4.7. International Marketing (HL only)

4.7. International Marketing

Foreign Market Entry Modes

The decision of how to enter a foreign market can have a significant impact on the results. Expansion into foreign markets can be achieved via the following four mechanisms:

• Exporting
• Licensing
• Joint Venture
• Direct Investment

Task 1: Identify all of the conclusions you can come to about international marketing from interpreting the two graphics below:

Modes of International Marketing entry

1: Exporting

Exporting is the marketing and direct sale of domestically produced goods in another country. Exporting is a traditional and well-established method of reaching foreign markets. Since exporting does not require that the goods be produced in the target country, no investment in foreign production facilities is required. Most of the costs associated with exporting take the form of marketing expenses.

Exporting commonly requires coordination among four players:

• Exporter
• Importer
• Transport provider
• Government

Conditions favouring this mode of entry

§ Limited sales potential in the target country; little product adaptation required

§ Distribution channels are close to manufacturing plants

§ High production costs in target country

§ Liberal import policies i.e. free trade agreements

§ High political risk of investing directly in target country

Advantages

ü Minimizes risk and investment

ü Speed of entry

ü Maximises scale; uses existing production capacity i.e. capacity utilisation

Disadvantages

v Trade barriers and tariffs add to costs

v Motivation of local agents can be problematic

v Transport costs

v Limited access to local information

v Company can be viewed as an outsider

2: Licensing

Licensing essentially permits a company in the target country to use the property of the licensor. Such property usually is intangible, such as trademarks, patents, and production techniques. The licensee pays a fee in exchange for the rights to use the intangible property and possibly for technical assistance.

Because little investment on the part of the licensor is required, licensing has the potential to provide a very large ROI. However, because the licensee produces and markets the product, potential returns from manufacturing and marketing activities may be lost.

Conditions favouring this mode of entry

§ Import and investment barriers in target country

§ Legal protection possible in target country

§ Low sales potential in target country

§ Large cultural distance between home country and target country

§ Licensee lacks the ability to become a competitor

Advantages

ü Minimizes risk and investment

ü Speed of entry

ü Ability to circumvent existing trade barriers

ü High Return on Investment (ROI) possible

Disadvantages

v Lack of control over use of assets

v Licensee may become successful enough to become a direct competitor

v Knowledge spill-overs i.e. licensee gains access to your product

v License period can be limited

v Growth may be slower as it is dependent on licensee’s intentions

3: Joint Venture

There are five common objectives in a joint venture: market entry, risk/reward sharing, technology sharing and joint product development, and conforming to government regulations. Other benefits include political connections and distribution channel access that may depend on relationships.

Such alliances often are favorable when:

· the partners' strategic goals converge while their competitive goals diverge;

· the partners' size, market power, and resources are small compared to the industry leaders; and

· partners' are able to learn from one another while limiting access to their own proprietary skills.

The key issues to consider in a joint venture are ownership, control, length of agreement, pricing, technology transfer, local firm capabilities and resources, and government intentions.

Potential problems include:

• conflict over asymmetric new investments
• mistrust over proprietary knowledge
• performance ambiguity - how to split the pie
• lack of parent firm support
• cultural clashes
• if, how, and when to terminate the relationship

Joint ventures have conflicting pressures to cooperate and compete:

· Strategic imperative: the partners want to maximize the advantage gained for the joint venture, but they also want to maximize their own competitive position.

· The joint venture attempts to develop shared resources, but each firm wants to develop and protect its own proprietary resources.

· The joint venture is controlled through negotiations and coordination processes, while each firm would like to have hierarchical control.

Conditions favouring this mode of entry

§ Import barriers

§ Large cultural distance between home country and target country

§ High sales potential

§ Some political risk

§ Government restrictions on foreign ownership

§ Local company can provide skills, resources, distribution network and brand name

Advantages

ü Overcomes ownership restrictions and cultural distance

ü Combines resources of two companies

ü Potential for learning i.e. greater access to local partner’s skills

ü Viewed as insider

ü Less investment required as there is sharing of development costs and risks

Disadvantages

v Difficult to manage

v Sharing profit i.e. profit may be less than if the firm entered the market directly

v Dilution of control

v Greater risk than exporting and licensing

v Knowledge spill-overs i.e. loss of control over managerial know-how and technology

v Partner may become a direct competitor

4: Foreign Direct Investment

Foreign direct investment (FDI) is the direct ownership of facilities in the target country. It involves the transfer of resources including capital, technology, and personnel. Direct foreign investment may be made through the acquisition of an existing entity or the establishment of a new enterprise.

Direct ownership provides a high degree of control in the operations and the ability to better know the consumers and competitive environment. However, it requires a high level of resources and a high degree of commitment.

Conditions favouring this mode of entry

§ Import barriers exist in target country

§ Small cultural distance between home country and target country

§ High Sales potential

§ Low political risk

Advantages

ü Greater knowledge of local market

ü Can better apply specialised skills

ü Minimizes knowledge spill-overs i.e. can protect intangible assets such as technology patents

ü Can be viewed as an insider

ü Ensures global strategic coordination

Disadvantages

v Higher risk than other modes

v Requires more resources and commitment

v May be difficult to manage the local resources

v May be slower to implement

Task 2: Watch the following videos and note down 5 major points on each mode of entry used into a foreign market

Task 3: Identify the international marketing strategy being pursued by Samsung and Toyota, and what the implications of the strategy will be on the firm's finances.

Task 4: An introduction to the subject of market entry mode decision in the connection with an organisation's internationalisation process. 4 sets of factors, which influence an organisation's choice of entry mode, are introduced and evaluated using an example. The subject of internalisation and externalisation is introduced as is a list of possible entry modes.

Watch the video below and take note of how organisations make decisions about entry mode

The role of cultural differences in international marketing - https://courses.lumenlearning.com/vccs-mkt100-17fa/chapter/reading-cultural-factors-shaping-the-global-marketing-environment/

What is the influence of culture on international marketing?

Culture is the way that we do things around here. Culture could relate to a country (national culture), a distinct section of the community (sub-culture), or an organization (corporate culture). It is widely accepted that you are not born with a culture, and that it is learned. So, culture includes all that we have learned in relation to values and norms, customs and traditions, beliefs and religions, rituals and artefacts (i.e. tangible symbols of a culture, such as the Sydney Opera House or the Great Wall of China).

Therefore international marketing needs to take into account the local culture of the country in which you wish to market.

The Terpstra and Sarathy Cultural Framework helps marketing managers to assess the cultural nature of an international market. It is very straight-forward, and uses eight categories in its analysis. The Eight categories are Language, Religion, Values and Attitudes, Education, Social Organizations, Technology and Material Culture, Law and Politics and Aesthetics.

Some International Marketing Fails - see also https://www.inc.com/geoffrey-james/the-20-worst-brand-translations-of-all-time.html

Task 5: The following sources are a video on McDonald's in China and two Chinese firms that are focusing on market development. In your opinion, will Chinese firms, like Didi Chuxing and OnePlus, be as successful marketing internationally as foreign firms like McDonald's have been in China?

Concept of Glocalisation

Task 6: Will Starbucks be able to replicate its US success in China or will Starbucks fail as it has in Australia?

1. Form three groups (3/4 students). The group of 4 students will take 2 videos whilst the other 2 groups will have one video each (of longer duration). Fill in the google.doc
2. Each group will construct a 4-slide google presentation answering the question above. Each group will present to the class.

• Task 7: The demise of Tesco's international marketing strategy (Fresh N'Easy) - what are the reasons given for their failure in the US retail market?

Files to download