International Marketing Course Book PDF

INTERNATIONAL MARKETING DLMMARE01 INTERNATIONAL MARKETING MASTHEAD Publisher: IU Internationale Hochschule GmbH IU International University of Applied Sciences Juri-Gagarin-Ring 152 D-99084 Erfurt Mailing address: Albert-Proeller-Straße 15-19 D-86675 Buchdorf [email protected] www.iu.de DLMMARE01 Version No.: 001-2024-0119 N. N. © 2024 IU Internationale Hochschule GmbH This course book is protected by copyright. All rights reserved. This course book may not be reproduced and/or electronically edited, duplicated, or dis- tributed in any kind of form without written permission by the IU Internationale Hoch- schule GmbH. The authors/publishers have identified the authors and sources of all graphics to the best of their abilities. However, if any erroneous information has been provided, please notify us accordingly. 2 TABLE OF CONTENTS INTERNATIONAL MARKETING Introduction Signposts Throughout the Course Book............................................. 6 Basic Reading.................................................................... 7 Required Reading................................................................. 8 Further Reading................................................................. 10 Learning Objectives.............................................................. 12 Unit 1 Introduction to International Marketing 13 1.1 Issues Related to International Marketing...................................... 14 1.2 Environmental Factors in International Market Development.................... 20 1.3 Features of Buying Behavior in International Marketing.......................... 22 Unit 2 International Marketing Strategies 27 2.1 Market Segmentation and Market Selection.................................... 28 2.2 Market Entry Strategy........................................................ 39 2.3 Market Exit Strategy.......................................................... 44 Unit 3 International Market Research 49 3.1 Qualitative and Quantitative Primary Research................................. 50 3.2 International Surveys and Observations....................................... 52 Unit 4 International Marketing for Specific Sectors 57 4.1 Industrial Goods Sector...................................................... 59 4.2 Consumer Goods Sector...................................................... 61 4.3 Wholesale and Retail Sector................................................... 63 4.4 Service Sector............................................................... 65 Unit 5 International Products 69 5.1 Product Policy.............................................................. 70 5.2 Product Mix and Degree of Standardization.................................... 74 5.3 Brand Policy................................................................. 77 3 Unit 6 International Pricing and Terms of Sales Policies 83 6.1 Pricing on International Markets............................................... 84 6.2 Types of Price Discrimination................................................. 87 6.3 Credit and Discount Policy.................................................... 91 Unit 7 International Promotion 95 7.1 International Promotion...................................................... 96 7.2 International Promotion Mix.................................................. 98 7.3 Optimal Standardization.................................................... 105 Unit 8 International Distribution 109 8.1 Distribution Channels, Intermediaries, and Distribution Schemes............... 110 8.2 Organizational Forms for International Market Development.................... 114 8.3 Potential for Standardization................................................ 119 Unit 9 International Marketing Mix 125 9.1 Home Country Orientation.................................................. 126 9.2 Global Orientation.......................................................... 129 9.3 Multinational Orientation.................................................... 134 Appendix List of References............................................................... 142 List of Tables and Figures........................................................ 149 4 INTRODUCTION WELCOME SIGNPOSTS THROUGHOUT THE COURSE BOOK This course book contains the core content for this course. Additional learning materials can be found on the learning platform, but this course book should form the basis for your learning. The content of this course book is divided into units, which are divided further into sec- tions. Each section contains only one new key concept to allow you to quickly and effi- ciently add new learning material to your existing knowledge. At the end of each section of the digital course book, you will find self-check questions. These questions are designed to help you check whether you have understood the con- cepts in each section. For all modules with a final exam, you must complete the knowledge tests on the learning platform. You will pass the knowledge test for each unit when you answer at least 80% of the questions correctly. When you have passed the knowledge tests for all the units, the course is considered fin- ished and you will be able to register for the final assessment. Please ensure that you com- plete the evaluation prior to registering for the assessment. Good luck! 6 BASIC READING Bradley, F. (2004). International marketing strategy (5th ed.). Toronto: Pearson Education. 7 REQUIRED READING UNIT 1 Levitt, T. (1983). The globalization of markets. Harvard Business Review, 61(2), 92–102. (Database: EBSCO). UNIT 2 Balu, R. (2001). Hindustan lever. Fast Company, Jun 2001(47), 120–136. (Database: EBSCO). UNIT 3 Kumar, V., Reinartz, W., & Venkatesan, R. (2006). Knowing what to sell, when, and to whom. Harvard Business Review, 84(3), 131-137. (Database: EBSCO). UNIT 4 Rust, R. T., Moorman, C., & Bhalla, G. (2010). Rethinking marketing. Harvard Business Review, 88(1/2), 94–101. (Database: EBSCO). Seybold, P. (2001). Get inside the lives of your customers. Harvard Business Review, 79(5), 80–89. (Database: EBSCO). UNIT 5 Douglas, S., Craig, S., & Nijssen, E. (2001). Integrating branding strategies across markets: Building international brand architecture. Journal of International Marketing, 9(2), 97– 114. (Database: EBSCO). Immelt, J. R., Govindarajan, V., & Trimble, C. (2009). How GE is disrupting itself. Harvard Business Review, 87(10), 56–65. (Database: EBSCO). UNIT 6 Coy, P. (2010). Why the price is rarely right. Business Week, 4165, 77–78. (Database: EBSCO). UNIT 7 Sullivan, E. A. (2009). Measure up. Marketing News, 43(9), 8–11. (Database: EBSCO). 8 Lance, R. (2009). The paradox of ROT and decreased spending in the ad industry. American Journal of Business, 24(2), 11–14. (Database: EBSCO). UNIT 8 Fites, D. V. (1996). Make your dealers your partners. Harvard Business Review, 74(2), 84–95. (Database: EBSCO). UNIT 9 Kotler, P. (2006). Alphabet soup. Marketing Management, 15(2), 51. (Database: EBSCO). 9 FURTHER READING UNIT 1 Kumar, N. (2008). The CEO’s marketing manifesto. Marketing Management, 17(6), 24–29. (Database: EBSCO). Verhoef, P., & Leeflang, P. S. (2009). Understanding the marketing department’s influence within the firm. Journal of Marketing, 73(2), 14–37. (Database: EBSCO). UNIT 2 Zabin, J. (2006). The importance of being analytical. Brandweek, 47(28), 21. (Database: EBSCO). UNIT 3 Reed, D. (2010). You can hit bullseye every time. Marketing Week, 33(50), 44–46. (Database: EBSCO). Zaltman, G. (1997). Rethinking market research: Putting people back in. Journal of Market- ing Research, 34(4), 424–437. (Database: EBSCO). UNIT 4 Zaheer, A., Gözübüyük, R., & Milanov, H. (2010). It’s the connections: The network perspec- tive in interorganizational research. Academy of Management Perspectives, 24(1), 62– 77. (Database: EBSCO). UNIT 5 Benady, D. (2010). Using licensing to build a mega brand. Marketing, 03/02/2010, 32–33. (Database: EBSCO). Mizik, N., & Jacobson, R. (2005). Talk about brand strategy. Harvard Business Review, 83(10), 24–26. (Database: EBSCO). UNIT 6 Williamson, P. J., & Zeng, M. (2009). Value-for-money strategies for recessionary times. Har- vard Business Review, 87(3), 66–74. (Database: EBSCO). 10 UNIT 7 Bloom, J. (2006). The truth is: Consumers trust fellow buyers before marketers. Advertising Age, 77(7), 25. (Database: EBSCO). UNIT 8 Balasubramanian, S., Mahajan, V., & Raghunathan, R. (2005). Consumers in a multichannel environment: Product utility, process utility, and channel choice. Journal of Interactive Marketing, 19(2), 12–30. (Database: EBSCO). UNIT 9 Hollis, N. (2008). Going global? Better think local instead. Brandweek, 49(42), 14. (Data- base: EBSCO). TIP Should you have any problems logging into the library databases or accessing full texts, please contact the library helpdesk: [email protected] 11 LEARNING OBJECTIVES International marketing is a specific discipline within the broader field of marketing that is becoming increasingly important in our globalized economy. This course aims to pro- vide you with the knowledge and skills you need to develop effective marketing strategies for companies operating internationally. This course will begin by introducing you to the fundamental features and functions of international marketing before exploring specific strategies for selecting, developing, and exiting international markets. We will look at the role of market research and analyze dif- ferent methodologies for collecting relevant information. We will explore the features of specific business sectors and the opportunities and chal- lenges faced by companies. We will look in-depth at the industrial and investment goods sector, the consumer goods sector, the wholesale and retail sector, and the service sector. You will acquire a broad understanding of the characteristics of international product, pricing, promotion, and distribution policy as we explore the strategic decisions made by companies seeking to either differientiate or standardize their policies. This course will conclude with a discussion of the international marketing mix skills and the benefits / disadvantages of adopting either a home-country, global, or multinational orientation. 12 UNIT 1 INTRODUCTION TO INTERNATIONAL MARKETING STUDY GOALS On completion of this unit, you will have learned … – the role of marketing for companies seeking to internalize their businesses. – what are four important issues related international business activities. – how to utilize supplier, consumer, and competitor feedback to shape marketing poli- cies. – which environmental factors shape international market development. – what differentiates the buying behavior of individuals from the buying behavior of organizations. 1. INTRODUCTION TO INTERNATIONAL MARKETING Introduction International Business Activities Transnational or cross-border business activities are a necessity for many companies. They help companies to achieve their economic goals and guarantee competitiveness by expanding activities from a domestic market into international markets. In doing so, com- panies seek to ensure their ongoing existence by increasing the pool of potential custom- ers. The expansion of international business is also a result of the increasing interconnect- edness of national economies. Such growth in interconnectedness can be attributed to developments such as: the creation of economic and monetary unions, decreasing trade tariffs and establishing free trade zones, companies becoming increasingly mobile, and barrier-free communication across national borders emerging as a result of technologi- cal advances and widespread use of the Internet. Business activities must be coordinated across the multiple countries in which a company operates. Coordination is increasingly important as the interdependency of national mar- kets prevents a company from developing strategies targeted towards single national mar- kets, independent of strategies on other markets. Activities in one national market will often have implications for activities in another. Such transformations in the landscape of international business have major consequen- ces for the marketing activities of companies. Companies need to adopt new approaches to marketing to meet the challenges associated with the increasing internationalization of markets. 1.1 Issues Related to International Marketing International marketing refers to the process of expanding into and operating within global markets using specific marketing mix tools. It is characterised by cross-border activities that involve adopting both country-specific and transnational approaches. Inter- national business activities require companies to respond to distinct issues that arise as a result of crossing national borders. Here, we will explore four such issues: information demand, business risk, complexity, and uncertainty. 14 Information Demand Marketing mix Creating a marketing mix means choosing and A great deal of additional information is often needed to enter new national markets as adjusting certain market- companies need to familiarize themselves with the unique features and environment of ing tools and then decid- ing on how intensely to each particular market. This is sometimes referred to as the information demand. The task use them in order to meet of sourcing additional information is often met with problems of procurement; accurate as many marketing objec- sources of information need to be found and developed so that the company can access tives as possible; it is often associated with the the information it requires. four P’s: product, price, promotion, and place A particular type of additional information required by companies relates to the distinct (distribution). cultural features of each national market and how to adequately consider these features Additional information Additional information is when working within these markets. In many cases, drawing from personal or lived experi- needed as foreign mar- ence, e.g. through travelling to the specific countries or permanently relocating employ- kets are often different to the domestic market of a ees abroad, is the only way to acquire the necessary cultural knowledge needed for mak- company e.g. in terms of ing informed decisions. Knowledge about a culture is by no means equivalent to legal system, geography, “experienced knowledge” (Czinkota & Ronkainen, 2010; Backhaus & Voeth, 2010). culture, or competitive environment. Business Risk Closely linked to the problem of gathering additional information is the issue of increased business risk when operating across national borders. With often only limited information available, companies face greater uncertainty operating in foreign markets compared to operations in their domestic market. The outcomes of entrepreneurial actions cannot be accurately predicted when there is insufficient information available and thus the risk associated with international operations is greater. Complexity Entering new national markets entails greater complexity and differentiation of both man- agement responsibilities and marketing tasks. Careful preparation and decision-making is extremely important given the demands placed on the capabilities and skills of manage- ment staff working transnationally. It is worth noting that in many cases, management and marketing tasks are highly interdependent. However, it is problematic to directly and exclusively attribute the complexity of manage- ment and marketing tasks simply to “transcending national borders”. Whether operating on a domestic or international scale, developing new markets and pursuing product inno- vations often entails great risk and the amount of additional information required is often considerable (e.g. when it comes to developing new technologies); the increase in com- plexity of management tasks is always significant when developing new aspects of a busi- ness. However, at a management level, crossing borders always presents companies with two specific dilemmas: 1) How do we enter a new national market? and 2) How do we work within it? 15 Uncertainty As we have already seen, decisions resulting from entry into new national markets are usually high risk and characterized by a high demand for information. Entering new national markets generates a high degree of uncertainty that management needs to respond to. Effective responses to uncertainty usually involve designing measures to reduce this uncertainty, such as procuring the necessary information to make informed decisions. However, when it comes to making important decisions about international business, information addressing the questions of “whether” and “how” to enter new markets (such as information on how existing competitors will react to the market entry of the new company) is not always available. Modelling different scenarios and analyzing their consequences is essentially the only way to address such questions. How do all these issues associated with international business relate to one another? As the company selects and begins operating within new markets (in a process known as Market development market development), the level of both the information demand and business risk Both business risk and declines until finally reaching levels typical of operations within a domestic market. The information demand decline in the course of company gradually learns how and where to gather relevant information and becomes market development. more adept at judging whether the reactions of competitors actually matter. Through experience, management undergoes a process of maturation that increases their capabili- ties to assess alternative marketing strategies and instruments (Backhaus & Voeth, 2010). Feedback The information demand and the level of business risk as well as the type and complexity of management responsibilities are all strongly linked to the feedback received from national markets. Three main types of information direct the scope of national marketing activities: supplier, consumer, and competitor feedback. We will review three case studies in order to examine these different types of feedback in greater detail. Case study: Beverage industry A German consumer goods company in the beverage industry expanded its international presence significantly from the period of 2005–2010. While the company generated less than 1 % of total sales from international business activities in 2003, this share increased to over 40 % by 2009. The rapid development of numerous foreign markets necessitated the formulation of several overarching, transnational business goals. In 2007, the com- pany created the following business goals: Eight to 12 % return on the nominal capital (before taxes and interests) Sales volume of €3.0 billion (2007 sales: €1.5 billion) and a leading market position in Europe Establishment of an open, success-oriented, inspiring, and internationally-oriented company culture 16 In 2010, when commenting on this aspect of the internationalization process, the head of corporate and strategic planning stated: “These few transnational objectives have allowed us to create a common language that connects us across different cultures and mentali- ties and creates a common identity. The common language of the objectives forms the basis of a transnational corporate culture.” Company goals that are specific to foreign markets and the configuration of international activities (such as those in the case study) constitute supplier feedback. Company goals Supplier feedback will typically focus on market position (e.g. market share, sales, market coverage), cost Supplier feedback refers to information from pro- (e.g. efficiency, productivity), and profitability (e.g. profit, return on capital, profit-turnover ducers of goods and serv- ratio) (Becker, 2001). They sometimes include financial goals (e.g. liquidity, capital struc- ices, such as company ture, etc.), social goals (e.g. security, job satisfaction, company culture), and/or prestige goals or the company’s financial position. goals (e.g. image). A feature of these goals is that they draw the focus away from individual national markets and relate to the company as a whole. Goals related to cost play a significant role in achieving a company’s overall objectives. Industrial enterprises, in particular, are increasingly influenced by a growing number of fixed costs. The portion of costs independent of actual production costs is growing stead- ily for the majority of companies. In most cases, increases in fixed labor costs are the main reason for this. Additional reasons include increases in the allocation of funds for research and development and increasing capital costs. But if a company needs to supply several national markets with production infrastructure that has a high share of fixed costs, this will also significantly influence the company’s financial position. While intrastructure (whether purchased or constructed) comes at a cost, additional sales volumes result in greater distribution of fixed costs; higher additional sales volumes result in wider alloca- tion of fixed costs and thus lower costs per unit produced. This greater distribution of fixed costs is referred to as “economies of scale.” Realizing the potential for economies of scale (which leads to reduced production costs and sustained competitiveness) is among the most important motives for a company seeking to internationalize its activities (Meffert & Bolz, 1998). Having examined supplier feedback, we now turn to consumer feedback. We will look a second case study to explore this concept. Case study: UMTS The “Universal Mobile Telecommunication System” (UMTS) uses frequency bands much more efficiently than the “Global System for Mobile Communication” (GSM) standard. UMTS’ significantly quicker transfer rates allow users to better operate multimedia serv- ices using mobile devices. However, mobile network operators have had to make signifi- cant investments to be able to offer UMTS technology. With this in mind, it is understanda- ble that all UMTS network operators from the onset have attempted to enter as many national markets as possible. T-Mobile, for instance, bought not only the licenses for UTMS services in Germany, but also licenses in many other European countries. This was a stra- tegic move, given that the same operational knowledge developed for the German market could be used repeatedly to establish services in multiple locations and this would allow T-Mobile to operate data traffic across national borders. Deutsche Telekom also spent about €1.3 billion in 2010 auctioning cellular frequencies for the new transmission stand- 17 ard “Long Term Evolution” (LTE). LTE provides data rates of several hundred megabit/ second (whereas UMTS only achieves a maximum of 14 megabit/second) and thus enables interruption-free transmission of videos or online games. However, neighboring countries also have to utilize LTE to guarantee efficient use of this technology. Only then will Deut- sche Telekom be able to recoup their investments. The overall market volume for LTE is forecast at over $11 billion USD by 2014. We can see in this example, the cross-border exchange of information and goods is an essential source of consumer feedback required for national marketing activities. Under- standing consumer preferences (in this case, preferences regarding cellular usage) and the spread of consumer and their buying behavior (in this case, the uptake of different tech- nologies across different countries) is the type of feedback companies need to develop strategies for different markets. The globalization of markets, as a result of increasingly standardized consumers’ needs, has led to the standardization of information (Meffert & Bolz, 1998). As accessing informa- tion has become easier in the course of liberalizing information and communication mar- Coordination-related kets, a coordination-related dimension to international marketing has emerged with dimension regards to collecting and managing this information. In many countries, consumers are The liberalization of infor- mation and communica- able to access information about supply or on supplier behavior in a sector relevant to tion markets simplifies them, and vice versa. Collecting, analyzing, and distributing such information requires the gathering of informa- considerable planning and coordination on the part of companies. tion but requires a coordi- nation-related dimen- sion. Adequate information is vital for a company or consumer to take advantage of country- specific differences in price or quality. While the cross-border procurement of industrial goods has occurred throughout history, the development of the Internet has increasingly allowed consumers, in addition to companies and merchants, to choose from a variety of regional and national markets in many consumer good sectors. This has greatly facilitated Arbitrage the process of arbitrage. Arbitrage occurs when country-specific differences in prices and Arbitrage occurs when quality are known and the costs related to procurement (e.g. import taxes, delivery consumers try to take advantage of price differ- charges, etc.) do not outweigh the relative benefits of purchasing from a foreign market. ences in different mar- kets, purchasing from one Companies targeting similar consumer groups across multiple national markets with a market and selling in another at a profit. policy of differientiated pricing face considerable challenges to coordinate their activi- Differentiated pricing ties; arbitrage occurring across national markets often places pressure on a differentiated Differentiated pricing pricing policy. (also called differential pricing) is the practice of charging different prices Having discussed supplier and consumer feedback, we will now use a case example to across different markets illustrate competitor feedback. Competitor feedback refers to the information about the for the same product. strategy and operations of companies providing similar products. Case study: Deregulation and the aviation industry In the 1990s, after the process of strict deregulation of the airline industry had essentially ended, competition intensified between airlines. Increasingly airline carriers (most of which were formerly state-owned companies) began founding global networks in order to offer their clients a connected, worldwide transportation network. In 1997, after many air- lines had already had their bids to establish alliances accepted, Deutsche Lufthansa, Air 18 Canada, SAS, Thai Airways, and United Airlines decided to found the “Star Alliance” net- work. This development forced all carriers not already organized into such networks to take action. Ultimately, competitor feedback created a situation in the airline carrier mar- ket that compelled all companies to internationalize their business and become affiliates of international networks (Machatschke, 2000). Competitor feedback is a fundamental factor influencing the development of interna- tional commercial activities. Relative competitive positions and the extent of a company’s own internationalization as well as the internationalization level of competitors are one of the main causes for the interdependence of national markets. In the case study above, competitor feedback resulted in an integration into competing networks in order to remain competitive on a global scale. Changes in the behavior or number of competitors entering a single market may force a company to adjust not only their international mar- keting policy towards a particular national market but also toward other markets in which they are active. The establishment of competing networks with mutually interdependent competitive positions may significantly reduce an international company’s “degree of freedom” regarding their business activities in individual national markets. The actions of one com- pany or its competitors in a single national market may result in a need to make adjust- ments not only in that market but in all other national markets. Take, for instance, a new competitor entering a domestic market and undercutting the price level for a product already sold on this market. This will force a company already selling this product to not only reduce their prices on the domestic market but it may in turn impact the ability of the company to enter other markets or change their pricing structure in other markets as well. Feedback on competitors is important when planning, trialling, and continuing interna- tional commercial activities. However, assessing the extent and nature of competition can be especially difficult when international competitors are integrated in terms of strategy or equity; competitors may be cooperating in some segments but competing in others and, at times, these relationships can be difficult to distinguish. Definition of International Marketing Marketing requires the gathering of specific information and implementation of particular strategies in the international context. Risk, uncertainty, and complexity are especially rel- evant when it comes to operating across borders. So too are the problems of coordinating marketing activities across multiple markets and developing strategies that take advant- age of economies of scale. Against this backdrop, we define the tasks of international mar- keting as (Backhaus & Voeth, 2010): accessing or managing relevant feedback (supplier, consumer, and competitor feed- back) at the business segment level, coordinating national marketing activities (when entering new markets and operating within multiple markets), and optimizing profits across all national markets. 19 1.2 Environmental Factors in International Market Development The market environment of international business is characterized by technological, polit- ical-legal, and socio-cultural factors. We will explore each of these factors and their impact on international marketing. Technological Factors Historically, technological factors have been especially influential on the development of international markets. Advances in both communication and transport technology (some- times referred to as freight) have led to the distribution of labor, management, and pro- duction, and reduced costs associated with sourcing materials, producing goods and serv- ices, and selling them in multiple locations. However, available technology varies across and even within national markets, affecting the decision-making of suppliers, consumers, and competitors. Political-Legal Factors Political-legal factors refer to the political situation and stability of a country as well as the development and implementation of their legal systems (which includes both domestic and international legal structures). For companies considering entry into different national markets, it is important to assess the political-legal situation of each country, using either qualitative or quantitative tools. Qualitative methods include country check- lists that determine the degree of certain risk factors (such as currency risks or security risks) or country risk profiles that illustrate the intensity of specific risks according to country. With regards to available tools, country risk indexes such as the Business Envi- BERI and ICRG indexes ronment Risk Index (BERI) and the International Country Risk Guide (ICRG) index are The BERI and ICRG especially important for companies. They evaluate risks for each country, using qualitative indexes are indicator models for determining data from interviews with managers and/or researchers and quantify the data in order to risk values for individual develop country rankings. countries. We will use the following case study to examine political-legal factors and use of the BERI index. Case study: Click-IT AB Swedish media production company Click-IT AB produces digital storage media and multi- media applications. To expand their product portfolio, management has decided to enter the market for flash memory cards, as the demand for this product is forecast to increase worldwide in the next five years. Flash memory cards are the storage devices used in USB flash drives or as memory cards in digital cameras. Despite wanting to internationalize their business, Click-IT AB does not want to leave Europe. As a family-run, highly risk-con- scious company, Click-IT AB decides to use the BERI index to analyze risks associated with each country and work out which countries they should target. 20 The table below illustrates the assessment of country risks and their development based on the BERI index (Homburg & Krohmer, 2009). Table 1: Assessment of Country Risks and Their Development Based on the BERI Index Overall Overall Risk (5- Political Operative Invest- Risk year fore- Risk Risk Risk ment Risk (2008) cast) Country Maximum risk = 0 Minimum risk = 100 Highlyin- Germany 61 69 83 71 74 dustrial- ized coun- USA 67 69 61 64 68 tries France 57 61 67 62 65 UK 63 67 51 60 62 Industrial- Spain 61 63 51 58 60 ized coun- tries Italy 39 50 57 49 52 Emerging China 57 53 73 61 63 countries Russia 44 42 58 48 50 India 40 49 50 46 48 Brazil 44 42 46 44 47 Estonia 47 44 36 42 45 Ukraine 39 41 43 41 43 Israel 34 40 41 38 40 Develop- Egypt 42 46 47 45 44 ing coun- tries Syria 44 40 47 44 44 Indonesia 35 38 49 41 43 Source: Homburg & Krohmer, 2009. After considering the above information, Click-IT AB chose Germany and the UK as target markets given that the overall expected risk is the lowest for each of these countries. The abolishment of cross-national trade barriers is an important factor when it comes to Cross-national trade analyzing political-legal factors, as this has greatly contributed to increasing international barriers Free trade agreements business activities. Establishing free trade agreements is of particular signficance. Exam- reduce cross-national ples of free trade agreements include the following: trade barriers. ASEAN (Association of Southeast Asian Nations: Brunei, Indonesia, Cambodia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) 21 NAFTA (North American Free Trade Agreement: Canada, Mexico, and USA) GAFTA (Greater Arab Trade Area: Algeria, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Sudan, Syria, United Arab Emi- rates, and Yemen) Common markets, especially the European Union and Mercosur (Mercado Común del Sur: Argentina, Brazil, Paraguay, and Uruguay) Socio-Cultural Factors Cultural differences between individual countries are an essential factor to consider when designing international marketing policies. Five dimensions outlined originally by Geert Hofstede’s cultural Hofstede can be used for characterizing the culture of a country (Homburg & Krohmer, dimensions 2009): Hofstede’s cultural dimensions can be used to characterize the cul- Power distance: When there is a high power distance in a society, less powerful mem- ture of a country. bers accept and thus expect a comparatively uneven distribution of power. Societies with a low power distance are characterized by egalitarianism. Individualism: In an individualized society, the bonds between members are compara- tively loose whereas the integration of members into social groups is great in societies that are characterized by collectivism. Masculinity: People tend to take a firm line with one another and act competitively in societies characterized by strong masculinity. Values such as modesty and care tend to prevail in countries with weaker masculinity. Uncertainty avoidance: In countries in which this dimension is strong, people tend to feel threatened by certain or unknown situations and strive to ensure a great extent of security. People in cultures where this dimension is weaker are more willing to take risks. Long-term orientation: Where long-term orientation prevails, people largely focus on the future and attach importance to values such as endurance and thriftiness. Where short-term orientation is stronger, people focus on values oriented towards the past or the present, e.g. respecting and continuing traditions. These cultural differences are especially important when designing marketing strategies in different countries. The content of communication and the introduction of product innovations are two areas of marketing policy that will differ depending on the specific national culture. It is also very important to consider cultural differences when it comes to the leadership behavior of managers (Roth, 2005; Dwyer, Mesak, & Hsu, 2005; Newman & Nollen, 1996). 1.3 Features of Buying Behavior in International Marketing After discussing the features of international markets, we will explore variations in the buying behaviors of individuals and organizations. 22 Individual Buying Behavior Differences in individual buying behavior are often the result of differences in socio-eco- nomic structures and values. One measure used to classify individuals and their buying behavior is the so-called Sinus-Milieus, a social and target group model developed by the Sinus-Milieus Sinus Institute Heidelberg in Germany (n.b. The institute has also developed an interna- Sinus-Milieus is a model that classifies consumer tional version of this model called Sinus-Meta-Milieus which defines target groups across target groups according national borders). The model classifies consumers according to social status and basic val- to differences in attitudes ues and groups consumers into specific “milieus” such as the “traditional milieu” or “new and values. middle class milieu” that each represent different buying behaviors (Sinus Institute, 2016). Moving beyond the differences in socio-economic structures and values within consumer groups, individual countries also show specific differences in terms of product preferen- ces. Some examples of such differences are listed below (Homburg & Krohmer, 2009): Many Spanish people wash their dishes by hand with cold water running from the tap. Their dishwashing liquid must therefore have specific characteristics to allow for this practice. The Spanish prefer their yoghurt to be runnier while Germans favor a thicker consis- tence. People in the UK tend to wash their clothes at considerably lower temperatures than the inhabitants of most other European countries. Washing agents sold in the different countries need to feature different characteristics. Climatic conditions influence the type of skincare women use and products thus vary across different countries. Pork is widely refused in countries with a predominantly Muslim population while Hindu-dominated states do not consume beef. Organizational Buying Behavior Having considered variations in the buying behavior of individuals within and across countries, we will now look at features of organizational buying behavior. For many organ- izations, the centralization of procurement processes is of utmost importance and is a cen- tral feature of their buying behavior. The motivation for companies to centralize their pro- curement processes is often the opportunity to bundle resources and demand and strengthen their competitive position. Prices are, in many cases, no longer negotiated in individual countries, but rather negotiated centrally. Other factors characterizing organiza- tional buying behavior include the involvement of multiple organizations and multiple personalities, demand related to country-specific features, standardization, and high interaction between supply and demand. Patterns of Buying Behavior Moving on from individual and organizational buying behavior to look at buying behavior as a whole, we face the question of whether or not societal-cultural conditions across countries and regions are becoming homogenized. Are countries and regions actually becoming more similar and less diverse? As globalization makes its mark on all cultures 23 and societies, we need to analyze whether inevitable changes in cultural practices are resulting in different behavioral patterns. In this respect, two contradictory developments can be observed: Cultures are assimilating across borders and customer behaviors in different countries are converging. Resistance against such cultural convergence is increasing in many countries, with con- sumers turning back to regional and cultural products and consumption patterns. The consequences of such a reaction to cultural assimilation is especially evident when comparing the Western world to the Arab world. EXERCISE Levitt’s convergence theory provides a clear explanation for this assimilation. Please read Levitt (1983). What reasons does Levitt state for the convergence of consumer needs? Levitt (1983)postulates that there is an increasing homogenization of markets as well as the development of cross-culture and cross-national target groups with converging needs. Levitt lists the following reasons for the convergence of consumer needs: similar sociodemographic developments in many industrial nations (e.g. a trend towards smaller families, increasing life expectancy, etc.) societies increasingly experiencing and integrating foreign cultures (e.g. in educational institutions) improvements in transport (e.g. quicker and less expensive flights, proliferation of tour- ism) and communications technology (e.g. Internet and wireless technology) Companies are increasingly reacting to converging consumer needs by standardizing what they offer consumers and increasing the centralization of decision-making and manage- ment. For instance, managers of American and Japanese companies in Europe tend to opt for standardized advertising strategies as they perceive the countries of the European Union to be very similar. Falling fixed-unit costs resulting from the production of higher volumes allows for the reduction of prices which strengthens the convergence of con- sumer needs even further. SUMMARY Expanding business activities into more than one country does not grad- ually change the business environment; it changes the very scope of business itself. A move towards internationalization is usually character- ized by higher complexity and uncertainty. It involves greater risk while at the same time increasing the chance of securing company success 24 and demands greater flexibility in company strategy. International busi- ness often necessitates adjustments to local conditions while simultane- ously realizing advantages gained from standardization. It requires increased efforts and intrastructure to handle the different national mar- kets (i.e. managing supplier, consumer, and competitor feedback). The environment of international marketing is characterized by techno- logical, political-legal, and socio-cultural factors. In terms of technologi- cal factors, significant advances in communication and transport have occurred in the past decades. Abolishing cross-national trade barriers has been a significant development in the political-legal environment. As for socio-cultural factors, cultural differences between the individual countries are the most essential factor to consider when designing inter- national marketing policies. Differences between the buying behavior of individuals and organiza- tions have to be taken into account. The buying behavior of individuals is largely the result of different socio-economic structures and values. The increasing centralization of procurement processes is of utmost importance when it comes to consider organizational buying behavior. 25 UNIT 2 INTERNATIONAL MARKETING STRATEGIES STUDY GOALS On completion of this unit, you will have learned … – the difference between multinational and global segmentation. – which criteria are used to divide the market into distinct segments. – which strategies can be used to develop and operate within new national markets. – the relationship between the timing of market entry and business success. – what to expect when exiting a market. 2. INTERNATIONAL MARKETING STRATEGIES Introduction PORSCHE PHILOSOPHY: THE PRINCIPLE PERFORMANCE Today, Porsche is active in over 100 countries. We are a centrally controlled worldwide network. Thanks to our subsidiaries and other Porsche Services, we have a global presence and the Porsche brandname is recognized in virtually every language. Porsche has always been an export-oriented company. In the 1950s, cranes unloaded the first Porsche 356s in the harbor of New York which was a tremendous success for that time. Our concept works. Other companies know this too and approach us. We are happy to help—with the portfolio of our subsidiaries and other Porsche Services. […]. Source: Porsche, 2012. 2.1 Market Segmentation and Market Selection Choosing which national markets to develop and classifying them into groups are two essential functions of international marketing. As with national marketing, market seg- Market segmentation mentation in an international context is comprised of two tasks: selecting the segments Market segmentation and developing them. Depending on the underlying strategic direction of the company, means dividing a hetero- geneous market into two different approaches can be taken here (Meffert, Burmann, & Becker, 2010): homogeneous sub-mar- kets by considering the Multinational (or multi-domestic) market segmentation focuses on the differences distinct features of actual and potential buyers between countries. Multinational segmentation is a multi-stage process. The first step is within them. to choose national markets that have potential for development. Afterwards, consum- ers are segmented. In some cases, transnational segments are created when similar tar- get groups are identified in multiple countries. This approach emphasizes the differen- ces between national markets. This strategy is ideal for highly differentiated products or products dictated by local preferences, e.g. confectionary. Global market segmentation is based on Levitt’s convergence theory and focuses on the similiarities between countries. This approach views the world as a homogeneous mar- ket and tries to identify worldwide target groups (e.g. teenagers with same behaviors and interests, middle-aged women with disposable income, etc.). This type of segmen- 28 tation is used for global brand management, often for fashion brands (e.g. Hugo Boss, Prada), cigarettes manufacturers (e.g. Marlboro), or technology products (e.g. Apple iPhones), which aim to adopt a widely standardized marketing approach. Multinational and global market segmentation approaches differ in complexity. Multina- tional market segmentation makes sense for companies that have a polycentric orienta- tion and perceive greater value in pursuing differentiated market development strategies. Multinational market segmentation is also common for companies with an ethnocentric orientation who perceive greater value in locating national markets that are similar to their domestic one. Global market segmentation, by contrast, corresponds with a geocen- tric or regiocentric orientation and global or transnational marketing strategies. Multinational market segmentation is often more desirable in the early stages of interna- tionalization as it is less complex and the methods for segmentation are comparatively easy. Global market segmentation is often the right approach for large, global brands in an advanced internationalization stage. “Born-global” companies, that is, companies that pursue a global marketing strategy right from the onset of operations, are the exception. Such firms can be found particularly in the IT industry—Google is a good example of a born-global company (Meffert, Burmann, & Becker, 2010). We will now explore these two market segmentation approaches in greater detail. Multinational Market Segmentation This type of market segmentation and selection assumes that consumers in different countries will differ from one country to the next in their behavior, and that the different market conditions across different countries will result in specific markets appearing more or less desirable. The following case study looks at how this type of market segmentation and selection is implemented in practice. Case study: Features of multinational market segmentation BelaGreen AG is a corporation that sells high-end personal care products (e.g. suntan lotion, face care, etc.) for the most part within their domestic market of Germany. As sales and profits are declining as the result of increased competition in the German market, the board of directors considers expanding business into foreign markets. You are the assis- tant to the CEO and responsible for gathering available information on countries of inter- est for BelaGreen AG and recommending which markets to target. In doing so, you classify countries using the following portfolio structure (Homburg, 2011): 29 Figure 1: Portfolio Structure Source: Homburg, 2011. Countries of interest to BelaGreen AG are evaluated according to the following criteria. Table 2: Evaluation of Portfolio Structure (A) Italy France Hungary Russia Poland Market very low very low very high very high high growth for personal care products (high-price segment) Political sta- medium very high medium low low/medium bility Norms and high very high low medium medium standards for ingredients in personal care products Price level high/very very high low very low medium high Language dif- low very low medium very high high ficulties Customer high medium low low very low loyalty Economies of high very high high medium low scale of established competitors 30 Italy France Hungary Russia Poland Population very low medium medium medium growth Market vol- high high medium low medium ume Competition high very high low medium high within the market for personal care products State regula- low very low very low medium low tions Possibility to high low high low very high establish own production site in the respective country Source: Created on behalf of IU (2016). Table 3: Evaluation of Portfolio Structure (B) Egypt Portugal Brazil Sout Africa Market growth low medium/high high/very high very high for personal care products (high- price segment) Political stability very low medium/high very low very low Norms and low medium very low medium standards for ingredients in personal care products Price level low high low high Language diffi- very low low low very low culties Customer loyalty medium very high very high high Economies of low medium high very low scale of estab- lished competi- tors Population high low very high very high growth Market volume medium high low low 31 Egypt Portugal Brazil Sout Africa Competition low very high very low very low within the mar- ket for personal care products State regulations medium low very low low Possibility to very low very high low medium establish own production site in the respective country Source: Created on behalf of IU (2016). The first step in multi-domestic market segmentation is to exclude countries that do not Market segmentation meet the company’s requirements. The following market segmentation criteria are usu- criteria ally utilized as part of the pre-selection process. Market segmentation cri- teria can help to reasona- bly subdivide a market. Economic variables: Examples are per capita income of a population, the gross domes- tic product, or the level of consumption expenditure in a specific country. Sociodemographic variables: Factors such as age distribution, birth rates, educational level, or gender ratio may yield further information about potential target groups in a specific country. Political/legal variables: These variables give some indication of a country’s stability, investment security, and the legal feasibility of the planned undertaking. In addition to these variables, barriers to entry, tariffs, import bans, guidelines for advertising, etc. also need to be considered. Geographic variables: In many industries, a country’s geographical characteristics, such as the quality of transportation routes, climate, or raw materials, have a direct impact on product design and logistic systems. Technological variables: The stage of technological development such as the existence of broadband networks can be an important factor. A country’s level of technological infrastructure is also important for designing communication policies. Cultural variables: These factors can include the level of individualism versus collectiv- ism, power distance, and masculinity among others of Hofstede’s cultural dimensions (Hofstede, 1997). An evaluation using these criteria will assist a company to identify the potential benefits of entering a specific market (i.e. market attractiveness) and how potentially difficult it is to enter a specific market and establish a market share (i.e. barriers to entry). Segmenting a market using the aforementioned criteria is comparatively inexpensive and can be done quickly; in many cases secondary sources or the countries’ statistical offices have all the necessary data readily available. However, in many cases, the quality of such data will strongly correlate with a country’s level of development. Additionally, it might not be pos- sible to compare data from one country with another as the definitions of the variables can differ. Furthermore, there is a possibility that the supplied data might be influenced by 32 the respective political situation, particularly in the case of totalitarian systems. Tradi- tional strategy evaluation methods such as checklist or scoring techniques are recommen- ded for further assessment of the national markets in such cases. For BelaGreen AG, market attractiveness and barriers to entry can be evaluated using the following criteria: Table 4: Evaluation Criteria Criteria for evaluating market attractiveness Criteria for evaluating barriers to entry Market growth for personal care products (high- Norms and standards for ingredients in personal price segment) care products Political stability Language difficulties Price level Customer loyalty Population growth Economies of scale of established competitors Market volume Competition within market for personal care Possibility to establish own production site in products (number of similar products) the respective country (i.e. found own subsid- State regulations iary/joint venture) Source: Created on behalf of IU (2016). Combining all qualitative criteria related to market attractiveness and barriers to entry results in the following assessment: Table 5: Qualitative Evaluation Accessibility of the national Market attractiveness market Italy 2 x very low, 1 x medium, 2 x 4 x low, 2 x high high, 1 x high-very high = low-medium = medium France 2 x very low, 1 x low, 1 x high, 2 x 3 x very low, 1 x medium, 2 x very high very high = medium = low-medium Hungary 2 x very low, 1 x low, 1 x high, 2 x 1 x low, 1 x medium, 3 x high, 1 x very high very high = medium = medium-high Russia 1 x very low, 3 x low, 1 x 1 x very low, 4 x medium, 1 x medium, 1 x very high high = low-medium = medium Poland 1 x low-medium, 3 x medium, 1 x 2 x low, 1 x medium, 2 x high, 1 x high, 1 x very high very high = medium-high = medium-high Egypt 2 x very low, 2 x low, 1 x 1 x very low, 1 x low, 1 x medium, 1 x high medium, 3 x high = low = medium 33 Accessibility of the national Market attractiveness market Portugal 1 x low, 2 x medium-high, 2 x 2 x very low, 1 x low, 1 x high, 1 x very high medium, 2 x high = medium-high = low-medium Brazil 1 x very low, 3 x low, 1 x high- 1 x very low, 1 x low, 1 x high, 3 x very high, 1 x very high very high = medium = high South Africa 1 x very low, 1 x low, 1 x 1 x low, 1 x medium, 1 x high, 3 x medium, 1 x high, 2 x very high very high = medium-high = high Source: Created on behalf of IU (2016). As seen in the table above, market attractiveness and accessibility of the national market are evaluated by combining the criteria for each of these factors. In Italy, for instance, both the growth of the market for high-price segment personal care products and population growth are low. Averaging all six criteria for market attractiveness in Italy results in the rat- ing of “medium”. Brazil, by contrast, has very few norms and standards for the ingredients in personal care products, which makes this national market very accessible. When enter- ing this market, additional investments required to comply with these standards are rela- tively few. Averaging all six criteria of market accessibility, accessibility in Brazil is rated “high”. Findings from this qualitative evaluation for each country can then be plotted on the port- folio structure grid according to market attractiveness and accessibility as shown in the following figure. 34 Figure 2: Classifying National Markets in the Portfolio Structure Source: Created on behalf of IU (2016). The countries that BelaGreen AG chooses to target are South Africa, Poland, Hungary, and Brazil. Portugal, Italy, and France definitely show some attractiveness and BelaGreen AG should check what is causing the poor accessibility of these national markets and whether these factors can be altered in the long term. BelaGreen AG might consider questions such as: “Have we already competed with the same competitors on our domestic market?” and “Will it pay off in the long term to become active on this comparatively attractive market in spite of the predictable short-term losses?” Global Market Segmentation Having explored the process of multinational market segmentation, we will now turn to the process of global market segmentation. Global market segmentation is a one-step Global market segmen- approach of developing segments without choosing specific national markets before- tation Global market segmenta- hand. This means that consumers are directly segmented across national borders. Global tion is an approach where market segmentation can be conducted worldwide or for specific regions, e.g. Europe. customers are segmented This type of segmentation is usually based on the classification of consumers according to across national borders without reference to lifestyle and behavior. countries. 35 CASE STUDY: BMW TARGET CONSUMER PROFILE [SIGMA was the company charged with researching the market for BMW focusing on future trends.] What Sigma’s research found was the “I’ve made it” attitude of the 1990s BMW driver, what they called the “social climbers” was now changing to a more family friendly group. They foresaw that as the yuppies declined, other groups with dif- ferent upscale mindsets would increase in number. They suggested four seg- ments going forward and BMW reacted to the new segments by introducing a car to match three of them: 1. “Upper liberals” includes socially conscious, open-minded professionals often with families who were successful in the 90s. They were predominantly Volvo, Saab, and SUV drivers What did BMW do? For upper liberals, BMW added the X5. This is a SUV that the company prefers to call a “sports activity vehicle”, in a bid to appeal to this group’s active lifestyle. 2. “Post-moderns” are high-earning innovators like architects, entrepreneurs, and artists. They are highly individualistic and gravitate toward head-turners like convertibles and roadsters. 3. “Upper conservative” are wealthy, traditional thinkers. They’ve never been that interested in driving sporty cars like BMWs, and consider luxury and com- fort over driving performance. They would normally purchase the Mercedes S- class and Jaguars as they strive for elegance and sophistication. What did BMW do? BMW-developed the Rolls Royce Phantom, which sells for about $325,000, and is intended for the very wealthiest upper conservatives. 4. “Modern mainstream” are family-oriented, active, and normally purchase the near-premium brands like Honda or Volkswagen: BMWs were considered too expensive for them. But increasing numbers of them are looking to move up above the middle class and are open to purchasing luxury-brand cars. What did BMW do? In 2001, BMW launched the new Mini, aimed at upper-mid- dle-class buyers who were not quite affluent enough to buy a real BMW. This group is also the target market for the new BMW compact, the 1 Series. The Mini brand provided the company with the opportunity to enter a very different seg- ment of the automobile market whilst reducing the risk of affecting perceptions of their existing brand. Source: BMW12, 2012. 36 Global segmentation of mass markets is generally based on classifying consumers accord- ing to cross-national sociodemographic, psychographic, or behavioral characteristics. Social demographic information is often used to develop initial insights e.g. dividing con- sumers according to age, household size, income, etc. However, a multi-dimensional approach based on either single constructs of lesser complexity (such as perceptions or attitudes) or multi-attribute constructs of greater complexity (such lifestyle) are also standard practice for global segmentation. In contrast to segmentation using single-dimension criteria such as age, segmentation according to lifestyle allows companies to develop cross-national target groups based on Lifestyles patterns of buying behavior. The cross-national target groups identified in this process will Lifestyles are complex behavioral patterns influ- react similarly to marketing measures as they share largely the same values, attitudes, and enced by constructs such behaviors (Berndt, Fantapié Altobelli, & Sander, 2005; Keegan, 2002). as values and personality. In Germany, the study “GfK Roper Consumer Styles” by the Gesellschaft für Konsumfor- schung (GfK) [Society for Consumer Research] is often used as the empirical foundation for global market segmentation (n.b. this study is available in English and German). It is the advancement of the famous “Euro Socio Styles” study, which has been conducted in 15 European countries since 1989 (Becker & Schnetzer, 2006). However, while “Euro Socio Styles” only analyzes Europe, “Roper Consumer Styles” evaluates the whole world, identi- fying eight global lifestyle segments. The GfK lists the following segments (Meffert, Bur- mann, & Becker, 2010): Dreamers: motivated to achieve happiness Adventurers: driven by passions Open-minds: seek a balance between self-actualization, social responsibility, and pleas- ure Homebodies: desire material security and status Rational-realists: value hard work and responsibility Organics: search for sustainability and self-actualization Settlers: long for peace and harmony Discerners: seek a balance between responsibility, duty, and pleasure In the US, lifestyle segmentation is conducted according to the “Values and Lifestyles” (VALS) framework developed by SRI International (Franzen & Moriarty, 2009). Consumers are segmented according to their primary motivation and resources into following eight segments: Innovators Thinkers Believers Achievers Strivers Experiencers Makers Survivors 37 Apart from using standardized typologies such as the Gfk “Roper Consumer Styles” or VALS, companies can also segment consumers according to their particular circumstan- ces. Such criteria can be found throughout marketing literature and is not necessarily spe- cific to the international context (Bock & Uncles, 2002). Examples of these criteria include: preferences for specific product characteristics interaction effects with and among customers obstacles for making decisions (such as information gaps) buyer power and negotiating power of consumers individual customer profitability Market Segmentation in the B2B Sector While adopting either a multinational or global strategy is helpful for segmentation in the consumer sector, how are important are these approaches in the business-to-business (B2B) segment? We will look at a second case study now to explore how segmentation is conducted in this sector. CASE STUDY: LONG-TERM CLIENT COOPERATION OF VOITH AG Voith is a global provider of leading-edge technology and industrial services. Voith offers a broad portfolio of systems, products, and services that serve the five essential markets of energy, oil & gas, paper, raw materials, and transport & automotive in all regions of the world. Voith’s operating business is bundled in four group divisions: Voith Hydro, Voith Industrial Services, Voith Paper, and Voith Turbo. Much of the worldwide paper production is produced on Voith paper machines. One quarter of the world’s hydropower is generated using Voith Hydro turbines or generators. Voith Turbo drive elements are used around the world in industrial plants or for road, rail, and marine applications. Europe’s largest companies rely on technical services delivered by Voith Industrial Serv- ices. Source: Voith, 2016. In general, global segmentation of clients in B2B markets is easier than consumer markets as there are fewer potential clients to analyze. Additionally, these clients are often already international companies, which in turn facilitates the segmentation of new markets. In some cases, potential customers can be analyzed according to qualitative criteria (such as values, policies, etc.) in addition to quantitative criteria (such as procurement potential, market power, or even ordering patterns in the context of specific sales strategies). At least three options can be differentiated for segmenting the B2B sector (Zentes, Swo- boda, & Schramm-Klein, 2010). 38 Producers of industrial or consumer goods that offer standardized product ranges and that have comparatively large groups of customers can use an approach similar to cus- tomer segmentation. This is the case for Voith AG. Producers of industrial or consumer goods that offer rather differentiated, specialized product ranges (e.g. specific technology) and are aware of only a few potential custom- ers, can segment target groups across borders by means of concrete customer contacts. Producers with less fixed customer relations do not have to segment at all; establishing customer relations on a 1:1 basis can result in a “follow the customer” strategy that does not require marketing strategies to fit the characteristics of multiple target groups. 2.2 Market Entry Strategy When working in new national markets, companies can choose to adopt different market entry strategies and overall market development strategies. There is a great deal of research on such strategies. To develop an appropriate strategy, management has to make two important decisions: Which mode of entry (e.g. export, franchise, joint venture, etc.) should be used to enter and subsequently develop the market? What timeline for entering the market should be implemented? We will explore both these decisions in the following case study. Case study: How to develop international markets Your Spanish company, Cars Moviendos SA, is active in the automotive supply industry, specifically machine engineering, and wants to enter the booming Chinese market. Your position as Vice President of Marketing means that you have been asked to recommend the most appropriate type of market entry. You begin by considering the following modes of entry (Homburg, 2011). Mode of entry First step of international market development: Table 6: Market Entry Type choosing the mode of entry (i.e. type of organi- zation). Direct export Sales without intermediaries, usually through sole agencies, representa- tive offices, and permanent establishments. Indirect export Contract acquisition and distribution through intermediary third-party companies. Licensing Licensor grants licensee the right to use intellectual property with the lat- ter paying a fee that either depends on actual usage or a contractual basis. Contract manufacturing Third parties produce a product or individual modules on a contractual basis. Joint venture Founding of a jointly controlled company to which the partners contribute funds, expertise, and often already existing company shares. They can be classified as majority, equity, or minority joint ventures, depending on the allocation of capital shares, ownership, and supervisory rights. 39 Subsidiary Direct investment on the national market without any partners. There are different types of subsidiaries, ranging from distribution-only set-ups to independent R&D activities. Source: Homburg, 2011. As the Vice President of Marketing, you will have to consider the following factors and their impact on potential market entry strategies: The market is extremely attractive for many competitors as the Chinese automotive market is steadily growing. Some competitors of Car Moviendos SA have failed to successfully enter the Chinese market, which indicates that the right market entry strategy has to be carefully consid- ered. China’s accession to the WTO (2001) has considerably improved conditions for potential investors, in part because: 1) the obligation to have a balanced foreign exchange account was abolished, 2) companies producing in China no longer have to reach an export quota of 50 %, and 3) investors now benefit from numerous “tax reliefs”, espe- cially in the regions of Central and Western China. Cars Moviendos SA has the following qualifications for international business activities. The company has existing subsidiaries in France, Italy, and Poland. As an adequate “cultural fit” was lacking, a previous joint venture between Cars Movie- ndos and another cooperating company failed. Many Cars Moviendos SA clients are already located in China and are looking for a com- petent supplier in the country. EXERCISE Please discuss which type of international market entry could work for Cars Moviendos SA, taking into account the aforementioned technological, political- legal, and socio-cultural factors as well as the company history of international business activities. There is extensive literature about the different methods for companies to enter and sub- sequently develop markets. However, in order to evaluate these methods and decide on a basic strategic orientation, emphasis should first be directed towards a number of differ- ent factors. Firstly, you should consider the advantages of differentiation and standardiza- tion as these advantages will support your strategic decisions. Secondly, you should gather information about the resources and competences of your company; it is advisable that you only opt for strategies that match your profile of existing competences (Kotabe & Helsen, 2008). Thirdly, you should evaluate the degree to which your company will be able to exercise control in the foreign country. Finally, any evaluation of market entry type should be complemented by an evaluation of risk. Risk emerges when a decision made 40 under uncertain circumstances cannot be revised without disadvantages or changed at the company’s discretion. However, any evaluation of market entry types should not be limited to these factors; there are many other considerations to be taken into account. The following figure summarizes the different evaluation criteria and the questions that need to be answered when choosing the right market entry strategy. Table 7: Evaluation Criteria and Questions Regarding the Market Entry Strategy Question to be answered in order to select the Evaluation criterion right market entry strategy Realizing advantages through differentiation To what extent does the selected strategy aim at adjusting marketing activities to the requirements of the location? Realizing advantages through standardization To what extent can cost advantages be realized through economies of scale? Risk What risks does the market entry type entail? Opportunities to exercise control To what extent will the company be able to influ- ence decisions abroad? Dependency How heavily does the company want to depend on cooperations with other firms? Resources needed What resources are needed to implement the strat- egy? Requirements concerning replication Does the strategy entail high demands on the com- pany to efficiently and effectively transfer its exist- ing resources and competences to a new country? Requirements concerning reconfiguration Does the strategy entail high demands on the com- pany to efficiently and effectively developing new country-specific resources and to combine them with the existing resources and competencies? Source: Created on behalf of IU (2016). For Cars Moviendos SA, the following aspects suggest the optimal strategy would be a direct investment in China, in the form of either contract manufacturing, developing a joint venture, or establishing a subsidiary. Developing local representation will facilitate direct access to the market and enable flexible adjustments to be made in response to China’s dynamic market conditions. Becoming active abroad allows the company itself to establish more of a presence in China, which is particularly important in this market. It will be easier to develop long-term relationships with clients, which is especially important for attracting and retaining Chinese clients. It will be easier to control local activities, which is particularly important in a foreign market such as China. The fact that many Cars Moviendos SA clients are already active in China gives the com- pany an advantageous initial position. 41 However, there are also aspects that indicate a direct investment in China is not the most favorable strategy, and that indirect strategies such as indirect/direct export or licensing should be the preferred option. These reasons include (Homburg, 2011): lower capital expenditure and thus lower risk of losing capital, quicker exit is available if sales drop, and no direct contact to Chinese clients currently exists. Upon evaluating all these factors, founding a joint venture or a subsidiary appears to be the best method for Cars Moviendos SA to enter the Chinese market. The fact that the Cars Moviendos SA clients are already active on the market significantly facilitates the compa- ny’s market entry and this advantage should be capitalized upon. Furthermore, entering a joint venture would allow the company to tap into local knowledge, e.g. regarding existing distribution channels in China. Timing The timing for the start of international market development is the second critical factor Timing strategies refer to determining a successful market entry. Two important decisions need to be made here. when to start developing a market and can be dif- The first decision is how should the order of entry into different national markets be coor- ferientiated into country- dinated? Which country or countries should go first, and which countries should follow? specific and transnational The second decision to make is when exactly is the right time to enter each country, con- timing strategies. sidering the competition present on the respective national markets. With both of these decisions, it is important to differentiate between country-specific and transnational tim- ing strategies. Cross-national timing There are two typical cross-national timing strategies to choose from: 1) the waterfall strategies strategy, which involves gradual market entry, and 2) the sprinkler strategy, which Cross-national timing strategies refer to timing involves simultaneous market entry. When implementing the waterfall strategy, markets strategies for entering are entered successively, according to their level of attractiveness. A company will first multiple markets. strengthen its position in a strong market and only then enter the next one. Implementing the sprinkler strategy means that the company enters all selected markets at once. The waterfall and sprinkler strategies can, of course, also be combined with one another. Advantages of the waterfall strategy are that less resources are required, which results in lower risk, the possibility to stop entering new markets, and the creation of “strategic bridgeheads”. Creating a strategic bridgehead is where establishing a presence in one for- eign market enables or facilitates entry into the next foreign market. Disadvantages of the waterfall strategy include the potential for competitors to introduce imitation products on markets not yet developed and the risk of making premature decisions about the progres- sion of new market entries. A company might be successful in new markets even if it failed in a previous market; however, there is a risk with the waterfall strategy that past perform- ance in specific markets will unduly (and perhaps unwisely) influence decisions about entering further markets. The comparative advantages of the sprinkler strategy include better prospects to enter markets before competitors, and better protection against the product becoming obso- lete. By implementing this strategy, a company may even be able to establish barriers to entry for competitors. It is also possible that the company can balance risks between the 42 different national markets. For products that have a short life cycle, high research and development costs may only be amortized through activity on all relevant markets simul- taneously. In such cases, there is essentially no alternative to the sprinkler strategy. Disadvantages of this strategy are the need for considerably higher financial and personnel resources and the higher level of coordination required. There are two typical country-specific timing strategies to choose from: 1) the pioneer Country specific timing strategy, where the first international company on the foreign market is the pioneer, and strategies Country specific timing 2) the follower strategy, where companies will wait for competitors to “test the waters” strategies refer to timing before they enter. strategies for entering a specific national market. Implementing the pioneer strategy means that the company is ahead of competitors when it comes to developing marketing expertise. The pioneer may even be able to establish barriers to entry for o

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