MARKETING REVISION

INTERNATIONALIZATION PROCESS:

Steps before entering a market:

1. Assessment of the economic, political, legal & cultural environment
2. Selection of appropriate markets
3. Market entry strategy
4. Marketing Mix

There are two dimensions to adopt for implementing the International marketing mix during the process of
product introduction to an international market.
They are:
• Standardized International Marketing Mix: Assumes homogenous markets and in response
offers standardized products and services using a standardized marketing mix.
• Adapted or Customized International Marketing Mix: Takes into account the inherent
diversity in the global marketplace and adapts the marketing mix to fit the local culture,
preferences, laws and rules, infrastructure and competition

The two extremes in global marketing, globalization and localization, can be combined into the
‘Glocalization’. This global marketing strategy strives to achieve the slogan ‘think globally but act locally’
through dynamic interdependence between headquarters and subsidiaries. Organizations following such a
strategy coordinate their efforts, ensuring local flexibility while exploiting the benefits of global integration
and efficiencies, as well as ensuring worldwide diffusion of innovation.

The “glocal strategy” approach reflects the aspirations of a global integrated strategy, while recognizing the
importance of local adaptations/market responsiveness. In this way, “glocalization” tries to optimize the
balance between standardization and adaptation of the firm’s international marketing activities

Examples:
• McDonald’s offers beer in Germany, wine in France, Veggie McNuggets in India, Teriyaki Burger in
Japan, McLaks in Norway
• Nokia offers an anti-dust keypad for its phones that was made specifically for India
• Proctor & Gamble offers Ariel detergent in small sachets that are affordable in the Nigerian market
• PepsiCo’s most popular Lays Chips are: cheese onion in the UK, lemon in Thailand, Paprika in
Germany, seafood in China

8 REASONS TO GO GLOBAL

• A lot of companies are choosing or being forced to sell their products in markets other than their
domestic market. The reasons that make these companies expand globally are as follows:
•
• 1.Domestic market are saturated and there is pressure to increase sales and profits. Most companies
have ambitious sales and profit targets.
• 2. Small domestic market, so companies that are ambitious to become big have to look for bigger
markets.
• 3. Slow growth of domestic market, so companies who want to achieve high growth rates, they have
to achieve some of their sales in international markets.
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• 4. Suppliers follow their customers internationally, so they can contribute in most of the markets
where the buyer is operating. For example, a multinational will choose an advertising agency which
has a presence in all the markets the multinational is selling its products. The customer does not want
to hassle of hiring a separate advertising agency for each of its markets.
• 5. Competitive pressures is another reason, if the competitor is allowed to pursue its international
growth alone, the competitor is likely to plough back some of the earning from its international
operations to the domestic market, making it difficult for companies to focus on the domestic market.
• 6. Developed markets have high cost structures and companies may move their operations to
regions and countries where costs of production are lower.
• 7. Countries are at different stages of development, and their growth rates and potential are
different. Companies like to spread their risks and they will look for markets which are likely to
behave differently from their existing ones in terms of economic parameters like growth rate, size, etc.
A company would not like all its markets to be under recession or inflation simultaneously, and would
not like all its markets to be in mature stage or in growth stage. Having different type of markets will
make revenues and profits more consistent.
• 8. Even if a company decides to focus on its domestic market, it will not be allowed because
multinational companies will enter its market. Thus, the company has no choice but enter foreign
markets to maintain its market share.

ENTRY MODES

Types of Entry modes:

1. INTERNATIONALIZATION
1.1 HIERARCHICAL MODE (high control, high risk, low flexibility).
1.1.1 Merger or acquisition: A domestic company selects a foreign company and merger itself with the
foreign company in order to enter international business. Alternatively, the domestic company may
purchase the foreign company and acquires its ownership and control. It provides immediate access to
international manufacturing facilities and marketing network. (NOKIA SIEMENS NETWORKS
ALCATEL LUCENT)

Merger or acquisition Advantages:

• Less time consuming and quick to execute
• Less risky as compared to greenfield
• Immediate grab of market share
Merger or acquisition Disadvantages:
• Acquiring a firm in a foreign country is a complex task involving bankers, lawyers’ regulation,
mergers and acquisition specialists from the two countries
• Sometimes host countries impose restrictions on acquisition of local companies by the foreign
companies
• Labor problem of the host country’s companies are also transferred to the acquired company
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1.1.2 Greenfield strategy: Greenfield is the process of expanding operations in foreign market from ground
zero. It requires purchase of local property and local man power.
MERCEDES BENZ Production facility in Pune, India

Greenfield Advantages:
• No risk of losing technical competence to a competitor
• Tight control of operations
• New jobs created in the local market
Greendfield Disadvantages:
• Lengthy process from scratch
• Faces competition before it is setup
• Time consuming research has to be carried out before hand

1.2 INTERMEDIATE MODE (shared control and risk, split ownership):

1.2.1 Intermediate entry mode: They are primarily vehicles for the transfer of knowledge and skills but
may also create export opportunities. There is no full ownership involved (by the parent firm), but
ownership and control can be shared between the firm and the local partner.
Types of arrangements in intermediate entry mode:

a. Licensing: A formal permission or right offered to a firm or agent located in a host country to use a
home firm’s proprietary technology or other knowledge resources in return for payment. Another way
for a firm to establish local production in foreign markets without capital investment. It is usually for
a longer term than contract manufacturing and involves more responsibilities for the national firm

Licensing Advantages:
• manufacturer is near the customers’ base
•little capital investment, high return on capital employed
•valuable spin-off is possible
•no danger of nationalization/ expropriation of assets
•new product can be rapidly exploited on a worldwide basis
•local manufacturer can secure government contracts  

Licensing disadvantages:
• Re-negotiation is expensive
• when agreement expires, the former licensee can be seen as a competitor
• the licensee may not fully exploit the market leaving space for competitors’ entry
• licensee fees are often too small
• lack of control over licensee operations quality control of product is difficult
• governments often impose conditions on royalties or supply  

b. Franchising: Under franchising an independent organization called the franchisee operates the
business under the name of another company called the franchisor. Under this agreement, the
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franchisee pays a fee to the franchisor. • The franchisor provides the right to use trademarks, operating
System, product reputation and continuous support system like advertising, employee training etc. In
the direct system, the franchisor is controlling and coordinating the activities of the franchisees
directly. In the indirect system, a master franchisee (sub-franchisor) is appointed to establish and
manage its own subsystem of franchisees within its territory.

Franchising Advantages:
 • greater degree of control compared to licensing
• low-risk, low-cost entry mode
• using highly motivated business contacts with money, local market knowledge and experience
• quick development of international markets
• generating economies of scale
• precursor to possible future direct investment in foreign markets

Franchising Disadvantages:
• search for a competent franchisee is expensive and time consuming
• costs of creating/marketing a unique package of products recognized internationally
• costs of protecting goodwill and brand name
• problems with local legislation
• opening internal business knowledge may create a future competitor
• risk to the company’s international profile and reputation • Lack of control

c. Contract manufacturing: Enables the firm to have foreign sourcing (production) without making the
final commitment. Enables the firm to develop and control R&D, marketing, distribution, sales and
servicing of its products on international markets, while handing over responsibility for production to
local firm. IKEA rely heavily on a contractual network of small overseas manufacturers.

Contract manufacturing Advantages:

low-risk market entry
no local investment with no risk expropriation
control over R&D, marketing and sales service
avoids financial problems
a locally made image
entry into markets protected by tariffs or barriers
cost advantage
avoids transfer-pricing problems
• Contract manufacturing disadvantages:
• transfer of production know-how is difficult
• hard to find a reliable manufacturer
• extensive technical training of local Manufacturer
• the subcontractor could become a competitor

d. Joint ventures: Two or more firm join together to create a new business entity that is legally separate
and distinct from its parents. It involves shared ownership. Various environmental factors like social,
technological economic and political encourage the formation of joint ventures.
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• Joint venture Advantages:

• access to expertise and contacts in local markets
• reduced market and political risk
• shared knowledge and resources
• economies of scale
• overcomes host government Restrictions
• may avoid local tariffs/non-tariffs Barriers
• shared risk of failure
• less costly than acquisitions
• better relations with national government  
• Joint venture Disadvantages:
• large investments of resources
• partners may be locked into long-term relations
• the importance of venture to each partner may change over time
• cultural differences may result in management differences
• loss of flexibility and confidentiality
• problems of management structures and dual parenting 

1.3 EXPORT MODE (low control and risk, high flexibility) Firms products are manufactured in the
domestic market or a third country and then transferred either directly or indirectly to the host market. In
establishing export channels a firm has to decide which functions will be the responsibility of the firm
itself and which will be taken care of by external agents.
There’s three major types of export modes:
a. Indirect export: Manufacturing firm does not take direct care of exporting activities. Instead another
domestic company, such as an export house or trading company, performs these activities, often without
the manufacturing firm’s involvement in the foreign sales of its products.
b. Direct export: The producing firm takes care of exporting activities and is in direct contact with the
first intermediary in the foreign target market. The firm is typically involved in handling
documentation, physical delivery and pricing policies, with the product being sold to agents and
distributors. 
c. Cooperative export: Firms involves collaborative agreements with other firms to produce product to
export. Small firms do not achieve sufficient scale economies in manufacturing because of the size of
the local market or the inadequacy of the management or marketing sources available. By cooperating
firms achieve higher economies of scale and form broader product concept.
ANALYSIS OF NATIONAL COMPETITIVENESS

Although companies are the ones competing in the international arena, and not nations. The
“characteristics” of the home nation play a central role in a firm’s international success. The “home base”
shapes a company’s capacity to innovate rapidly in technology and methods, and to do so in the proper
directions.

Competitive advantage ultimately results from an effective combination of national circumstances and
company strategy. Conditions in a nation may create an environment in which firms can attain
international competitive advantage, but it is up to a company to seize the opportunity.

The national diamond becomes central to choosing the industries to compete with, as well as the appropriate
strategy. The home base is an important determinant of a firm’s strengths and weaknesses relative to
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foreign rivals. Michael Porter describes four keys to a nation’s competitive advantage in relation to other
countries:

-Factor conditions: This refers to position of the nation with respect to the factors of production. It includes
basic factors (natural resources, climate, location) and advance factors (communication infrastructure, skilled
labour, etc.). Basic factors must be supported by advanced factors to maintain success. Ex.: Sweden has a
short building season and high construction cost. These two things combined created a need for pre-fabricated
houses.
-Demand conditions: This refers to the nature of domestic demand for the industry’s good or service. It
shapes the attributes of domestically made products and creates pressure for innovation and quality. Ex: Japan
´s knowledgeable buyers of cameras pushed that industry to innovate.
-Related and supporting industries: The presence or absence in the nation of supplier industries and related
industries that are internationally competitive. Creates clusters of supporting industries, thereby achieving a
strong competitive position internationalize. Switzerland success in pharmaceutical industry is closely related
to its international success in technical dye industry.
-Firm strategy, structure and rivalry: The conditions in the nation governing how companies are created
organized and managed. It also looks at the nature of domestic rivalry. Presence of domestic rivalry improves
a company’s competitiveness. Ex: Low entry barriers in the tile industry, then Rivalry became very
intense, leading to Breakthroughs in both product and process technologies

POLITICAL RISKS:

Political risk is the hazard that political decisions or events will have a negative effect on your business.
Political risk primarily affects companies doing business in multiple countries, or operating in countries other
than their own. Political risks can range from war and revolution to corruption and changes in tax laws.
Managing political risk involves researching potential risks beforehand, taking steps to minimize risk and
ensuring you have legal recourse.
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Takeover Risk: Takeover, or nationalization, by a government can constitute a serious political risk,
especially in countries where governments are not democratically elected or where there is an unstable
political situation. For example, following the Cuban revolution, the Cuban government expropriated a large
number of American businesses. Even in democracies, governments can decide to take over industries and
companies. For example, in 2008, the Dominican Republic expropriated bauxite belonging to U.S. mining
company Sierra Bauxita Dominicana. In response, the company decided to stop operations in the Dominican
Republic, to avoid losing even more money if the expropriations continued.
Protest Risk: Political protests by local groups can represent a political risk in a number of industries. One
example of this occurred in Brazil in 2004, when a consortium of foreign companies planning to construct a
hydroelectric power plant was hit with large-scale protests from Brazilian environmental groups. The
consortium, headed by U.S.-owned Alcoa, responded by agreeing to spend more money on compensating
people who were being resettled and on mitigating environmental damage. By agreeing to spend more money,
Alcoa managed to avoid large delays from protests. Royal Dutch Shell helps mitigate risks from
environmental protests by consulting with Greenpeace on environmental issues in areas where it operates.
Physical Risk: Political risk can take the form of violence against employees, as in the oil-rich region of the
Niger Delta in Nigeria. Local groups regularly launch attacks against company compounds and kidnap foreign
oil workers, demanding that more oil revenue be spent in the local area. Oil companies operating in these
areas, such as Shell Oil, often manage these risks by hiring security firms to protect workers, and by
negotiating to create schools, hospitals and jobs for locals.
Economic Risk: Economic changes can also be a form of political risk for companies. For example, a
government may decide to increase taxes on a particular product, industry or company; an economic downturn
or changes to the currency can also affect a company's ability to make a profit. In 2000, telecommunications
company Econet decided the unstable economy, high inflation and opaque government in Zimbabwe
represented a considerable business risk. The company responded to this risk by diversifying and entering
other African markets. In order to counter the very high inflation in Zimbabwe, the company sent some of its
Zimbabwean technicians to work in the new countries where Econet was operating. This enabled the
technicians to save money and allowed Econet to keep its best people.