International Marketing

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THE HINDU COLLEGE-MBA, MACHILIPATNAM, Dr.V.V.S.K.PRASAD

International Marketing

PROF.V.V.S.K.PRASAD

THE HINDU COLLEGE –MBA

MACHILIPATNAM

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Introduction to International Marketing

International marketing is simply the application of marketing principles to more

than one country. However, there is a crossover between what is commonly

expressed as international marketing and global marketing, which is a similar

term. For the purposes of this lesson on international marketing and those that

follow it, international marketing and global marketing are interchangeable.

The intersection is the result of the process of internationalisation. Many

American and European authors see international marketing as a simple

extension of exporting, whereby the marketing mix is simply adapted in some way

to take into account differences in consumers and segments. It then follows that

global marketing takes a more standardised approach to world markets and

focuses upon sameness, in other words the similarities in consumers and

segments. So let's take a look at some generally accepted definitions.

What is International Marketing?

"At its simplest level, international marketing involves the firm in making one or

more marketing mix decisions across national boundaries. At its most complex

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level, it involves the firm in establishing manufacturing facilities overseas and

coordinating marketing strategies across the globe."

Doole and Lowe (2001).

Note: Doole and Lowe differentiate between international marketing (simple mix

changes) and global marketing (more complex and extensive).

"International Marketing is the performance of business activities that direct the

flow of a company's goods and services to consumers or users in more than one

nation for a profit. "

Cateora and Ghauri (1999)

Note: Cateora and Ghauri consider international marketing in the absence of

global marketing.

"International marketing is the application of marketing orientation and

marketing capabilities to international business. "

Muhlbacher, Helmuth, and Dahringer (2006)

Note: Muhlbacher et al consider international marketing in relation to marketing

orientation and competences (see also Global Marketing).

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"The international market goes beyond the export marketer and becomes more

involved in the marketing environment in the countries in which it is doing

business. "

Keegan (2002)

Note: Keegan's definition is typical of those that see international marketing a one

stage of an internationalisation process.

What is Global Marketing?

"Global marketing refers to marketing activities coordinated and integrated

across multiple country markets."

Johansson (2000)

Note: Jonny K. Johansson defines global marketing as a bigger brother to

international marketing i.e. more of an extension.

". . . The result is a global approach to international marketing. Rather than

focusing on country markets, that is, the differences due to the physical location

of customers groups, managers concentrate on product markets, that is, groups

of customers seeking shared benefits or to be served with the same technology,

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emphasizing their similarities regardless of geographic areas in which they are

located. "

Muhlbacher, Helmuth, and Dahringer (2006)

Note: Muhlbacher et al delineate international marketing (adapted) and global

marketing (standardised).

"Global/transnational marketing focuses upon leveraging a company's assets,

experience and products globally and upon adapting to what is truly unique and

different in each country. "

Keegan (2002)

Note: Keegan takes a strategic, corporate overview to define the transnational

nature of global marketing.

So, as with many other elements of marketing, there is no single definition of

international marketing, and there could be some confusion about where

international marketing begins and global marketing ends. These lessons will

assume that both terms are interchangeable, and will define international

marketing as follows:

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International marketing is simply the application of marketing principles to

more than one country.

International Marketing Environment

The marketing environment surrounds and impacts upon the organization. There

are three key perspectives on the marketing environment, namely the 'macro-

environment,' the 'micro-environment' and the 'internal environment'.

The micro-environment

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This environment influences the organization directly. It includes suppliers that

deal directly or indirectly, consumers and customers, and other local

stakeholders. Micro tends to suggest small, but this can be misleading. In this

context, micro describes the relationship between firms and the driving forces

that control this relationship. It is a more local relationship, and the firm may

exercise a degree of influence.

The macro-environment

This includes all factors that can influence and organization, but that are out of

their direct control. A company does not generally influence any laws (although it

is accepted that they could lobby or be part of a trade organization). It is

continuously changing, and the company needs to be flexible to adapt. There may

be aggressive competition and rivalry in a market. Globalization means that there

is always the threat of substitute products and new entrants. The wider

environment is also ever changing, and the marketer needs to compensate for

changes in culture, politics, economics and technology.

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The internal environment.

All factors that are internal to the organization are known as the 'internal

environment'. They are generally audited by applying the 'Five Ms' which are

Men, Money, Machinery, Materials and Markets. The internal environment is as

important for managing change as the external. As marketers we call the process

of managing internal change 'internal marketing.'

Essentially we use marketing approaches to aid communication and change

management.

The external environment can be audited in more detail using other approaches

such as SWOT Analysis, Michael Porter's Five Forces Analysis or PEST Analysis.

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http://marketingteacher.com/lesson-store/lesson-swot.html

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SWOT Analysis

Strengths, Weaknesses, Opportunities and Threats (SWOT).

SWOT analysis is a tool for auditing an organization and its environment. It is the

first stage of planning and helps marketers to focus on key issues. SWOT stands

for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses

are internal factors. Opportunities and threats are external factors.

In SWOT, strengths and weaknesses are internal factors.

For example:

A strength could be:

Your specialist marketing expertise.

A new, innovative product or service.

Location of your business.

Quality processes and procedures.

Any other aspect of your business that adds value to your product or

service.

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A weakness could be:

Lack of marketing expertise.

Undifferentiated products or services (i.e. in relation to your competitors).

Location of your business.

Poor quality goods or services.

Damaged reputation.

In SWOT, opportunities and threats are external factors.

For example:

An opportunity could be:

A developing market such as the Internet.

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Mergers, joint ventures or strategic alliances.

Moving into new market segments that offer improved profits.

A new international market.

A market vacated by an ineffective competitor.

A threat could be:

A new competitor in your home market.

Price wars with competitors.

A competitor has a new, innovative product or service.

Competitors have superior access to channels of distribution.

Taxation is introduced on your product or service.

A word of caution - SWOT analysis can be very subjective. Do not rely on SWOT

too much. Two people rarely come-up with the same final version of SWOT.

TOWS analysis is extremely similar. It simply looks at the negative factors first in

order to turn them into positive factors. So use SWOT as guide and not a

prescription.

Simple rules for successful SWOT analysis.

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Be realistic about the strengths and weaknesses of your organization when

conducting SWOT analysis.

SWOT analysis should distinguish between where your organization is

today, and where it could be in the future.

SWOT should always be specific. Avoid grey areas.

Always apply SWOT in relation to your competition i.e. better than or worse

than your competition.

Keep your SWOT short and simple. Avoid complexity and over analysis

SWOT is subjective.

Once key issues have been identified with your SWOT analysis, they feed into

marketing objectives. SWOT can be used in conjunction with other tools for audit

and analysis, such as PEST analysis and Porter's Five-Forces analysis. So SWOT is a

very popular tool with marketing students because it is quick and easy to learn.

During the SWOT exercise, list factors in the relevant boxes. It's that simple.

Below are some FREE examples of SWOT analysis - click to go straight to them

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Environment analysis for international marketing

One of the fundamental steps that needs to be taken prior to beginning

international marketing is the environmental analysis. Of course there are many

tools on Marketing Teacher that would prove useful at this stage such as lessons

on the marketing environment, PEST Analysis, SWOT Analysis, and Five Forces

Analysis. However, the very specific and unique nature of each individual nation

needs to be looked into. Below we consider the nature of an international PEST

Analysis, and the influence of tariff and non-tariff barriers.

An International PEST Analysis.

PEST is a well-known and widely applied tool when considering the external

nature of the domestic market. However, it is equally as useful when applied to

the nature of the international marketing environment.

International PEST Analysis would consider:

How easy will it be to move from purely domestic to international

marketing?

Would your business benefit from inward foreign investment?

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What is the nature of competition within each individual market, and how

will companies from other nations compete when you meet with them

head-to-head in unfamiliar countries?

Many other factors that are specific to your organization or industry.

Political

Is there any historical relationship between countries that would benefit or

hinder international marketing?

What is the influence of communities or unions for trading? E.g. The

European Union and its authority over European laws and regulation.

What kind of international and domestic laws will your business encounter?

What is the nature of politics in the country that you are targeting, and

what is their view on encouraging foreign competition from overseas?

Economic

What is the level of new industrial growth? E.g. China is experiencing

terrific industrial growth.

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What is the impact of currency fluctuations on exchange rates, and do your

home market and your new international market - share a common

currency? E.g. Polish companies trading in Eire will use Euros.

There are of course the usual economic indicators that one needs to be

aware of such as inflation, Gross Domestic Product (GDP), levels of

employment, national income, the predisposition of consumers to spend

savings or to use credit, as well as many others.

Socio-cultural

Culture, religion and society are of huge importance.

What are the cultural norms for doing business? E.g. is there a form of

barter?

Will cultural norms impact upon your ability to trade overseas? E.g.

Putonghua is very difficult for many Western people to learn.

Technology

Do copyright, intellectual property laws or patents protect technology in

other countries? E.g. China and Jordan do not always respect international

patents.

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Does your technology conform to local laws? E.g. electrical items that run

on non-domestic currents could be dangerous.

Are technologies at different stages in the Product Life Cycle (PLC) in

various countries? E.g. versions/releases of software.

Analyzing the environment - Five Forces Analysis

Five Forces Analysis helps the marketer to contrast a competitive environment. It

has similarities with other tools for environmental audit, such as PEST analysis,

but tends to focus on the single, stand alone, business or SBU (Strategic Business

Unit) rather than a single product or range of products. For example, Dell would

analyse the market for Business Computers i.e. one of its SBUs.

Five forces analsysis looks at five key areas namely the threat of entry, the power

of buyers, the power of suppliers, the threat of substitutes, and competitive

rivalry.

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The threat of entry.

Economies of scale e.g. the benefits associated with bulk purchasing.

The high or low cost of entry e.g. how much will it cost for the latest

technology?

Ease of access to distribution channels e.g. Do our competitors have the

distribution channels sewn up?

Cost advantages not related to the size of the company e.g. personal

contacts or knowledge that larger companies do not own or learning curve

effects.

Will competitors retaliate?

Government action e.g. will new laws be introduced that will weaken our

competitive position?

How important is differentiation? e.g. The Champagne brand cannot be

copied. This desensitises the influence of the environment.

The power of buyers.

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This is high where there a few, large players in a market e.g. the large

grocery chains.

If there are a large number of undifferentiated, small suppliers e.g. small

farming businesses supplying the large grocery chains.

The cost of switching between suppliers is low e.g. from one fleet supplier

of trucks to another.

The power of suppliers.

The power of suppliers tends to be a reversal of the power of buyers.

Where the switching costs are high e.g. Switching from one software

supplier to another.

Power is high where the brand is powerful e.g. Cadillac, Pizza Hut,

Microsoft.

There is a possibility of the supplier integrating forward e.g. Brewers buying

bars.

Customers are fragmented (not in clusters) so that they have little

bargaining power e.g. Gas/Petrol stations in remote places.

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The threat of substitutes

Where there is product-for-product substitution e.g. email for fax Where

there is substitution of need e.g. better toothpaste reduces the need for

dentists.

Where there is generic substitution (competing for the currency in your

pocket) e.g. Video suppliers compete with travel companies.

We could always do without e.g. cigarettes.

Competitive Rivalry

This is most likely to be high where entry is likely; there is the threat of

substitute products, and suppliers and buyers in the market attempt to

control. This is why it is always seen in the center of the diagram.

Tariff and Non-Tariff Barriers.

There are a number of fences that companies need to plan for when initialising

international marketing. Tariff and non-tariff barriers are still very common, even

today.

Tariff barriers are charges imposed upon imports - so they are a form of import

taxation. This could mean that your margins are reduced so much that trading

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overseas becomes too unprofitable. However they are normally transparent and

you can plan to take them into account.

Non-tariff barriers are trickier to spot. Governments sometimes act in favour of

their own domestic industries rather than allow competition from overseas.

Bureaucracy is a hurdle often encountered by exporting companies - it takes

many forms and includes unnecessary hold-ups and red tape. Quotas are another

form of non-tariff barrier i.e. restricting the quantity of a product that can be

imported into a particular country.

International Marketing and Culture

What is the influence of culture on international marketing?

Culture is the way that we do things around here. Culture could relate to a

country (national culture), a distinct section of the community (sub-culture), or an

organization (corporate culture). It is widely accepted that you are not born with

a culture, and that it is learned. So, culture includes all that we have learned in

relation to values and norms, customs and traditions, beliefs and religions, rituals

and artefacts (i.e. tangible symbols of a culture, such as the Sydney Opera House

or the Great Wall of China).

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Therefore international marketing needs to take into account the local culture of

the country in which you wish to market.

The Terpstra and Sarathy Cultural Framework helps marketing managers to

assess the cultural nature of an international market. It is very straight-forward,

and uses eight categories in its analysis. The Eight categories are Language,

Religion, Values and Attitudes, Education, Social Organizations, Technology and

Material Culture, Law and Politics and Aesthetics.

Language

With language one should consider whether or not the national culture is

predominantly a high context culture or a low context culture (Hall and Hall

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1986). The concept relates to the balance between the verbal and the non-verbal

communication.

In a low context culture spoken language carries the emphasis of the

communication i.e. what is said is what is meant. Examples include Australia and

the Netherlands.

In a high context culture verbal communications tend not to carry a direct

message i.e. what is said may not be what is meant. So with a high context culture

hidden cultural meaning needs to be considered, as does body language.

Examples of a high context cultures include Japan and some Arabic nations.

Religion

The nature and complexity of the different religions an international marketer

could encounter is pretty diverse. The organization needs to make sure that their

products and services are not offensive, unlawful or distasteful to the local nation.

This includes marketing promotion and branding.

In China in 2007 (which was the year of the pig) all advertising which

included pictures of pigs was banned. This was to maintain harmony with

the country's Muslim population of around 2%. The ban included pictures

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of sausages that contained pork, and even advertising that included an

animated (cartoon) pig.

In 2005 France's Catholic Church won a court injunction to ban a clothing

advertisement (by clothing designers Marithe and Francois Girbaud) based

upon Leonardo da Vinci's Christ's Last Supper.

Values and Attitudes

Values and attitudes vary between nations, and even vary within nations. So if

you are planning to take a product or service overseas make sure that you have a

good grasp the locality before you enter the market. This could mean altering

promotional material or subtle branding messages. There may also be an issue

when managing local employees. For example, in France workers tend to take

vacations for the whole of August, whilst in the United States employees may only

take a couple of week's vacation in an entire year.

In 2004, China banned a Nike television commercial showing U.S. basketball

star LeBron James in a battle with animated cartoon kung fu masters and

two dragons, because it was argued that the ad insults Chinese national

dignity.

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In 2006, Tourism Australian launched its ad campaign entitled "So where

the bloody hell are you?" in Britain. The $130 million (US) campaign was

banned by the British Advertising Standards Authority from the United

Kingdom. The campaign featured all the standard icons of Australia such as

beaches, deserts, and coral reefs, as well as traditional symbols like the

Opera House and the Sydney Harbour Bridge. The commentary ran:

"We've poured you a beer and we've had the camels shampooed, we've

saved you a spot on the beach. We've even got the sharks out of the pool,".

Then, from a bikini-clad blonde, come the tag line:

"So where the bloody hell are you?"

Education

The level and nature of education in each international market will vary. This may

impact the type of message or even the medium that you employ. For example, in

countries with low literacy levels, advertisers would avoid communications which

depended upon written copy, and would favour radio advertising with an audio

message or visual media such as billboards. The labelling of products may also be

an issue.

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In the People's Republic of China a nationwide system of public education is

in place, which includes primary schools, middle schools (lower and upper),

and universities. Nine years of education is compulsory for all Chinese

students.

In Finland school attendance is compulsory between the ages of 7 and 16,

the first nine years of education (primary and secondary school) are

compulsory, and the pupils go to their local school. The education after

primary school is divided to the vocational and academic systems,

according to the old German model.

In Uganda schooling includes 7 years of primary education, 6 years of

secondary education (divided into 4 years of lower secondary and 2 years

of upper secondary school), and 3 to 5 years of post-secondary education.

Social Organizations

This aspect of Terpstra and Sarathy's Cultural Framework relates to how a

national society is organized. For example, what is the role of women in a society?

How is the country governed - centralized or devolved? The level influence of

class or casts upon a society needs to be considered. For example, India has an

established caste system - and many Western countries still have an embedded

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class system. So social mobility could be restricted where caste and class systems

are in place. Whether or not there are strong trade unions will impact upon

management decisions if you employ local workers.

Technology and Material Culture

Technology is a term that includes many other elements. It includes questions

such as is there energy to power our products? Is there a transport infrastructure

to distribute our goods to consumers? Does the local port have large enough

cranes to offload containers from ships? How quickly does innovation diffuse?

Also of key importance, do consumers actually buy material goods i.e. are they

materialistic?

Trevor Baylis launched the clockwork radio upon the African market. Since

batteries were expensive in Africa and power supplies in rural areas are

non-existent. The clockwork radio innovation was a huge success.

China's car market grew 25% in 2006 and it has overtaken Japan to be the

second-largest car market in the world with sales of 8 million vehicles. With

just six car owners per 100 people (6%), compared with 90% car ownership

in the US and 80% in the UK, the potential for growth in the Chinese market

is immense.

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Law and Politics

As with many aspects of Terpstra and Sarathy's Cultural Framework, the

underpinning social culture will drive the political and legal landscape. The

political ideology on which the society is based will impact upon your decision to

market there. For example, the United Kingdom has a largely market-driven,

democratic society with laws based upon precedent and legislation, whilst Iran

has a political and legal system based upon the teachings and principles Islam and

a Sharia tradition.

Aesthetics

Aesthetics relate to your senses, and the appreciation of the artistic nature of

something, including its smell, taste or ambience. For example, is something

beautiful? Does it have a fashionable design? Was an advert delivered in good

taste? Do you find the color, music or architecture relating to an experience

pleasing? Is everything relating to branding aesthetically pleasing?

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The International Market Entry Evaluation Process

How to Enter a Foreign Market

This lesson gives an outline of the way in which an organization should select

which foreign to enter. The International Marketing Entry Evaluation Process is a

five stage process, and its purpose is to gauge which international market or

markets offer the best opportunities for our products or services to succeed. The

five steps are Country Identification, Preliminary Screening, In-Depth Screening,

Final Selection and Direct Experience. Let's take a look at each step in turn.

Step One - Country Identification

The World is your oyster. You can choose any country to go into. So you conduct

country identification - which means that you undertake a general overview of

potential new markets. There might be a simple match - for example two

countries might share a similar heritage e.g. the United Kingdom and Australia, a

similar language e.g. the United States and Australia, or even a similar culture,

political ideology or religion e.g. China and Cuba. Often selection at this stage is

more straightforward. For example a country is nearby e.g. Canada and the

United States. Alternatively your export market is in the same trading zone e.g.

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the European Union. Again at this point it is very early days and potential export

markets could be included or discarded for any number of reasons.

Step Two - Preliminary Screening

At this second stage one takes a more serious look at those countries remaining

after undergoing preliminary screening. Now you begin to score, weight and rank

nations based upon macro-economic factors such as currency stability, exchange

rates, level of domestiv consumption and so on. Now you have the basis to start

calculating the nature of market entry costs. Some countries such as China

require that some fraction of the company entering the market is owned

domestically - this would need to be taken into account. There are some nations

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that are experiencing political instability and any company entering such a market

would need to be rewarded for the risk that they would take. At this point the

marketing manager could decide upon a shorter list of countries that he or she

would wish to enter. Now in-depth screening can begin.

Step Three - In-Depth Screening

The countries that make it to stage three would all be considered feasible for

market entry. So it is vital that detailed information on the target market is

obtained so that marketing decision-making can be accurate. Now one can deal

with not only micro-economic factors but also local conditions such as marketing

research in relation to the marketing mix i.e. what prices can be charged in the

nation? - How does one distribute a product or service such as ours in the nation?

How should we communicate with are target segments in the nation? How does

our product or service need to be adapted for the nation? All of this will

information will for the basis of segmentation, targeting and positioning. One

could also take into account the value of the nation's market, any tariffs or quotas

in operation, and similar opportunities or threats to new entrants.

Step Four - Final Selection

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Now a final shortlist of potential nations is decided upon. Managers would reflect

upon strategic goals and look for a match in the nations at hand. The company

could look at close competitors or similar domestic companies that have already

entered the market to get firmer costs in relation to market entry. Managers

could also look at other nations that it has entered to see if there are any

similarities, or learning that can be used to assist with decision-making in this

instance. A final scoring, ranking and weighting can be undertaken based upon

more focused criteria. After this exercise the marketing manager should probably

try to visit the final handful of nations remaining on the short, shortlist.

Step Five - Direct Experience

Personal experience is important. Marketing manager or their representatives

should travel to a particular nation to experience firsthand the nation's culture

and business practices. On a first impressions basis at least one can ascertain in

what ways the nation is similar or dissimilar to your own domestic market or the

others in which your company already trades. Now you will need to be careful in

respect of self-referencing. Remember that your experience to date is based upon

your life mainly in your own nation and your expectations will be based upon

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what your already know. Try to be flexible and experimental in new nations, and

don't be judgemental - it's about what's best for your company - happy hunting.

Products and International Marketing

Standardization versus Adaptation

product is a focal element of the marketing mix. When considering the nature of

products and services in international marketing, the same models apply such as:

Product Life Cycle (PLC) - products could be at different points in the PLC in

various nations, possibly creating new opportunities.

Ansoff's Matrix - market development could mean that an existing product

is marketed in a new international market.

Three Levels of a Product - marketers would consider the local market's

need for core, actual and augmented products.

Internet Marketing and Product - how do eMarketers make product

decisions?

However, international product decision-making often centres around the

standardization versus adaptation debate. Essentially, do we market the same,

standard product in an international market or segment, or do we localize it, and

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adapted it so that it pleases local tastes? Here are some of the advantages and

disadvantage of standardization.

Advantages of Standardization.

International uniformity has its own advantages. As people travel the World, they

can be assured that wherever they go the product that they buy from you will be

same and that it will have the same, standard benefits. This could mean the

components that they buy from you in different local markets as they themselves

become global.

Standardization reinforces positive consumer perceptions of your product. One

of the payoffs of great quality for a single product category is that the reputation

of your product will help you sell more of it. Positive word-of-mouth pays

dividends for brand owners.

Cost reduction will give economies of scale. Since you are making large quantities

or the same, non-adapted product - you benefit from the advantages associated

with manufacturing in bulk. For example, components can be bought in large

quantities, which reduces the cost-per-unit. There are other benefits relating to

economies of scale, including improved research and development, marketing

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operational costs, lower costs of investment, and in an age where trade barriers

are coming down - standardization is a plausible product strategy.

Quality is improved since efforts are concentrated upon the single product. Staff

can be trained to enhance the quality of the product and manufacturers will

invest in technology and equipment that can safeguard the quality of the

standardized product offering.

Disadvantages of Standardization.

Since the product is the same wherever you buy it, it is wholly undifferentiated.

It is not unique in anyway. This leaves the obvious opportunity for a competitor to

design a tailor-made, differentiated or branded product that meets the needs of

local segments. Of course products have different uses in different countries (for

example cycling is a leisure activity in some nations, and a form of transport in

others). Local markets have local needs and tastes. Therefore by standardizing,

you could leave yourself vulnerable.

Another problem with standardization is that it depends largely upon economies

of scale. With global businesses, your business will manufacture in a number of

nations. However, some countries implement trade barriers (and yes - this

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includes the USA and the European Union). If this is the case, then localization

and the resultant adaptation is inevitable.

What exactly do you intend to standardize? Is your whole product 'experience'

to be standardized? Do you standardize customer service and product support,

marketing communications, pricing, and channels of distribution? Then you have

a standardized marketing mix - surely this cannot benefit your business.

The Product Life Cycle (PLC)

The Product Life Cycle (PLC) is based upon the biological life cycle. For example, a

seed is planted (introduction); it begins to sprout (growth); it shoots out leaves

and puts down roots as it becomes an adult (maturity); after a long period as an

adult the plant begins to shrink and die out (decline).

In theory it's the same for a product. After a period of development it is

introduced or launched into the market; it gains more and more customers as it

grows; eventually the market stabilises and the product becomes mature; then

after a period of time the product is overtaken by development and the

introduction of superior competitors, it goes into decline and is eventually

withdrawn.

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The Product Life Cycle (PLC) is based upon the biological life cycle. For example, a

seed is planted (introduction); it begins to sprout (growth); it shoots out leaves

and puts down roots as it becomes an adult (maturity); after a long period as an

adult the plant begins to shrink and die out (decline).

In theory it's the same for a product. After a period of development it is

introduced or launched into the market; it gains more and more customers as it

grows; eventually the market stabilises and the product becomes mature; then

after a period of time the product is overtaken by development and the

introduction of superior competitors, it goes into decline and is eventually

withdrawn.

However, most products fail in the introduction phase. Others have very cyclical

maturity phases where declines see the product promoted to regain customers.

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Strategies for the differing stages of the Product Life Cycle.

Introduction.

The need for immediate profit is not a pressure. The product is promoted to

create awareness. If the product has no or few competitors, a skimming price

strategy is employed. Limited numbers of product are available in few channels of

distribution.

Growth.

Competitors are attracted into the market with very similar offerings. Products

become more profitable and companies form alliances, joint ventures and take

each other over. Advertising spend is high and focuses upon building brand.

Market share tends to stabilise.

Maturity.

Those products that survive the earlier stages tend to spend longest in this phase.

Sales grow at a decreasing rate and then stabilise. Producers attempt to

differentiate products and brands are key to this. Price wars and intense

competition occur. At this point the market reaches saturation. Producers begin

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to leave the market due to poor margins. Promotion becomes more widespread

and use a greater variety of media.

Decline.

At this point there is a downturn in the market. For example more innovative

products are introduced or consumer tastes have changed. There is intense price-

cutting and many more products are withdrawn from the market. Profits can be

improved by reducing marketing spend and cost cutting.

Problems with Product Life Cycle.

In reality very few products follow such a prescriptive cycle. The length of each

stage varies enormously. The decisions of marketers can change the stage, for

example from maturity to decline by price-cutting. Not all products go through

each stage. Some go from introduction to decline. It is not easy to tell which stage

the product is in. Remember that PLC is like all other tools. Use it to inform your

gut feeling.

Three Levels of a Product

For many a product is simply the tangible, phsysical entity that they may be

buying or selling. You buy a new car and that's the product - simple! Or maybe

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not. When you buy a car, is the product more complex than you first thought? In

order to actively explore the nature of a product further, lets consider it as three

different products - the CORE product, the ACTUAL product, and finally the

AUGMENTED product.

These are known as the 'Three Levels of a Product.' So what is the difference

between the three products, or more precisely 'levels?'

The CORE product is NOT the tangible, physical product. You can't touch it. That's

because the core product is the BENEFIT of the product that makes it valuable to

you. So with the car example, the benefit is convenience i.e. the ease at which

you can go where you like, when you want to. Another core benefit is speed since

you can travel around relatively quickly.

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The ACTUAL product is the tangible, physical product. You can get some use out

of it. Again with the car example, it is the vehicle that you test drive, buy and then

collect.

The AUGMENTED product is the non-physical part of the product. It usually

consists of lots of added value, for which you may or may not pay a premium. So

when you buy a car, part of the augmented product would be the warranty, the

customer service support offered by the car's manufacture, and any after-sales

service.

Ansoff's Product/Market Matrix

This well known marketing tool was first published in the Harvard Business

Review (1957) in an article called 'Strategies for Diversification'. It is used by

marketers who have objectives for growth. Ansoff's matrix offers strategic choices

to achieve the objectives. There are four main categories for selection.

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Market Penetration

Here we market our existing products to our existing customers. This means

increasing our revenue by, for example, promoting the product, repositioning the

brand, and so on. However, the product is not altered and we do not seek any

new customers.

Market Development

Here we market our existing product range in a new market. This means that the

product remains the same, but it is marketed to a new audience. Exporting the

product, or marketing it in a new region, are examples of market development.

Product Development

This is a new product to be marketed to our existing customers. Here we develop

and innovate new product offerings to replace existing ones. Such products are

then marketed to our existing customers. This often happens with the auto

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markets where existing models are updated or replaced and then marketed to

existing customers.

Diversification

This is where we market completely new products to new customers. There are

two types of diversification, namely related and unrelated diversification. Related

diversification means that we remain in a market or industry with which we are

familiar. For example, a soup manufacturer diversifies into cake manufacture (i.e.

the food industry). Unrelated diversification is where we have no previous

industry nor market experience. For example a soup manufacturer invests in the

rail business.

Ansoff's matrix is one of the most well know frameworks for deciding upon

strategies for growth.

eMarketing Product

We've already considered product as part of the marketing mix. Two previous

tools for product decision-making have been introduced - Product Life Cycle (PLC)

and the Three Levels of a Product. Both of these tools are equally applicable to

http://marketingteacher.com/lesson-store/lesson-plc.html

http://marketingteacher.com/lesson-store/lesson-three-levels-of-a-product.html

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the context of eMarketing, and can be easily applied to include eMarketing and

product.

For example a product marketed solely online will go through a life cycle in the

same unpredictable way as a product marketed through any traditional channel

(PLC). Products marketed online will have a core benefit to the consumer, be an

actual tangible product, with augmentation that adds value such as insurance,

warranties and so on (Three Levels of a Product). Although tools actually specify

the term 'product,' they can be easily adapted to include brands, services or

solutions.

The eMarketing Product/Business Matrix (depicted below) should be used in

conjunction with Product Life Cycle (PLC) and the Three Levels of a Product. It

represents an additional tool for audit that bridges existing businesses and new

online start-ups, and existing products and new products. It allows marketers to

categorise those marketing on the Internet as an Online Extender, an Online

Alternative, an Online Innovator (Existing Business), or an Online Innovator

(Online Start-Up). Let's take a look at it in more detail.

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A - Online Extender

An Online Extender is an existing business that has a strategy whereby it extends

its marketing activities to the Internet. It could be any traditional, terrestrial

organisation that has historically grown through using traditional channels of

distribution to get existing products, brands, services or solutions to market.

B - Online Alternative

The Online Alternative is a new start-up that uses the Internet as an original

channel of distribution to get products, brands, services or solutions, currently

available elsewhere, to market. Some segments may be better targeted with this

online alternative, for example remote or fragmented markets.

C and D - Online Innovators

Online Innovators come in two forms:

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C - Online Innovators are existing businesses that see a benefit to launching

new and innovative products, brands, services or solutions online by

leveraging new technology. Existing businesses have a wealth of knowledge

and learning that underpin their moves onto the Web. Remember, the

Internet is not a business paradigm shift (at least not yet) and so current

business approaches are often adapted for the Internet. Existing businesses

have experience.

D - Online Innovators are start-ups that seize the opportunity to launch new

and innovative products, brands, services or solutions online. Despite not

having as much knowledge and learning as some of their competitors, they

are flexible and can move much more quickly. Start-ups often lack

experience.

International Marketing and Price

How should we set prices for international markets?

This lesson considers the basics of pricing for international marketing. As with all

of the international marketing lessons, every country and culture within it will

influence price. So here we are going to look at some of the common influences

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upon pricing decision-making, the impact of grey markets, international

approaches to pricing, and more mainstream marketing approaches to pricing

that can be applied to an international context.

Influences on pricing for international marketing.

The cost of manufacturing, distributing and marketing your product.

The physical location of production plants might influence price. For

example, Toyota have plants in their European market, in the United

Kingdom and Turkey.

Of course fluctuations in foreign currencies affect pricing. Many companies

are benefiting from a relatively low US Dollar price during the 2010s. This

make imports to the United States expensive, but exports relatively cheap

to other nations. However fluctuations make it very difficult for companies

to make long-term decisions - such as building large factories in global

markets i.e. costs of production are cheap today, but could be expensive in

the future, impacting upon the price that your business is forced to charge.

The price that the international consumer is willing to pay for your product.

Your own business objectives will influence price. For example, large

international companies such as Starbucks may operate at a loss in some

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locations but still need a local presence in order to maintain their

economies of scale, as well as their reputation as a global player.

The price that competitors in international markets are already charging.

Business environment factors such as government policy and taxation.

Grey Markets

A business can expect problems with grey markets where it trades across national

boundaries. So if Company Y is English it will trade in Stirling or Pound notes. If it

trades in the United States during the 2010s, to be competitive it will need to sell

at a reduced price in the US. However, there is little to stop an entrepreneur from

traveling to the US, filling up a transport container with products, which have

been exported from Company Y in England, then returning them back to England

and marketing the same product at a lower price than Company Y is willing to

trade. This is an example of parallel trade, which is legal - just. Therefore it is

known as grey marketing.

International Pricing Approaches

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Export Pricing - a price is set for by the home-based marketing managers

for the international market. The pricing approach is based upon a whole

series of factors which are driven by the influences on pricing listed above.

Then mainstream approaches to pricing may be implemented - see below.

Non-cash payments - less and less popular these days, non-cash payments

include counter-trade where goods are exchanged for goods between

companies from different parts of the World.

Transfer Pricing - prices are set in the home market, and goods are

effectively sold to the international subsidiary which then attaches its own

margin based upon the best price that local managers decide that they

could achieve. Then mainstream approaches to pricing may be

implemented - see below.

Standardization versus adaptation - do you use a standard, common

approach to pricing in each market, or do you decide to adapt the price to

local conditions?

Generic Marketing Approaches to Pricing.

Premium Pricing.

Penetration Pricing.

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Economy Pricing.

Price Skimming.

Psychological Pricing.

Product Line Pricing.

Optional Product Pricing.

Captive Product Pricing

Product Bundle Pricing.

Promotional Pricing.

Geographical Pricing.

Value Pricing.

Pricing Strategies

There are many ways to price a product. Let's have a look at some of them and try

to understand the best policy/strategy in various situations.

Premium Pricing.

Use a high price where there is a uniqueness about the product or service. This

approach is used where a a substantial competitive advantage exists. Such high

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prices are charge for luxuries such as Cunard Cruises, Savoy Hotel rooms, and

Concorde flights.

Penetration Pricing.

The price charged for products and services is set artificially low in order to gain

market share. Once this is achieved, the price is increased. This approach was

used by France Telecom and Sky TV.

Economy Pricing.

This is a no frills low price. The cost of marketing and manufacture are kept at a

minimum. Supermarkets often have economy brands for soups, spaghetti, etc.

Price Skimming.

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Charge a high price because you have a substantial competitive advantage.

However, the advantage is not sustainable. The high price tends to attract new

competitors into the market, and the price inevitably falls due to increased

supply. Manufacturers of digital watches used a skimming approach in the 1970s.

Once other manufacturers were tempted into the market and the watches were

produced at a lower unit cost, other marketing strategies and pricing approaches

are implemented.

Premium pricing, penetration pricing, economy pricing, and price skimming are

the four main pricing policies/strategies. They form the bases for the exercise.

However there are other important approaches to pricing.

Psychological Pricing.

This approach is used when the marketer wants the consumer to respond on an

emotional, rather than rational basis. For example 'price point perspective' 99

cents not one dollar.

Product Line Pricing.

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Where there is a range of product or services the pricing reflect the benefits of

parts of the range. For example car washes. Basic wash could be $2, wash and

wax $4, and the whole package $6.

Optional Product Pricing.

Companies will attempt to increase the amount customer spend once they start

to buy. Optional 'extras' increase the overall price of the product or service. For

example airlines will charge for optional extras such as guaranteeing a window

seat or reserving a row of seats next to each other.

Captive Product Pricing

Where products have complements, companies will charge a premium price

where the consumer is captured. For example a razor manufacturer will charge a

low price and recoup its margin (and more) from the sale of the only design of

blades which fit the razor.

Product Bundle Pricing.

Here sellers combine several products in the same package. This also serves to

move old stock. Videos and CDs are often sold using the bundle approach.

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Promotional Pricing.

Pricing to promote a product is a very common application. There are many

examples of promotional pricing including approaches such as BOGOF (Buy One

Get One Free).

Geographical Pricing.

Geographical pricing is evident where there are variations in price in different

parts of the world. For example rarity value, or where shipping costs increase

price.

Value Pricing.

This approach is used where external factors such as recession or increased

competition force companies to provide 'value' products and services to retain

sales e.g. value meals at McDonalds.

International Marketing Communications (Promotion)

Media Choices for International Marketing

Marketing communications in international markets needs to be conducted with

care. This lesson will consider some of the key issues that you need to take into

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account when promoting products or services in overseas markets. There will be

influences upon your media choice, cultural issues to be considered, as well as the

media choices themselves - personal selling, advertising, and others.

Influences upon International Media Choice.

There are a number of factors that will impact upon choice and availability of

media such as:

The nature and level of competition for marcoms channels in your target

market.

Whether or not there is a rich variety of media in your target market.

The level of economic development in your target market (for example, in

remote regions of Africa there would be no mains electricity on which to

run TVs or radios).

The availability of other local resources to assist you with your campaign

will also need to be investigated (for example, sales people or local

advertising expertise).

Local laws may not allow specific content or references to be made in

adverts (for example, it is not acceptable to show naked legs in adverts

displayed in Muslim countries).

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And of course a lot depends upon the purpose of the international

campaign in the first place. What are your international marketing

communications objectives?

Cultural Issues and International Marketing Communications.

There are a whole range of cultural issues that international marketers need to

consider when communicating with target audiences in different cultures.

Language will always be a challenge. One cannot use a single language for an

international campaign. For example, there are between six and twelve main

regional variations of the Chinese languages, with the most popular being

Mandarin (c 850 Million), followed by Wu (c. 90 million), Min (c. 70 million) and

Cantonese (c. 70 million). India has 22 languages including Assamese, Bengali,

Bodo, Dogri, Gujarati, Hindi, Punjabi, and Tamil to name but a few. Of course

language choice could affect branding choices , and the names of products and

services. Hidden messages and humour would be especially tricky to convey.

Famous examples include the Vauxhall Corsa, which was called the Nova in the

United Kingdom - of course No Va! Would not be an acceptable name in Spanish.

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A similar problem was left unaddressed by Toyota, with their MR2 in France (think

about it!).

Design, symbolism and aesthetics sometimes do not transcend international

boundaries. For example Japanese aesthetics sometimes focus upon taste and

beauty. Also look at Japanese cars from the front - they have a smiling face.

The manner in which people present themselves in terms of dress and

appearance changes from culture to culture. For example in Maori culture, dress

plays a central role with everyday clothing differing greatly from ceremonial

costume. Whereas in Western business-culture the standard 'uniform' tends to be

a conservative collar and tie.

Other factors that need to be considered in relation to international marketing

communications (Promotion) include:

The work ethic of employees and customers to be targeted by media.

Levels of literacy and the availability of education for the national

population.

The similarity or diversity of beliefs, religion, morality and values in the

target nation.

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The similarity or diversity of beliefs, religion, morality and values in the

target nation.

The family and the roles of those within it are factors to take into account.

Media Choices in International Marketing.

Personal Selling in International Marketing.

Personal selling has a number of pros and cons:

It is beneficial where wages tend to be low, since staffing costs will be

comparatively low.

Where there are many languages, you'll need trained sales personnel that

can convey your message in specific tongues (see culture above).

The sales force will need to be supported. Commercial administration staff

will have to take care of sales enquiries, send out product literature and

samples, and make quotations - often online.

You'll need to invest time and effort in recruiting, motivating, organizing

and training a local sales force. Recruits will need to know about products

and markets, language and culture, the location of target segments,

customer buyer behaviour - and that's just the beginning.

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There is a dilemma as to whether to place expatriate employees into your

international target market, or to recruit locally. Local is best!

Where business etiquette varies from culture to culture, you'll need to train

your people in what to expect - or recruit salesmen from the local market.

Advertising in International Marketing.

Advertising has a number of pros and cons:

When considering press advertising try to anticipate the levels of literacy

within the nation in question. Where literacy levels are lower, perhaps you

could use a more visual campaign.

Which language(s) is the press written in?

What is the split between regional and national press in your target

market?

What types of television channels are available? Are they HDD, digital,

analogue, satellite, cable, via the telephone, via a broadband or ADSL

connection?

Which TV channels do our target segments watch?

Is there space on the suitable TV channels when we want it, or at a price

that we can afford?

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Where visual communication is paramount, are there suitable poster

locations?

What is the behaviour of the target population in relation to cinema? For

example, Cinema is tremendously popular in India.

Radio has similar issues as TV and press. Which stations do your target

groups listen to - news, sports or music? Is there space available with the

most suitable stations?

Other Media Choices in International Marketing.

Other potential media would include:

Web-based marketing using your own domestic site, or one developed

specifically for the target market. Chinese websites are very different to

Western sites. They are very busy and every single space is filled with

images and text. Affiliate or pay-per-click advertising may be available.

International tradeshows, trade missions, sponsorship (for example

international sporting events), Public Relations (for example oil companies)

and a variety of other international marketing communications are

available to the international marketer.

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So, to finish, this lesson aimed to summarize the key options and issues that

face the international marketer when dealing with marketing

communications and media choices in international markets. Of course it is

by no means conclusive.

Modes of Entry into International Markets

(Place)

How does an organization enter an overseas market?

Background

A mode of entry into an international market is the channel which your

organization employs to gain entry to a new international market. This lesson

considers a number of key alternatives, but recognizes that alteratives are many

and diverse. Here you will be consider modes of entry into international markets

such as the Internet, Exporting, Licensing, International Agents, International

Distributors, Strategic Alliances, Joint Ventures, Overseas Manufacture and

International Sales Subsidiaries. Finally we consider the Stages of

Internationalization.

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It is worth noting that not all authorities on international marketing agree as to

which mode of entry sits where. For example, some see franchising as a stand

alone mode, whilst others see franchising as part of licensing. In reality, the most

important point is that you consider all useful modes of entry into international

markets - over and above which pigeon-hole it fits into. If in doubt, always clarify

your tutor's preferred view.

The Internet

The Internet is a new channel for some organizations and the sole channel for a

large number of innovative new organizations. The eMarketing space consists of

new Internet companies that have emerged as the Internet has developed, as

well as those pre-existing companies that now employ eMarketing approaches as

part of their overall marketing plan. For some companies the Internet is an

additional channel that enhances or replaces their traditional channel(s). For

others the Internet has provided the opportunity for a new online company.

Exporting

There are direct and indirect approaches to exporting to other nations. Direct

exporting is straightforward. Essentially the organization makes a commitment to

62


market overseas on its own behalf. This gives it greater control over its brand and

operations overseas, over an above indirect exporting. On the other hand, if you

were to employ a home country agency (i.e. an exporting company from your

country - which handles exporting on your behalf) to get your product into an

overseas market then you would be exporting indirectly. Examples of indirect

exporting include:

Piggybacking whereby your new product uses the existing distribution and

logistics of another business.

Export Management Houses (EMHs) that act as a bolt on export

department for your company. They offer a whole range of bespoke or a la

carte services to exporting organizations.

Consortia are groups of small or medium-sized organizations that group

together to market related, or sometimes unrelated products in

international markets.

Trading companies were started when some nations decided that they

wished to have overseas colonies. They date back to an imperialist past that

some nations might prefer to forget e.g. the British, French, Spanish and

Portuguese colonies. Today they exist as mainstream businesses that use

traditional business relationships as part of their competitive advantage.

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Licensing

Licensing includes franchising, Turnkey contracts and contract manufacturing.

Licensing is where your own organization charges a fee and/or royalty for

the use of its technology, brand and/or expertise.

Franchising involves the organization (franchiser) providing branding,

concepts, expertise, and infact most facets that are needed to operate in an

overseas market, to the franchisee. Management tends to be controlled by

the franchiser. Examples include Dominos Pizza, Coffee Republic and

McDonald's Restaurants.

Turnkey contracts are major strategies to build large plants. They often

include a the training and development of key employees where skills are

sparse - for example, Toyota's car plant in Adapazari, Turkey. You would not

own the plant once it is handed over.

International Agents and International Distributors

Agents are often an early step into international marketing. Put simply, agents are

individuals or organizations that are contracted to your business, and market on

your behalf in a particular country. They rarely take ownership of products, and

http://www.whichfranchise.org/

http://www.whichfranchise.org/

http://www.toyotatr.com/eng/company.asp

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more commonly take a commission on goods sold. Agents usually represent more

than one organization. Agents are a low-cost, but low-control option. If you

intend to globalize, make sure that your contract allows you to regain direct

control of product. Of course you need to set targets since you never know the

level of commitment of your agent. Agents might also represent your competitors

- so beware conflicts of interest. They tend to be expensive to recruit, retain and

train. Distributors are similar to agents, with the main difference that distributors

take ownership of the goods. Therefore they have an incentive to market

products and to make a profit from them. Otherwise pros and cons are similar to

those of international agents.

Strategic Alliances (SA)

Strategic alliances is a term that describes a whole series of different relationships

between companies that market internationally. Sometimes the relationships are

between competitors. There are many examples including:

Shared manufacturing e.g. Toyota Ayago is also marketed as a Citroen and a

Peugeot.

Research and Development (R&D) arrangements.

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Distribution alliances e.g. iPhone was initially marketed by O2 in the United

Kingdom.

Marketing agreements.

Essentially, Strategic Alliances are non-equity based agreements i.e. companies

remain independent and separate.

Joint Ventures (JV)

Joint Ventures tend to be equity-based i.e. a new company is set up with parties

owning a proportion of the new business. There are many reasons why

companies set up Joint Ventures to assist them to enter a new international

market:

Access to technology, core competences or management skills. For

example, Honda's relationship with Rover in the 1980's.

To gain entry to a foreign market. For example, any business wishing to

enter China needs to source local Chinese partners.

Access to distribution channels, manufacturing and R&D are most common

forms of Joint Venture.

Overseas Manufacture or International Sales Subsidiary

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A business may decide that none of the other options are as viable as actually

owning an overseas manufacturing plant i.e. the organization invests in plant,

machinery and labor in the overseas market. This is also known as Foreign Direct

Investment (FDI). This can be a new-build, or the company might acquire a

current business that has suitable plant etc. Of course you could assemble

products in the new plant, and simply export components from the home market

(or another country). The key benefit is that your business becomes localized -

you manufacture for customers in the market in which you are trading. You also

will gain local market knowledge and be able to adapt products and services to

the needs of local consumers. The downside is that you take on the risk

associated with the local domestic market. An International Sales Subsidiary

would be similar, reducing the element of risk, and have the same key benefit of

course. However, it acts more like a distributor that is owned by your own

company.

Internationalization Stages

So having considered the key modes of entry into international markets, we

conclude by considering the Stages of Internationalization. Some companies will

never trade overseas and so do not go through a single stage. Others will start at

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a later or even final stage. Of course some will go through each stage as

summarized now:

Indirect exporting or licensing

Direct exporting via a local distributor

Your own foreign presences

Home manufacture, and foreign assembly

Foreign manufacture

International Marketing

Documents

biological life cycle

large grocery chains

product life cycle

international sales subsidiary

international marketing communications

international pest analysis

product line pricing

optional product pricing