IB 3880 International Marketing

2010-2011
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WarwickBusinessSchool
Dr. MadhumitaBanerjee
Warwick Business School
WarwickBusinessSchool
Session Agenda
Decision drivers for international market selection and entry
SME market selection and internationalisation
Seminar Case: Wal-Marts German Misadventure
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Decision drivers for international
market selection and entry
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IB 3880 International Marketing
2010-2011
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Internationalisation Stages Establishment Chain
Model
Johansson and Vahlne1977
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1. No regular exportingactivity
Domestic salesand sourcing, domestic cash flows
2. Exportingvia agents/distributors
Internalization of cash flow, noneto littleendowment advantage
Resource: Customers
3. Exportingvia agents/distributors
Initial scalebenefits
Littleperceived need for localization
4. Establishment of overseassubsidiaries and manufacturingplants
Takingadvantageof resource endowments (labor cost, intangiblecapital)
Scale, reduction of risk (diversifying)
Local integration needs emerge
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Choosing Target Markets
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Futureattractiveness
Sizeandpotential growth
Profitability
Competition
PESTLEanalysis
Compliancewithresources
Technological needs
Investments required
Labor pool
Compliancewithstrategy
Missionandvision
Managerial attitudes higher management
cognitions
Should we serve?
Can we serve?
Want to serve?
Criteria for assessingmarket attractiveness
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Opportunity evaluation and objectives
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1. Market Seeking
Saturated home market
Strong product/brand to take to a new market
2. Efficiency Seeking
Looking to achieve efficiency
R&D, production and operation costs, low labor costs
3. Resource Seeking
Access to raw materials
Access to skilled labor force
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2010-2011
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Entry decisions Time of Entry
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Early?
Late?
Time
Early foothold
Build sales and brand
name
Market knowledge
Advantages
Cost of market
development
Gain from early
movers mistakes
Disadvantages
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Entry decisions
Scale of Entry & Commitment of Resources
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Develop market familiarity
Reduce risk
Determine commitment to
market before investing resources
Small
Scale
Entry
Signal market importance
Identify competitor responses
Shape competition
Capture first mover advantage
Large
Scale
Entry
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Entry choices
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International environment
PESTLE Factors
Firms overall strategy
Global market opportunity
Assessment:
Country screening
Industry potential
Company sales potential
Entry strategy choices
Export
Licensing
Joint Ventures
Manufacturers
Market entry planning
Positioning/
Branding
Product
Adaptation
Pricing Channel
Selection
Promotion
Ghauri &Cateora(2010:276)
IB 3880 International Marketing
2010-2011
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Case: Wal-Marts German Misadventure
1. Wal-Mart started its global operations in the early 1990s when it
opened its first international store in Mexico. Analyse the reasons for
Wal-Marts decision to go global.
2. When Wal-Mart announced that it would be entering the German
market, analysts were surprised. Usually the cultural affinity between
the USand the UK led American companies to target the UK first,
before launching on to the European continent. Do you think Wal-
Marts decision to enter the German market was correct? Justify your
opinion.
3. Even after five years of doing business in Germany, Wal-Mart had
failed to make an impact on the German market and had been
incurring losses year after year. Analyse the reasons for Wal-Marts
problems in the German market. Do you think the company will be
able to improve its performance in Germany?
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SME market selection and
internationalisation
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SMEs in the Economy
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50-250 Employees , 10-43 million as balance sheet total
(EU, 2005)
<10 employees Micro enterprise
99.8%of enterprises in the EU are SMEs (EU SME Annual
Report, 2009)
China: >10 million, 99%of total enterprises, 50%of tax
revenue (Peoples Daily, 2010)
Globally, key contributors to the domestic economy and job
creation
EU - Impact of economic crisis - weak domestic market
demand
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2010-2011
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SME internationalisation
Coviello& Munro 1997
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Networks and incremental internationalization
Johansson &Vahlne1990, Lindqvist 1988, Bell 1995
International growth patterns in stages
(Coviello& Munro 1997)
Stage 1: Domestic focus with international intentions
Stage 2: First steps in foreign markets
Stage 3: Commitment to multiple markets
Role of networks in the internationalization process (Coviello&
Munro 1997)
Facilitate growth: foreign market access and entry modes selection
Constrain growth: limit opportunities outside the network
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Challenges for going international
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International market selection
Low psychic distance
Low cultural distance
Low geographic distance
Market and Company Factors
Target segment
Internal resources and structure
Government support
Systems and Support Networks
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SMEs and international market barriers
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USA: HSBC Small Business Confidence Monitor survey (2010)
Local regulation and complexities (22%)
Complexities of certain international markets (15%)
Concern about dealing with foreign currencies (13%)
Availability of financing (13%)
EU: EU Report on Internationalization of SMEs (2009)
Internal barriers lack of capabilities, resources (financial,
qualified personnel)
External barriers knowledge of foreign markets, regulations,
cultural differences, tariffs and trade barriers
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2010-2011
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Reasons for failure
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Lack of environmental scanning
Over dependence on one product
Failing to respond to customer needs
Failing to manage and resource market and operations
expansion
High cost of enforcing patents and trademarks in foreign
markets
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Challenges for the marketing mix
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Standardization vs. Adaptation
Resource constraints to understand market needs and
operationalize
Trackingand monitoringmarkets
Product, Packaging and Branding
Pricing
Promotion
Distribution
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SME international marketing
Merilees& Tiessen(1999)
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Sales driven model
1. Lack of niche market
power
2. Lack of control over
client and agent
selection
3. Low key relationships
with foreign customers
and agents
4. Adapting the marketing
mix to need foreign
customer needs
Relationship driven model
1. Niche market power
2. Control over the client
and agent selection
3. Importance of
relationships with foreign
customers and agents
4. Controlling the marketing
mix
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2010-2011
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Mini Case: Ajegroupand Kola Real
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The World of Colas
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Coca-Cola- 1886, US based, distributed in
over 200 countries
Mecca-Cola 2002, from France to UAE,
distributed in 64 countries
Kola Real 1988, Peru, distributed across
Central and South America and recently
introduced to Thailand
And there are others: ZamZamCola, Qibla
Cola, Inca Cola...
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Kola Real (Ajegroup):
From local SME to Multinational
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http://www.ajegroup.com/web/ajegroup/home.jsp
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2010-2011
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Ajegroupsinternational expansion
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Peru: Domestic Market conditions and KSF
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Late 1980s:
Internal strife with terrorismactivities
Deficiencyin soft-drink distribution - lack of highwayaccess
for trucks byguerrilla fighters
Depressed economic conditions
Low earningconsumer profile
Offer a alternative low priced cola in bigplastic bottles
Hired 3
rd
parties for distribution, Minimal advertising
Pepsi and Coca Cola targetinghigher end customer with top
cola brand, glass bottle, small size, difficulties in distribution,
forced to cut price
Kola Real created market position as the B-brand against
Private Label brands sold byWal Mart and other retailers
MARKET
CONDITIONS
MARKET
AND
CUSTOMER
NEEDS
COMPETITION
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AjegroupInternationalisation
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MARKET
CONDITIONS
COMPETITION
Domestic Market
Strategy
Customer with
limited means
High Quality
Low price
Bigpackage
International
Market Selection
Marketswith low
psychic, cultural and
geographic distance
International
Expansion
Customer profileand
marketingmixstrategy similar
to domestic market
Low soft drink consumption
Incremental Expansion of
product portfolio and
markets
Lean operations
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2010-2011
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International markets and marketing mix
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PRODUCT
Basic, no frills,
no differentiation
Makingthe concentrate and
not buying
Large pack size
Kola Real >BigCola in Mexico
PRICE
Low
Mexico:
BigCola - 2.6litre bottle for $0.90
Coke 2.5litre bottle for $1.30
PROMOTION
WOM and minimal
advertisinglike radio
spots
PLACE(Distribution)
Workingwith small
third parties
Rentingbottling
plants
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To summarise..
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The decision of international market selection and entry is contingent
upon a number of external and internal factors
SMEs are key contributors in the domestic economy of a country, yet face
internal and external hurdles in internationalization
Success is possible as seen for Kola Real and Ajegroupthat grew from a
family owned small business with a single product to a multi-category and
multi-brand international firm.
In contrast, Wal-Mart, a large and internationally established retailer made
mistakes in entering Germany.
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Suggested Readings
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CovielloN. and H. Munro (1997), Network Relationships and the
Internationalisation Process of Small Firms, International Business Review, 6 (4),
361-386
DooleI. and R. Lowe (2004), International Marketing Strategy: Analysis,
Development and Implementation, New York: Thomson - Chapter 5: International
niche marketingstrategies for SMEs
MerileesB. and J.H. Tiessen(1999), BuildingGeneralizableSME International
MarketingModels UsingCase Studies, International Marketing Review, 16 (4/5),
326-344
Navarro, A., AcedoF.J., Robson M.J., RusoE. and LosadaF. (2010), Antecedents and
Consequences of Firms Export Commitment: An Empirical Study, Journal of
International Marketing, 18 (3), 41-61
Pan Y. and TseD.K. (2000), The Hierarchical Model of Market Entry Modes, Journal
of International Business Studies, 31 (4), 535-554
IB 3880 International Marketing
2010-2011
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For Next Week
Read Ghauri and Cateora(2010), Chapter 12, 14 and 15
Read Strizhakova, Coulter and Price (2008)
Read Case for Class Analysis and Discussion LOreal: Buildinga global cosmetic
brand (Case 5.4 in Ghauri and Cateora, 2010)
Case Questions:
Critically comment on LOreals global brand management strategies. Analyze the
key success factors.
LOreal maintained a large portfolio of brands and was present in all the four
segments of the cosmetics market. What positioningstrategy did the company
follow to ensure that the image of its brands did not overlap? How and why did
LOreal encourage competition amongits brands in a particular segment and at
the same time prevent the brands fromcannibalizingeach other?
With specific reference to Maybelline, critically comment on Joness strategy of
acquiringrelatively unknown brands of different cultural origins, givingthema
makeover and marketingthemglobally. What are the merits and demerits of
acquiringan existingbrand vis--vis creatinga new brand?
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