Part 8 : Creating Successful

Long Term Growth

Chapter 21 – Tapping into Global
Markets
 Competing on a Global Basis
• A global firm is a firm that operates in more than one
country and captures R&D, production, logistical,
marketing, and financial advantage in its cost and
reputation that are not available to purely domestic
competitors
• One of the most successful global companies is ABB,
formed by a merger between the Swedish company
ASEA and the Swiss company Brown Boveri.
• ABB’s products include power transformers, auto
components, Air Conditioning. Its motto: “ABB is a global
company local everywhere”. English is its official
language, all financial results must be reported in dollars.
ABB aims to reconcile 3 contradictions: to be global and
local, to be big and small, and to be radically
decentralized with centralized reporting and control.
Managers are regularly rotated among countries and
mixed-nationality teams are encouraged.
 Deciding whether to go abroad
• The Advantages for companies participating into the
international arena:
a. Foreign markets present higher profit opportunities
b. The company needs a larger customer base to achieve
economies of scale
c. The company reduces its dependence on any one market
d. The company’s customers are going abroad and require
international servicing
• The Risks are:
a. The company might not understand foreign customer
preferences or culture thus fail to offer a competitive product
b. The company might underestimate foreign regulations and
incur unexpected costs (weaken cost structure)
c. The company’s managers lacks international experience
 Deciding whether to go abroad

• How companies become internationalized:

a. No regular export activities.
b. Export via independent representatives (agents). Firm
makes first decisions on export and establishes an
export department (sales manager and a few assistant).
c. Establishment of one or more sales subsidiaries. A firm
replaces the export department with an international
division (a division with president who sets goals and
budgets assisted with functional specialists to various
operating units)
d. Establishment of production facilities abroad. This time
a firm is engaged in its global sourcing, financing,
manufacturing, and marketing
 Deciding which markets to enter
• The company must also decide on the types of
countries to consider:
a. Market Attractiveness is influenced by income and
population, product and communication adaptation
costs, dominant foreign firms as barrier to entry,
political-legal-culture environments
b. Market risks e.g. Tang, product of General foods, fails
to market in France because Tang was positioned as
substitute for orange juice during breakfast. The fact is
the French people seldom drink orange juice and even
never at all during breakfast
c. Competitive advantages on 4P’s – product, price,
place, promotion, marketing infrastructure
(technology), management and human resources, and
capital resources
 Deciding how to enter the market
• Once a company decides to target a particular country, it has to
determine the best mode of entry. Its broad choices are
a. Indirect export
- the company work through independent intermediaries e.g.
domestic-based export merchants (buy and sell products abroad),
and domestic-based export agents (trading companies are paid a
commission)
- Indirect export has less investment (no export department, sales
force, contracts) and less risk
b. Direct export: the company wants to handle its own export.
- the investment and risk are somewhat greater, but so is the
potential return
- the company work through export department, overseas sales
branch, sales representatives, and foreign agents
c. Licensing: a simple way to become involved in international
marketing
- The licensor issues a license to a foreign company to use a
manufacturing process, trademark, patent, or a fee of royalty
- The licensor gains entry at little risk, the licensee gains production
expertise or a well-known product or brand name e.g. KFC
 Deciding how to enter the market
d. Joint ventures: foreign investors may join with local investors in
which they share ownership and control e.g. coca-cola and nestle
joined forces to develop the international market for “ready-to-
drink” tea and coffee
- advantage: the foreign company might lack the financial, physical,
or managerial resources to undertake the venture alone
- disadvantage: the partners might disagree over investment,
marketing or other policies e.g. one partner wants earnings for
growth but the other partner want more dividends.
e. Direct investment: the ultimate form of foreign involvement is
direct ownership of foreign-based assembly or manufacturing
facilities, e.g. General Motors have invested billions of dollars in
auto manufacturers around the world, such as Fiat Auto holdings,
Isuzu, Suzuki, Daewoo
- advantage: the firm retains full control in manufacturing and
marketing policies with other parties such as government, local
suppliers and customers
- disadvantage: the firm exposes a large investment to risks such
as devalued currencies, worsening markets, or expropriation
 Deciding on the marketing program
• In deciding on the marketing program, a company must decide
how much to adapt its marketing program:
a. Product level: firm can pursue a strategy of
- straight extension: introducing products in the foreign market
without any change e.g. camera
- product adaptation: e.g. Kraft blends different coffees for the
British (who drink their coffee with milk), the French (who drink
their coffee black), & Latin Americans (who want a chicory taste)
- product invention : backward invention (e.g. crank operated cash
register at half the price of a modern cash register); and forward
invention (e.g. Toyota with Multi Vehicle Purpose or MVP and
Sport Utility Vehicle or SUV for marketing the family segment in
Indonesia)
b. Communication level: firm may choose
- communication adaptation (the same theme globally but adapt the
copy to each local market e.g. camay soap commercial showed a
beautiful woman bathing
- dual adaptation (adapts both product and the communication e.g.
Mc Donalds with Paket Panas dengan nasi putih)
 Deciding on the marketing program
c. Price level: firm may encounter
- price escalation: Gucci handbag may sell for $ 120 in Italy and $ 240
in the United States. Why? Gucci has to add the cost of
transportation, tariff, wholesaler and retailer margin to its factory price
- transfer price: the price the company charges to local subsidiary for
shipping to foreign subsidiary. If too high a price to subsidiary, it ends
up with higher tariff duties
- dumping: a company charges less than its home market, in order to
win a foreign market
- gray market: dealer in the low price country find ways to sell some of
their products in higher-price countries, thus earning more (e.g. no
registered in customs area)
d. Distribution level: firm needs to take a whole-channel view of
distributing products to the final users
Seller  Seller’s international marketing headquarters  Channels
between nations (gets the products to the borders of the foreign
nation by using agents, trading companies)  Channels within
foreign nation  Final buyers
• In creating all elements of the marketing program, firm must be aware
of the cultural, social, political, technological, environmental, and legal
limitations they face in other countries