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MKT3064 International Marketing International Marketing MKT 3064 MKT3064 International Marketing Chapter 6 : M arket Entry Strategy - Importing, Exporting, and Sourcing • PART 1 : Importing, Exporting, and Sourcing • PART 2 : Global Market Entry Strategies: Licensing, Investment and Strategic Alliances Agenda Export Selling vs. Export Marketing • Export selling involves selling the same product, at the same price, with the same promotional tools in a different place . does not involve tailoring the product, the price, or the promotional material to suit the requirements of global markets . The only marketing mix element that differs is the “place ;” that is, the country where the product is sold .This selling approach may work for some products or services ;for unique products with little or no international competition, such an approach is possible . Similarly, companies new to exporting may initially experience success with selling . • Export marketing tailors the marketing mix to international customers . targets the customer in the context of the total market environment . The export marketer does not simply take the domestic product “as is ” and sell it to international customers . To the export marketer, the product offered in the home market represents a starting point . It is modified as needed to meet the preferences of international target markets ; this is the approach the Chinese have adopted in the U .S . furniture market . Similarly, the export marketer sets prices to fit the marketing strategy and does not merely extend home country pricing to the target market . Charges incurred in export preparation, transportation, and financing must be taken into account in determining prices .Finally, the export marketer also adjusts strategies and plans for communications and distribution to fit the market . In other words, effective communication about product features or uses to buyers in export markets may require creating brochures with different copy, photographs, or artwork . Requirements for Export Marketing • An understanding of the target market environment • The use of market research and identification of market potential • Decisions concerning product design, pricing, distribution and channels, advertising, and communications • After the research effort has zeroed in on potential markets, there is no substitute for a personal visit to size up the market firsthand and begin the development of an actual export marketing program . A market visit should do several things . First, it should confirm (or contradict) assumptions regarding market potential .A second major purpose is to gather the additional data necessary to reach the final go/no -go decision regarding an export marketing program .Certain kinds of information simply cannot be obtained from secondary sources .For example, an export manager or international marketing manager may have a list of potential distributors provided by the U.S.Department of Commerce .He or she may have corresponded with distributors on the list and formed some tentative idea of whether they meet the company’s international criteria .It is difficult, however, to negotiate a suitable arrangement with international distributors without actually meeting face to face to allow each side of the contract to appraise the capabilities and character of the other party . A third reason for a visit to the export market is to develop a marketing plan in cooperation with the local agent or distributor .Agreement should be reached on necessary product modifications, pricing, advertising and promotion expenditures, and a distribution plan .If the plan calls for investment, agreement on the allocation of costs must also be reached . • One way to visit a potential market is through a trade show or a state - or federally -sponsored trade mission .Each year hundreds of trade fairs, usually organized around a product category or industry, are held in major markets . Potential Export Problems National Policies Governing Exports and Imports • Most nations encourage exports and restrict imports • =n 2011 ,the total was $2.7 trillion • European Union trade, domestic and foreign, is $3 trillion + • China ’s pace -setting economic growth in the Asia -Pacific region is reflected by trends in both exports and imports .Since 1979 ,exports from China have grown significantly ;and they are growing even now that China has joined the WTO .:istorically, China protected its own producers by imposing double -digit import tariffs . These are being reduced as China complies with WTO regulations . • For centuries, nations have combined two opposing policy attitudes toward the movement of goods across national boundaries .On the one hand, nations directly encourage exports ; the flow of imports, on the other hand, is generally restricted . Top 10 Clothing Exporters 2011 ($ billions ) Government Programs that Support Exports Tax incentives • treat earnings from export activities preferentially either by applying a lower rate to earnings from these activities or by refunding taxes already paid on income associated with exporting. The tax benefits offered by export -conscious governments include varying degrees of tax exemption or tax deferral on export income, accelerated depreciation of export -related assets, and generous tax treatment of overseas market development activities. Subsidies • Governments also support export performance by providing outright subsidies , which are direct or indirect financial contributions that benefit producers. Subsidies can severely distort trade patterns when less competitive but subsidized producers displace competitive producers in world markets. Governmental assistance • governmental assistance to exporters. Companies can avail themselves of a great deal of government information concerning the location of markets and credit risks. Assistance may also be oriented toward export promotion. Free trade zones • as free trade zones (FTZ) or special economic zones (SEZ). These are geographic entities that offer manufacturers simplified customs procedures, operational flexibility, and a general environment of relaxed regulations. The Miami Free Trade Zone, near the airport and port of Miami, manages transactions of over $1 billion of trade a year. Governmental Actions to Discourage Imports and Block Market Access • Tariffs • Import controls • Nontariff barriers – Quotas – Discriminatory procurement policies – Restrictive customs procedures – Arbitrary monetary policies – Restrictive regulations • Measures such as tariffs, import controls, and ahost of nontariff barriers are designed to limit the inward flow of goods .Tariffs can be thought of as the “three R’s” of global business :rules, rate schedules (duties), and regulations of individual countries . • A nontariff trade barrier (NTB) is any measure other than atariff that is adeterrent or obstacle to the sale of products in aforeign market .NTBs are also known as hidden trade barriers .Aquota is agovernment -imposed limit or restriction on the number of units or the total value of a particular product or product category that can be imported .Quotas are designed to protect domestic producers .In 2005 ,for example, textile producers in Italy and other European countries were granted quotas on 10 categories of textile imports from China .The quotas, which ran through the end of 2007 ,were designed to give European producers an opportunity to prepare for increased competition .Discriminatory procurement policies can take the form of government rules and administrative regulations that give local vendors priority .The Buy American Act of 1993 says federal agencies must buy American products unless adomestic product is not available, the cost is unreasonable, or itwould not be in the public’s interest . • Customs procedures are considered restrictive ifthey are administered in away that makes compliance difficult and expensive . • Discriminatory exchange rate policies distort trade in much the same way as selective import duties and export subsidies .As noted earlier, some Western policymakers have argued that China is pursuing policies that ensure an artificially weak currency which results in Chinese goods having acompetitive price edge in world markets .Restrictive administrative and technical regulations can also create barriers to trade .These may take the form of antidumping regulations, product size regulations, and safety and health regulations .U.S.safety and pollution regulations in the auto industry have forced some auto makers to withdraw certain models and are generally expensive with which to comply . Portland, Oregon Customs Center Quiz 1 https://forms.office.com/Pages/ResponsePage.aspx?id= 6 wgQBUDbSUKezp 3z6M P 1lK_ wGBdd 4j5HjFi 0nHkGJSFUNUlGUlZIUkJVRzRVTUlYV 1JTSk 1BTFBHNS 4u Sourcing • =n global marketing, the issue of customer value is inextricably tied to the sourcing decision .=n today ’s competitive marketplace, companies are under intense pressure to lower costs ; one way to do this is to locate manufacturing and other activities in China, =ndia, and other low -wage countries . As this discussion suggests, the decision of where to locate key business activities depends on other factors besides cost . There are no simple rules to guide sourcing decisions .=ndeed, the sourcing decision is one of the most complex and important decisions faced by a global company .Several factors may figure into the sourcing decision : management vision, factor costs and conditions, customer needs, public opinion, logistics, country infrastructure, political factors, and exchange rates . • Must emphasize benefits of sourcing from country other than home country • Must assess vision and values of company leadership • Advantage can be gained by – Concentrating some of the marketing activities in a single location – Leveraging company ’s know -how – Tapping opportunities for product development and R&D Factors that Affect Sourcing • Management vision : Some chief executives are determined to retain some or all manufacturing in their home country. Swatch watches are manufactured in Switzerland. Canon keeps 60% of manufacturing in Japan and focuses on high value -added products rather than manufacturing location. • Factor costs and conditions : land, labor, and capital costs. Basic manufacturing direct labor costs today range from less than $1 per hour in an emerging country to $6 to $12 per hour in a developed country. In certain U.S. industries, direct labor costs in manufacturing exceed $20 per hour without benefits. German hourly compensation costs for production workers in manufacturing are 160 percent of those in the U.S. while those in Mexico are only 15 percent of those in the U.S. Labor costs in nonmanufacturing jobs also vary. A software engineer in India may receive an annual salary of $12,000; an American with the same educational credentials might earn $80,000. • Customer needs : Although outsourcing can help reduce costs, sometimes customers are seeking something besides the lowest possible price. Dell recently rerouted some of its call center jobs back to the United States after complaints from ke y business customers that Indian tech support workers were offering scripted responses and having difficulty answering complex problems. In such instances, the need to keep customers satisfied justifies the higher cost of home -country support operations. • Logistics : To facilitate global delivery, transportation companies such as CSX Corporation are forming alliances and becoming an important part of industry value systems. Manufacturers can take advantage of intermodal services that allow containers to be transferred between rail, boat, air, and truck carriers. In Europe, Latin America, and elsewhere, the trend toward regional economic integration means fewer border controls, which greatly speeds up delivery times and lowers costs. • Country infrastructure Infrastructure includes power, transportation and roads, communications, service and component suppliers, a labor pool, civil order, and effective governance. • Political risk : Protectionist laws may cause political risk. Japanese auto makers established production facilities in the U.S. partly out of concern for market access. U.S. produced vehicles are not subject to tariffs or quotas. • Exchange rate, availability, and convertibility of local money : Change in commodities price and currency fluctuation: If the dollar, the yen, or the mark becomes seriously overvalued, a company with production capacity in other locations can achieve competitive advantage by shifting production among different sites. Quiz 2 https://forms.office.com/Pages/ResponsePage.aspx?id= 6 wgQBUDbSUKezp 3z6 MP 1lK_ wGBdd 4j5HjFi 0nHkGJSFUMjJNUUhSREVFMzZWS 01 MMEU 5TkJTRF ZBWS 4u Part 2 : Global Market Entry Strategies: Licensing, Investment and Strategic Alliances © 2015 by Pearson Education Global Market Entry Starbucks founder and chairman Howard Schultz and his management team have used a variety of market entry approaches — direct ownership, licensing, and franchising — to create an empire of more than 17 ,000 coffee caf é s in 55 countries . In addition, Schultz has licensed the Starbucks brand name to marketers of non - coffee products such as ice cream . The company has also made forays into movies and recorded music . Investment Cost of Marketing Entry Strategies The various entry mode options form a continuum . As shown on this slide, the level of involvement, risk, and financial reward increases as a company moves from market entry strategies such as licensing to joint ventures and ultimately, various forms of investment .When a global company seeks to enter a developing country market, there is an additional strategy issue to address :Whether to replicate the strategy that served the company well in developed markets without significant adaptation .To the extent that the objective of entering the market is to achieve penetration, executives at global companies are well advised to consider embracing a mass -market mind -set .This may well mandate an adaptation strategy . Which Strategy Should Be Used ? • =t depends on:– Vision – Attitude toward risk – Available investment capital – :ow much control is desired © 2015 by Pearson Education Licensing • A contractual agreement whereby one company (the licensor) makes an asset available to another company (the licensee) in exchange for royalties, license fees, or some other form of compensation – Patent – Trade secret – Brand name – Product formulations • Licensing allows Disney to create synergies based on its core theme park, motion picture, and television businesses. Its licensees are allowed considerable leeway to adapt colors, materials, or other design elements to local tastes. In China, licensed goods were practically unknown until a few years ago; by 2001, annual sales of all licensed goods totaled $600 million. Industry observers expect that figure to grow by 10% or more in the next few years . Advantages to Licensing • Provides additional profitability with little initial investment • Provides method of circumventing tariffs, quotas, and other export barriers • Attractive ROI • Low costs to implement • License agreements should have cross - technology agreements to share developments and create competitive advantage for each party © 2015 by Pearson Education Disadvantages to Licensing • Limited participation • Returns may be lost • Lack of control • Licensee may become competitor • Licensee may exploit company resources © 2015 by Pearson Education Special Licensing Arrangements • Contract manufacturing – Company provides technical specifications to a subcontractor or local manufacturer – Allows company to specialize in product design while contractors accept responsibility for manufacturing facilities • Franchising – Contract between a parent company -franchisor and a franchisee that allows the franchisee to operate a business developed by the franchisor in return for a fee and adherence to franchise -wide policies © 2015 by Pearson Education Quiz 3 https://forms.office.com/Pages/ResponsePage.aspx?id=6wgQBUDbSUKezp3z6 MP1lK_ wGBdd4j5HjFi0nHkGJSFUM1UwRENRRExPV01VTlhOS0lIQTA0M0VR MS4u Investment • Partial or full ownership of operations outside of home country • Foreign Direct Investment (FDI ) • Examples of FD= abound: :onda built a $ 550 million assembly plant in Greensburg, =ndiana; :yundai invested $ 1 billion in a plant in Montgomery, Alabama. • Forms – Hoint ventures – Minority or majority equity stakes – Outright acquisition IKEA spent $ 2 billion to enter Russia. © 2015 by Pearson Education Joint Ventures • Entry strategy for a single target country in which the partners share ownership of a newly - created business entity • Builds upon each partner ’s strengths • Examples: Budweiser and Kirin (Japan), GM and Toyota, GM and Daewoo in S. Korea, Ford and Mazda, Chrysler and BMW © 2015 by Pearson Education Joint Ventures • Advantages – Allows for risk sharing – financial and political – Provides opportunity to learn new environment – Provides opportunity to achieve synergy by combining strengths of partners – May be the only way to enter market given barriers to entry • Disadvantages – Requires more investment than a licensing agreement – Must share rewards as well as risks – Requires strong coordination – Potential for conflict among partners – Partner may become a competitor © 2015 by Pearson Education Joint venture investment is growing rapidly . China is a case in point ; for many companies, the price of market entry is the willingness to pursue a joint venture with a local partner . Procter & Gamble has several joint ventures in China . China Great Wall Computer Group is a joint -venture factory in which IBM is the majority partner with a 51 percent stake . Investment via Direct Foreign Investment • Start -up of new operations – Greenfield operations or – Greenfield investment • Merger with an existing enterprise • Acquisition of an existing enterprise • Examples: Volkswagen, 70% stake in Skoda Motors, Czech Republic (equity), Honda, $550 million auto assembly plant in Indiana (new operations ) • Large -scale direct expansion by means of establishing new facilities can be expensive and require a major commitment of managerial time and energy . However, political or other environmental factors sometimes dictate this approach . As an alternative to greenfield investment in new facilities, acquisition is an instantaneous — and sometimes, less expensive — approach to market entry or expansion . Although full ownership can yield the additional advantage of avoiding communication and conflict of interest problems that may arise with a joint venture or co -production partner, acquisitions still present the demanding and challenging task of integrating the acquired company into the worldwide organization and coordinating activities . © 2015 by Pearson Education Examples of Equity Stake An equity stake is simply an investment; if the investor owns fewer than 50 percent of the shares, it is a minority stake; ownership of more than half the shares makes it a majority. Examples of Acquisitions © 2015 by Pearson Education Global Strategic Partnerships • Possible terms:
– Collaborative agreements – Strategic alliances • Recent changes in the political, economic, sociocultural, and technological environments of the global firm have combined to change the relative importance of those strategies. Trade barriers have fallen, markets have globalized, consumer needs and wants have converged, product life cycles have shortened, and new communications, technologies, and trends have emerged. Although these developments provide unprecedented market opportunities, there are strong strategic implications for the global organization and new challenges for the global marketer. Such strategies will undoubtedly incorporate — or may even be structured around — a variety of collaborations. Once thought of only as joint ventures with the more dominant party reaping most of the benefits (or losses) of the partnership, cross -border alliances are taking on surprising new configurations and even more surprising players. The Star Alliance is a GSP made up of six airlines. © 2015 by Pearson Education Quiz 4 https://forms.office.com/Pages/ResponsePage.aspx?id= 6 wgQBUDbSUKezp 3z6 MP 1lK_ wGBdd 4j5HjFi 0nHkGJSFUQlNaMVhFWk 1QTlJCOEFPRE 9TVVlUQ 0czT S 4u Success Factors of Alliances • Mission: Successful GSPs create win -win situations, where participants pursue objectives on the basis of mutual need or advantage. • Strategy: A company may establish separate GSPs with different partners; strategy must be thought out up front to avoid conflicts . • Governance: Discussion and consensus must be the norms. Partners must be viewed as equals . • Culture: Personal chemistry is important, as is the successful development of a shared set of values. • Organization: =nnovative structures and designs may be needed to offset the complexity of multi - country management. • Management: Potentially divisive issues must be identified in advance and clear, unitary lines of authority established that will result in commitment by all partners. © 2015 by Pearson Education Cooperative Alliance various countries: Keiretsu • Inter -business alliance or enterprise groups in which business families join together to fight for market share • Large and powerful. Can block foreign suppliers. • E.g. Big Six: Mitsui, Mitsubishi, Sumitomo, Fuyo, Sanwa, DKB Groups © 2015 by Pearson Education Chaebol • Composed of dozens of companies, centered around a bank or holding company, and dominated by a founding family – Samsung – LG – Hyundai – Daewoo Market Expansion Strategies • Companies must decide to expand by:
– Seeking new markets in existing countries – Seeking new country markets for already identified and served market segments Quiz 5 https://forms.office.com/Pages/ResponsePage.aspx?id=6wgQBUDbSUKezp3z6 MP1lK_ wGBdd4j5HjFi0nHkGJSFURENROVU2UThCRFRTRU5YSjc5ODdWVlh HQy4u
