Lecture International marketing (14/e) - Chapter 11

Chapter 11 - The Asia Pacific region. What you should learn about in chapter 11: The dynamic growth in the region, the importance and slow growth of Japan, the importance of the Bottom-of-the-Pyramid Markets, the diversity across the region, the interrelationships among countries in the region, the diversity within China.

I n t e r n a t i o n a l M a r k e t i

n g

Global Marketing Management:

Planning and Organization

What Should You Learn?

• How global marketing management differs from

international marketing management

• The increasing importance of international

strategic alliances

• The need for planning to achieve company goals

• The important factors for each alternative

market-entry strategy

Basic Entry Decisions

Question: What are the basic entry decisions for firms expanding internationally?

• A firm expanding internationally must decide

Global Perspective Global Gateways

are revamping their business processes

• Smaller companies

redefine programs more quickly

Global Marketing Management

• 1970s – “standardization versus adaptation”

• 1980s – “global integration versus localization”

• 1990s – “global integration versus local

Global Marketing Management

• The trend back toward localization

– Caused by the new efficiencies of customization

– Made possible by the Internet

– Increasingly flexible manufacturing processes

• From the marketing perspective

customization is always best

Global Marketing Management

• Global markets continue to homogenize and

diversify simultaneously

– Best companies will avoid trap of focusing on country as the primary segmentation variable

– Other segmentation variables are more important: climate,

language group, media habits, age, or income groups

The Nestle Way – Evolution Not Revolution

• Nestle – world’s biggest marketer of infant

formula, powdered milk, instant coffee,

chocolate, soups, and mineral water

• Nestle strategy

• Long-term strategy works for Nestle

Benefits of Global Marketing

• When large market segments can be identified

• Transfer of experience and know-how

integration of marketing activities

• Marketing globally

circumstances

Planning for Global Markets

• Planning is the job of making things happen that

might not otherwise occur

• Planning allows for:

Planning for Global Markets

• Planning is both a process and philosophy

accomplishing them

► Corporate planning

► Strategic planning

► Tactical planning

• Company objectives and resources

► A complete evaluation, including existing commitments, relative to the parent company’s objectives and resources

international divisions, permitting consistent policies

► Personnel for managing the international organization

► Determination to stay in the market long enough to realize a return in investments.

reflects the extend to a company’s involvement

International Planning Process

The Planning Process

• Phase 1 – Preliminary analysis and screening

• Phase 2 – Adapting marketing mix to target markets

marketing mix

• Phase 3 – Developing the marketing plan

• Phase 4 – Implementation and control

Alternative Market-Entry Strategies

• An entry strategy into international market

should reflect on analysis

► Degree of near-market knowledge

► Marketing involvement

► Management commitment

• Uppsala Interntionalization Model (U-M) was proposed by

researchers from University of Uppsala, among many are Jan Johanson, Jan-Erik Vahlne, and Wiedersheim-Paul

internationalization of the firm, which has its theoretical base

in the behavioral theory of the firm, is seen as the process in which the enterprise gradually increases its international involvement This process evolves in an interplay between the development of knowledge about foreign markets and operations on one hand and an increasing commitment of resources to foreign markets on the other

entering an international market, where successive stages represent higher degrees of international involvement:

U- Model of Internationalization

• Stage 1: No regular export activities

• Stage 2: Export via independent representative

The internationalization process of the firm

Alternative Market-Entry Strategies

Alternative Market-Entry Strategies

Exporting

• Exporting accounts for some 10% of global

activity

• Direct exporting – the company sells to a

customer in another country

• Indirect exporting – the company sells to a buyer

(importer or distribution) in the home country,

who in turn exports the product

Exporting

• The Internet

orders from customers in other countries,

► Resulting in the concept of international Internet marketing (IIM)

• Direct sales

large capital outlays

foreign market

Contractual Agreement

• Franchising

and management services

involvement in management

• Two types of franchise agreements

► Gives the franchisee the rights to a specific area with the authority to sell or establish subfranchises

Strategic International Alliances

• A strategic international alliance (SIA)

– A business relationship established by two or more companies to

cooperate out of mutual need

– To share risk in achieving a common objective

increase competitive strengths

• Firms enter SIAs for several reasons

– Opportunities for rapid expansion into new markets

– Access to new technology

– More efficient production and innovation

– Reduced marketing costs

– Strategic competitive moves

– Access to additional sources of products and capital

Building Strategic Alliances

Strategic International Alliances

• Many companies entering SIAs

– To be in strategic position to be competitive

– To benefit from the expected growth in the single European market

• International joint ventures (IJVs)

– A partnership of two or more participating companies that have joined forces to create a separate legal entity

– Four characteristics define joint ventures

► JVs are established, separate, legal entities

► The acknowledged intent by the partners to share in the management

Strategic International Alliances

• Consorti a

for two unique characteristics

► Typically involve a large number of participants

► Frequently operate in a country or market in which none of the participants

is currently active

resources and to lessen risks

Direct Foreign Investment

• Factors that influence the structure and

performance of direct investments

Organizing for Global Competition

• Devising a standard organizational structure is

a given geographical area

– A matrix organization consisting of either of these arrangements

► With centralized sales and marketing run by a centralized functional staff, or

a combination of area operations and global product management

Schematic Marketing Organization Plan

Combining Product, Geographic,

and Functional Approaches

Locus of decision

• Considerations of where decisions will be made,

by whom, and by which method constitute a

major element of organizational strategy

• Tactical decisions normally should be made at

lowest possible level

Centralized Versus Decentralized Organizations

• Most organizational patterns of multinational

firms fit into one of three categories

• No single traditional organizational plan is

adequate for today’s global enterprise

with the flexibility and marketing knowledge of a local company

Summary

• To keep abreast of the competition and

maintain a viable position for increasingly

competitive markets, a global perspective is

necessary

• Cost containment, customer satisfaction, and a

greater number of players mean that every

opportunity to refine international business

practices must be examined in light of

company goals

Summary

• Important avenues to global marketing that

must be implemented in the planning and

organization of global marketing management

What is foreign direct investment?

• Foreign direct investment (FDI) occurs when a firm

invests directly in new facilities to produce and/or market

in a foreign country

• Once a firm undertakes FDI it becomes a multinational

enterprise

– A greenfield investment (the establishment of a wholly

new operation in a foreign country)

– Acquisition or merging with an existing firm in the

foreign country

Greenfield or Acquisition?

Question: Should a firm establish a wholly

owned subsidiary in a country by building a subsidiary from the ground up (greenfield

strategy), or by acquiring an established

enterprise in the target market (acquisition

strategy)?

• The number of cross border acquisitions are

increasing

• Over the last decade, 50-80 percent of all FDI

inflows have been mergers and acquisitions

Greenfield or Acquisition?

acquired firm

acquired and acquiring entities run into roadblocks and take

much longer than forecast

– through careful screening of the firm to be acquired

– by moving rapidly once the firm is acquired to

implement an integration plan

Greenfield or Acquisition?

• Question: Why are greenfield ventures attractive?

• Greenfield ventures are attractive because they allow the

firm to build the kind of subsidiary company that it wants

– are slower to establish

– are risky because they have no proven track record

– can be problematic if a competitor enters via

acquisition and quickly builds market share

Research framework

Bruce Kogut & Harbir Singh

Country­level variables

Industry-level variables

Firm-level variables

Foreign Direct Investment

in the World Economy

• The majority of cross-border investment involves

mergers and acquisitions rather than greenfield investments

• In the last two decades, there has been a shift

towards FDI in services

Theories of Foreign Direct Investment

Question: Why do firms prefer FDI to either exporting

(producing goods at home and then shipping them to the receiving country for sale) or licensing (granting a foreign

entity the right to produce and sell the firm’s product in

return for a royalty fee on every unit that the foreign

entity sells)?

Dunning’s Electic Paradigm: Ownership, Location,

Internalization

Benefits and Costs of FDI

• The benefits and costs of FDI must be explored

from the perspective of both the host (receiving) country and the home (source) country

Benefits and Costs of FDI

• The main benefits of inward FDI for a host

country are

Benefits and Costs of FDI

• There are three main costs of inward FDI

host nation

Benefits and Costs of FDI

1 the effect on the capital account of the home

country’s balance of payments from the inward flow

of foreign earnings

2 the employment effects that arise from outward FDI

3 the gains from learning valuable skills from foreign

markets that can subsequently be transferred back

to the home country

Benefits and Costs of FDI

• The most important concerns for the home

country center around

How can firms enter foreign markets?

• Firms can enter foreign markets through

– licensing or franchising to host country firms

– a joint venture with a host country firm

– a wholly owned subsidiary in the host country to serve

that market

is determined by

– transport costs and trade barriers

– political and economic risks

– firm strategy

Basic Entry Decisions

Question: What are the basic entry decisions for firms expanding internationally?

• A firm expanding internationally must decide

Entry Modes

Question: What is the best way to enter a foreign market?

6 Wholly owned subsidiaries

Selecting an Entry Mode

Question: How should a firm choose a specific entry mode?

• All entry modes have advantages and

disadvantages

• The optimal entry mode depends to some

degree on the nature of a firm’s core

competencies

• Core competencies can involve

Selecting an Entry Mode

• Firms facing strong pressures for cost reductions

are likely to pursue some combination of

exporting and wholly owned subsidiaries

• This will allow the firms to achieve location and

scale economies as well as retain some degree

of control over worldwide product manufacturing and distribution

Greenfield or Acquisition?

Question: Should a firm establish a wholly

owned subsidiary in a country by building a subsidiary from the ground up (greenfield

strategy), or by acquiring an established

enterprise in the target market (acquisition

strategy)?

• The number of cross border acquisitions are

increasing

• Over the last decade, 50-80 percent of all FDI

inflows have been mergers and acquisitions

Greenfield or Acquisition?

acquired firm

acquired and acquiring entities run into roadblocks and take

much longer than forecast

– through careful screening of the firm to be acquired

– by moving rapidly once the firm is acquired to

implement an integration plan

Greenfield or Acquisition?

• Question: Why are greenfield ventures attractive?

• Greenfield ventures are attractive because they allow the

firm to build the kind of subsidiary company that it wants

– are slower to establish

– are risky because they have no proven track record

– can be problematic if a competitor enters via

acquisition and quickly builds market share

Exporting and Improting

Question: Who benefits from exporting?

• Both large and small firms can benefit from exporting

• Firms wishing to export must

– identify export opportunities

– avoid a host of unanticipated problems associated

with doing business in a foreign market

– become familiar with the mechanics of export and

What are the benefits of exporting?

• The benefits from exporting can be great the rest of the

world is a much larger market than the domestic market

• Larger firms may be proactive in seeking out new export

opportunities, but many smaller firms take a reactive

approach to exporting

• Many novice exporters have run into significant problems

when first trying to do business abroad, souring them on following up on subsequent opportunities

Improving Export Performance

Question: How can exporters improve their performance?

► focus on just few markets

► enter a foreign market on a small scale

Export and Import Financing

Question: How can firms deal with the lack of trust that exists in export transactions?

• Problems arising from the lack of trust can be solved by

using a third party who is trusted by both - normally a reputable bank

– Exporters prefer to be paid in advance, while

importers prefer to pay after shipment arrives

• A letter of credit is attractive because both parties are

likely to trust a reputable bank even if they do not trust each other

Export and Import Financing

Question: How is payment actually made in an export

transaction?

• Most export transactions involve a draft, also called a bill

of exchange

• A sight draft is payable on presentation to the drawee

while a time draft allows for a delay in payment -

normally 30, 60, 90, or 120 days

• The bill of lading is issued to the exporter by the

common carrier transporting the merchandise to serve

as a receipt, a contract, and a document of title

Export Assistance

Question: Where can exporters get financing help?

government-backed assistance to help their export programs

1 they can get financing aid from the Export-Import

Bank

2 they can get export credit insurance from the

Foreign Credit Insurance Association

Question: What alternatives do exporters have when conventional methods of payment are not an option?

• Exporters can use countertrade when conventional

means of payment are difficult, costly, or nonexistent

• There are five types of countertrade

• In the 1960s the Soviet Union and the

Communist states of Eastern Europe, whose

currencies were generally nonconvertible, turned

to countertrade to purchase imports

• Many developing nations that lacked the foreign

exchange reserves required to purchase

necessary imports turned to countertrade during the 1980s

the Asian financial crisis of 1997