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UNIT-11:INTERNATIONAL MARKET SEGMENTATION AND POSITIONING

Screening and selection of markets,Intemational market entry strategies, Export licensing ,Contract
manufacturing ,Joint venture, Setting up of wholly owned subsidiaries abroad.
Market Selection is the process of deciding which markets to invest in and pursuing. One of the
major c1ite1ia to be kept in mind while doing a market selection is the growth potential of the
market i.e. what is the potential for a· company's revenue to grow by investing in a Particular
market.

The lntemattonal Market Entry Eva.tuatlon Process

Country Identification
--- -- - Preliminary Screenirig

In-Depth Screening

Final Selection ·
Adapled from
J. J<. Johansson (2000)
Direct
Experience

www.rnartcetfngteacher.com

Step One - Country Identification

The World is your oyster. You can choose any country to go into. So you conduct country identification-
which means that you undertake a general overview of potential new markets. There might be a simple
match--' for example two countries might share a similar heritage e.g. the United Kingdom and Australia,
a similar language e.g. the Uni'ted States and Australia, or even a similar culture, political ideology or
religion e.g. China and Cuba.Often selection at this stage is more straightforward. For example a country
is nearby e.g. Canada and the United States. Alternatively your export market is in the same trading zone _
e.g. the European Union. Again at this point it is very early days and potential export markets could be
incJuded or discarded for any number of reasons.

Step Two - Preliminary Screening

At this second stage one takes a more serious look at those countries remaining after undergoing
preliminary screening. Now you begin to score, weight and rank nations based upon macro-economic
factors such as currency stability, exchange rates, level of domestic consumption and so on.
Now you have the basis to start calculating the nature of market entry costs.Some countries such as
China require that some fraction of the company entering the market is owned domestically..:. this would
 . h t are experiencing political instability and any
·nto account.There are some nattons t aded for the risk that they would take. At this
need to beta ken 1 Id ed to be rewar h Id · h
t •ng such a market wou ne 1. t of countries that he ors e wou wis to
company en en . Id d cide upon a shorter is
point the marketmg manager cou e .
enter. Now in-depth screening can begm

Step Three- In-Depth Screening .d ed feasible for market entry. So it is vital

. hr would all be cons1 er . . kin b
The countries that make 1t to stage t cc . b . eel O that marketing decJSion-ma g can e
that detailed information on the target mark~t ts o tam . s c. t rs but also local conditions such as
I "th t nly m1cro-econom1c iac o . ?H
ac.curate. Now one can dea wt no O • • • h . scan be charged in the nation . ow
1
marketing research in relation to the marketmg mJX :e. w at p_nceH hould we communicate with our
. ch as ours m the natton. ow s f
does one distribute a product or service su . eed t be adapted for the nation? All o
O
target segments in the nation? How does our product or sen:-ice n d •• • g· One could also take into
this information will fonn the basis of segmentation, targeting an P?s~tJonmd. . ii mmities or
account the value of the nation's, ~rket, any tariffs or quotas in operation, an sim ar oppo
threats to new entrants.
Step Four - Final Selection . . ls
Now a final short-list of potential nations is decided upon. Managers would reflect u~on strat~gi~ goa
and look for a match in the nations at hand. The company could look at close competitors or snnt1ar
domestic companies that have already entered the market to get firmer costs in relation to market entry.
Managers could also look at other nations that it has entered to see if there are any similarities, or learning
that can be used to assist with decision-making in this instance.A final scoring, ranking and weighting can
·be undertaken based upon more focused criteria. After this exercise the marketing manager should
probably try to visit the fin~l handful of nations 'remaining on the short, short-list
Step Five - Direct Experience

Personal experience is important Marketing manager or their representatives should travel to a particular
nation to experience first hand the nation's culture and business practices. On a first impressions basis at
least one can ascertain in what ways the nation is similar or dissimilar to your own domestic market or the
others in which your company already trades

Factors to be considered before entering International Markets:

A careful analysis of various factors have to be done before entering a foreign market in order to
choose to most profita~le market. These factors are:-
A) Country Specific Factors -
Laws and Regulation of the Country
Infrastructural Conditions
Property rights and Legal framework
Political Factors
Cultural Factors
B) Industry Specific Factors-
EntrY and Exit Barriers

Industrial Complexity
Uncertainty in Industrial environment

Supply and Distribution pattern

C) Firm Specific Factors

Resources of the finn

Technological Risk
Goals and Objectives of the Finn

Experience of the Finn

D) Project Specific Factors -

Size of the Project

Project Orientation
Availability of raw material and labour required for project implementation

Availability of suitable market for the project

International market entry strategies

(1) Exporting- It is the process of selling goods and services produced in one country to other
country. Exporting may be direct or indirect. Under direct export - A company capitalizing on
economies of scale in production concentrated in the home country, establishes a proper system
for organizing export functions and procuring foreign sales.Indirect export involves exportip.g
through domestically based export intennediaries. The exporter has no control over his product
in the foreign market

Advantages -
It helps in distribution of surplus

It is less costly

It is 1ess risky
Under direct export the exporter has control over selection of market

It helps in fast_market access

Disadvantages -
High start-up cost in case of direct exports
The exporter has little or no control over distribution of products
 . ed. . i rease the cost of product
E<.porting tluough ex.port mtcnn ianes nc

~ ) Joint Venhn-c . . , . ,
. t . foreign market by Jotnmg hands and shanng
lt is a st\"ategy used by companies to enh er a y It is used when two or more companies want
- -". d nnagement with anot er compan .
ownt.1~u1p an m b' t' ond expand intemational operations. The common
to achieve some common o ~ec ives
objectives are-
Foreign marlcet entcy

Risk/reward sharing

Technology sharing
Joint product development
Conforming to government regulations
It is useful to meet shortage of financial resources, physical or managerial resources

Advantages -
Technological competence
Optimum use of resources
Partners are able to learn from each other

Disadvantages -
Conflicts over asymmetric investments

It may be costly
Cultural and political stability may pose a threat to successful operations

Conflicts in management

3) Outsourcing-
It is a cost effective strategy used by companies to reduce costs by transferring portions of work
to outside suppliers rather than completing it internally. It includes both domestic and foreign
contracting an<l also off shoring (relocating a business function to another country).

Advantages -

Swiftness and expertise in operations

Conce,!ltration on core process rather than suppo11ing ones

Risk sharing

Reduced costs
 I
I
I

Disadvantages

Risk of exposing confidential data

Hidden costs

Lack of customer focus

4 ) Franchising

It is a system in which semi-inde .

parent company (fl h. . pend ent bu smess owners (franchisees) pay fees and royalty to a
product or se . rancd Iser) m return for the right to be identified by its trademark, to sell its
rvices, an often to use its business format or system.
Advantages -
It is less 1isky

Advantage of expertise of franchiser

Highly motivated employees
Disadvantages
Difficulty in keeping trade secrets
Franchisee may become a future competitor
A wrong franchisee may ruin company's name and goodwill

(5) Turn Key Project

It involves the delivery of operating industrial plant to the client without any active participation.
A company pays a contractor to design and construct new facilities and train personnel to export
its process and technology to another country. Turnkey projects may be of various types -
BOD -Build, Owned and Develop
BOLT - Build, Owned, leased and Transferred

BOOT - Build, Owned, Operate and Transfer

( 6) Foreign Direct Investment -

It is a mode of entering foreign market through investment. Investment may be direct or
indirectly through Financial Institutions. FDI influences the investment pattern of the economy
and helps to increase overall development. The extent to which FDI is allowed in a country is
subjected to the government regulations of that country. It can be done by purchasing shares of a
company, property and assets.

Advantages -
Modifications can be made at any point of time
\ is an easy mode of entry

bisadvantages
'!'he govemment policies may not be helpful

'\be return on Investment may be low

(7) Mergers & Acquisitions

Amerger is a combination of two or more district entities into one, the desired effect being
accumulation of assets and liabilities of distinct entities and several other benefits such as,
economies of scale, tax benefits, fast growth, synergy and diversification etc. The merging
entities cease to be in existence and merge into a single servicing entity.
Acquisition implies acquisition of controlling interest in a company by another company. It does
not lead to dissolution of company whose shares are acquired. It may be a friendly or hostile
~uisition or a bail out takeover.

(8) Licensing -
Licensin~ is a method in which a firm gives permission to a person to use its legally protected
product or technology (trademarked or copyrighted) and to do business in a particular manner,
for an agreed period of time and within an agreed territory.. It is a very easy method to enter
foreign market as less control and communication is involved. The financial risk is transferred to
the licensee and there is better utilization of resources.

Advantages -
Easy appointment
Less investment is involved
Low cost oflabour
Disadvantages
This method is time consuming
Decline in product quality may harm the reputation of licensor

(9) Contract manufacturing

When
it is kna foreign
. firm hires a 1oca1manu f1acturer to produce their product or a part of their product
own as contract manufactu · Thi thod ..
helps in reducing cost of producti~:gTh s mi . ut1~izes 1:11e skills of a local manufacturer and
responsibility of the international~- e mar etmg an selling of the product is the

Advantages -
 Low cost of production

Development of medium and small scale industries

No dilution of control

Export licensing

1:
An expo license is a document issued by the appropriate licensing agency after which an
expoiter IS _allowed to transport his product in a foreign market. The license is only issued after a
careful
th review of the facts surrounding the given export transaction. Export license depends on
e nature of goods to be transported as well as the destination port.So, being an exporter it is
necessary to determine whether the product or good to be exported requires an export license or
not.

While making the determination one must consider the following necessary points:
What are you exporting?
Where are you exporting?
Who will receive your item?
What will your items will be used?
Canalisation is an important feature of Export License under which certa~ goods can be
imported only by designated agencies. For an: example, an item like gold, _m bulk, can h_e
imported only by specified banks like SBI and some foreign banks or designated agencies.

Application for an Export License

To determine whethe~ a license is needed to export a particular commercial product or seivice,
an exporter must first classify the item by identifying what is called ITC (HS)
Classifications.Indian Trade Clafification,Hrumonized System ·

Export license are only issued for the goods mentioned in the Schedule 2 of ITC (HS)
Classifications of Export and Import items.

A proper application can be submitted to the Director General of Foreign Trade (DGFT). The
Export Licensing Committee under the Chairmanship of Export Commissioner considers such
applications on merits for issue of export licenses.
Exports Free unless regulated

The Director General of Foreign Trade (DGFT) from time to time specifies through a public
notice according to which any goods, not included in the ITC (HS) Classifications of Export and
Import items may be exported without a license.

Such terms and conditions may include Minimum Export Price (MEP), registration with
specified authorities, quanti!ative ceilings and compliance with other laws, rules, regulations.
 Setting up a wholly owned subsidiary company

A wholly owned subsidiary is a company whose common stock is 100% owned by

another company, the parent company. Whereas a company can becom~ a wholly
owned subsidiary through an acquisition by the parent company or havmg been
spun off from the parent company, a regular subsidiary is 51 to 99% owned by the
parent company. When lower costs and risks are desirable or when it is not
possible to obtain complete or majority control, the parent company might
introduce an affiliate, associate or associate company in which it would own a
minority stake.
BREAKING DOWN Wholly Owned Subsidiary
Because the parent company owns all the shares of a wholly owned subsidia1y, there are no
minority shareholders.

The subsidiary operates with the permission of the parent company, which may or may not have
direct i~put into the subsidiary's operations and management.
For example, a wholly owned subsidia1y may be located in a country different from that of the
parent company.

The subsidiary most likely has its own senior management structure, products, and clients.
Having a wholly owned subsidiary may help the parent company maintain operations in diverse
geographic areas and markets or separate industries.

These factors help hedge against changes in the market or geopolitical and trade practices as
well as declines in industry sectors.
Pros and Cons of a Wholly Owned Subsidiary

Although a parent company has operational and strategic control over its wholly owned
subsidiaries, the overall control is typically less for an acquired subsidiary with a strono
. 0
operating history overseas.

When a company hires its own staff to manage the subsidiary, forming common operating
procedures is much less complicated than when taking over a company with appropriate
leadership already established.

In addition, the parent company may apply its own data access and security directives for the
subsidiary as a method oflessening the risk oflosing intellectual property to other companies.
Similarly, using similar financial systems, sharing administrative services and creating similar
marketing programs help reduce costs for both companies, and a parent company directs how its
wholly-ownedsubsidiary's assets are invested.
flowever, est ablishing_a wh~lly owned subsidiary may result in the parent company paying too
[Jluch for assets, especially if other companies are bidding on the same business.
Ill addition, establishing relationships with vendors and local clients often takes time, which may
hinder company operations, and cultural differences may become an issue when hiring staff for
an overseas subsidiary.
The parent company also takes on all the risk involved with owning a subsidiary, which may
increase when local laws differ significantly from the laws in the parent company's countiy.

The Walt Disney Company, commonly known as Walt Disney or simply Disney, is an
American diversified multinational mass media and entertainment conglomerate headquartered
at the Walt Disney Studios in Burbank, California.

CEO: Robert lger

Headquarters: Burbank, California, United States

Revenue: 5,943.4 crores USD (2018)

Subsidiaries: Pixar, Walt Disney World Resort, Marvel Studios, MORE

Founders: Walt Disney, Roy 0. Disney

Market segmentation .
Market segmentation is a marketing strategy which involves separa~ing a wih·de target market mto
· · h h e or are p· erce1ved to ave common
subsets of customers, enterpnses, or nations w O av , . '
• h · and priorities and then designing and executmg approaches to target
requirements, c 01ces, ,
them.
Objectives of Market Segmentation
To ,i dentify the taste and buying motive of the target consumers
Grouping of customers on the basis of their comnion characteristics such as behaviour, income,
age, geography etc.
To make Consumer oriented approach for the finn

To define marketing strategies, targets and goals of the firm

Bases Of Segmentation
I .Geographic location
The location of the market can be critical in tenns of segmenting world markets.

Scandinavian countries or Middle Eastern countries may be clustered not only according to th~ir
geographic proximity, but also according to other types of similarity.
 However, the geographic location alone could be a critical factor.
For instance, air conditioning needs in some of the Arab countries could make a manufacturer
consider these countries as specific clusters.
2.Language has been descn'bed as the mirror of the culture.
On one level its implications for the international marketer are self-evident: advertising must be
translated; bl'1lnd names must be vetted for international acceptability; business negotiations must
often be conducted through expensive inteipreters or through the yet more expensive acquisition
ofa foreign translator.
1n the latter case genuine fluency is essential; persuasion and contract negotiation present enough
difficulties even in a mother tongue.
Less obvious is the fact that foreign language may imply different patterns of thought and
different customer motivations.
In such cases a knowledge - again, a good knowledge - of the language wil1 do more than
facilitate communication; it provides automatic insight into the relevant culture.

3.Political factors
Countries may be grouped and world markets segmented according to broad political
characteristics.
Until recently the Iron Curtain was the basis of one such division.
In general terms, the degree of power that the central government has may be the general
criterion for segmentation.
.
It is possible, for instance, that a company is producing certain chemicals but that, due to
government regulations, many of the world markets may be considered too difficult to enter.

4.Demography
Demographics is a critical basis for segmentation.
For instance, it is often necessary to analyse population characteristics in tenns of the proportion
of elderly people or children in the total population.
If the country's population is getting older and the number of infants per thousand is declining,
which is the case in some European countries, a baby food company would not consider entering
that country. ,
In Europe birth rates are tumbling and life spans lengthening. Baby-based industries from toys to
foods and nappies face sharp competition. Consumer electronics and housing may also be
affected.

5.Economy
 . • d. ted economic development level could be a critical variable for
. studies have m ica ,
As tbe earlier .
. . al rnarket segmentation. ·
inteJnauon . development.
• ...1ryers require a ceitain level of economic
Electric dishwashers or was11el'-U
There is not a good market for these products in India.
r
llowever, in western European countries these products are becoming almost a basic necessity.
r
on the basis of the level of economic development certain specific consumption patterns
emerge. Societies with high personal income spend more time and money on services, education

and recreation.
Thus it may be possible to aminge certain income groups from different countries into certain

clusters.
6.Industrial structure
A country's industrial structure is depicted by the characteristics of its business population.

One counti:y may have many small retailers; another country may rely on a large number of
department stores for retail distribution.
One country may be thriving on small manufacturers; another may have very concentrated and
large-scale manufacturing activity. .
The type of competition that exists at the wholesale level may be the critical specific factor for
clustering international markets.
The international marketer may wish to work with a series of strong wholesalers.

7 Technology
The de~ree oftechnolo~ical advancement or the degree of agricultural technolo ·
the bas,s for segmentatton. gy may easily be

A s?ftware company planning to enter international markets ma wish to se

basis of the number of PCs per thousand of th e popu1ation.
. Y . gment them on the

It may not
thousand ofbe
theworthwhile
population.for this compan y to enter ma rk ets below a certain number of PCs per

For example, it may find Pakistan Iran d

Europe less than satisfactoi:y for e~ti:y an most Arab countries, all of Africa and all of Eastern

8.Social organization
The family is an important purchasin g group 10
. any society.
 eters are accustomed to either the so-called nuclear family with fath
Jn Europe mark £ . . ' er, mother
"ldren
and chi a ll livino
O
tooether
O
under one roo , or, mcreasmgly as society changes ,
th . 1e-
e smg
parent family.
In other countries the key unit is the extended family, with three or four generations all in the
same house.
In the United States, for instance, socioeconomic groupings have been used extensively as
segmentation tools.
A six-category classification is used: upper class, lower upper, upper middle, lower middle,
npper lower and lower.
The US high-income professionals are relegated to the lower upper class, described as those
'who have earned their position rather than inherited it', the nouveaux riches.
In contra;t, it would have been hard to find useful socioeconomic groupings in Russia beyond
white-collar worker, blue-collar worker and farm worker.
9.Religion
Religious customs are a major factor in marketing.
The most obvious example, perhaps, is the Christian tradition of present giving at Christmas, yet
even in this simple matter pitfalls lie in wait for the international marketer: in some Christian
~ountries the traditional exchange of presents takes place not on Christmas Day but on other days
m December or early January. .

The impact ofreligion on marketing becomes most evident in the case of Islam.
Isl · 1
inc~c aws, bas~d on the Koran, provide guidance for a whole range of human activities,
u mg econonuc activity
IO.Education
Educational 1 I
the econom· eve s are of · importance tot he mtemat.Jonal
· · marketer from two mam · stan d pom
· ts :
Educ . ic potential of the you th market and, in developing countries, the level of literacy. .
ational systems vary I . c..
The c a ot uom country to country.
ompensation for on- . . .
As a result th tbe":]ob trammg also varies a great deal.
e economic .
In most ind . Potential of the youth market is very different from country to country.
com-.. USlnalizect
.....,.llllnicaf10 countri 1·
ns media • es iteracy levels are close to I 00 per cent and the whole range of
18
In developin Open to the marketer.
or les g countri
s, although es literac
at SUch Yrates can be as low as 25 per cent and in one or two 15 per cent
1
ow levels the figures can be no more th~ e~ates.
 f
In those same countries
. television sets and even radios are econo Illlca
. 1ly beyo d th
most of the population, although communal television sets are somet·imes available.
_n e reach of .\I I
I

The consumer marketer faces. a1 real challenge

. l. in deciding on promotio~al por1c1es
. in. thes
countries, and the use of v1sua matena 1s more relevant. e