MN1178

Business Management in a Global Context

Chapter 10: International Marketing and

R&D Strategy
Jaime Wong
Essential Reading
Willcocks, L. Global business: management. (Stratford-
upon-Avon: SB Publishing, 2021b) Chapter 3.

Further Reading
Hill, C. International business: competing in the global
marketplace. (New York: McGraw Hill, 2021) 13th
edition, Chapter 18 ‘Global marketing and business
analytics’.

Whittington, R., P. Regne, K. Scholes, D. Angwin and G.

Johnson, Exploring strategy. (London: Pearson, 2019)
12th edition.

Peng, M. and K. Meyer, International business. (London:

Cengage Learning, 2019) Chapter 17, pp.471–92
 • Define and apply marketing strategy, segmentation and
marketing mix concepts to real-life examples in international
business,

Learning • Discuss product, price and promotion strategies and assess

how they can be shaped to specific country conditions.
Objectives • Articulate and apply major concepts in distribution strategy
and supply chain management.

• Discuss the main issues that make R&D important, and that
make its foreign location both attractive and challenging and
where to locate R&D.
10.2 Marketing

“Efforts to create, develop and defend markets that satisfy the needs and wants of
individual and business customers” – Peng 2011

“The activity, set of institutions and processes for creating, communicating, delivering and
exchanging offerings that have value for customers, clients, partners and society at large”
(AMA, 2007). American Marketing Association

International marketing strategy must be consistent with the company’s corporate and
business strategies
Ansoff Matrix
Marketing strategy focuses
on choices over
products/services and
markets. The Ansoff matrix
suggests four strategic
choices.

Think
• How do the marketing
mix (4Ps) differ for each
of these strategies?
• What are the suitable
modes of entry to
support these
strategies?
Ansoff Matrix
Present product,
• Market Penetration Strategy present market

– Least risky strategy since it leverages many of

the firm’s existing resources and capabilities.

– Increasing the share of current markets with the

current product/service range.

– Companies go international where domestic

market becomes limited/overcrowded or where
products are mature.
Ansoff Matrix
• Market Development Strategy Present product,
– Selling existing products in new market segments or geographical New market
regions.
– Market abroad to extend product life (product life cycle theory)
– Appropriate if the firm’s core competencies are related more to the
specific product than to its experience with a specific market segment.
– May entail:
• Some product development (eg new styling or packaging)
What would be
• Attracting new users (eg extend the use of aluminum to the the suitable
automobile industry) mode of entry?
• New geographies (eg entering international markets)
– May require new strategic capabilities, especially in marketing
– Has more risk than a market penetration strategy.
Ansoff matrix
New product,
• Product Development Strategy
present market
– New products in existing markets.
– Appropriate if the firm’s strengths are related to its specific
customers rather than to the specific product itself.
– Product diversification.
– Expensive in terms of R&D and marketing and high risk.
– May require new strategic capabilities.
– May involve project management risks.
– Can be relevant internationally when the firm is already in a
foreign market and is developing new products/services for that
market. https://www.wsj.com/articles/SB1255989889
06795035
Eg. General Electric Healthcare (GE) Mac 400 portable
electrocardiogram (ECG) machine was developed for India and
China markets.
Ansoff matrix
New products,
•Diversification Strategy New markets
– New products in new markets.
– The riskiest approach to internationalisation.
– May require both product and market development and may be outside
the firm’s core competencies. What would be the
– Firms often try to mitigate risks eg by JV or R&D collaboration (SA) suitable mode of entry?

– Main drivers for diversification (Johnson et al (2011))

• exploit economies of scope.
• stretch corporate management competencies.
• Exploit superior internal processes.
• Increasing market power – competitive positioning
• Gain foothold in an attractive industry – GE eg.
The Marketing Mix
• The choices the company offers to its targeted market. Commonly call the 4Ps of
marketing.

• Companies have to decide which elements of the marketing mix can be standardised, and
which need to be adapted to the local market. They start by segmenting their markets.

Product attributes Pricing strategy

Communication strategy Distribution strategy

Market Segmentation – Willcocks (2013)
Market Segmentation involves identifying distinct groups of consumers whose
purchasing behaviour differs from others in a different segment.

Criteria for segmentation into customer groups:

• Geography (region, urban/rural, climate, size)
• Demography (age, gender, life cycle eg newly
married, education, etc)
• Socio-cultural (income distribution, values, norms,
tradition, fashion)
• Psychological (risk taking, lifestyle choices,
personality, attitudes)

Market segmentation allows firms to take advantage

of the benefits of standardisation (econ of scale),
while addressing the unique needs & expectations of
specific target group.
 Market Segmentation – Willcocks (2013)

Companies needs to:

- to adjust their
marketing mix from
segment to segment,
- identify segments that
transcend national
borders – create global
strategy
- understand differences
across countries.

Once the different segments are identified, companies can adjust the marketing mix accordingly.
Eg Toyota Lexus-line to high-income consumers, while Corolla to lower-income buyers.
Class Activity - Levi Strauss goes local
Retrieve Ch_Case Study “Levi Strauss goes local”

As you read the case, pay attention to how Levi makes

decisions on:
• target markets and market segmentation
• product/market strategy – Ansoff matrix
• the marketing mix – the relationships between products,
place, promotion and pricing approaches.

Then answer the following question:

Discussion questions:
• How does Levi Strauss market its products globally?

To answer go to:
10.3 Marketing across the consumer life cycle New

• Customer relationship management (CRM) is a well-established process engage the

customers to achieve continued sales.
• CRM tasks include customer acquisition, retention, and development.
• Relationship refers to first contact (prospect) and continue across an engagement life cycle
where repurchase happens.
• Five stages of the customer lifecycle and marketing: (1) awareness (2) evaluation (3)
purchase (4) product and support experience (5) bonding
• Benefits:
– Increasing purchases (repeat) from the same customers
– Customer referrals
– Potential for premium pricing
– Easier selling
– Understanding allows firm to meet and exceed customer expectation, develop more
customer-focused products/services.
 Fig 3.4 The Customer Lifecycle and Marketing

Source: Willcocks 2021b

10.4 Product Strategy
Product attributes of a table
• A product is a bundle of attributes from Ikea

• Example for a Car

- Content (performance, technical and aesthetic physical
features)
- Aura (symbol of status and taste)
- Support
- Service
• Tabletop + legs
• Products sell well when their attributes match consumer • Nuts and bolts, allen key
needs, but consumer needs vary from country to country. • Packaging
• Instruction manual –
pictures
• A key decision in product strategy is to standardize or • Labels – product code,
localized (differentiation). where made
• Return policy
• Delivery, self collect
• Pre & Post sales Service
Product Differentiation
• Cultural Differences
– Tradition, social structure, language, religion and education.
– Tastes and preferences are becoming more cosmopolitan.
– Eg Coca-Cola in Japan offer tonic drink to appeal to local customers
• Level of economic development
– Consumer behavior is influenced by the level of economic development of a country.
– Consumers in the most developed countries are often not willing to sacrifice their preferred
attributes for lower prices.
– Consumers in the most advanced countries are willing to pay more for products that have
additional features and attributes customized to their tastes and preferences.
– Highly developed countries – performance features eg. Power steering and power windows in
cars.
– Less developed countries – product features with high product reliability.
• Product and technological standards
– To meet the national differences in standards
– Regional trade agreements may influence certain regional markets to become more globalized.
– Differing government-mandated product standards can often result in companies ruling out mass
production and marketing of a fully global and standardized product.
– Differences in technical standards also constrain the globalization of markets.
10.5 Pricing Strategy
• The expenditures that customers are willing to pay for a product.
• Related to the costs of production, price to the customers and competitors’ prices.
• Pricing includes not only the list price, but also discounts, financing or leasing.
• Total Cost of ownership
– Total costs needed to own a product, consisting of initial purchased cost and
follow-up maintenance/service cost.
– Consider price of printer and cartridges.
– Many firms compete on winning the initial sale with a low price, with the aim to
capture more revenue through after-sales products (eg spares) and services.
• Pricing strategies
– Skimming – set a high price to attract a high profit/unit from less price sensitive
customers
– Penetration – set a low price to build a mass market
Price Discrimination
• Companies use price discrimination when different price elasticities of
demand exist in different countries.
• Where consumers in different countries are charged different prices for the
same product.
• The company charges whatever the market will bear.
• Works where:
– the company is able to keep its national markets separate
– When different price elasticities of demand exist in different countries.
• What determines elasticity in demand?
– How demand changes when prices change.
– In general, companies can charge higher prices when demand is inelastic.
– Income level affects elasticity; when income level is low, tend to be more price conscious
and demand is more elastic.
– Number of competitors in a market affects elasticity; the more competitors, the greater the
bargaining power of consumers and greater the elasticity of demand.
Three Aspects of Strategic Pricing
1. Predatory pricing
– Use profits earned in one country to support aggressive pricing in another market as part of
a strategy to drive out competitors in that market.
– Once competition leaves, the company raises its prices.
– Eg Matsushita in the 1980s used this type of strategy to gain market share in the USA.
– In US (as in many other countries), predatory is an illegal anti-competitive practice .
2. Multipoint pricing
– a company’s pricing strategy in one market may have an impact on how a rival prices
products in another market
– Pricing can be aggressive, eliciting a competitive response
– Eg. A firm uses aggressive pricing in one market (Fuji dropped price in US), its rival may
resort to aggressive pricing in another market (Kodak dropped price in Japan).
3. Experience curve pricing
– a company will set low prices worldwide as a way to quickly building sales volume.
– Willing to take initial loss.
– Believe that in the future, will have a cost advantage (economies) from experience.
Strategic Pricing in practice
• Regulations in the target markets may limit how companies price their products

• Antidumping regulations:

– Predatory pricing and experience curve pricing can be problematic when

anti-dumping regulations are in place.

– Set a floor under export prices and limit firms’ ability to pursue strategic
pricing

• Competition Policy:

– Many countries have policies in place to promote competition and resist

monopoly practices.
10.6 Promotion strategy
• Also called Communication Strategy

• Refers to all communications that marketers insert into the

market place.

• TV, radio, print, online advertising, coupons, direct mail,

billboards, direct marketing (personal selling) and public
relations.

• Standardise or localise promotional efforts?

• Messages communicated in advertising are often culturally

embedded.

• Pursuit of marketing via the internet (social networks).

International Communication
• Cultural barriers:
– A message that means one thing in one country may mean something quite different in another.
– Companies can get around some of these problems by developing cross-cultural literacy, hiring a
local advertising agency, and using a local input in developing the marketing message
• Source and country-of-origin effects
– Source effects - when the receiver of the message evaluates the message on the basis of the status
or image of the sender. To Counter – de-emphasise foreign origin.
– Country-of-origin effects - the extent to which the place of manufacturing influences a customer’s
product evaluations.
- Consumer may use country of origin as a cue when evaluating a product
- Use promotional messages that stress the positive performance attributes of the product
- BP changed its name from British Petroleum after it enters US market to de-emphasise its
British origin.
• Noise levels
– Refers to the number of other messages competing for a potential consumer’s attention.
– Noise tends to be higher in developed countries like the USA, Singapore or Germany than in
emerging markets.
– Lower in developing countries because there are fewer firms competing for attention.
Push and Pull Strategy
• Push strategy emphasises personal selling and is costly.
• Pull strategy relies mass media advertising such as TV, newspapers,
magazines etc.
• The choice depends on:

“Under what conditions…” Pull (mass) Push (personal)

Product type and consumer Works well for companies in Works well for Industrial
sophistication consumer goods selling to products or complex new
large market segment products

Channel length Works better with longer Works better with shorter
distribution channels distribution channel

Media availability Sufficient print and When media is not easily

electronic advertising media available
Standardised advertising
Makes sense when: Does not make sense when:

Has sufficient economic

Significant Cultural differences
advantages

Advertising regulations limit

Creative talent is scarce
standardised advertising
Brand names are global

Standardise and customise

Some companies will standardise parts of a campaign to capture the
benefits of global standardisation, but customise others to respond to
local cultural and legal environments.
10. 7 Place – Distribution Strategy
• Place is the location where products and services are provided.
• Does not have to be a physical location, could be virtual eg over the internet eg software and
movie download
• Distribution strategy refers to the means the company chooses for delivering the product to the
consumer.
• How a product is delivered depends on the company’s market entry strategy. (Chapter 9)
E.g. firm that manufactures locally can sell directly to the consumer, retailer or wholesaler, while
a firm that manufactures overseas have to consider selling to an import agent.

Figure 17.3 Supply chain management

Wholesalers
Retailers
Distribution centers

Purchasing and the coordination of Sales and the coordination of

intermediaries on the supply side. intermediaries on the customer side.
Factors to consider when choosing a distribution strategy
A distribution channel is the set of business units and intermediaries that
facilitates the movement of goods to consumers.
1. Retail concentration
– Concentrated: a few retailers supply most of the market. Common
in developed countries where people have cars to drive to the
stores or own refrigerators to store their purchase or with dual-
income household. E.g. UK
– Fragmented: many retailers, none has a significant market share.
Common in developing countries because of geography and road
conditions. E.g. Unilever delivers by bike and cars in some parts of
Japan has a Fragmented system
China. where stores serve the local
2. Channel length neighbourhood
– the number of intermediaries between the producer and the
consumer
– Short channel: producer sells directly to the consumer (common
with concentrated system). eg Germany, USA
– Long channel: the producer sells through import agent, wholesaler,
retailer (Common with fragmented retail system). eg Japan
Factors to consider when choosing a distribution strategy
3. Channel exclusivity

– where retailers carry well-established brands rather than take a

chance on something new.

– E.g. In Japan, relationships between retailers, wholesalers and manufacturers

often go back decades, and in some industries, it is almost impossible for foreign
companies to break in.

4. Channel quality

– Relates to the expertise, competencies and skills of the retailers and their ability
to sell and support a foreign company’s products.

– In general, channel quality in developed countries is better than in emerging or

developing economies.
How to choose a distribution strategy?
• Determined by relative costs and benefits of retail concentration,
channel length, channel exclusivity, and channel quality

• Link between channel length, final selling price, and profit margin

• When price is important, a shorter channel is better. This is because

each intermediary in a channel adds its own mark-up to the products

• When the retail sector is fragmented, a long channel can be

beneficial. This is because this economises on selling costs and can
offer access to exclusive channels

• Where there are concerns about channel quality, companies should

handle their own distribution. Eg Apple in UK
Supply Chain Management
The term distribution channel has been replaced by supply chain management in
response to more outsourcing to suppliers, contract manufacturers and 3PL providers.

Third-party logistics (3PL):

Intermediaries (middlemen) who more effectively align the interests in the supply chain

2 VLE case studies

• Ch10_Case Study Zara, Marketing and Distribution
• Ch10_Case Study Li and Fung: from trading company to
supply chain management
 1. Agility
– The ability to react quickly to unexpected shifts in supply and demand
Three “As” of (flexibility to overcome short term fluctuations)
Supply Chain – Agility becomes more important in 21st century because supply chains are
more complex and more sensitive to disruptions caused by a wide range of
Management different causes.
– Example – Zara keeps little inventory. Through a vertically integrated supply
chain, Zara reacts quickly to demand beginning with design. Run one shift
production, so they can run overtime if demand calls for it.
2. Adaptability
– The ability to change supply chain configurations in response to longer-term
https://hbr.org/2004/10 changes in the environment and technology
/the-triple-a-supply- – Ensuring adaptability often entails making a series of make-or-buy decision
chain – Reconfiguring the supply chain in response to major geopolitical, social,
and/or technological trends
3. Alignment
– Alignment of interests of various players involved in the supply chain.
– Boeing’s 787 Dreamliner – 40% of the $8 billion development cost is
outsourced to suppliers. Boeing treats it suppliers as partners, has ‘partner
councils’ with regular meetings and fosters long-term collaboration.
– 2 key elements to achieve alignment: Power (bargaining power) and trust
(perceive as fair)
10.8 Research and development (R&D) strategy
• Companies that choose product development or
diversification strategy need to build product innovation Ansoff Matrix/Marketing Strategies

capability. Present New

Products Products

• R&D give rise to new product ideas that come from the Present Market Product
interactions of scientific research, demand and Markets Penetration Development

competitive conditions.
New Market
• The pace of technological change is faster than ever and Markets
Development
Diversification

product life cycles are often very short.

Chapter 7 – R&D is a primary activity in a firm’s value chain

Past Exam
question
10.7 Research and Development (R&D) Strategy
Reverse Innovation
• In the past, many firms locate most of their product development operations An innovation that is
adopted first in the
within the parent corporation. emerging/developing
economies and then
• A significant number of companies have started using foreign-based resources diffused around the
world.
to improve their ability to compete internationally. Eg. GE portable
ultrasound developed
in China; Xiaomi low
• Asea Brown Boveri (ABB) 80% of research was carried out in the company’s cost smart phone wins
in India & China; Deere
Swiss, Swedish, and German offices only a few years ago, but now it is only 35-horsepower tractor
half of the total. developed in India.

• Philips has 15 R&D centers in China as part of the company’s strategy aiming
at satisfying demand for its products (such as low end mobile phones) in
China, India, Africa, South America, and Eastern Europe.
https://www.wsj.com/articles/SB1
25598988906795035
10.7 Research and Development (R&D) Strategy
• New product development tends to occur more often in countries

1. where more money is spent on basic and applied R&D,

2. where demand for new products is strong,

3. where consumers are affluent and

Where
should a firm
4. where competition is intense. locate its R&D?

• Successful companies see new product development opportunities in

multiple locations. Eg Japan – leader for video games, Europe – leader in
wireless telecom
Class activity:
What other factors should an international firm consider when locating its
R&D facilities? (6 marks)

To answer go to:
10.7 Why is Research and Development necessary?
Why is R&D necessary for global companies?

• Intense competition. Boeing & Airbus – intense competition pushes company to

constantly balance weight (stability) with fuel economy + size (creates weight) with
space utilization
• Globalisation requires different adaptation of products to different markets – left-hand
& right-hand drive for automobiles
• Pace of technological change is faster eg in data storage, cloud computing technology
• Shorter product life cycles eg in mobile phones
• New innovation can obsolete an existing product eg purchasing music on-line obsolete
CD, mp3 player
• New innovation opens new opportunities. Development of apps in smart phones
creates new channels for sales, social media connects with customers.

Research other illustrative examples for each of the above.

 Commercialisation of new technologies
• New-product development has a high failure rate.
• Development of a technology for which demand is limited
• Failure to adequately commercialize promising technology
• Inability to manufacture a new product cost effectively

• Integrating R&D, production, and marketing can help a company ensure that:
• Product development projects are driven by customer needs.
• New products are designed for ease of manufacture.
• Development costs are kept in check.
Manufacture Market
• Customer needs • Costs kept in
• Time to market is minimized. Drive product check
• New products • Minimise time
development designed for to market
ease of
manufacture
Customer
Development
needs
How to achieve integration R&D, Marketing &
Production?
• Develop cross-functional teams, at least one member from each key function.
• Led by competent, experience project managers.
• To commercialize new technologies successfully, develop different versions for different
countries. Understand customer needs to drive product development.
• Create a network of R&D centers in N America, Asia and Europe closely linked by formal
and informal integrating mechanisms. Take advantage of foreign-based resources. More in
Chapter 11. Eg Hewlett-Packard has four R&D centers (US, UK, Israel, Jpn). Microsoft has
R&D sites in Washington, California, Tokyo, UK
• Marketing operations in each country in their regions. Recall P& G example in Chapter 7
• Various manufacturing and distribution facilities (to minimize time to market).
How to protect intellectual property from
international R&D activities?
• Favour &D activities at home where country offers
strong protection
• Change versions frequently so product cannot be
copied easily
• Build complexity that make it difficult to copy
• Maintain high confidentiality, secrecy and security
around designs and processes.
• Support public policy initiatives to protect intellectual
property
What challenges do R&D functions face today?
Brennan, Ernst, Katz et al (2020) identify four challenges
1. Innovation cycles are accelerating
– Reliance on simulation and automation technology reduced R&D costs whilst raise throughput
– Investors expect quick return for money
2. R&D lacks connection to the customer and other parts of the organisation
– Sense of working inside a “black box”
– Rarely get opportunity to test products directly with end users
3. Projects have few accountability metrics
– Lack effective mechanisms to measure and communicate progress
– Failure explained as experimentation, success in terms of patents (not profits)
4. Incremental projects get priority
– More than ½ of an average company’s R&D investment
– Organisations favour ”safe” projects with near-term returns eg responding to customers’
requests to maintain existing market share.
Way forward for R&D functions
• Strategy needs to link board-level priorities with technologies that are relevant to the
organisation’s focus
• R&D strategy must provide clarity and commitment to three key elements

1. What we want to deliver - R&D, commercial, and corporate-strategy functions need to

work closely and align to customer needs and expectations
2. What we need to deliver it – what capabilities and technologies R&D organisation need to
have to bring the desired solutions to the market. Determine how to develop, acquire or
access the needed capabilities – externally? Collaborate with partners?
3. How we will do it – R&D strategy development to focus on enablers that represent cross-
functional silks. Attract, develop, retail talent. Digital enablement eg use AI, automation,
advanced analytics, digital simulations
Chapter Summary
1. Marketing is “the activity, set of institutions and processes for creating, communicating, delivering and
exchanging offerings that have value for customers, clients, partners and society at large” (AMA,
2007).
2. International marketing refers to marketing carried out by companies overseas or across national
borderlines.

3. Marketing strategy focuses on choices over products/services and markets. The Ansoff matrix suggests
four strategic choices. These are (1) market penetration (2) market development (3) product
development and (4) diversification strategies.
4. The marketing mix refers to the choices the firm offers to its targeted market. It comprised of the
“4Ps” – Product, Price, Promotion and Place.
5. Market Segmentation involves identifying distinct groups of consumers whose purchasing behaviour
differs from others in a different segment. Criteria for segmentation includes geography, demography,
socio-cultural factors and psychological factors.
6. In international marketing, the number-one concern on product is standardisation versus localisation.

7. Decision on product differentiation is influenced by cultural differences, the level of economic

development and the product and technological standards.
Chapter Summary
8. Marketers care about demand elasticity which refers to how responsive purchasing behaviour is when
prices change.
9. There are two pricing strategies. Skimming strategy where a firm sets a high price to attract profit from
less price sensitive customers. Penetration strategy where a firm sets a low price to build a mass
market.
10. A firm can set prices to achieve certain strategic goals. There are three aspects of strategic pricing: (1)
predatory (2) multipoint and (3) experience curve pricing.
11. Promotion strategy is also called the communication strategy. Marketers will need to consider any
cultural barriers, to enhance or downplay the source and country-of-origin effects and the noise levels
competing for a potential consumer’s attention.
12. When a firm chooses its communication strategy, it has to decide between a push strategy that
emphasizes personal selling, and a pull strategy that uses mass media advertising.
13. A pull strategy works well for companies in consumer goods, selling to large market segment, works
better with longer distribution channels and when there is sufficient print and electronic advertising
media.
14. A push strategy works well for industrial products or complex new products, works better with shorter
distribution channels and when media is not easily available.
Chapter Summary
15. Standardised advertising makes sense when there is sufficient economic advantages, where creative
talent is scarce and when the company has a global brand.
16. Place is the location where products and services are provided. Place can be a physical location or virtual.
17. Distribution strategy refers to the means the company chooses for delivering the product to the
consumer.
18. In international business, there are at least four main differences in distribution systems. These are (1)
retail concentration, (2) channel length, (3) channel exclusivity and (4) channel quality.
19. The term distribution channel has been replaced by supply chain management in response to more
outsourcing to suppliers, contract manufacturers and 3PL providers.
20. Agility deals with the ability to quickly react to unexpected shifts in supply and demand.
21. Adaptability refers to the ability to reconfigure supply chain in response to longer term changes in the
environment and technology.
22. Alignment focuses on the alignment of interests of various players in the supply chain.
23. New product developments tends to occur more often in countries where more money is spent on basic
and apply R&D, where the demand for new products is strong, where consumers are affluent and where
competition is intense.
24. New product development efforts should involve close coordination and integration between R&D,
marketing and production. Integration will ensure that customer needs drive product development, new
products are designed for ease of manufacture, development costs are kept in check and the time to
market is minimised.