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6. International Marketing, Market Selection, Modes of Entry in International Markets

This presentation defines international marketing, international marketing decisions, challenges of international marketing, and driving and restraining forces of international marketing. It goes on to discuss the process of market selection, firm related, market related and other factors effecting market selection. It also reflects on various modes of entry into foreign markets such as exporting (commercial strategy, commercial mode), foreign direct investment (industrial strategy, integrated modes) and associated or contractual modes (contractual strategy, competitive alliances). The presentation closes with a case study on the experience of Proctor and Gamble (P&G) in various international markets like Japan, China and India.

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6. International Marketing, Market Selection, Modes of Entry in International Markets

  1. 1. International Marketing, Market Selection, Modes of Entry in International Markets International Business Management Mrs. Charu Rastogi, Asst. Prof.
  2. 2. What is Marketing? “Marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating, offering, and exchanging products of value with others.” (Kotler) Process, Exchange, Value Mrs. Charu Rastogi, Asst. Prof.
  3. 3. Marketing process Capture Create value for customers and value from build customer relationships customers in return Understand Design a Construct a Build profitable Capture the customer- marketing relationships value from marketplace driven program that and create customers toand customer marketing delivers customer create profits needs and strategy superior satisfaction and wants value customer quality Marketing Global Ethics and technology markets social responsibility Mrs. Charu Rastogi, Asst. Prof.
  4. 4. What is international marketing? - “International marketing is the process of planning and conducting transactions across national borders to create exchanges that satisfy the objectives of individuals and organizations” (Czinkota and Ronkainen) - “International marketing focuses its resources on global market opportunities and threats” (Keegan and Green) - “International marketing is the motor of the internationalization process of the firm” (Usunier) - It is a tool used to obtain improvement of the firm’s position in the global market - Strategy and action, global and local Mrs. Charu Rastogi, Asst. Prof.
  5. 5. International Marketing Decisions Deciding whether to go abroad Deciding which markets to enter Deciding how to enter the market Deciding on the marketing program Deciding on the marketing organization Mrs. Charu Rastogi, Asst. Prof.
  6. 6. What are the similarities and differences betweeninternational marketing and domestic marketing?  Similarities: basic concepts, practices and tools are almost identical, key success factors are the same…  Differences: more strategic, more variables, more complex, cultural differences, legal constraints, information sources, managing distances, entry mode choice… Mrs. Charu Rastogi, Asst. Prof.
  7. 7. Driving Forces of International Marketing Technology Culture Market Needs Costs Free Markets Economic Integration Peace Strategic Intent Management Vision, Strategy and Action Mrs. Charu Rastogi, Asst. Prof.
  8. 8. Restraining Forces of InternationalMarketing Culture Market Differences Costs National Controls Nationalism Peace vs. War/ Stability Management Myopia Organization History Domestic Focus Mrs. Charu Rastogi, Asst. Prof.
  9. 9. International Marketing Challenges Unstable governments Political restrictions Incompatibility of technical standards Foreign-exchange problems Government bureaucracy/Corruption Tariffs and other trade barriers Technological pirating High cost of product and communication adaptations Mrs. Charu Rastogi, Asst. Prof.
  10. 10. Standardization vs. adaptation Factors encouraging standardization  Economies of scale in production  Economies in R&D  Economies in marketing  Global competition  “Shrinking” of world market Degree of standardization,  “Converging, homogeneous cultures” Degree of adaptation, Factors encouraging adaptation global/local  Differing use conditions paradox  Government and regulatory influences  Local competition  Differing consumer behavior patterns  “True” to marketing concept Mrs. Charu Rastogi, Asst. Prof.
  11. 11. Need for adaptation HighDegree of culturalgrounding Low Industrial/Technology intensive Consumer Nature of product Mrs. Charu Rastogi, Asst. Prof. Source: Czinkota and Ronkainen
  12. 12. Market Selection Firm related factors Market related factors Other factors Mrs. Charu Rastogi, Asst. Prof.
  13. 13. Market Selection: Firm related factors Ethnocentric: everything is centered on the domestic market. Polycentric: several important foreign markets exist. Regiocentric: the market is composed of several large economic regions. Geocentric: the world is one large global market. Mrs. Charu Rastogi, Asst. Prof.
  14. 14. Market Selection: Firm related factors Ethnocentric Polycentric GeocentricApproach International Each country is The world is one operations are relatively common market secondary independentVision Centered on the Each market is Global vision of domestic market unique the worldPriority Searching for Taking into Unifying identical consideration differences in segments in differences in the world foreign markets foreign markets marketPlanning National Subsidiary in Worldcenter headquarters each country headquartersStructure International Division for Matrix structure division each zone Mrs. Charu Rastogi, Asst. Prof.
  15. 15. Market Selection: Firm related factors Ethnocentric Polycentric GeocentricStaff Citizens from Citizens from Most qualified the domestic each market marketMarketing Extension Adaptation Extension,strategy Adaptation, CreationManagement Centralized Decentralized Integrated andstyle interactiveProduction Domestic Local Low-cost sources of supplyPartnerships Agent, licensing Joint-ventures Strategic alliancesPerformance Domestic Local market World marketmeasures market share Charu Rastogi, Asst. Prof. Mrs. share share
  16. 16. Market Selection: Market related factors A)General factors  economic factors  business regulations  political factors B) Specific factors  trends in domestic market  trends in export and import  nature of competition  supply conditions of raw materials Mrs. Charu Rastogi, Asst. Prof.
  17. 17. Market Selection: Other Factors Political restrictions Special requirements Product specification Distant location Market accessibility Business community Mrs. Charu Rastogi, Asst. Prof.
  18. 18. Market Selection Process International marketing objectives Commercial Parameters for production selection Preliminary Test marketing screening Evaluation and Short listing of selection markets Mrs. Charu Rastogi, Asst. Prof.
  19. 19. Entry mode choice Considered by many as the most important aspect of a firm’s internationalization strategy Entry mode will determine long-term success or withdrawal from foreign markets Poor decisions can be very costly for the firm Mrs. Charu Rastogi, Asst. Prof.
  20. 20. Factors in the entry mode decision Target country Target country Target country Home country market factors environmental production factors factors factorsExternal factors Entry mode decisionInternal factors Company product Company resource factors and commitment factors Mrs. Charu Rastogi, Asst. Prof.
  21. 21. Elements of market entry strategies Entry operationChoice of target Setting objectives Choice of Design the Targetproduct/market and goals entry mode marketing plan market Control systems: monitoring operations / Revising entry strategy Mrs. Charu Rastogi, Asst. Prof.
  22. 22. Different types of entry modes Exporting (commercial strategy, commercial modes) Foreign direct investment (industrial strategy, integrated modes) Associated or contractual modes (contractual strategy, competitive alliances) Mrs. Charu Rastogi, Asst. Prof.
  23. 23. Entry mode continuum Exporting Contractual modes FDI - + Commitment, risk, control, profit potential Mrs. Charu Rastogi, Asst. Prof.
  24. 24. Types of exporting Indirect exporting  Distributor / export merchants  Export agent  EMC Direct exporting  Export department  Export sales representatives  E-business Cooperative exporting  Export groups  Piggyback exporting Mrs. Charu Rastogi, Asst. Prof.
  25. 25. Foreign direct investment (FDI) The ultimate form of foreign involvement Direct ownership of foreign-based assembly, manufacturing or sales facilities The company can buy part or full interest in a local company (M&A) or build its own facilities Considered the “preferred” mode of entry Mrs. Charu Rastogi, Asst. Prof.
  26. 26. Advantages and disadvantages of FDIAdvantages- Cost economies (labor, raw materials, incentives, freight savings, etc…)- Better image in host country- Deeper relationship with government, customers, local suppliers, distributors- Better adaptation- Full control of investments- Long term objectivesDisadvantages- High initial and operating costs- High level of risk Mrs. Charu Rastogi, Asst. Prof.
  27. 27. FDI options Make-or-buy decision  Greenfield investment  Mergers and acquisition Branch or subsidiary  Structure  Legal status Analyzing FDI project  Assessing profitability  Discounted cash flow analysis Mrs. Charu Rastogi, Asst. Prof.
  28. 28. Associated entry modes Newest, most recent forms of international business Transfer of technology or know-how between two firms Shared risks Only option in countries where the government requires foreign firms to use local capital Better access to local market knowledge Mrs. Charu Rastogi, Asst. Prof.
  29. 29. Types of associated entry modes Joint venture: foreign and local investors share ownership and control of local operations Licensing: licensor licenses a foreign company to use a manufacturing process, trademark, patent, trade secret or other item of value for a fee Management contracts: firm exports management services instead of a product, separation between ownership and management International Franchising: contractual association between a franchisor (manufacturer, wholesaler or service organization) and franchisees (independent business people who buy the right to own and operate units in the franchise system). Franchising is based on some unique product, service or method of doing business.  Industrial franchising  Distribution franchising  Service franchising Mrs. Charu Rastogi, Asst. Prof.
  30. 30. Comparing different entry mode options High Franchising FDI Licensing Wholly owned subsidiary (M&A) Contribution of know- Management contract Branch office AD / Concessionaire Minority shareholding through partial acquisition how ITC / distributor Majority JV investment Foreign buying (local partner know-how) Low department Low Level of ownership High Mrs. Charu Rastogi, Asst. Prof.
  31. 31. Case Study: DIFFERENT FOR GAMBLE Procter and Gamble (P&G), a global consumer products giant, “stormed the Japanese market with American products, American managers, American sales methods and strategies. The result was disastrous until the company learnt how to adapt products and marketing style to Japanese culture. P&G which entered the Japanese market in 1973 lost money until 1987, but by 1991 it became its second largest foreign market.” P&G, acclaimed as “the World’s most admired marketing machine” entered India, which has been considered as one of the largest emerging markets, in 1985. It entered the Indian detergent marketing in the early nineties with the Ariel brand through P&G India (in which it had a 51 percent holding which was raised to 65 per cent in January 1993, the remaining 35 percent being held by the public). P&G established P&G Home products, a 100 percent subsidiary later (1993) and the Ariel was transferred to it. Besides soaps and detergents, P&G had or introduced later product portfolios like shampoos (Pantene) medical products (Vicks Prof. Mrs. Charu Rastogi, Asst. range, Clearasil and Mediker) and personal products (Whisper feminine hygiene products,
  32. 32.  The Indian detergents and personal care products market was dominated by Hindustan Lever Ltd. (HLL). In some segments of the personal care products market the multinational Johnson & Johnson has had a strong presence. Tata group’s Tomco, which had been in the red for sometime, was sold to Hindustan Lever Ltd.(HLL). HLL, a subsidiary of P&G’s global competitor, has been in India for about a century. The take over of Tomco by HLL further increased its market dominance. In the low priced detergents segment Nirma has established a very strong presence. Over the period of about one and a half decades since its entry in India, P&G invested several thousand crores. However, dissatisfied with its performance in India, it decided to restructure its operations, which in several respects meant a shrinking of activities - the manpower was drastically cut and thousands of stockists were terminated. P&G, however holds that, it will continue to invest in India. According to Gary Cofer, the country manager, “ it takes time to build a business category or brand in India. It is possibly an even more demanding geography than Mrs. Charu Rastogi, Asst. Prof. others.”
  33. 33.  China, on the other hand, with business worth several times than in India in less than 12 years, has emerged as a highly promising market for P & G. When the Chinese market was opened up, P & G was one of the first MNCs to enter. Prior to the liberalisation, Chinese consumers had to content with shoddy products manufactured by government companies. Per capita income of China is substantially higher than India’s and the Chinese economy was growing faster than the Indian. Further, the success of the single child concept in China means higher disposable income. Further it is also pointed out that for a global company like P&G, understanding Chinese culture was far easier since the expat Chinese in the US was not very different from those back home where as most Indian expats tended to adapt far more to the cultural nuances of the immigrant country. Mrs. Charu Rastogi, Asst. Prof.
  34. 34.  One of P & G’s big bets in India was the compact technology premium detergent brand Ariel. After an initial show, Ariel, however, failed to generate enough salesconsumers seem to have gone by the per kilo cost than the cost per wash propagated by the promotion. To start with, P&G had to import the expensive state-of-the –art ingredients, which attracted heavy customs duties. The company estimated that it would cost Rs. 60 per kilo for Ariel compared to Rs. 27 for Surf and Rs. 8 for Nirma. Because of the Rupee devaluation of the early 1990s, the test market price of Rs. 35 for 500 gms was soon Rs. 41 by the time the product was launched. HLL fought Ariel back with premium variants of Surf like Surf Excel. It is pointed out that, “in hindsight, even P & G managers privately admit that bringing in the latest compact technology was a big blunder. In the eighties, P & G had taken a huge beating in one of its most profitable markets, Japan, at the hands of local company Kao. Knowing the Japanese consumer’s fondness for small things, Kao weaved magic with its new-found compact technology. For a company that prided itself on technology, the drubbing in Japan was particularly painful. It was, therefore, decided that compacts would now be the lead brand for the entire Asia-Pacific region. Mrs. Charu Rastogi, Asst. Prof.
  35. 35.  When P & G launched Ariel in India, it hoped that the Indian consumer would devise the appropriate benchmarks to evaluate Ariel. As compacts promised economy of use, P & G hoped that consumers would buy into the low-cost- per wash story. But selling that story through advertising was particularly difficult, especially since Indian consumers believed that the whasing wasn’t over unless the bar had been used for scrubbing. Even though Ariel was targeted at consumers with high disposable income, who represented half the urban population, consumers simply baulked at the outlay. Thereafter, one thing led to another. Ariel’s strategy of introducing variants was a smart move to Flank Lever at every price point by cleverly using the brand’s halo effect. And by supporting the brand in mass media and retaining the share of voice. By 1996, it had become clear that Ariel’s equity as a high- performance detergent had begun to take a beating. Its equity as a top-of- the-line detergent was getting eroded... Nowhere in P&G’s history had a concept like Super Soaker been used to gain volumes.... It was decided that Super Soaker would no longer be supported, nor would Ariel bar be supported in media.” Mrs. Charu Rastogi, Asst. Prof.
  36. 36. Questions Discuss the reasons for the initial failure of P&G in Japan. Where did P&G go wrong (if it did) in the evaluation of the Indian market and its strategy ? Discuss the reasons for the differences in the performance of P&G in India and China. Mrs. Charu Rastogi, Asst. Prof.