationship with foreign government, customers, local suppliers, etc.

– Full control of marketing mix? Disadvantages:

– Country-specific economic and political risks– Investment (also in time and education)


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Direct InvestmentDirect Investment

Pros for direct investment by acquiring another company:

? rapid market entry and start of production?acquisition of contacts, a performing organization, local knowledge and a qualified labor force?gain of time saves money?no creation of additional production capacities

Pros. for direct Investment by building a own factory:

? implementation of modern technology?better image within the host country due to new job creation


Factors influencing market entry choiceFactors influencing market entry choice

Company related Factors

Market related Factors

Strategy Cost Situation

Product related Factors Legal

SituationEconomic Situation

Competitive Situation

Trade Situation

Consumer Situation

? Internationali -zationstrate -gy

? chosen market seg -ments

? compe -titivestrate -gy

? market position

? tech -nology

? loca -tionfactor cost

? pro -ducti -vity

? EOS

? sales cost

? capa -city utili -zation

? pro -duct

? life cycle level

? de -gree of pro -duct dif -feren -tiation

? ex-port/ im-port bar -riers

? dum -ping regu -lation

? tax

? price con -trol

? local con -tent regulation

? market growth

? market volume

? market struc -ture

? ex-chan -ge rate

? infla -tion

? amount and strength of compe -tition

? substitution

? amount and power of agents

? terms of trade struc -ture

? income

? price elasti -city

? consu -merbeha -vior

? market trans -paren -ce

Meffert/Bolz: International Marketing – Management, 2. Aufl., 1994, S.136


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Timing of Market EntryTiming of Market Entry

After deciding HOW to enter the market:

WHEN should the selected markets be entered?

Two strategies:- sprinkler approach- waterfall approach


Sprinkler-Approach:a company enters several markets within a very short period of time.

Reasons for choosing the sprinkler approach:- short product life cycles (e.g. like in the computer industry)- high R & D investments have to be amortized- gain first mover advantages and building up barriers for follower


1 YearTime line 0

Country FCountry ECountry DCountry CCountry BCountry A

Entry

Years0 1

Source: Backhaus et al: Internationales Marketing, 3 Auflage, 2000 S.137


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Waterfall-Approach:companies expand there abroad business step by step in a sucessivemanner

Reasons for choosing the waterfall approach:-- the expected product life cycle is very long-- low competition on the selected country markets


Country FCountry E

Country DCountry C

Country B

Country A

Entry

Years0 1 2 3 4 5 6

Source: Backhaus et al: InternationalesMarketing, 3 Auflage, 2000 S.127


Advantages of the Waterfall-approach:- possibility to grow with its foreign business in terms of organization and resources - less resources required than with the sprinkler approach- less risky than the sprinkler approach- extention of the product life cycle

Timing of Market EntryTiming of Market Entry3. Deciding how to Enter the Market3. Deciding how to Enter the Market

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Prof. Dr. Michael Dowling -Universität Regensburg

4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program

? Companies must decide how much to adapt their marketing to local conditions

? Two Extremes:– Standardized marketing worldwide– Differentiated marketing (adjustment to each target market)

Strategic level Instrumental level

Contents

- Marketing

strategy

- physical product - brand policy

- communication policy - distribution policy - pricing policy

Processes

- Information systems

- Segmentation models

- Controlling systems

- advertisement planning

- distribution planning

Source: Meffert/Bolz: Internationales Marketing-Management, 1994, S 148

Scope of Standardization4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program

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Product PolicyProduct Policy

…refers to decisions about product, program, branding and service in an international setting:

According to Bernd/ Fantapié Altobelli / Sander : InternationaleMarketing-Politik, S. 58, 1997

Product Core

Tangible Product

Extended Product

Basic Function

Branding

Packaging

Quality

Styling

Features

Installation

Guarantee

After Sales Service


Dependency on culture Rank Products/Industry

cultu

re-fr

ee ?

hi

gh-t

ech ?

1 2 3 4 5 6 7

Computer hardware Airlines Photographic devices Heavy equipment Machine tools Consumer electronics Computer software

8 9 10 11 12

Long-lasting household-appliances Wine and spirituous beverages Soft drinks Tobaccos Stationeries

high

-touc

h ?

hi

gh-i

nter

est ?

13 Cosmetics

14 15 16 17 18 19 20

Beer Detergents Toiletries Publishing products Foodstuff Sweets Textiles

Source: Meffert/Bolz: Internationales Marketing , 2. Auflage, 1994, S. 174


Potential to Standardize of different Product Categories


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Traditional or culturally sensible products (e.g. food)

Differentiation

cars: standardized core product; adaptation to national markets by e.g. using different exhaust gas filter in accordance to specific country standards.

Shaver switching from 110 to 220V

Intermediary Solution

Modular approach

Built-in flexibility

high-tech or luxury products (e.g. films, luxury watches etc.)

Standardized products

ExamplesSolution

According to Kreutzer: Global Marketing, 1989,S. 281,



Branding using...

...Product names

...Products signs

Standardization pitfalls...

...with respect to pronouncability, associations, meaning, protectability of a product name

...when the product sign is equal with the brand name (e.g. Coca Cola)


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Barriers to Standardization? Legal barriers: quality standards and norms, ? Technological barriers: e.g. different standards in power supply, ? Linguistic barriers: pronouncability of the products name? Image barriers: e.g. linkage between package and perceived quality? Physiological barriers: e.g. different body sizes? Consumption patterns: function of a product

Communication PolicyCommunication Policy

Source: Backhaus/ Büschgen/ Voeth 1996, S. 191

Path of Standardization

C.-TARGETS

C.-STRATEGY

C.--INSTRUMENTS

Public Relations

Advertising

Sales Promotion

Corporate IdentityPublic

RelationsCommercial

DesignMedia

Selection

Message

Tonality

Pictures

Color

Music

Text


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Example: Advertising/ Language

102451123521621003I

14178810035455319671994100D

52631199830713110100211616F

4858404273612825347212311001644E

FINNORSWIAUSSWEDENGREPORBELNETHSPAFRAUKITAGER

Source: Mooij, Advertising Worldwide, 2nd Edition, New York, 1994, S. 288


Language knowledge in Europe (%);


Example: Advertising / Media Selection


35197Sri Lanka

2101006South Corea

23150Africa

250318Middle East

308592Eastern Europe

444817Western Europe

150292Latin America

7892017North America

RadioTV

Communication Infrastructure in selected Countries and Regions (per 1000 citizen)

Source: Sookdeo: The New Global Consumer, in: Fortune, Autumn-Winter 1993, pp. 68-77


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Communication PolicyCommunication PolicyElement Country/Culture Interpretation

stewardess serves champagne to passengers

Europe/USA

Islamic countries

demonstration of good service

attempt to influence religious values (Violation of standards concerning food and behavior)

perfume, background of raindrops

Central- and Southern Europe

parts of Africa

rain as a symbol for freshness

rain as a symbol for fertility

Marlboro-Cowboy USA

Hong Kong

Argentina

symbol for freedom and manliness

cowboy looks like a coolie

cowboy has a low social standing; useless tramp

Source: Cateora, International Marketing, 1993, pp. 524; Ricks, Big Business Blunders, 1983, pp. 63


Barriers to Standardization

?Legal barriers: prohibition of comparative advertising, prohibition of advertising for certain products, prohibition of foreign languages in advertising

?Technological barriers: media diffusion

?Linguistic barriers: knowledge of foreign languages, understanding and interpretation of words, symbols, color and music

? Image barriers: link between media characteristics and product quality

?Consumption patterns: media usage

?Competitive situation: e.g. average advertising budget, cost for media, typical forms of communication

Communication PolicyCommunication Policy4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program

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Pricing PolicyPricing Policy

Determinants of international pricing

Intern determinants? international organizational structure? cost structure

? way of transfer pricing? decisions on other parts of the marketing mix

Extern determinants

? political, legal and economical framework? behaviour and preferences of customers? competitive structure and behaviour

? exchange rate volatility? occurance of gray markets


15 %L16 %D16 %E17 %P17,5 %NL17,5 %GB18 %GR20 %I20 %A20,6 %F21 %B21 %IRL22 %FIN25 %S25 %DKVATCountry

Source: http://europa.eu.int/comm/dg10/publications/autres/voy2000/txt_de.html

Pricing PolicyPricing Policy4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program

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Example: Sales Promotion

Discounts Extras Sales Opening hour regulations

Belgium permitted prohibited only winter and summer sales and closing-down sale

until 8 p.m., Fridays: 9 p.m.

France permitted prohibited always permitted

no regulations

Greek prohibited but still usual

prohibited prohibited but still usual

no regulations

Luxemburg max. 3% prohibited always permitted

until 8 p.m.; in Winter: 7 p.m.

U.K. permitted permitted always permitted

until 8.p.m.; once a week until 9 p.m.

Source: ZAW-service Nr. 181, Mai 1994, S. 13

PricingPricing PolicyPolicy4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program


Profit in foreign currency remains constant, Profit in domestic currency is increasing, price remain constant from a foreign customers’ view

Profit (in domestic currency) is increasing; price remain constant from a foreign customers’ view

Profit (in domestic currency) is constant; price is decreasing from a foreign customers’ view

Appreciation of the foreign currency

Profit in foreign currency remains constant, Profit in domestic currency is decreasing, price remain constant from a foreign customers’ view

Profit (in domestic currency) is decreasing; price remain constant from a foreign customers’ view

Profit (in domestic currency) is constant; price is increasing from a foreign customers’ view

Devaluation of the foreign currency

Billing in foreign currency

Billing in foreign currency

Billing in domestic currency

Sale of a product by a foreign subsidiary

Sale of a product by exporting

Source: Sanders, InternationalesPreismanagement, 1997, p. 52


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Country Term of payment Mean delay

Belgium 45-90 18

France 60-90 15

Germany 30-60 11

Italy 60-120 17

Netherlands 25-40 17

United Kingdom 30-60 16

Spain 60-90 n.n.

Portugal 60-90 n.n. P

Terms of payment and customer behaviour

Source: LP international 12/00, p.9.



Country A

Authorized Export

Production site Cost per unit k = 2,

price pA = 8

Authorized Export

Reimport Paral- -el imtort

Country B Country C

price pB = 6 Lateral grey import price pC = 10

Transport cost per unit - between A and B: 0,50 - between A and C: 1,00 -between B and C: 1,50

Source: Simon, Wiese: Internationale Preispolitik, p.245 in: Hermanns, Wissmeier : internationales Marketing-Management, 1994

Gray markets:

4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program

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Basic Strategies in International Pricing:

- Standardization

- Dual pricing strategy

- Differentiation

- Price – corridor



Barriers to Standardization

? Legal barriers: e.g. restrictions on discounts

? Technological barriers: Existence of facilities for electronic data exchange, inter-bank payment etc.

? Image barriers: importance of price as an indicator for quality

? Consumption patterns: typical price behavior, economic limitations of customers; Conditions expected, e.g. respite for payment

? Competitive situation: average price level


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Distribution PolicyDistribution Policy

Issues of an international distribution policy:

? distribution structure:structure of distribution channel through which goods pass f rom producer to user

? key issues: characteristics of middlemen, selection criteria of distributors, contractual producer-distributor relationship

? distribution process:- physical handling and distribution of goods- passage of ownership- buying and selling negotiations (producer-middlemen, middlemen-customer)

? key issues: choice of locations, choice of logistic partners, technical and organizational handling


Basic decisions with strategic character:? outsourcing degree of distribution tasks? length of distribution channel? variety of distribution systems? exclusivity arrangements with channel members

Distribution PolicyDistribution Policy4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program

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Distribution PolicyDistribution Policy

Barriers to Standardization? Legal barriers: regulations on store design and size,

? Technological barriers: existence of infrastructure

? Geographical barriers: climate, natural barriers

? Image barriers: customers association between outlet type and product quality

? Consumption patterns: typical outlets for certain products

? Competitive situation: channel blockage, channel cost


Effects of Standardization & DifferentiationEffects of Standardization & Differentiation Cost and turnover effects of

Standardization Differentiation

Cost de-crease

??Decreasing costs for research and development of products

??More effective co-ordination and control ??Scale and experience effects in production,

marketing, logistics ??Easy transferability of human resources (less

training requirements) ??Reduction of losses incurred due to arbitrage

??Possible downward adaptation of product quality in technically less developed markets

??Limited service problems in technically less developed markets with inexperienced users

??Differentiation of prices may lead to higher sales volume (quantity) in different country markets and, as a consequence, to sinking costs (economies of scale + scope)

Turn-over

increase

??Unified product and corporate image across country markets leads to increased brand equity

??Positive spill over effects between markets ??Possible homogenization of country markets

through standardized products ??Elimination of parallel imports through price

standardization

??Adaptation to customer needs and expectations leads to higher national price level

??Differentiation of prices may lead to higher sales in different national markets and to increased overall turnover

??Possibility of serving niche markets in certain countries with specialized products

Common aspects of standardization: the imitation of ideas and concepts by competitors can be prevented. Three basic risks: 1. Restraint of innovative processes 2. Danger of conflicts between headquarter and subsidiaries 3. Danger of a global mega flop (e.g.: The New Coca Cola)

Source: Segler (1986), p. 213.

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Deciding on the Marketing OrganizationDeciding on the Marketing Organization

Organizational Configuration:

- multinational- international- global- transnational

Deciding on the Marketing OrganizationDeciding on the Marketing Organization

Differentiation advantage

Inte

grat

ion

adva

ntag

e

low

low

high

high

Source: Meffert/Bolz: Internationales Marketing , 2. Auflage, 1994, S. 2470

GlobalProduct

organization

Trans-national

Matrix organization

Inter-national

Export division

Multi-national

Country organization

Basic Strategy – Structure Relationships in international Marketing

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Additional LiteratureAdditional Literature

? Berndt/ Fantapié Altobelli/ Sander: Internationale Marketing-Politik, 1997, Sig.: 40/QP 680 B524

? Hünerberg: Internationales Marketing, 1994, 40/QP 680 H887

? Meffert/ Bolz: Internationales Marketing-Management, 2. Auflage, 1994, 40/QP 680 M492 (2)

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