What are the benefits of the going international? and what are the different entry strategies in international marketing?
Ans. There are a variety of ways in which organizations can enter foreign
markets. The three main ways are by direct or indirect export or production in a
foreign country.
Exporting :–
Exporting is the most traditional and well established form of operating in foreign markets. Exporting can be defined as the marketing of goods produced in one country into another. Whils no direct manufacturing is required in an overseas country, significant investments in marketing are required. The tendency may be not to obtain as much detailed marketing information as compared to manufacturing in marketing country; however, this does not negate the need for a detailed marketing strategy.
The advantages of exporting are :–
Ø Manufacturing is home based thus, it is less risky than overseas based
Ø Gives an opportunity to “learn” overseas markets before investing in bricks and mortar
Ø Reduces the potential risks of operating overseas.
The disadvantage is mainly that one can be at the “mercy” of overseas agents and so the lack of control has to be weighed against the advantages. For example, in the exporting of African horticultural products, the agents and Dutch flower auctions are in a position to dictate to producers.
Foreign production :–
Besides exporting, other market entry strategies include licensing, joint ventures, , ownership and participation in export processing zones or free trade zones.
Licensing :– Licensing is defined as “the method of foreign operation whereby a firm in one country agrees to permit a company in another country to use the manufacturing, processing, trademark, know-how or some other skill provided by the licensor”.
It is quite similar to the “franchise” operation. Coca Cola is an excellent example of licensing. In Zimbabwe, United Bottlers have the licence to make Coke.
Licensing involves little expense and involvement. The only cost is signing the agreement and policing its implementation.
Licensing gives the following advantages :–
Ø Good way to start in foreign operations and open the door to low risk manufacturing relationships.
Ø Linkage of parent and receiving partner interests means both get most out of marketing effort
Ø Capital not tied up in foreign operation and
ØOptions to buy into partner exist or provision to take royalties in stock.
The disadvantages are :–
Ø Limited form of participation – to length of agreement, specific product, process or trademark
Ø Potential returns from marketing and manufacturing may be lost
Ø Partner develops know-how and so licence is short
Ø Licensees become competitors - overcome by having cross technology transfer deals and
Ø Re quires considerable fact finding, planning, investigation and interpretation.
Those who decide to license ought to keep the options open for extending market participation. This can be done through joint ventures with the licensee.
Joint ventures :–
Joint ventures can be defined as “an enterprise in which two or more investors share ownership and control over property rights and operation”. Joint ventures are a more extensive form of participation than either exporting or licensing. In Zimbabwe, Olivine industries has a joint venture agreement with HJ Heinz in food processing.
Joint ventures give the following advantages :–
Ø Sharing of risk and ability to combine the local in-depth knowledge with a foreign partner with know-how in technology or process
Ø Joint financial strength
Ø May be only means of entry and
Ø May be the source of supply for a third country.
They also have disadvantages :–
Ø Partners do not have full control of management
Ø May be impossible to recover capital if need be
Ø Disagreement on third party markets to serve and
Ø Partners may have different views on expected benefits.
If the partners carefully map out in advance what they expect to achieve and how, then many problems can be overcome.
Ownership :– The most extensive form of participation is 100% ownership and this involves the greatest commitment in capital and managerial effort. The ability to communicate and control 100% may outweigh any of the disadvantages of joint ventures and licensing. However, as mentioned earlier, repatriation of earnings and capital has to be carefully monitored. The more unstable the environment the less likely is the ownership pathway an option.
Export processing zones (EPZ)
Whilst not strictly speaking an entry-strategy, EPZs serve as an “entry” into a market. They are primarily an investment incentive for would be investors but can also provide employment for the host country and the transfer of skills as well as provide a base for the flow of goods in and out of the country.
Organizations are faced with a number of strategy alternatives when deciding to enter foreign markets. Each one has to be carefully weighed in order to make the most appropriate choice. Every approach requires careful attention to marketing, risk, matters of control and management..
Having done all the preparatory planning work (no mean task in itself!), the prospective global marketer has then to decide on a market entry strategy and a marketing mix. These are two main ways of foreign market entry either by entering from a home market base, via direct or indirect exporting, or by foreign based production. Within these two possibilities, marketers can adopt an “aggressive” or “passive” export path.
Entry from the home base (direct) includes the use of agents, distributors, Government and overseas subsidiaries and (indirect) includes the use of trading companies, export management companies, piggybacking or counter trade. Entry from a foreign base includes licensing, joint ventures, contract manufacture, ownership and export processing zones. Various strategies used in international marketing To develop an effective global marketing strategy, companies need to divide it into four parts. They are product, promotion, price and place.
1. Product Strategies :– The product is one of the most important components of a marketing program. A company is usually known by the products it offers in the market. In the global market place, companies need to develop products which meet global standards. However, product features and characteristics can be customized depending on the requirements of a local market. Once the brand value of a product is developed, the same kind of positioning and marketing efforts can be
utilized through out the global market. Product process design should also take into consideration the legal restrictions of local markets. For eg. Himalaya Drug company entered the US market in 1996 with products modified to suit local requirements. It sold various products in the US market such as a daily health and digestive capsules, laxative syrup, antiseptic cream etc.
2. Promotion Strategies :– The promotion strategies of a global marketing organization include advertising, sales, promotion, publicity, public relations, direct marketing and personal selling. As the cultures of different countries differ significantly, it is always a challenging task for companies to design an effective promotional strategy for global customers. Communication is an essential form of the promotional
process. Another factor that also affects the designing of a promotional strategy is the different set of cost constraints in different countries. For eg. Media cost and sales force cost differ significantly from one country to another. Therefore companies need to be very careful in the selection of communication mix in different countries. Different promotional strategies should be developed for different markets. One of the
promotional strategies should be developed for different markets. One of the important promotional strategies for industrial markets is participation in international trade fairs. Sponsoring locally popular games and events can also be effective promotion strategies.
3. Pricing Strategies :– While developing pricing strategies for the global market, one must consider the internal and external environments of a company. It is very difficult to asses the impact of these factors on the price of a product because these factors work in various combinations in various countries. A company needs to decide whether to adopt a common pricing strategy for the entire global market or to adopt a pricing strategy that suits individual nations. It is normally suggested that it is better to
adopt individual pricing strategies for different markets in which the company is operating. Global companies need to continuously review their pricing strategies because uncontrollable factors such as exchange rates and inflation change continuously.
4. Place Strategies :– Economic, efficient and reliable transportation and distribution of goods and services has played a significant role in the development of world trade. In the total cost of a product, over 50% is related to material and around 10% is labour cost. Distribution of the product accounted for the remaining 40%. Therefor e, the selection of an appropriate distribution medium is critical to the success of the global marketing efforts of a company place or distribution strategies are dependent on the type of product a company offers. Generally a company has access to two major types of distribution channels – domestic intermediaries and foreign intermediaries. Apart from these channels, the company can also use its own personnel for distribution. A global distribution strategy has to be developed considering the economic, cultural, legal and political environment. The distribution strategies must be consistent with the product, pricing and promotional strategies. For
eg. McDonalds recently opened its outlet in Delhi Agra highway to cater to the increasing tourist traffic on the highway.
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