TAPPING INTO GLOBAL MARKET

MARKETING MANAGEMENT MBA 112

Fenet BedasoCavendish University Uganda

Discuss the impact of globalization to international marketing

Discuss how the international trade system, economic, political-legal, and cultural environments affect a company’s international marketing decisions

Describe Key approaches to entering international markets.

Explain how companies adapt their marketing mixes for international markets.

Identify the three major forms of international marketing organization.

Discuss the benefit and challenges of international marketing

Learning Objective

Global Marketing is the decision by an enterprise to extend its presence or operations beyond its domestic market and into foreign markets - with a focus not only at the immediate regional markets but also at the whole world market as one within its reach.

It is the act of an enterprise engaging in trade or investment outside its domestic market of origin with a view of the world market.

Hence the Global Firm attempts to achieve competitive advantage by delivering value to customers in foreign markets effectively, efficiently, and innovatively. It tries to cheaply produce and sell, expand its international customer base and market share,

What is Global Marketing and The Role of Globalization?

Global marketing has especially assumed greater importance today because of the terrific tide of Globalization that has characterized the past 3 decades.

Globalization is a phenomenon today referring to the continuously unrestricted flow, movement or influence of people, resources, ideas, information, or technologies, across and beyond national or continental borders.

Cont’d

Globalization has been especially accelerated by technological advancements in information, communication, production and transportation processes, techniques as well as product /service options available. This has been accompanied by reduction in costs, speed to markets plus shorter product life cycles due to the pace of new innovations .

Globalization has consequently led to ever stiffer competition for access to strategic markets and resources transcending the domestic contexts of enterprises.

The Globalization of the world economy has also led to the concept of new “emerging” markets outside the traditional industrial West (Western Europe and North America) with the present heightened focus on China, India, South East Asia, Brazil, Russia, South Africa, and Africa in general.

Cont’d

The decision by an enterprise to go global is a strategic one i.e of a high level and of a long term stretch with implications for the overall direction, resources and competencies of the enterprise in its domestic and global competitive environment.

Most of the basic concepts (eg Environmental scanining, the marketing mix of 4 Ps etc) applicable in domestic markets can also be extended to international or global markets. However the environments of global markets are challengingly more diverse, volatile, and complex - hence calling for more critical analysis and adaptation before venturing into them.

Strategic Methodology For Global Marketing

Going global calls for an understanding of the International Trading System as regulated by such World bodies such as World Trade Organization (WTO) or Regional economic blocs such as the European Union (EU), or the East Africa Community (EAC). Again the role of commodity trading bodies like Organization of Petroleum Exporting Countries (OPEC). Indeed there are endless global trade regulating bodies.

Also noteworthy is the reality of existing barriers to global trade such as Tariffs, Quotas, Embargoes, Exchange Controls, and Non-tariff barriers (eg. Product standards, roadblocks, national bias etc).

Cont’d

Kotler et al (2004) identifies 6 major decision steps for venturing into global markets:1. Analyzing the Global Marketing Environment.2. Deciding Whether to go Global.3. Deciding which markets to enter.4. Deciding how to enter the market.5. Deciding on the global marketing program.6.Deciding on the global marketing organization.

Major Decision for tapping into Global Market

Deciding on the global marketing organization

Deciding on the global marketing program

Deciding how to enter the market

Deciding which markets to enter

Deciding Whether to go Global

Analyzing the Global Marketing Environment

We could use PESTEL, an acronym for Political, Social, Economic, Technological, Environmental(Ecological), Legal for analyzing environmental factors in markets abroad.

a) Political – Legal Factors: Ideology of foreign Government. Political Stability – both domestically and inter-

state. Uncertainty due to elections, or impending

change of government

1. Analyzing the Global Environment

Foreign Policy and Diplomatic Relations inclusive of bilateral and multilateral commitments.

Existing laws and regulations governing foreign trade and investment, immigration, taxation, intellectual property rights (patents,), labor, environmental compliance etc.

Cont’d

b). Economic Factors: Economic System of foreign market (i.e Free

Competition, Command, Mixed) National Economic Growth rates (by GDP, GNP etc) Per Capita Income and Effective Demand potential Competition and state of market concentration or

structure (Open competition, Monopoly, Oligopoly, Monopolistic etc).

Productive Resource Endowments (Availability of Natural resources, Skilled labour, infrastructure etc).

Inflation Interest rates Foreign Exchange Rates

c) Social Factors: Demographics i.e Population size, structure,

behavior and lifestyle and trends. Culture i.e Language, Religious beliefs, traditional

norms, ethics, values and attitudes. Social Responsibility expectations.

d) Technological Factors: Progression from manual to mechanized,

automated or digitalized methods of work eg use of ICT in E-commerce.

Development of new inventions and innovations in products.

Modernization in Transportation and communication equipment and infra-structure

e) Ecological /Environmental Factors: The obligation to engage in trade and

investment practices that minimize environmental degradation (by pollution or resource and specie extinction) in foreign market. Impact on flora, fauna, water, air, soils, and humans should be considered. Different countries have their environmental laws and standards of compliance.

Issues of health, safety, and security are important.

The decision to go global or international is also made after an enterprise has appraised its competitive position within the domestic market as well as its internal organizational resources, competences or capabilities vis avis the external global environment just discussed - as would give it leverage over competitors.

Taggart et al (2000) attempts to explain the imperatives for internationalization by firms using the theoretical bases of Market Imperfections and also the General Theory of International Production.

2.Deciding to Go Global

The Market Imperfections approach justifies internationalization based on exploitation of Firm specific advantage as well as Location specific advantage. This is a clear reference to why an enterprise decides to deploy its unique capabilities or competences (eg Skills, technology, experience, capital etc) in a bid for advantage over its domestic and foreign competitors in markets abroad. It also points to the bid for more favorable market incentives or resource endowments prevailing in foreign markets compared to the enterprise’s domestic market.

Cont’d

The General Theory of International trade looks at the role of comparative costs between two foreign markets. Where the costs of production, communication and transaction are cheaper abroad then foreign direct investment or even trade may be adopted.

The following specific factors will inform the decision to venture into global or foreign markets:

Cont’d

a) A Retaliation against a foreign competitor who has attacked a firm in the domestic market. The local firm would likewise enter the competitors home market abroad so as to divide the competitor’s energies and tie up its resources at its base (Kotler et al, 2004).

b) A ploy to keep abreast with domestic competitors who themselves have expanded their market abroad. A firm then reacts in a manner to demonstrate that it will not lag behind while its competitors advance.

c) The attempt to recover from a declining or stagnant domestic market for a firm’s products whereby the identified foreign markets promise greater effective demand and improved profitability. The Product Life Cycle Theory (Taggert et al, 2000) hence explains how new market prospects can increase sales and profitability at the growth to maturity phases of product existence. Hence Foreign markets abroad could compensate for declining product life cycle.

Cont’d

d)Diversification into global markets is undertaken as a risk hedging strategy against over dependence on just the domestic market or a few international markets often characterized by political or economic certainty eg fluctuation of prices or exchange rates, disruptive elections or war.

e) For purposes of accessing cheaper and more abundant factor inputs for production so that the resultant products can be sold at comparatively lower price than of competitors and earn higher profitability for the firm, Examples include raw-materials, labour, energy, equipment and so on.

Cont’d

f) Its is a ploy to follow up and retain key customers who have themselves expanded or even relocated abroad and therefore requiring international servicing in the respective new markets.g) Availability of favorable incentives by governments or institutions in foreign markets for trade and investments for example tax exemptions, free profit repatriation, subsidies for production, etc.

Cont’d

h) For purposes of full capacity utilization, a firm will weigh in its internal resource and competencies eg skilled staff, machinery, unsold stock. Hence to avoid idling and wastage a firm would rather deploy them abroad where there is promising market.i) To achieve economies of scale and scope for its products among various markets. Economies of scale is the deriving of advantage from reduction in unit fixed costs over large volumes of products produced and sold consequently at reduced prices compared to competitors. When these advantages are extended over a diversified product range and markets then we talk of economies of scope.

Cont’d

The selection of by an enterprise of what foreign markets to enter would substantially benefit from an application of Porters Industry analysis among others within particular markets of interest (Taggart etal, 2000).

Thus along with the macro-environmental factors an analysis of the relative strength of buyers, suppliers, ease of entry by new competitors, rivalry among existing firms, and the threat of substitute products.

Also cost considerations should be borne in mind in selecting markets abroad.

3.Deciding Which Markets To Enter

A systematic approach to selection of foreign markets would essentially entail the following:a) Defining the firm’s international marketing objectives and policies.b) Determining the number of foreign countries or markets to enter.c) Identifying specific foreign country markets of interest and then ranking them based on several factors, including market size, market growth, and cost of doing business, competitive advantage, product and communication adaptation cost and risk level.

d) Market entry and market control costs.e) Product and communication adaptation costs are high.f) Population and income size and growth.e) Dominant foreign firms can establish high barriers to entry.f) How many competitor already exist in that market.g) What are the barriers to entry into the interested market

Cont’d

There are 3 main forms of entry with further sub-categories:a) Exporting b) Joint Venturing c) Foreign Direct Investment.a) Exporting: This is the sale of an enterprises goods to a foreign

market and it can be Direct Export or Indirect Export. Direct export is where an enterprise establishes an

active visible presence in the freign market of its products eg by creating an export department, a foreign branch Office and sales staff to stock, distribute, promote and sell to customers within the foreign market.

4.Deciding Form Of Market Entry

Indirect Export is where the enterprise employs intermediaries to sell, distribute and promote its products in the foreign market eg. Export Merchants based in the enterprise’s country, Import Merchants based in the foreign market, and Export management companies who have expertise in exporting.

Cont’d

b) Joint Venturing: This refers to entry of foreign markets

through formal collaborative arrangements with other parties in the foreign markets in pursuit of mutual benefit. Firms have 4 types of joint venture available to them.

Licensing: occurs when a company enters into an agreement with a licensee in the foreign market. Licensing means little risk but also little control

Cont’d

Contract Manufacturing: arranges for a foreign producer to make products in the host country for that market.

Management Contracting: has the exporting firm provide the management team with the host country supplying the capital.

Joint Ownership consists: of one company joining with another in the host country to create a local business in which they share owner ship and control.

Cont’d

c) Foreign Direct Investment (FDI) This is where a country establishes manufacturing

or assembly facilities in a foreign host country eg a food processing plant or a vehicle assembly plant.

FDI is premised on the quest for cheaper raw-materials, labour, energy, communication and transport etc.

It is also done in order to gain closer contact with customers of the foreign market.

FDI is also a result of favorable host government incentives to encourage foreign investors

Cont’d

This entails the application of the Marketing Mix of Product, Price, Promotion, and Place(Distribution) and complimenting these further with the necessary People, Processes, and Physical evidence in the global markets. We can have either a Standardized Marketing Mix or an Adapted Marketing Mix.A Standardized Marketing Mix is one where there is uniform extension of what is applied in the country of origin to foreign market in terms of product, price, promotion and distribution.

5.Deciding The Global Marketing Programme

An Adapted Marketing Mix is one that is customized to meet the unique requirements or behavior's of targeted foreign markets eg. Exporting non-pork sausages from USA to Saudi Arabia. Sometimes it calls for new product or service development

Cont’d

An Enterprise can organize its global marketing structure by means of an Export Department, opening International Divisions, or engage in Joint Ventures by licensing /Franchising.Export Department. During early international marketing efforts,

companies typically just create a new department to coordinate international operations. The sales manager may take on larger staff if and as the international business grows in importance and more marketing services are needed to support it.

6.Deciding On The Global Marketing Organization

International Division. As the level of involvement in and complexity of

international operations increases, companies commonly organize an international division. In addition to running international operations, the division oversees strategic growth and investigates different types of foreign entry opportunities in new countries. Operating units in foreign markets under division control may be organized by Geographical organization, world product groups, or international subsidiaries.

Cont’d

The Global Organization. For many large companies, the scope of

operations grows to the point where they are no longer a firm involved in many foreign markets, they are a truly a multinational company. Recruitment, management, suppliers, manufacturing, and financing are no longer linked to a single-country mentality. The entire world becomes a single market whose segmentation is base upon strategic and tactical competitive advantage, not national affiliation

Cont’d

To Increase Sales

To Reduce Costs

For Diversification

For Competitiveness

Reasons For Global Marketing Expansion

1. Maintain or increase the market share of current products:This strategy focuses on the areas of sales and marketing responsible

for managing the pricing and promotion of the product. This strategy can be achieved by adopting combination of competitive pricing strategies, advertising, and sales promotion

2. Secure dominance of growth markets:This approach is to identify a new demographic for your product, for example another age group. Of your product users and to then aggressively market your product to this age group. This was exactly what happened in the cell phone market when it was realized that teenagers were emerging as a key demographic. Previously it had been users in their 20s who were seen as the biggest group of first-time users. Substantial growth in market share and dominance in this sector was achieved by ensuring cell phone companies’ promotions met the needs of this younger group.

Market Penetration Strategy

Restructure a mature market by driving out competitors Many organizations find themselves in a mature or saturated

market and to achieve further market share requires a different approach. This strategy requires an aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for smaller competitors.

With a mature market there are no more demographic sectors to exploit and the only way to attain market share is to take it from competitors. Examples of this strategy can be seen in the newspaper, telecoms, and cable TV industries, where the larger players now dominate. Another good example is the rapid growth of the supermarket chains, which have taken

Cont’d

Increase usage by existing customers:

Another approach to market penetration is to persuade your existing customers to use your product or service more frequently. There are several tactics you could use to do this, including loyalty schemes, adding value to the current product, or making alterations to the product that encourage greater use

Economies of scale in production and distribution Lower marking costs Power and scope Consistency in brand image Ability to leverage good ideas quickly and

efficiently Uniformity of marketing practice Helps to establish relationship outside of the

political arena Helps to encourage ancillary industries to be set

up cater for needs of the global player For overall competitiveness

Advantage of tapping into Global Marketing

Difference in consumer needs, wants and usage pattern for product

Difference in customer response to marketing mix element

Difference in brand and product development and the competitive environment

Difference in legal environment, some of which may conflict with those of the home market

Difference in the institution available, some of which may call for the creation of entirely new ones ( e.q infrastructure)

Difference in administration procedure Difference in product placement

Disadvantages

Identifying a Market Need Socio-Cultural Differences Distance and Time Finding Reliable Partners

Challenges faces to enter into Global Market

Assess the cost of global market entry. Identify emerging market. Identifying a Customer need, Population

growth and Income. Carefully identify the Socio-cultural

difference. Brand name: Standardized Advertising

Recommendations

1. Kotler A. and Armstrong (2004), Principles of Marketing, Pearson, New Jersey2.Andersen, O. (1997), ‘Internationalization and Market Entry Mode:

3.Taggart J. and McDermott M.(2000), The Essence Of International Businesss, Prentice Hall, New Delhi

4.http://www.businessdictionary.com/definition/market-penetration.html#ixzz35HnsAgT65. http://www.businessdictionary.com/definition/global-marketing.html#ixzz35HiYYpIH

References

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