Global Marketing: Creating Expansion

International market entry allows companies to expand their customer base and grow their profitability with either custom or standard products.

U.S. firms choose to engage in international marketing for many reasons, the most attractive of which are market expansion and new profit opportunities. In general, the basic principles of domestic marketing can be applied to international marketing, but when attempting the latter, environmental factors in foreign countries must be taken into account. These include the (a) economic environment, (b) competitive environment, (c) cultural environment, (d) political/legal environment, (e) technological environment, and (f) ethical environment in foreign countries

There are five basic ways a firm can enter a foreign market, the selection of which depends largely on how much control a firm wishes to maintain over its marketing. When a firm chooses to market internationally, it must decide whether to adjust its domestic marketing program. Some firms customize their market programs, adjusting their marketing mix for each target market. Others use a standard marketing mix everywhere.

The Global Competitive Environment

U.S. companies must compete internationally with foreign marketers, who might have superior business strategies. Japanese companies, for example, have a method for designing products that is less wasteful than American strategies. Japanese companies typically begin a design process by determining what a market will be willing to pay for a product, and then advise their design teams to make a product based on this target cost. American companies, on the other hand, typically develop a product first, before determining whether a market can afford its cost.

The Types of International Exposure

Firms typically approach international marketing cautiously. For smaller firms in particular, exporting is often chosen over other strategies, because it offers a degree of control over risk, cost, and resource commitment. Smaller firms often only export in response to an unsolicited overseas order, which is perceived as low-risk.

The Decision Sequence in International Marketing
The challenge of international marketing is to ensure that any international strategy has the discipline of thorough research and an understanding and accurate evaluation of what is required to achieve competitive advantage. As such, the decision sequence in international marketing is much larger than that of domestic markets.

Exporting

Exporting is low-risk and is attractive for several reasons. First, products in the maturity stage of a domestic life-cycle might find new growth opportunities overseas. Second, some firms find it less risky and more profitable to export current products, instead of developing new products. Third, firms that face seasonal domestic demand might choose to market abroad in relation to these demands. Finally, some firms might export because there is less competition overseas.

Licensing/Franchising

Under a licensing agreement, a firm (licensor) provides a product to a foreign firm (licensee) by granting that firm the right to use the licensor’s manufacturing process, brand name, patents, or sales knowledge, in return for payment. The licensee obtains a competitive advantage in this arrangement, while the licensor obtains inexpensive access to a new market. Scarce capital, import restrictions, or government restrictions often make this the only way a firm can market internationally. This method does contain some risks. It is typically the least profitable method for entering a foreign market, and it is a long-term commitment. Furthermore, if a licensee firm fails to successfully reproduce a particular product, it could tarnish that product’s original brand image.

Joint Ventures

A joint venture is a partnership between a domestic and foreign firm. Both partners invest money, share ownership, and share control of the venture. Joint ventures require a greater commitment from firms than other methods, because they are riskier and less flexible.

Direct Investment

Multinational organizations may choose to engage in full-scale production and marketing abroad by directly investing in wholly-owned subsidiaries. As opposed to the previously mentioned methods of entry, this type of entry results in a company directly owning manufacturing or marketing subsidiaries overseas. This allows firms to compete more aggressively abroad, because they are literally “in” the marketplace. However, because the subsidiary is responsible for all the marketing activities in a foreign country, this method requires a much larger investment. This strategy is also risky, because it requires a complete understanding of business conditions and customs in a foreign country.

U.S. Commercial Centers

These centers provides resources to promote the export of U.S. goods and services abroad. The commercial center does this by familiarizing U.S. firms with industries, markets, and customs in other countries. U.S. commercial centers provide the following services: business facilities; translation and clerical services; a commercial library with legal information; and assistance with contracts and export/import arrangements. They also facilitate contacts between buyers, seller, bankers, distributors, and governmental officials.

Trade Intermediaries

If a small company lacks the resources or expertise to enter a foreign market, they can hire trade intermediaries, who do possess relationships in other countries. These entrepreneurial middlemen typically purchase U.S. produced goods at 15 per cent below a manufacturer’s best discount, and then resell these products in overseas markets.

Alliances

In alliances, two or more separate entities jointly promote and sell a single concept, product, or service that is beneficial to all stakeholders. The stakeholders in such a case think a combined marketing approach will produce more significant results.

Key Points

  • The basic principles of domestic marketing apply to international marketing, but environmental factors in a foreign country can affect international efforts.
  • International approaches to marketing, such as cost-based product development by the Japanese, put U.S. competitors at a disadvantage. It is important to address the various approaches and find new operating methodologies in order to compete successfully on a global scale.
  • For small and medium-sized firms in particular, exporting remains the most promising alternative to a full-blooded international marketing effort, since it appears to offer a degree of control over risk, cost, and resource commitment.
  • The various methods of entering the global market are through exporting, licensing, joint ventures, direct investment, U.S. Commercial Centers, trade intermediaries and alliances.

Example

  • Example: The primary objective of the company is to achieve a synergy in the overall operation, so that by taking advantage of different exchange rates, tax rates, labor rates, skill levels, and market opportunities, the organization as a whole will be greater than the sum of its parts. Thus, Toyota Motors started out as a domestic marketer, eventually exported its cars to a few regional markets, grew to become a multinational marketer, and today is a true global marketer, building manufacturing plants in the foreign country as well as hiring local labor, using local ad agencies, and complying to that country’s cultural mores. As it moved from one level to the next, it also revised attitudes toward marketing and the underlying philosophy of business. Ultimately, the successful marketer is the one who is best able to manipulate the controllable tools of the marketing mix within the uncontrollable environment. The principal reason for failure in international marketing results from a company not conducting the necessary research, and as a consequence, misunderstanding the differences and nuances of the marketing environment within the country that has been targeted. Example of Alliances Heineken, the premium Dutch beer, is consumed by more people in more countries than any other beer. It is also the number-one imported beer in America. Miller and Budweiser, the two largest American beer producers, have entered into global competition with Heineken, partly because the American beer market has been flat. They are doing so by forming alliances with global breweries such as Molson, Corona, and Dos Equis. Heineken has responded to the challenge, heavily promoting products such as Amstel Light and Murphy’s Irish Stout. Heineken has also begun developing an alliance with Asia Pacific Breweries, the maker of Tiger Beer. Example of Franchising: Holiday Inn, Hertz Car Rental, and McDonald’s have all expanded into foreign markets through franchising. Example of Joint Venture: A domestic firm may wish to engage in a joint venture for a variety of reasons; for example, General Motors and Toyota have agreed to make a subcompact car to be sold through GM dealers using the idle GM plant in California. Toyota’s motivation was to avoid US import quotas and taxes on cars without any US-made parts.