International Marketing - Part 2 PDF

International Marketing - Part 2 International Market Selection (IMS)– potential determinants of a company‘s choice of foreign markets Key factors in a company's choice of foreign markets: Environmental factors: -Degree of internationalization and overseas experience -Internat...

International Marketing - Part 2 International Market Selection (IMS)– potential determinants of a company‘s choice of foreign markets Key factors in a company's choice of foreign markets: Environmental factors: -Degree of internationalization and overseas experience -International industry structure -Size/amount of resources -Degree of internationalization of the market -Type of industry/ nature of business -Host country -Internationalization goals -Market potential -Existing networks of relationships -Competition -Psychic/geographic distance -Market similarity Prioritization of country markets The Big Mac Index Based on the theory of purchasing-power parity (PPP), the Big Mac Index assesses the relative value of currencies. The index measures the price of a Big Mac across different countries and adjusts exchange rates to reflect the differing costs of goods and services in each location. Exchange rate adjustments are needed to correct for discrepancies in costs and labor prices between countries. Law and Politics Social culture and political ideology significantly impact market entry decisions. Different countries have varying political and legal systems, requiring global marketers to comply with local laws (e.g. export/import regulations). Political risk and change in the political environment are essential factors for companies operating internationally.  Customs Union Common Market Includes the elimination of internal barriers to Evolution of Free Trade Area trade (as in free trade area) Includes the elimination of internal barriers to establishes common external barriers to trade trade (as in FTA) AND establishes common (as in customs union) external barriers (CETs) to trade Examples: The EU and Turkey, the Andean allows for the free movement of factors of Community, Mercosur, CARICOM, Central production, such as labor, capital, and American Integration System (SICA) information Forms of regional economic integration Differences in economic policies that influence internationalization decisions Economic freedom 1. Trade and fiscal policy (taxes) Different ‘target groups’: Government taxation policies: high taxation can lead to black market growth and cross-border shopping Corporate taxation: companies attempt to limit tax liability by shifting location of income 2. Monetary policy, regulation (particularly banking sector) 3. (Intellectual) Property rights Intellectual property must be registered in each country where business is conducted Patent: gives an inventor exclusive right to make, use and sell an invention for a specified period of time Trademark: distinctive brand/mark, motto, device, or emblem used to distinguish a product from competing products Copyright: establishes ownership of a written, recorded, performed, or filmed creative work 4. Controls of price and wages Openness vs protectionism 1. State subsidies 2. State procurement policy 3. Tariffs Direct taxes and charges imposed on imports Goal: protection of local companies from outside competition Most common forms Specific: charges (in local currency) imposed on particular products (by either weight or volume) ad valorem: straight percentage of the value of the goods Discriminatory: tariff is charged against goods coming from a particular country (due to trade imbalance or political reasons) Barrier to trade but known beforehand ⟶ can be accounted for by companies in the development of their marketing strategies Non-tariff barriers (e.g., quotas) less predictable 4. Non-tariff import restrictions, e.g., import contingents, import licenses, safety restrictions (environment, consumerism) Timing market entry: Two generic strategies Waterfall Strategy Sprinkler Strategy Principle of concentration Principle of diversification Activity in as many markets as possible in a Extensive market research relatively short time Customization of marketing activities High standardization of marketing activities Very often: selection of the geographically closest market from the home country ⟶ transaction cost Failure and withdrawal from some markets accepted theory, Uppsala model Advantages and disadvantages of waterfall / sprinkler strategy Waterfall Strategy Sprinkler Strategy Market entry barriers against followers (e.g., Time for building up financial and personnel image advantage, switching costs) resources (economical resource usage) Distribution of risks (regionally) Time to learn from “teething problems” Volume for products/capacity utilization Distribution of risk (regarding time); less risky (economies of scale) Smoothing of sales (product life cycles) Making full use of competitive edge Coordination of interdependencies between Making use of short product life cycles for country markets second generation products and high development costs Competitors can enter other markets (product Need of many financial and personnel imitations) Order-of-entry disadvantages Too resources (short term) early abortion after failure High risk Order-of-entry disadvantages Coordination of interdependencies between Too early abortion after failure country markets Impact of various factors on growth rate Economics Economic wealth (+): Higher economic wealth means consumers have more disposable income, which encourages faster adoption of new products, leading to a higher growth rate. Income inequality (-): Greater income inequality means that only a small segment of the population can afford new products, leading to a slower growth rate. Culture Uncertainty avoidance (-/+): Countries with high uncertainty avoidance may hesitate to adopt new products quickly, leading to slower growth (-). However, if the product is perceived as reducing uncertainty, it may encourage adoption (+).  Masculinity (+): In cultures where masculinity is high, products that symbolize power, innovation, or achievement are adopted faster, leading to higher growth rates. Religion (Protestantism) (+): Protestant cultures may have values that encourage innovation and material consumption, leading to a higher growth rate. Controls Brown (+)/white goods: Brown goods (consumer electronics) typically experience faster growth than white goods (household appliances), leading to a positive effect on growth rate. Lagged market penetration (-): If a product has already been widely adopted in a market, further growth is slower, leading to a negative impact on growth rate. Lag of introduction (+): If a product is introduced later in a market, prices are usually lower, making the product more attractive to consumers and accelerating growth. Choice of entry modes Exporting ⟶ The commercial activity of selling and shipping goods to a foreign country Export marketing tailors the marketing mix to international customers This requires: 1. An understanding of the target market environment 2. The use of market research and identification of market potential 3. Decisions concerning product design, pricing, distribution and channels, advertising and communications 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. Example: Disney Consumer Products, is repeatedly ranked as the world’s largest licensor and reported a total of $40.9 billion in retail sales (licensed merchandise) in 2013, including Marvel and Lucas. Advantages: Provides additional profitability attractive ROI Provides method of circumventing tariffs, quotas, and other export barriers (compared to other market entry modes) Low costs to implement (signing the agreement and policing the implementation) Disadvantages: Limited participation Lack of market control: Returns may be lost Licensee may become competitor Licensee may exploit company resources Investment: Joint Ventures In a Joint Venture, partners invest together to create and run a business in a foreign market. A benefit is that the risk is shared, but the disadvantage is that the control is lessened compared with other modes of entry. Investment: Equity stakes ⟶ Equity stake = when a company or organization owns share in a company Minority stake = Investor owns fewer than 50 % of the shares Majority stake = Investor owns more than 50 % of the shares Full ownership = Investor has 100 % control, e.g., through merger & acquisition of an existing company