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International Strategic ManagementInternational Strategic Management
International Marketing
May 17th, 2004
What is International Marketing ?What is International Marketing ?
Kahler 1977: Export or international Business
Bradley 1991: Establishment of organizations to do business in international markets – in two or more countries
Stahr 1993: All activities of a company to attract customers in selected countries
Czinkota/Ronkainen 1998: Planning and executing transactions across border...
Backhaus/Büschken/Voeth: International Marketing, 2000
2
Major Decisions in International MarketingMajor Decisions in International Marketing
1. Deciding whether to go abroad
2. Deciding which markets
to enter
3. Deciding how and when
to enter the market
4. Deciding on the marketing
program
5. Deciding on the marketing organization
1. Deciding whether to Go Abroad1. Deciding whether to Go Abroad
? Traditional MotivationKey suppliersSeeking new marketsLower cost of production
? New MotivationIncreasing EOSBalloning R&D investmentsShorter production life cycle...
3
1. Deciding whether to Go Abroad1. Deciding whether to Go Abroad
? Most companies would prefer to remain domestic businesses? Major concerns of going abroad:
– Unstable governments– Foreign-exchange problems– Foreign-government entry requirements and bureaucracy– Tariffs and other trade barriers– Corruption– Technological Pirating– High cost of product and communication adaptation– .....
Risks when going abroad...
? Company must also decide on the types of countries to considerPre-selection of highest potential markets
(„candidate selection“)
? Therefore, it has to analyse:– Market potential (macro-economic view)– Foreign country strategy
2. Deciding which Markets to Enter2. Deciding which Markets to Enter
4
Analysis of Market Potential (Phase 1)Analysis of Market Potential (Phase 1)
Macroenvironmental Factors– Population and income of target country– Structure of Consumption
? producer vs. consumer goods? luxury vs. necessity
– Production indicators? of key industries, cars , steel, etc.
– Prices? of raw materials, financing, etc.
– Economic Systems
2. Deciding which Markets to Enter2. Deciding which Markets to Enter::
Analysis of Foreign Country Strategy (Phase 2)Analysis of Foreign Country Strategy (Phase 2)
Info needed for this analysis:– Consumer decision making process
? Use of product? Who buys? When? Why? Where? How often?
– Competitor analysis? Barriers of entry?
– PLC analysis? Product launch possible in appropriate stage of foreign country`s PLC?
2. Deciding which Markets to Enter2. Deciding which Markets to Enter
5
Comparability of information:Problem of equivalence in standardized international market research
Construct equivalence? functional equivalenceProducts may be used for different purposes in different country environments(e.g.: bikes in the USA or in Holland)
? ? conceptual equivalenceConcepts have different meanings in different cultural environments
- (e.g.: family in USA: parentes + child; Italy: clan )? ? category equivalence- are the examined concepts, objects or behavior patterns classified in the same
categories in different countries? - (e.g.: in some countries beer is considered a soft drink;
Berndt/Altobelli/Sander: Internationales Marketing Management, 1999, S.44ff
2. Deciding which Markets to Enter2. Deciding which Markets to Enter::Information Information NeedsNeeds
Measure equivalence- Calibration equivalence (use of corresponding monetary and physical units as well as considering the different interpretations of colors, shapes, etc.) - Translation equivalence (equivalence of the general sense of verbal, as well as non-verbal stimuli through retranslating or parallel translation )- Metric equivalence (reaction of the test persons on e.g. 5- or 6-point, increasing or decreasing scales; meaning of identical scores in different countries)
Sampling equivalence- Individual vs. group (selection of country specific and relevant test persons depending e.g. on the number of persons involved in decision making processes)- Sample representativity(establishing the comparability of the national representative s amples)
2. Deciding which Markets to Enter2. Deciding which Markets to Enter::Information Information NeedsNeeds
6
Market Selection Techniques Market Selection Techniques
2. Analysis of segment -specific chances for success
Intranationalsegmentation
- Investment theoretical approaches
- decision-tree approach
Classic decision rules
Fine Selection:1. Analysis of country -specific chances for success
Port-folio-Analysis
Risk-Point-evaluation approach
2. Analysis of political risks
- Checklist-
approach- Point-evaluation approach
sequential evaluation approach
Rough Selection: 1 Analysis of general consumption requirements
International segmentation
AnalyticalheuristicalSegmentation approach
Meffert/Bolz: Internationales Marketing Management, 2. Auflage, 1994, S. 113
stepapproach
Prof. Dr. Michael Dowling -Universität Regensburg
3. Deciding how to Enter the Market3. Deciding how to Enter the Market
? Indirect Export? Direct Export? Licensing? Joint Ventures? Direct Investment
Risk
Return
IndExport
Dir Export
Licen-sing
JV
Dir Inv
7
3. Deciding how to Enter the Market3. Deciding how to Enter the Market
Meffert/Bolz: Internationales Marketing Management, 2. Auflage, 1994, S. 119
Foreign CountryLowHighHigh
Direct investment
Foreign Country
HighMiddleMiddle – highJoint Ventures
HomeMiddleLowLowLicensing
HomeLowHighLowDirect Export
HomeLowLowVery lowIndirect Export
Institutional settlement
DependencyControlCapital emplyoment
LicensingLicensing
? The international company (= licensor) agrees to make available to another company abroad (=licensee) use of its patents and trademarks, its manufacturing know-how, its trade secrets and its managerial and technical services.
? The foreign company agrees to pay the licensor a royalty or other form of payment
3. Deciding how to Enter the Market3. Deciding how to Enter the Market
8
LicensingLicensing
Pros.:? A way of getting a foothold in a foreign
market without a large capital investment
? most attractive to firms that are new to the international business area
? fewer exchange rate risk? circumvent trade barriers (e.g. no
duties)? circumvent production restriction in the
domestic market? test foreign markets
Cons.:? Danger of establishing a future
competitor? less control over licensees
operations, which could result in damage to the licensor‘s reputation
? limited licensing returns
Source: Phatak, A.: International Management, 1996, S.250,
3. Deciding how to Enter the Market3. Deciding how to Enter the Market
FranchisingFranchising
? Another form of licensing? Usually: a company initially establishes a brand name for its products,
service, quality etc. in the home market and a standardized business system to operate the business. It then franchises the entire business system in a foreign country
? Examples: McDonald‘s, Hollyday Inn, Bang & Olufsen
3. Deciding how to Enter the Market3. Deciding how to Enter the Market
9
Joint VenturesJoint Ventures
? Foreign investors join local investors to create a JV? Shared ownership and control? JVs often necessary or desirable for economic or political reasons? Characteristics:
– Direct control of distribution channels:company owned points of sales
– International business is critical part of headquarter strategy– Joint ownership may lead to management conflicts
3. Deciding how to Enter the Market3. Deciding how to Enter the Market
Direct InvestmentDirect Investment
? Direct ownership of foreign-based assembly or manufacturing facilities? Advantages:
– Cost economies (e.g. cheaper labor or raw materials, freight savings)
– Better relationship with foreign government, customers, local suppliers, etc.
– Full control of marketing mix? Disadvantages:
– Country-specific economic and political risks– Investment (also in time and education)
3. Deciding how to Enter the Market3. Deciding how to Enter the Market
10
Direct InvestmentDirect Investment
Pros for direct investment by acquiring another company:
? rapid market entry and start of production?acquisition of contacts, a performing organization, local knowledge and a qualified labor force?gain of time saves money?no creation of additional production capacities
Pros. for direct Investment by building a own factory:
? implementation of modern technology?better image within the host country due to new job creation
3. Deciding how to Enter the Market3. Deciding how to Enter the Market
Factors influencing market entry choiceFactors influencing market entry choice
Company related Factors
Market related Factors
Strategy Cost Situation
Product related Factors Legal
SituationEconomic Situation
Competitive Situation
Trade Situation
Consumer Situation
? Internationali -zationstrate -gy
? chosen market seg -ments
? compe -titivestrate -gy
? market position
? tech -nology
? loca -tionfactor cost
? pro -ducti -vity
? EOS
? sales cost
? capa -city utili -zation
? pro -duct
? life cycle level
? de -gree of pro -duct dif -feren -tiation
? ex-port/ im-port bar -riers
? dum -ping regu -lation
? tax
? price con -trol
? local con -tent regulation
? market growth
? market volume
? market struc -ture
? ex-chan -ge rate
? infla -tion
? amount and strength of compe -tition
? substitution
? amount and power of agents
? terms of trade struc -ture
? income
? price elasti -city
? consu -merbeha -vior
? market trans -paren -ce
Meffert/Bolz: International Marketing – Management, 2. Aufl., 1994, S.136
3. Deciding how to Enter the Market3. Deciding how to Enter the Market
11
Timing of Market EntryTiming of Market Entry
After deciding HOW to enter the market:
WHEN should the selected markets be entered?
Two strategies:- sprinkler approach- waterfall approach
3. Deciding how to Enter the Market3. Deciding how to Enter the Market
Sprinkler-Approach:a company enters several markets within a very short period of time.
Reasons for choosing the sprinkler approach:- short product life cycles (e.g. like in the computer industry)- high R & D investments have to be amortized- gain first mover advantages and building up barriers for follower
Timing of Market EntryTiming of Market Entry
1 YearTime line 0
Country FCountry ECountry DCountry CCountry BCountry A
Entry
Years0 1
Source: Backhaus et al: Internationales Marketing, 3 Auflage, 2000 S.137
3. Deciding how to Enter the Market3. Deciding how to Enter the Market
12
Waterfall-Approach:companies expand there abroad business step by step in a sucessivemanner
Reasons for choosing the waterfall approach:-- the expected product life cycle is very long-- low competition on the selected country markets
Timing of Market EntryTiming of Market Entry
Country FCountry E
Country DCountry C
Country B
Country A
Entry
Years0 1 2 3 4 5 6
Source: Backhaus et al: InternationalesMarketing, 3 Auflage, 2000 S.127
3. Deciding how to Enter the Market3. Deciding how to Enter the Market
Advantages of the Waterfall-approach:- possibility to grow with its foreign business in terms of organization and resources - less resources required than with the sprinkler approach- less risky than the sprinkler approach- extention of the product life cycle
Timing of Market EntryTiming of Market Entry3. Deciding how to Enter the Market3. Deciding how to Enter the Market
13
Prof. Dr. Michael Dowling -Universität Regensburg
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
? Companies must decide how much to adapt their marketing to local conditions
? Two Extremes:– Standardized marketing worldwide– Differentiated marketing (adjustment to each target market)
Strategic level Instrumental level
Contents
- Marketing
strategy
- physical product - brand policy
- communication policy - distribution policy - pricing policy
Processes
- Information systems
- Segmentation models
- Controlling systems
- advertisement planning
- distribution planning
Source: Meffert/Bolz: Internationales Marketing-Management, 1994, S 148
Scope of Standardization4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
14
Product PolicyProduct Policy
…refers to decisions about product, program, branding and service in an international setting:
According to Bernd/ Fantapié Altobelli / Sander : InternationaleMarketing-Politik, S. 58, 1997
Product Core
Tangible Product
Extended Product
Basic Function
Branding
Packaging
Quality
Styling
Features
Installation
Guarantee
After Sales Service
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
Dependency on culture Rank Products/Industry
cultu
re-fr
ee ?
hi
gh-t
ech ?
1 2 3 4 5 6 7
Computer hardware Airlines Photographic devices Heavy equipment Machine tools Consumer electronics Computer software
8 9 10 11 12
Long-lasting household-appliances Wine and spirituous beverages Soft drinks Tobaccos Stationeries
high
-touc
h ?
hi
gh-i
nter
est ?
13 Cosmetics
14 15 16 17 18 19 20
Beer Detergents Toiletries Publishing products Foodstuff Sweets Textiles
Source: Meffert/Bolz: Internationales Marketing , 2. Auflage, 1994, S. 174
Product PolicyProduct Policy
Potential to Standardize of different Product Categories
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
15
Product PolicyProduct Policy
Traditional or culturally sensible products (e.g. food)
Differentiation
cars: standardized core product; adaptation to national markets by e.g. using different exhaust gas filter in accordance to specific country standards.
Shaver switching from 110 to 220V
Intermediary Solution
Modular approach
Built-in flexibility
high-tech or luxury products (e.g. films, luxury watches etc.)
Standardized products
ExamplesSolution
According to Kreutzer: Global Marketing, 1989,S. 281,
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
Product PolicyProduct Policy
Branding using...
...Product names
...Products signs
Standardization pitfalls...
...with respect to pronouncability, associations, meaning, protectability of a product name
...when the product sign is equal with the brand name (e.g. Coca Cola)
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
16
Product PolicyProduct Policy
Barriers to Standardization? Legal barriers: quality standards and norms, ? Technological barriers: e.g. different standards in power supply, ? Linguistic barriers: pronouncability of the products name? Image barriers: e.g. linkage between package and perceived quality? Physiological barriers: e.g. different body sizes? Consumption patterns: function of a product
Communication PolicyCommunication Policy
Source: Backhaus/ Büschgen/ Voeth 1996, S. 191
Path of Standardization
C.-TARGETS
C.-STRATEGY
C.--INSTRUMENTS
Public Relations
Advertising
Sales Promotion
Corporate IdentityPublic
RelationsCommercial
DesignMedia
Selection
Message
Tonality
Pictures
Color
Music
Text
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
17
Example: Advertising/ Language
102451123521621003I
14178810035455319671994100D
52631199830713110100211616F
4858404273612825347212311001644E
FINNORSWIAUSSWEDENGREPORBELNETHSPAFRAUKITAGER
Source: Mooij, Advertising Worldwide, 2nd Edition, New York, 1994, S. 288
Communication PolicyCommunication Policy
Language knowledge in Europe (%);
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
Example: Advertising / Media Selection
Communication PolicyCommunication Policy
35197Sri Lanka
2101006South Corea
23150Africa
250318Middle East
308592Eastern Europe
444817Western Europe
150292Latin America
7892017North America
RadioTV
Communication Infrastructure in selected Countries and Regions (per 1000 citizen)
Source: Sookdeo: The New Global Consumer, in: Fortune, Autumn-Winter 1993, pp. 68-77
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
18
Communication PolicyCommunication PolicyElement Country/Culture Interpretation
stewardess serves champagne to passengers
Europe/USA
Islamic countries
demonstration of good service
attempt to influence religious values (Violation of standards concerning food and behavior)
perfume, background of raindrops
Central- and Southern Europe
parts of Africa
rain as a symbol for freshness
rain as a symbol for fertility
Marlboro-Cowboy USA
Hong Kong
Argentina
symbol for freedom and manliness
cowboy looks like a coolie
cowboy has a low social standing; useless tramp
Source: Cateora, International Marketing, 1993, pp. 524; Ricks, Big Business Blunders, 1983, pp. 63
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
Barriers to Standardization
?Legal barriers: prohibition of comparative advertising, prohibition of advertising for certain products, prohibition of foreign languages in advertising
?Technological barriers: media diffusion
?Linguistic barriers: knowledge of foreign languages, understanding and interpretation of words, symbols, color and music
? Image barriers: link between media characteristics and product quality
?Consumption patterns: media usage
?Competitive situation: e.g. average advertising budget, cost for media, typical forms of communication
Communication PolicyCommunication Policy4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
19
Pricing PolicyPricing Policy
Determinants of international pricing
Intern determinants? international organizational structure? cost structure
? way of transfer pricing? decisions on other parts of the marketing mix
Extern determinants
? political, legal and economical framework? behaviour and preferences of customers? competitive structure and behaviour
? exchange rate volatility? occurance of gray markets
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
15 %L16 %D16 %E17 %P17,5 %NL17,5 %GB18 %GR20 %I20 %A20,6 %F21 %B21 %IRL22 %FIN25 %S25 %DKVATCountry
Source: http://europa.eu.int/comm/dg10/publications/autres/voy2000/txt_de.html
Pricing PolicyPricing Policy4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
20
Example: Sales Promotion
Discounts Extras Sales Opening hour regulations
Belgium permitted prohibited only winter and summer sales and closing-down sale
until 8 p.m., Fridays: 9 p.m.
France permitted prohibited always permitted
no regulations
Greek prohibited but still usual
prohibited prohibited but still usual
no regulations
Luxemburg max. 3% prohibited always permitted
until 8 p.m.; in Winter: 7 p.m.
U.K. permitted permitted always permitted
until 8.p.m.; once a week until 9 p.m.
Source: ZAW-service Nr. 181, Mai 1994, S. 13
PricingPricing PolicyPolicy4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
Pricing PolicyPricing Policy
Profit in foreign currency remains constant, Profit in domestic currency is increasing, price remain constant from a foreign customers’ view
Profit (in domestic currency) is increasing; price remain constant from a foreign customers’ view
Profit (in domestic currency) is constant; price is decreasing from a foreign customers’ view
Appreciation of the foreign currency
Profit in foreign currency remains constant, Profit in domestic currency is decreasing, price remain constant from a foreign customers’ view
Profit (in domestic currency) is decreasing; price remain constant from a foreign customers’ view
Profit (in domestic currency) is constant; price is increasing from a foreign customers’ view
Devaluation of the foreign currency
Billing in foreign currency
Billing in foreign currency
Billing in domestic currency
Sale of a product by a foreign subsidiary
Sale of a product by exporting
Source: Sanders, InternationalesPreismanagement, 1997, p. 52
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
21
Pricing PolicyPricing Policy
Country Term of payment Mean delay
Belgium 45-90 18
France 60-90 15
Germany 30-60 11
Italy 60-120 17
Netherlands 25-40 17
United Kingdom 30-60 16
Spain 60-90 n.n.
Portugal 60-90 n.n. P
Terms of payment and customer behaviour
Source: LP international 12/00, p.9.
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
Pricing PolicyPricing Policy
Country A
Authorized Export
Production site Cost per unit k = 2,
price pA = 8
Authorized Export
Reimport Paral- -el imtort
Country B Country C
price pB = 6 Lateral grey import price pC = 10
Transport cost per unit - between A and B: 0,50 - between A and C: 1,00 -between B and C: 1,50
Source: Simon, Wiese: Internationale Preispolitik, p.245 in: Hermanns, Wissmeier : internationales Marketing-Management, 1994
Gray markets:
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
22
Pricing PolicyPricing Policy
Basic Strategies in International Pricing:
- Standardization
- Dual pricing strategy
- Differentiation
- Price – corridor
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
Pricing PolicyPricing Policy
Barriers to Standardization
? Legal barriers: e.g. restrictions on discounts
? Technological barriers: Existence of facilities for electronic data exchange, inter-bank payment etc.
? Image barriers: importance of price as an indicator for quality
? Consumption patterns: typical price behavior, economic limitations of customers; Conditions expected, e.g. respite for payment
? Competitive situation: average price level
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
23
Distribution PolicyDistribution Policy
Issues of an international distribution policy:
? distribution structure:structure of distribution channel through which goods pass f rom producer to user
? key issues: characteristics of middlemen, selection criteria of distributors, contractual producer-distributor relationship
? distribution process:- physical handling and distribution of goods- passage of ownership- buying and selling negotiations (producer-middlemen, middlemen-customer)
? key issues: choice of locations, choice of logistic partners, technical and organizational handling
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
Basic decisions with strategic character:? outsourcing degree of distribution tasks? length of distribution channel? variety of distribution systems? exclusivity arrangements with channel members
Distribution PolicyDistribution Policy4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
24
Distribution PolicyDistribution Policy
Barriers to Standardization? Legal barriers: regulations on store design and size,
? Technological barriers: existence of infrastructure
? Geographical barriers: climate, natural barriers
? Image barriers: customers association between outlet type and product quality
? Consumption patterns: typical outlets for certain products
? Competitive situation: channel blockage, channel cost
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
Effects of Standardization & DifferentiationEffects of Standardization & Differentiation Cost and turnover effects of
Standardization Differentiation
Cost de-crease
??Decreasing costs for research and development of products
??More effective co-ordination and control ??Scale and experience effects in production,
marketing, logistics ??Easy transferability of human resources (less
training requirements) ??Reduction of losses incurred due to arbitrage
??Possible downward adaptation of product quality in technically less developed markets
??Limited service problems in technically less developed markets with inexperienced users
??Differentiation of prices may lead to higher sales volume (quantity) in different country markets and, as a consequence, to sinking costs (economies of scale + scope)
Turn-over
increase
??Unified product and corporate image across country markets leads to increased brand equity
??Positive spill over effects between markets ??Possible homogenization of country markets
through standardized products ??Elimination of parallel imports through price
standardization
??Adaptation to customer needs and expectations leads to higher national price level
??Differentiation of prices may lead to higher sales in different national markets and to increased overall turnover
??Possibility of serving niche markets in certain countries with specialized products
Common aspects of standardization: the imitation of ideas and concepts by competitors can be prevented. Three basic risks: 1. Restraint of innovative processes 2. Danger of conflicts between headquarter and subsidiaries 3. Danger of a global mega flop (e.g.: The New Coca Cola)
Source: Segler (1986), p. 213.
25
Deciding on the Marketing OrganizationDeciding on the Marketing Organization
Organizational Configuration:
- multinational- international- global- transnational
Deciding on the Marketing OrganizationDeciding on the Marketing Organization
Differentiation advantage
Inte
grat
ion
adva
ntag
e
low
low
high
high
Source: Meffert/Bolz: Internationales Marketing , 2. Auflage, 1994, S. 2470
GlobalProduct
organization
Trans-national
Matrix organization
Inter-national
Export division
Multi-national
Country organization
Basic Strategy – Structure Relationships in international Marketing
26
Additional LiteratureAdditional Literature
? Berndt/ Fantapié Altobelli/ Sander: Internationale Marketing-Politik, 1997, Sig.: 40/QP 680 B524
? Hünerberg: Internationales Marketing, 1994, 40/QP 680 H887
? Meffert/ Bolz: Internationales Marketing-Management, 2. Auflage, 1994, 40/QP 680 M492 (2)