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Summary Global Marketing A market-responsive approach

Svend Hollensen Second Edition 2001

ISBN 0-273-64644-3

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PART 1 THE DECISION WHETHER TO INTERNATIONALIZE

Chapter 1 Global marketing in the firm

SME: small medium sized enterprises LSE: large scale enterprises Companies wit little international experience and a weak position in their home market have little reason to try to perform on global markets. Instead they should try to establish a stronger position on their home market. A firm that finds itself as a dwarf on the global market may seek ways to increase their net worth by seeking partners, suited for a buy-out on long-term. If a firm already has international competences, it can overcome some of it’s competitive disadvantages by going into alliances with companies representing complementary competences. If you are ready for global marketing or not is bases on two things:

1. The industry of your business (how global is / can it be) 2. The preparedness for internationalisation

1 can be divided into mature; adolescent; immature 2 can be divided in local; potentially global; global Given the character of a company in both segments, one of the nine possible strategies can be chosen. You can find these in figure 1.1 on page 4 of Global Marketing.

Difference between management styles of LSE and SME: Many LSE have begun downsizing their companies operations, so in reality, many LSE act like a lot of small differ operations. It can be noted that SME are working more on long term strategies, while LSE’s are working les on it. The consequence of both movements is maybe an action orientated approach, where firms use the strength of both orientations. What are the differences in starting points? LSE have traditionally bases their strategy on taking advantage of “economies on scale” by launching standardized products on a worldwide basis. SME have always seen national markets as independent from each other. But as international competitiveness evolved, they have begun to see the connection between different international markets. They have recognized the benefits of putting all different national marketing strategies together, into economies on scale for R&D, production and marketing. Therefore it can be noted that both LSE and MSE, are acting more towards “thinking globally and acting locally”.

Characteristics: SME: lack of financial resources LSE: SME owners are usually technical or crafts experts, and is unlikely to be trained in business disciplines. Owners of LSE are more involved in the selling and marketing process.

A realized strategy is usually a mix of the intended (planned) strategy and the emerged strategy (not planned). All enterprises have some elements from both into their strategies. In the case of deliberate (planned) strategies (mainly LSE), managers try to formulate their intentions as precisely as possible, and strive to apply them with a minimum of distortion. Sometimes the incremental (rise of value) adjusted strategic changes and the macro market changes move apart so a strategical drift arises. This is explained in the LEGO case on page 9 of Global Marketing. The issue is that LEGO believed it’s concept was superior, but did not think about changes in what kids want. Computers and Internet, for example take away a big part of their market. This is why LEGO is an a strategical drift.

An SME is characterized by the entrepreneurial decision making model. It states that the one that handles it has to make intuitive, loose and unstructured changes for seeking new opportunities. Compared to an LSE the employees of an MSE are usually closer to the entrepreneur. The influence of the entrepreneur on employees must be conform.

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Another difference is that LSE are not as sensitive to risks as an MSE. An MSE is always depending on circumstances. On the other hand, SME are more flexible.

The role of global marketing in an holistic perspective: According to a book by Peters & Waterman, a firm can be seen by a holistic point of view by forcing managers to ask themselves questions about the main elements of strategic excellence. The model, which is referred to as an 7-S framework, is based on that organizational effectiveness is based on the interaction of seven factors:

1. Structure 2. Strategy 3. Systems 4. Shared Values

5. Style 6. Staff 7. Skills

Shared values are the centrepiece. A company whit shared values, is a company where employees share the same values and missions. Al the noses are in the same direction.

The concept of a value chain (figure 1.8, page 14) A value chain exists of nine generic categories. These can be divided into primary and supportive activities. Primary:

Inbound logistics: storing and distributing

Operations: machining, packaging

Outbound logistics: distribution to consumers

Marketing and sales: to create awareness

Services: this covers all which enhance or maintain the value of the product / service Supportive:

Procurement: acquiring of resource inputs

Technological development:

Human resource management

Infrastructure: planning, finance & quality In order to assess how they contribute to cost reduction or value added, there are two kinds of linkage:

1. Internal linkage: between activities within the same value chain 2. External linkage: between different value chains, “owned” by different actors in the

total value chain system The mail value chain is connected between all three strategic levels within a company:

The strategic level

The managerial level (tactical)

The operational level

Internationalising the value chain All internationally orientated firms must consider an eventual internationalisation of the value chains functions. The firm must decide whether the responsibility for the single value chain function must be moved to the country of export, or is best handled form the head office. The value chain should be carried out wherever there are the best competences, which is not necessarily the head office. However, if the export markets are culturally close to the home market, it maybe better to control it form the home office. However this does carry some implications.

1. Downstream activities create competitive advantages that are largely country specific. For example a firms reputation.

2. In industries where downstream activities or other buyer-tied activities are vital to competitive advantage, there tends to be a more multi-domestic (domestic = inside your country) pattern of international competition.

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Chapter 2 Initiation of internationalisation

Motives for firms to go international The fundamental reason for companies to export is to make money, but like most business activities, one factor rarely account for any given action. Usually a mixture of factors is at hand. Pro active motives:

Profit and growth goals: they can grow by exporting

Managerial urge: enthusiasm form the board of directors

Technological competence / unique product: the company produces goods that are not widely available

Foreign market opportunities / market information: a firm has the necessary resources to respond to foreign opportunities

Economies of scale: increasing sales by exporting can dramatically cut down your production costs

Tax benefits: taxes are lower in other countries Reactive motives:

Competitive pressures: fear from your competitors

Domestic market: small and saturated: home market is to small

Overproduction: loose your products abroad

Unsolicited foreign orders: enquiries form abroad that make company’s aware

Extend sales of seasonable products: for example agricultural products

Proximity of international customers / psychological distance: if your close to the border, why net sell over it to

The difference between pro-active and re-active motives The major motives from above can be divided into pro-active and reactive motives Pro-active: these represent stimuli to attempt a strategy change, bases on a companies interest to in exploiting a unique competences (special technological knowledge) or market possibilities. Reactive: these motives indicate that the firm reacts to pressures or threats in it’s home market or foreign markets, and adjusts passively to them by changing it’s activities in time. The triggers of export initiation A trigger factor is usually foreign travel during which new business opportunities are discovered, or where information is received that makes the management believe that such opportunities exist. The triggers in of export marketing are: Internal:

Perceptive management: make it your business to become knowledgeable of other markets.

Specific internal event: for example a new bright employee

Importing as inward internationalisation: importing often results in exporting as well. External:

Market demand: demand of you product in other countries

Competing firms: if they can do it, the why not us to

Trade associations: contact made on international market seminars

Outside experts: for example: export agents, chambers of commerce, etc..

The difference between internal and external triggers Internal triggers are coming from the company itself. External triggers come from influences outside the company.

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Factors hindering export initiation A wide variety of barriers can be given. Some problems mainly affect the export start; others affect the entire process. These factors are mainly internal. Some examples are:

- Insufficient finances - Insufficient knowledge - Lack of connections - Lack of capital

- Lack of production capacity - Lack of foreign distribution

channels - Cost escalations

Critical barriers These can be divided into three groups:

1. General market risks: competition, differences in cultural usage of products 2. Commercial risks: delays, exchange rates

Political risks: interventions by home or host country governments.

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Chapter 3 Internationalisation theories

Analyses of three different internationalisation processes The Uppsala model This is a model for the choice for market, and form of entry when going abroad. The main consequence of this model is that firms tend to intensify their commitment towards foreign markets as their experience grows. The model distinguish between four different modes or entering a foreign market. The four successive stages represent higher degrees of international involvement / market commitment. Stage 1. No regular export activities (sporadic export) Stage 2. Export via independent representatives Stage 3. Establishment of a foreign sales subsidiary Stage 4. Foreign production / manufacturing units The common complaint is that the model is to deterministic. Meaning that the model does not take in account the differences of country markets.

The transaction cost analysis. The point here is that a firm will tend to expand until the costs of organizing an extra transaction within the firm will become equal to the cost of carrying out the same transaction by means of an exchange on an open market. It states that a firm will internally perform activities that can be done at lower costs through establishing an internal management and control system, while relying on the market for activities in which independent outsiders have a cost advantage.

The network model. Business networks are a group of interdependent companies with the same activities, in different businesses. There are four degrees of internationalisation:

Degree of internationalisation of the market

High

Low

Low The early starter The late starter

Degree of internationalisation of the firm

High The lonely

international The international among others

Explanation of the relevance of the network model for SME serving as subcontractors Until now, a network has been connected with the development of mutual trust and interest between companies. In the following, domination and control will form the starting point. Regarding to SME, a small firm gets a significant amount of it’s turnover and profits from acting as a subcontractor to another, often larger firm. The smaller firm becomes dependent, while the bigger firm acquires power over the subcontractor. This power can be measured by influence on decision making.

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Explanation of the term “Born Global” and it’s connection to internet marketing In recent years, research has shown that some companies do not follow the traditional ways of internationalising. They aim at international or global markets directly and right from birth. Such companies are named “Born Globals”. Reasons for this can be:

The increasing role of niche markets: growing demand among customers in mature economies for specialized and customized products. Smaller firms specialise on niches.

Advances in process/technology production: low scale production can be economical if you have a technological competitive edge.

Flexibility of SME / Born Globals: SME are more flexible and quicker to adapt to foreign tastes and standards.

Global networks: through partnerships with foreign businesses

Advances in information technologies: like internet, e-mail and WAP. This is a on of the biggest reasons for the existence of Born Globals.

Internet based Born Globals: the internet offers new opportunities for young SME to establish global sales through e-commerce

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Chapter 4 Development of the firm’s international competitiveness

International competitiveness form macro to micro The topic of this chapter is how a firm creates and develops competitive advantages in the international market. Development of a firms international competitiveness takes place interactively with the environment. The firm must be able to adjust to customers, competitors and public authorities. To unable an understanding of the development of a firms international competitiveness in a broader perspective, a model of three stages will be presented:

1. Analysis of national competitiveness (the Porter diamond) 2. Competition analysis in an industry (Porters five forces) 3. A value chain analysis consisting of a competitive triangle and benchmarking.

The analysis starts at macro level and then moves into the firms competitive arena through Porters five forces framework.

There are six factors that can be identified that influence the location of global industries: 1. Factors of production 2. Home demand 3. Location of supporting industries 4. The internal structure of the domestic industry 5. Chance 6. Government

These factors are interconnected.

An industry is a group of firms that offer a products that are close substitutes for each other A market is a set of actual and potential buyers of product An industry may contain several markets

The collaborative five forces model Porters original idea is based on that the competitive advantage of a firm is best developed in a very competitive market with intense rivalry. The five forces model provides an analysis for considering how to squeeze maximum competitive gain out of the context in which the company is located, or how to minimize being squeezed by it. Over the last decade, an idea has emerged which explains a positive roll of cooperative arrangements between industry participants. This has been termed a “collaborating advantage”. The five forces of Porter are:

1. Market competitors 2. Suppliers 3. Buyers

4. Substitutes 5. New entrants

Value chain Success in the market is dependent not only on identifying and responding to customer needs, but also on our ability to ensure that our response is judged by customers as superior to our competitor. The cause of these differences between companies can be reduced to two factors:

1. The perceived value of the product offered 2. The firm related costs that perceive this value

Note that: Customers do not buy products, they buy benefits. Perceived value is the customers overall evaluation of the product/service offered. The rules of the game can be described as: providing the highest possible perceived value to the customer, at the lowest possible cost.

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The basis sources of competitive advantage The perceived value created and the costs will depend on the firms resources and competences. Resources are the basics units of analysis. They include all inputs into business processes. Financial, technological, human etc.. Competences result from a combination of the various resources.

Competitive benchmarking The ultimate test of the efficiency of any marketing strategy had to be in terms of profit. Those companies that strive for market share, but measure this in terms of volume sales might be deluding their selves. Volume is bought at the expense of profit. Because market share is measured “after event, we will need to use continuing indicators of competitive performance. This will highlight the areas where improvements in the marketing mix can be made. Originally, the idea of benchmarking was literally taking apart a components product, and compare it’s components performance to your own products. The concept of benchmarking is similar to what Porter calls operational effectiveness.

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DECIDING WHICH MARKETS TO ENTER

Chapter 5 The political and economic environment

This chapter is devoted to macro environmental factors that explain the many forces to which a firm is exposed. The marketer has to adapt to a more or less uncontrollable environment within which he or she plans to operate. In this chapter the environmental factors in the foreign environment are limited to: 1. the political/legal environment 2. the economic environment.

1 Political/legal environment The political/legal environment comprises primarily two dimensions: a) The home country environment. b) The host country environment.

Besides these two dimensions there is also a third dimension: c) The general international environment. (see Figure 5.1 page 128)

a) Home country environment A firm’s home country political environment can constrain its international operations as well as its domestic operations. It can limit the countries that the international firm may enter. For example; the home country political environment affecting international operations has been South Africa. Home country political pressures induced firms to leave the country altogether.

There is also a triple-threat political environment, this means that even if the home country and the host country do not give any problems they may face threats in third markets. For example; European firms face problems in the USA if they do business in Cuba.

Promotional activities (sponsored by governmental organizations) Many activities involve implementation and sponsorship by government alone, while others are the result of the joint efforts of government and business. The granting of subsidies is of special interest: export subsidies are to export industries what tariffs are to domestic industries. In both cases, the aim is to ensure the profitability of industries and individual firms that might well succumb if exposed to the full force of competition.

Financial activities One of the most vital determinants on the result of a company’s export marketing programme is its credit policy. If the credit terms are extended, the risk of non-payment increase, and many exporters are reluctant to assume the risks. Therefore it may be necessary to offer exporters the opportunity of transferring some of the risk to governmental organizations through credit insurance. Credit insurance and guarantees cover certain commercial and political risks that might be associated with any given export transaction.

Information services For smaller companies or newcomers to global marketing the national government is the major source of basic marketing information. They do not have the money and possibilities to do research themselves. Most types of information are made available to firms through published reports or the internet.

Export-facilitating activities A number of national government activities can stimulate export activities, these include:

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Trade development offices abroad, government-sponsored trade fairs and exhibitions, sponsoring trade missions of business people who go abroad, operating permanent trade centres in foreign market areas.

Promotion by private organisations The type of assistance available to firms include information and publications, education and assistance in “technical “ details and promotion in foreign countries. For example chambers of commerce, banks, industry and trade associations.

State trading There are still countries with active state trading, such as Cuba and to some extent China.

b) Host country environment Managers must continually monitor the government, its policies and its stability to determine the potential for political change that could adversely affect operations of the firm. There is political risk in every nation, but the range of risks varies widely from country to country. In general, political risk is lowest in countries that have a history of stability and consistency. Three major types of political risk can be encountered:

Ownership risk, which exposes property and life.

Operating risk, which refers to interference with the ongoing operations of a firm.

Transfer risk, which is mainly encountered when companies want to transfer capital between countries.

Political risk can be the result of government action, but it can also be outside the control of government. The types of action and their effects can be classified as follows:

Import restrictions; attempt to support the development of domestic industry, the result is often to hamstring and sometimes interrupt the operations of established industries.

Local-content laws; countries often requires a portion of any product sold within the country to have local content, that is to contain locally made parts.

Exchange controls; stem from shortages of foreign exchange held by a country, a problem for the foreign investor is getting profits and investments into the currency of the home country (transfer risk).

Market control; the government of a country sometimes imposes control to prevent foreign companies from competing in certain markets.

Price controls; essential products that command considerable public interest, such as pharmaceuticals, food, etc, are often subjected to price controls.

Tax controls; taxes must be classified as a political risk when used as a means of controlling foreign investments.

Labour restrictions; using its strength, labour may be able to persuade the government to pass very restrictive laws that support labour at heavy cost to business.

Expropriation; defined as official seizure of foreign property, this is the ultimate government tool for controlling foreign firms (fortunately not done often countries see foreign direct investments as desirable).

Domestication; the firm continues to operate in the country while the host government is able to maintain leverage on the foreign firm through imposing different controls.

Tariffs: There are two main reasons why countries levy tariffs:

To protect domestic producers; because import tariffs raise the effective cost of an imported good, domestically produced goods can appear more attractive to buyers.

To generate revenue

Trade distortion practices can be grouped into two basic categories: tariff and non-tariff barriers.

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Tariffs Tariffs are direct taxes and charges imposed on imports. They are generally simple, straightforward and easy for the country to administer. While they are a barrier to trade, they are a visible and known quantity and so can be accounted for by companies when developing their marketing strategies. Tariffs are used by poorer nations as the easiest means of collecting revenue and protecting certain home industries.

The most common forms of tariffs are as follows:

Specific: Charges are imposed on particular products, by either weight or volume, and usually stated in the local currency.

Ad valorem: The charge is a straight percentage of the value of the goods (the import price)

Discriminatory: In this case the tariff is charged against goods coming from a particular country, either where there is a trade imbalance or for political purposes.

Non-tariff barriers: In the last 40 years the world has seen a gradual reduction in tariff barriers in most developed nations. However, in parallel to this, non-tariff barriers have substantially increased. Non-tariff barriers are much more elusive and can be more easily disguised. However, in some ways the effect can be more devastating because they are an unknown quantity and are much less predictable. Among non-tariff barriers the most important are as follows:

Quotes: A restriction on the amount of a good that can enter or leave a country during a certain period of time is called a quota (import quota, export quota, export restraints).

- Import quota; reasons are wish to protect its domestic producers by placing a limit on the amount of goods allowed to enter the country or a government may impose import quotas to force the companies of nations to compete against one another for the limited amount of imports allowed.

- Export quota; reasons are that it may wish to maintain adequate supplies of products in the home market or a country may restrict exports to restrict supply on world markets, thereby increasing the international price of goods.

- Voluntary export restraints; countries normally self-impose a voluntary export restraint in response to the threat of an import quota or total ban on the product by an importing country.

Embargoes: A complete ban on trade (imports and exports) in one or more products with a particular country is called an embargo.

Administrative delays: Regulatory control or bureaucratic rules designed to impair the rapid flow of imports into a country are called administrative delays.

Local content requirements: Laws stipulating that a specified amount of a good or service be supplied by producers in the domestic market are called local content requirements.

c) General international environment In addition to the politics and laws of both the home and the host countries, the marketer must consider the overall international political and legal environment. Relations between countries can have a profound impact on firms trying to do business internationally. The international political environment involves political relations between two or more countries. This is in contrast to our previous concern for what happens only within a given foreign country. East-West relations are a good example of a situation in the international political environment that is continually evolving.

One aspect of a country’s international relations is its relationship with the firm’s home country.

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A second critical element affecting the political environment is the host country’s relations with other nations. If a country is a member of a regional group, such as the EU or ASEAN, this influences the firm’s evaluation of the country. Another clue to a nation’s international behaviour is its membership of international organizations. Membership of the IMF or the World Bank may aid a country’ financial situation.

The political risk analysis procedure. We now outline in general terms a procedure for analysing political risk and avoiding the common error of over- or underestimating such risk at the firm level. The goal of this procedure is to help firms make informed decisions based on the ratio of the return to risk, so that firms can enter or stay in a country when the ratio for them is poor. This procedure involves three major steps.

Step 1: Assessing issues of relevance to the firm Determine critical economic/business issues relevant to the firm. Assess the relative importance of these issues.

Step 2: Assessing potential political events Determine the relevant political events. Determine their probability of occurring. Determine the cause and effect relationships. Determine the government’s ability and willingness to respond.

Step 3: Assessing probable impacts and responses Determine the initial impact of probable scenarios. Determine possible responses to initial impacts. Determine initial and ultimate political risk.

Influencing local policies Managers must be able to deal with political risks, rules and regulations that apply in each national business environment. To influence local politics in their favour, managers can propose changes that positively affect their local activities.

Lobbying; is the policy of hiring people to present the company’s views on political matters

Corruption; bribes are one method of gaining political influence.

2 The economic environment Economic development results from one of three types of economic activity:

Primary: These activities are concerned with agriculture and extractive processes.

Secondary: These are manufacturing activities.

Tertiary: These activities are based upon services (tourism, insurance).

How exchange rates influence business activities

Exchange rates affect demand for a company’s products in the global marketplace. When a country’s currency is weak (valued low relative to other currencies) the price of its exports on world markets decline and the price of imports increases. A company selling in a country with a strong currency (one that is valued high relative to other currencies) while paying workers in a country with the weak currency improves its profits. Devaluation ( international lowering of the value of a currency) lowers the price of a country’s exports on world markets and increases the prices of imports because the country’s currency is now worth less on world markets.

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Law of one price

The law of one price stipulates that an identical product must have an identical price in all countries when price is expressed in a common-denominator currency. For this principle to apply, products must be identical in quality and content in all countries and must be entirely produced within each particular country. The usefulness of the law of one price is that it helps us determine whether a currency is overvalued or undervalued. Each year The Economist magazine publishes what it calls its “Big Mac Currencies” exchange rate index. This index uses the law of one price to determine the exchange rate that should exist between the US dollar and other major currencies. Why the Big Mac? Because each Big Mac is fairly identical in quality and content across national markets and almost entirely produced within the nation in which it is sold.

Classification by income

Countries can be classified in a variety of ways. Most classifications are based on national income (GDP or GNP per capita) and the degree of industrialization. GNP = value of all goods and services produced by a country during a one-year period. GDP= value of all goods and services produced by the domestic economy over a one-year period.

Regional economic integration

Economic integration has been one of the main economic developments affecting world markets since the Second World War. Countries have wanted to engage in economic cooperation to use their respective resources more effectively and to provide large markets for member-country producers. Figure 5.3 page 146, a summary of the major forms of economic cooperation in regional markets, shows the varying degrees of formality with which integration can take place. These economic integration efforts are dividing the world into trading blocks. The levels of economic integration will now be described.

Free trade area: The free trade area is the least restrictive and loosest form of economic integration among nations. In a free trade area, all barriers to trade among member countries are removed. Each member country maintains its own trade barriers vis-à-vis non-members.

Customs union: The customs union is one step further along the spectrum of economic integration. As in the free trade area, goods and services are freely traded among members of the customs union. In addition, however, the customs union establishes a common trade policy with respect to non-members. Typically, this takes the form of a common external tariff, whereby imports from non-members are subject to the same tariff when sold to any member country.

Common market: The common market has the same features as a customs union. In addition, factors of production (labour, capital and technology) are mobile among members. Restrictions on immigration and cross-border investment are abolished. When factors of production are mobile, capital, labour and technology may be employed in their most productive uses.

Economic union: The creation of true economic union requires integration of economic policies in addition to the free movement of goods, services and factors of production across borders. Under an economic union, members harmonize monetary policies, taxation and government spending.

Benefits of regional integration

Nations engage in specialization and trade because of the gains in output and consumption, and higher standards of living for all should result from higher levels of trade between nations.

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The benefits of regional integration are:

Trade creation: the increase in the level of trade between nations that results from regional economic integration.

Greater consensus: it is easier to gain consensus when eliminating trade barriers in smaller groups of countries.

Political cooperation: a group of nations can have significantly greater political weight in the world than the nations have individually.

Drawbacks of regional integration

Although trade tends to benefit countries, it can also have substantial negative effects. Let’s now examine the more important of these:

Trade diversion

Shifts in employment

Loss of national sovereignty

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Chapter 6 The sociocultural environment

Hofstede’s defenition of culture: Culture is the collective programming of the mind which distinguishes the members of one human group from another. ....Culture, in this sense, includes systems of values; and values are among the building blocks of culture.

The affect of sociocultural environment on the attractiveness of a potential market

The importance of culture to the international marketer is profound. It is an obvious of difference. Some cultural differences are easier to manage than others. In tackling markets in which buyers speak different languages or follow different religions, for instance, the international marketer can plan in advance to manage specific points of difference. Often a greater problem is to understand the underlying attitudes and values of buyers in different countries.

It is commonly agreed that a culture must have these three characteristics:

It is learned: in case of a national culture, you learn most intensively in the early years of life. By the age of five you are already an expert in using your own language.

It is interrelated: that is, one part of the culture is deeply connected with another part such as religion and marriage, business and social status.

It is shared: that is, tenets of a culture extend to other members of the group. The cultural valus are passed on to an other member of the culture group. These include parents, other adults, family, institutions such as schools, and friends.

Culture can be thought of as having three other levels:

The visible daily behaviour; e.g. body language, clothing, lifestyle, drinking and eating habits.

Values and social morals; e.g. family values, sex roles, friendship patterns.

Basic cultural assumptions; e.g. national identity, ethnic culture, religion.

Layers of culture The norms of behaviour accepted by the members of the company organisation becomes increasingly important with the company’s internationalyzation. When people with increasingly diverse national backgrounds are hired by international firms, the layers of culture can provide a common framework to understand the various individuals behaviour and their dicision-making process of how to do business. In figure 6.2 on page 161 the different levels are looked at from a ‘nesting’perspective, where the different culture levels are nested into each other in order to grasp the cultural interplay between the levels. The total nest consists of the following levels:

National culture; gives the overall framework of cultural concepts and legislation for business activities.

Business/industry culture; every business is conducted within a certain competitive framework and within a specific industry (or service sector). This level has its own roots and history, and the player within this level know the rules of the game.

Company culture: the total organization often contains subcultures of various functions. Functional culture is expressed through the shared values, beliefs, meanings and behaviours of the members of a function within a company (e.g. marketing).

Individual behaviour: the individual is affected by the other cultural levels.

High and low-context cultures

Low-context cultures; rely on spoken and written language for meaning (e.g. China, Japan).

High-context cultures; use and interpret more of the elements surrounding the message to develop their understanding of the message (e.g. Western Europe, USA)

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Elements of culture

Language (verbal and non-verbal)

Manners and customs

Technology and material culture

Social institutions

Education

Values and attitudes

Aesthetics (refers to attitude towards beauty and good taste in the art, music, folklore and drama of a culture)

Religion

Hofstede’s original work on national cultures the 4 + 1 dimensions model

According to Hofstede, the way people in different countries perceive and interpret their world varies along four dimensions (the 4-D model): power distance, uncertainty avoidance, individualism and masculinity. 1. Power distance; refers to the degree of inequality between people in physical and

educational terms (i.e. from relatively equal to extremely unequal). 2. Uncertainty avoidance; concerns the degree to which people in a country prefer formal

rules and fixed patterns of life, such as career structures and laws, as means of enhancing security. Another important dimension of uncertainty avoidance is risk taking. High uncertainty avoidance is probably associated with risk aversion.

3. Individualism; denotes the degree to which people in a country learn to act as individuals rather than as members of groups.

4. Masculinity; relates to the degree to which ‘masculinity’values, such s achievement, performance, succes, mony and competition, prevail over ‘feminine’values, such as the quality of life, maintaining warm persomal relationships, service, care for the weak, perserving the enwironment, and solidarity.

5. Time perspective; in a 23-country study, some years after Hofstede’s original work, Hofstede and Bond identified a fifth dimension which they first termed Confucion Dynamism and then renamed ‘time orientatio’. This ‘time orientation’is defined as the way members in an organization exhibit a pragmatic future-orientated perspective rather than a conventional history or short-term point of view.

Strengths and weaknesses of Hofstede’s model

The strengths are:

Though the date are 30 years old, no study since then has been based on such a large sample (116,000 respondents).

The information population is controlled across countries which means comparisons can be made.

The four dimensions tap into deep cultural values and make significant comparisons between national cultures.

The connotations of each dimension are highly relevant.

No other study compares so many other national cultures in so much detail. Simply, this is the best there is.

The weaknesses are:

Like all national culture studies, it assumes that national territory and the limits of the culture correspond.

Hofstede’s respondents worked within a single industry and a single multinational.

There may be technical difficulties in Hofstede’s research due to an overlap between the four dimensions, e.g. small power distance/feminine and lage power distance/masculine.

Likewise the definition of the dimensions may be different from culture to culture, e.g. collectivist behaviour in one context might have defferent connotations elsewhere.

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Convergence or divergence of the world’s culture

There seems to be a great difference in attitude towards the globalisation of cultures among different age groups, the youth culture being more international global than other age groups.

Youth culture Youth cultures are more international than national. There are still some strong national characteristics and beliefs, but they are being eroded. The McDonalds’s culture is spreading into southern Europe, and at the same time we can see satellite TV taking the values of MTV, The Simpsons, and Ricky Lake all over the world with English language culture in their wake.

Differences between youth and adult culture markets are changing in several key respects, the professionals agree.

Younger consumers differ from adults in emphasising quality and being both discerning and technically literate. They are more self-reliant and take responsibility far earlier.

Generational barriers are now very blurred. The style leaders for many young people- musicians, sports, stars and so on- are often in their 30s and 40s.

The lack of clarity age-group targeting has to be weighed against a growth in cross-border consistencies. But marketers should be aware of strategies aimed too blatantly at younger consumers.

Today’s youth have greater freedom than previous generations had. They are more culturally aware and are reluctant to take anything- or anyone- at face value.

Despite their mistrust of co operations, youth increasingly aspire to, and engage with brands.

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Chapter 7 The international market selection process

Identifying the right markets to enter is important for a number of reasons:

It can be a major determinant of success or failure, especially in the early stages of internationalisation.

This decision influences the nature of foreign marketing programmes in the selected countries.

The nature of geographic location of selected markets affects the firm’s ability to coordinate foreign operations.

International market selection : SMEs versus LMEs The international market selection (IMS) process seems different in small and medium-sized enterprises (SMEs) and large-scale enterprises (LSEs). In the SME, the IMS is often simply a reaction to stimulus provided by a change agent. This agent can appear in the form of an unsolicited order. In other cases the IMS of SMEs is based on the following criteria:

Low ‘psychic’ distance: low uncertainty about foreign markets and low perceived difficulty of acquiring information about them.

Low ‘cultural’ distance: low perceived differences between the home and destination cultures.

Low geographic distances.

Using any of these criteria often results in targeting the same foreign market. The choice is often limited to the SMEs’ immediate neighbours, since geographic proximity is likely to reflect cultural similarity, more knowledge about foreign markets and greater ease in obtaining information.

While SMEs must make first entry decisions by selecting targets among largely unknown markets, LSEs with existing operations in many countries have to decide in which of them to introduce new products. By drawing on existing operations LSEs have easier access to product-specific data in the form of primary information that is more accurate than any secondary database. As a result of this the LSEs can be more proactive.

Building a model for International market selection Research from the Uppsala school on the internationalization process of the firm has suggested several potential determinants of the firm’s choice of foreign markets. These can be classified into two groups: (1) environmental and (2) firm characteristics (see figure 7.1 page 189). How do we define international markets? The following approach suggests two dimensions:

The international market as a country or a group of countries.

The international market as a group of customers with nearly the same characteristics.

Presentation of a market-screening model (figure 7.2 page 190)

Steps 1 and 2: Defining criteria In general, the criteria for effective segmentation are as follows:

Measurability: the degree to which the size and purchasing power of reulting segments can be measured.

Accessibility: the degree to which the resulting segments can be effectively reached and served.

Substantiality/profitability: the degree to which segments are sufficiently large and/or profitable.

Actionability: the degree to which the organisation has sufficient resources to formulate effective marketing programmes and ‘make things happen’.

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A high degree of measurability and accessibility indicates more general characteristics as criteria and vice versa.

General characteristics Geographic High degree of measurability, Language accessibility, and actionability Political factors Demography Economy Industrial structure Technology Social organization Religion Education

Specific characteristics Cultural characteristics Low degree of measurability, Lifestyle accessibility, and actionability Personality (however heigh degree of Attitudes and tastes relevance in specific situations)

Step 3: Screening of markets/countries This screening process can be divided in two:

Preliminary screening. This is where markets/countries are screened primarily according to external screening criteria.

Fine-grained screening. This is where the firm’s competitive power (and special competences) in the different markets can be taken into account.

Preliminary screening The number of markets is reduced by ’coarse-grained’, macro-oriented screening methods based on criteria such as the following:

Restrictions in the export of goods from one country to another.

Gross national product (GNP) per capita.

Cars owned per 1,000 of the population.

Government spending as a percentage of GNP.

Population per hospital bed.

When screening countries it is particularly important to assess the political risk of entering a country. Over recent years marketers have developed various indices to help assess the risk factor in the evaluation of the potential market opportunities. One of these indices is the Business Environment Risk Index (BERI page 195). BERI measures the general quality of a country’s business climate. Another macro-oriented screening method is the shift-share approach. This approach is based upon the identification of relative changes in international import shares amonf various countries. The average growth rate of imports for a particular product for a “basket” of countries is calculated and then each country’s actual growth rate is compared with the average growth rate.

Fine-grained screening As the BERI index focusus only on the political risk of entering new markets, a broader approach that includes the competences of the firm is often needed. For this purpose a powerful aid to the identification of the best opportunity target countries is the application of the market attractiveness/competitive strength matrix (figure 7.4 page 196). This market portfolio model replaces the two single dimensions in the BCG growth-share

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matrix with two composite dimensions applied to global marketing issues. Measures on these two dimensions are built up from a large number of possible variables as listed in table 7.2.

Step 4: Develop subsegments in each qualified country and across countries Once the prime markets have been identified, firms then use standard techniques to segment markets within countries, using variables such as the following:

Demographic/economic factors.

Lifestyles.

Consumer motivations.

Geography.

Buyer behaviour.

Psychographics, etc.

An illustration of the whole international market segmentation/screening process (steps 1-4 in figure 7.2) is seen in figure 7.9 on page 202.

Market expansion strategies In designing their strategy, firms have to answer two underlying questions:

Will they enter markets incrementally (the waterfall approach) or simultaneously (the shower approach) (see figure 7.10)?

Will entry be concentrated or diversified across international markets?

Incremental versus simultaneous entry A firm may decide to enter international markets on an incremental or experimental basis, entering first a single key market in order to build up experience in international operations, and then subsequently entering other markets after the other. Alternatively, a firm may decide to enter a number of markets simultaneously in order to leverage its core competence and resources rapidly across a broader market base (read exhibition 7.2 Sanex page 207).

The appropriate expansion strategy for the SME The SME often exploits domestic market opportunities to build up company recourses, which later may be used in international markets. The company strategy for market expansion should be concentrated on product-market segment where the core competences of the company give it competitive advantages.

Concentration versus diversification The firm must also decide whether to concentrate on a limited number of similar markets, or alternatively to diversify across a number of different markets. A company may concentrate its efforts by entering countries that are highly similar in terms of market characteristics and infrastructure to the domestic market. Management coulfd focus on a group of proximate countries. Alternatively, a company may prefer to diversify risk by entering countries that differ in terms of environmental or market characteristics.

The question of concentrating or diversifying on the country level can be combined with concentration or diversification on the customer (segment) level. The resulting matrix (figure 7.12 page 206) illustrates the four possible strategies.

1. Few customer groups / segments in few countries 2. Many customer groups / segments in few countries 3. Few customer groups / segments in many countries 4. Many customer groups / segments in many countries

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The global product / market portfolio The corporate portfolio analysis provides an important tool to assess how to allocate

resources not only across geographic areas, but also across the different product business. The global corporate portfolio represents the most aggregate level of analysis and it might consist of operations by product businesses or by geographic areas

Look at figure 7.13 at page 209 (based on the market attractiveness / competitive strength matrix of figure 7.4) Unilever’s most aggregate level of analysis is its different product business

By combining the product and geographic dimensions it is possible to analyse the global corporate portfolio at the following levels (indicated by the arrows in the example of figure 7.13)

1. Product categories by regions (or vice versa) 2. Product categories by countries (or vice versa) 3. Regions by brands (or vice versa) 4. Countries by brands (or vice versa)

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MARKET ENTRY STRATEGIES

Chapter 8 Some approaches to the choice of entry mode

Main Question? What kind of strategy should be used for the entry mode selection?

According to Root (1994) there are three different rules of the selection:

Naïve rule: same entry mode for all foreign countries

Pragmatic rule: a workable entry mode for each foreign country (low risk entry mode, if

not working out select alternative)

Strategic rules: Approach were all alternative are systematically compared and evaluated before any choice is made.

Entry modes Export modes: low control. Low risk, high flexibly Intermediate modes: shared control, high risk, split ownership Hierarchical modes: high control, high risk, low flexibility

Opportunistic behaviour basically consists due to different importance’s of a company. A producer has other objectives then an abroad wholesaler for example. Every involved party within a distribution chain will do their utmost to drive the business in a way which is the best for their party.

Factors influencing the choice of entry mode

Group factor explanation/ example effect internalization

Internal factors firm size indicator of resource availibility (money) positive

international experience Experience reduced costs and uncertainty of serving a market.

positive

product high value / weight ratios/ after sales positive

product differentiation advantage positivepositive = increasing internalization

External factors Sociocultural distance language, buisnees and industriap practicer, educational level, cultural aspects

negative

Country risks Demand uncetainty (economic and political) negative

Market size and growth key parameters for makter opportunities positiveDirect/indirect trade barriers

Tariffs and quota on foreign goods/ product standards / regulations etc.

positive positive = increasing internalization

Intensity of competion negativeSmall number of relevant intermediaries available

positive

Desired mode characterisics

risk averse Hencing minimal risks (financial) may reslut in a loss of opportunity

negative

Control degree of control positieveFlexibility Collaborating limits ability to adapt/change

strategy negative

Transaction specific factors

tacit nature of knowhow High costs when tacit knowhow must be transferred

positive

tranaction costs Differences in general importance between producer and export intermediary

positive

Hierarchical modes

Export modes

Intermediate modes

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The transaction cost approach

Basic idea behind this approach is that there is always some friction between the buyer and the seller in connection with market transactions. This frictions mainly consist due to the fact of; Opportunistic behaviour from the export intermediary (e.g. increasing promotion activity cost by manipulating invoices lead to higher payment form producer to export intermediary

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Chapter 9 Export modes

3 major types can be identified

Indirect export; manufacturer is not taking care of exporting activities

Direct export; manufacturer takes care of exporting activities and is in direct contact with

the first intermediary

Co-operative; this involves collaborative agreements with other firms

In indirect exporting producers make use of independent organisations located in the producers country. In fact, the firm is not really engaging in global marketing, because products are carried out by others.

Five main entry modes of indirect exporting. • Export buying agent ; Approach from a buyer, who will purchase the product at the

“gate” of the producer (factory) and take on tasks of exporting, marketing and distributing. Mostly SME make use of agents, due to reducing financial risks and a lack of exporting expertise.

• Broker; A broker has in fact a contractual function. A broker tries to arrange a contract between a buyer and a seller. A broker will be paid a commission by the principal.

• Export management company (export house); Specialist companies to act as export department for a range of companies. Contracts with buyers and contracts in the name of the manufacture, By carrying a range of products transporting costs and administrative cost can be dealt with in a more efficient way. Next to that the have experience and more specific knowledge of government policy/ regulations and documentation. Disadvantages too:

Selection based on what is best for EMC’s and not for manufacturer

Paid by commission, so might be tempted to concentrate on immediate sales potential (short term policy)

Products are not give enough attention, due to the wide range of products

EMC can carry competitive products in their wide range. So the y may promote to the disadvantage of a particular firm.

• Trading company; Trading companies are part of historical legacy from colonial days and is nowadays still seen in the far East. Infact the offerinf range of financial service is a major factor distinguishing general trading companies.

• Piggyback; An SME deals with a larger company (carrier) which already operates in certain foreign markets and is willing to act on behalf of the rider that wishes to export to those markets. The carrier in fact acts as an export agent (paid by commission).

Advantages Disadvantages Carrier • Gap in production line

can be filled quickly (no R&D, invests)

• Fill up export capacity

• Concerns on warranty and quality

• Continuity of supply (if abroad demand increases will the rider develop its production line)

Rider • Export without having established own distribution

• Giving up control of marketing

• Lack of commitment

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Direct Export modes A manufacture sells directly to a importer or buyer located on a foreign market.

• Distributors; Exclusive representatives of the company and are generally the sole importers. Distributors buy their own accounts (freedom to choose accounts) and set conditions of sale. IN many cases distributors won retailers and wholesalers.

• Agents; represent an exporting company and sells to wholesalers an retailers. Exporter ship the products directly top the customer and all arrangements are made.

Choice of an intermediary • Asking potential customers to suggest suitable agent • Using commercial agencies • Obtaining recommendations from Chamber of Commerce and government trade

departments • Poaching a competitor agent

Export marketing groups SME together attempting to enter export markets to share costs and risks of internationalisation and are together able to provide a complete product line or system sales to the customer.

Risks are diverting objectives and companies are not reluctant to give up their independence.

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Chapter 10 Intermediate entry modes.

Until so far we have discussed exporting products from domestic plants. Opportunities could be placing production overseas Intermediate entry modes are distinguished from export modes because the are primarily vehicles for the transfer of knowledge and skills.

Contract manufacturing

Several factors encourage firms to produce in foreign markets.

Desirability of being close to foreign customers (allows better interaction)

Foreign production costs are lower.

Transportation cost are to high

Tariffs and quotas can be prevented

Governments preferences for national products

Contract manufacturing enables the firm to have foreign sourcing without making a final commitment. An outcome when management is unwilling to invest to establish and manufacturing an selling operations. If fact contract manufacturing keeps control of R&D, marketing distribution sales and services, while handing over the production to a local firm. Examples are Benetton and Ikea, supplied with local factories over the world.

Licensing Second method to establish a production line in foreign market without capital investments. Licensing brings more responsibilities and is for a longer tern than contract manufacturing. A licensing agreement is an arrangement wherein the licensor gives something of value to the licensee in exchange for certain performance and payments from the licensee. To clarify some examples;

Patent covering a product or process

Know-how not subject to a patent

Technical advise (including supply of components)

Marketing advice and assistance

Use of trade mark/name

Licensing out means give the license away for production and process. Happens with products at the end of the PLC , company concentrating on its core competence R&D, political issues etc.

Franchising needs no explanation Think of Mac Donald, who has product standards, sharing commercials and the same presentation. In addition a deviation from the standard package is an exception. Even new products and seasonal products came at the same time for the same price.

Two types of franchise

Product and trade franchising. Suppliers make contracts with dealers to buy and sell products of product lines. Dealers use the trade name, trade mark and trade line. Examples are Coco Cola and Pepsi

Business format franchising; A market entry mode that involves a relationship between the entrant and a host country entity, in which the former transfers, under contract, a business package, which it has developed and owns. Example is Mac Donald, who has product standards, sharing commercials and the same presentation. In addition a deviation from the standard package is an exception. Even new products and seasonal products came at the same time for the same price.

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Differences between licensing and franchising Licensing Franchising Term: Royalties Term: Management fees Products are the common element (Just part of the business)

All-encompassing (which means covers the total business, including know-how, intellectual rights, goodwill, trademarks etc.

Well-established business Start-up business Agreement terms 16-20 years Agreements 5-10 years Very little benefit from new research Research benefits are passed on to

franchisee No goodwill Franchisee picks up goodwill

International expansion of franchising objective is to search for an environment that promotes co-operation and reduces conflict. Given the long-term nature of a franchise agreement, country stability is an important factor.

Developing and managing franchisor-franchisee relationship. The franchise system combines the advantages of economy of scale offered by the franchisor with the local knowledge and entrepreneurial talents of the franchise. Franchisors are dependent for fast growth, purchase fee an income stream from royalty fee paid and franchisees motivation. They also benefit from franchisee goodwill and her suggestions and innovations. Other important expects in relationship franchisor-franchisee • Integrity of the business system (standardisation) • Capacity for renewal of the business system ( degree expectation to share ideas with

parent company) • Handling possible conflicts

Joint venture

A joint venture or a strategic alliance is a relationship between two or more parties. Only difference between both is the partners do not commit equity (separate personality) into or invest in the alliance.

Reasons for setting up a joint venture; • Complementary technology or management skills can lead to new opportunities in

existing sectors, like multimedia, in which information processing, communication and the media are merging.

• Many firms find that partners in the host country can increase speed of market entry. • Many less developed countries (china and South Korea) try to restrict foreign

ownership • Global operations in R&D and production are expensive, but necessary to achieve

competitive advantage

Three types of partnership 1. Upstream-based collaboration (collaboration on R&D and/or production level) 2. Downstream-based collaboration (collaboration on marketing, distribution, sales

and/or service 3. Upstream/downstream-based collaboration (different but complementary

competences at each end of the value chain. One makes the products and the other is marketing / selling it as core competence.

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Stages of the joint venture formation

1. Joint venture objectives (establish strategic objectives and specify time period for achieving objectives

2. Cost/Benefit analysis Evaluate advantages and disadvantages compared with alternative strategies for achieving objectives in terms of; Financial and management commitment, synergy, risk reduction, control, long-run market penetration

3. Selecting partner A. Profile of desired features of candidates (development know-how, sales and

service expertise, brand reputation, financial position etc. B. Identifying candidates and drawing up short list (most cases the first partner is

taken, although he is not per definition the best) C. Screening and evaluating possible join venture partners D. Initial contact/discussions E. Choice of partner

4. Develop business plan Achieve agreement on issues as ownership slit, management, production, marketing

5. Negotiations of joint venture agreement Final agreement is determined by the relative bargaining power of both parties

6. Contract writing 7. Performance evaluation Experience learns evaluation are basically on short ten

resulting in jeopardising prospects for alliances positioned for the long term

Managing the joint venture

• Changes of bargaining power (mostly seen a shift of power for product and technology to distribution) Next a company that is willing to learn for the other will gain advantage

• Diverging goals (development of different opinion) • Double management (which party manages the control /ownership) • Repatriation of profits (where to invest the generated money) • Mixing different cultures • Shared equity (50-50 ownership, means 50-50 share of profit, mostly one party feels

that he’s contributing more • Developing trust in joint ventures • Providing an exit strategy (several reasons for failing a joint venture like

overestimation, strategy, incompatible, change of opinion and trust. Therefor the contract should provide for the liquidation or distribution of partnering assets, including technology developed by the alliance.

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Chapter 11 Hierarchical modes

Learning objectives

Describe the main hierarchical modes:

o Domestic-based representatives o Resident sales representatives o Foreign sales subsidiary o Sales and production subsidiary and region centres

Compare and contrast the two investment alternatives:

o Acquisition versus, o Greenfield

Explain the different determinants that influence the decision to withdraw investments from a foreign market.

§ 11.1 Introduction

Hierarchical modes: entry mode where the firm completely owns and controls the foreign entry mode. The question is where the control in the firm lies. If a producer wants a greater influence and control over local marketing than export modes can give, creating own companies in the foreign market is the solution.

Internationalisation stages: o Ethnocentric orientation: represented by domestic-based sales representatives.

Represents an extension of marketing methods used in home country to foreign markets.

o Polycentric orientation: represented by country subsidiaries. Based on assumption that markets/ countries are also different that the only way to succeed is to manage each country as a separate market with own subsidiary and adapted marketing mix.

o Regiocentric orientation: represented by a region of the world. o Geocentric orientation: represented by transnational organisation. Based on

assumption that markets consist of similarities and differences and that it is possible to create a transnational strategy that takes advantage of similarities between markets by using synergy effects to leverage learning on a world-wide basis.

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§ 11.2 Domestic-based sales representatives

Often used in industrial markets with only a few large customers which require close contact with suppliers. Also found when selling to government buyers and retail chains.

§ 11.3 Resident sales representatives/ foreign sales branch/ foreign sales subsidiary

The actual performance of the sales functions is transferred to the foreign market (greater customer commitment). When making the decision to use travelling domestic-based representatives or resident sales representative, consider:

Order making or order taking: order taking important? Choose a travelling domestic-based sales representative.

The nature of the product: If the product is technical and complex in nature and a lot of servicing/ supply of parts is needed, choose a more permanent foreign base.

§ 11.4 Sales and production subsidiary

Main reasons for establishing some kind of local production are:

Defending existing business.

Gaining new business.

Cost saving.

To avoid government restrictions which might be in force to restrict imports of certain goods.

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Assembly operations Is a variation of the production subsidiary. A foreign production plant might be set up simply to assemble components manufactured in the domestic market.

§ 11.5 Region centres (regional headquarters)

The coordination role consists of ensuring three things:

Country and business strategies are mutually coherent.

One subsidiary does not harm another.

The stimulator role consists of two functions:

Facilitating the translation of ‘global’ products into local country strategies.

Supporting local subsidiaries in their development.

The choice of a lead company is influenced by several factors:

The marketing competences of foreign subsidiaries.

The quality of human resources in the countries represented.

The strategic importance of the countries represented.

Location of production.

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Types of countries:

Platform countries. Can be used in the starting phase as bases for gathering intelligence and initiating first contacts which can later become the centre of regional coordination.

Emerging countries. Task in these countries is to establish an initial presence through a local distributor and build the necessary relationships in order to prepare for the establishment of a local operation either directly or through a joint venture.

Growth countries. Where it is becoming urgent to establish a significant presence in order to capitalize on the opportunities generated by rapid economic development.

Maturing and established countries. Which already have significant economic infrastructures and well-established local and international competitors. In the entry phase the task here is to find a way to acquire, through massive investment, the necessary operational capability to catch competitors up.

§ 11.6 Transnational organization

In this final stage of internationalisation, companies attempt to coordinate and integrate operations across national boundaries so as to achieve potential synergies on a global scale.

Managing a transnational company requires the sensitivity to know the following:

When a global brand makes sense or when local requirements should take precedence.

When to transfer innovation and expertise from one market to another.

When a local idea has global potential.

When to bring international teams together fast to focus on key opportunities.

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§ 11.7 Establishing wholly owned subsidiaries – acquisition or Greenfield.

Acquisition Enables rapid entry and often provides access to distribution channels, an existing customer base and sometimes established brand names or corporate reputations. Used in saturated markets because lack of room for new entrant.

Greenfield investment New facility, determine direction of future international expansion

§ 11.8 Foreign divestment: withdrawing from a foreign market

Factors that influence incentives and barriers to exit:

Environmental stability

Attractiveness of current operations

Strategic fit

Governance issues

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Advantages and disadvantages of different hierarchical entry modes

Hierarchical entry mode Advantages Disadvantages

Domestic-based sales representatives

Better control of sales

activities compared to independent intermediaries.

Close contact to large

customers in foreign markets close to home country.

High travel expenses

Too expensive in foreign

markets, far away from home country.

Foreign sales branch/ sales and production subsidiary

Full control of operation.

Eliminates the possibility that a national partner gets a ‘free ride’.

Market access (sales subsidiary).

Acquire market knowledge directly (sales subsidiary).

Reduce transport costs (production subsidiary).

Elimination of duties (production subsidiary).

Access to raw materials and labour (production subsidiary).

High initial capital investment required (subsidiary).

Loss of flexibility.

High risk (market, political and economic).

Taxation problems.

Region centres/ transnational organization

Achieves potential synergies on a regional/ global scale.

Regional/ global scale efficiency.

Leverage learning on a cross-national basis.

Resources and people are flexible and can be put into operating units around the world.

Possible threats:

Increasing bureaucracy.

Limited national-level responsiveness and flexibility.

A national manager can feel he or she has no influence.

Missing communication between head office and region centres.

Acquisition

Rapid entry to new markets.

Gaining quick access to: o Distribution channels o Existing management

experience o Local knowledge o Contacts with local

market and government o Established brand

names/ reputation.

Usually an expensive option

High risk (taking over companies which are regarded as part of a country’s heritage can raise considerable national resentment if it seems that they are being taken over by foreign interests). Possible threats:

Lack of integration with existing operation.

Communication and coordination problems between acquired firm and acquirer.

Greenfield investment

Possible to build in an ‘optimum’ format, i.e. in a way that fits the interests of the firm (e.g. integrating production with home base production).

Possible to integrate state-of-the-art technology (resulting in increased operational efficiency).

High investment cost.

Slow entry of new markets (time-consuming process).

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Chapter 12 - International sourcing decisions and the role of the sub supplier

Learning objectives

Describe the role of subcontractor in the vertical chain.

Explore the reasons for international outsourcing.

Explain the development of a buyer-seller relationship.

Discuss alternative routes of subcontractor internationalisation.

Explain how turnkey contracts differ from conventional subcontracting.

§ 12.1 Introduction

Outsourcing: moving functions or activities out of an organization.

Subcontractor: a person or a firm that agrees to provide semi finished products or services needed by another party (main contractor) to perform another contract to which the subcontractor is not a party.

Characteristics of subcontractors that distinguish them from other SME’s:

Subcontractors’ products are usually part of the end product, not the complete end product itself.

Subcontractors do not have direct contact with the end customers, because the main contractor is usually responsible to the customer.

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§ 12.2 Reasons for international sourcing

Reasons for creating competitiveness through the subcontractor is based on the understanding that the supplier can be essential to the buyer (contractor):

Concentration on in-house core competences

Concentrate management time and effort on those core business activities that make best use of in-house skills and resources.

Lower product/ production costs

o Economies of scale. Subcontractor produces similar components for other customers, by use of experience curve obtain lower production costs per unit.

o Lower wage costs. Low labour costs in domestic country

General cost efficiency Minimizing total costs towards the end (ultimate) customer. Each element is a potential candidate for outsourcing

Increased potential for innovation Ideas for innovation can be generated due to its more in-depth understanding of the component. New ideas can also be transferred from other customers of the subcontractor.

Fluctuating demand Transferring risk and stock management to the subcontractor because of fluctuating demand levels, external uncertainty and short plc can lead to better cost and budget control.

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Buying from international sources, fluctuations in exchange rates are important especially when there is a lag from the time the contract is signed to when payment is made. § 12.3 A typology of subcontracting

Because of the variety of subcontracting relationships (firm carrying out day-to-day production based on specifications of another firm, main contractor) indicates a need for a more different typology.

Standard subcontracting.

Economies of scale often operate in the global market with standardized products, in which case no adaptation to specific customers is needed.

Simple subcontracting. Information exchange is simple since the contractor specifies criteria for contribution. The contractor’s in-house capacity is often a major competitor.

Expanded subcontracting. Some mutual specialization between the two parties and exit costs are higher for both parties. Therefore single sourcing (one supplier for a product/ component) may replace multisourcing (more suppliers for a product/ component).

Strategic development subcontracting. Important to the contractor. Subcontractors possess a critical competence of value to the contractor, are involved in the contractor’s long-term planning and activities are coordinated by dialogue.

Partnership-based subcontracting. Relationship based on strong mutual strategic value and dependency. Subcontractor is highly involved in r&d.

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§ 12.4 Buyer-seller interaction

The interaction model has four basic elements ;

Interaction process. Express exchange between two organizations along with their progress and evolution throughout time. Can be analysed In both a short-term and a long-term perspective.

Interacting parties. Characteristics of the supplier and the customer involved in the interaction process. There are three perspectives at different levels thar may be taken into account:

o Social system perspective. Culture, values, practices, operating modes. All these factors influence the distance between actors that will limit or encourage collaboration.

o Organizational perspective. Relationship is influenced by three factors: technology (products and production technology), complexity of products, relationship characteristics.

o Individual perspective. Characteristics, objectives and their experience will influence the way social contacts take place.

Atmosphere of the relationship. Affecting and being affected by the interaction. Climate that has been developed between two firms. For example; power-dependence, cooperation-conflict, trust-opportunism, social distance.

Interaction environment. Within interaction takes place.

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§ 12.5 Development of a relationship

The development of a relationship has been mapped out in a five-phase model:

Awareness .Recognize each other as partners. Companies have to look for three key criteria:

o Self-analysis. Partners have to know themselves and their industry. o Chemistry.

o Compatibility. Testing of compatibility on historical, philosophical and strategic grounds: common experiences, values and principles, hope for the future.

Exploration. Trial purchases may take place.

Expansion. Increase in attractiveness and motivation to maintain relationship.

Commitment.

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Dissolution. May be caused by:

o operational and cultural differences. o people in other positions may not experience the same attraction. o Employees at other levels in the organization may be less visionary and

cosmopolitan. o Some people might oppose the relationship (often seen in organizations with

strong independent business units) o termination of personal relationships.

§ 12.6 Reverse marketing: from seller to buyer initiative

Reverse marketing describes how purchasing actively identifies potential subcontractors and offers suitable partners a proposal for long-term cooperation.

Many changes take place in the utilization of the purchasing function:

Reduction in the number of subcontractors.

Shorter product life cycles, which increase the pressure to reduce the time to market (just-in-time)

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Upgraded demands on subcontractors (zero deficits). In addition, firms demand that their

suppliers become certified. Those that do not comply may be removed from the approved supplier list.

Purchasing which no longer just serves the purpose of getting lower prices. Traditional

arm’s-length relationships are being replaced by long-term partnerships with mutual trust, interdependence and benefits.

Implementing a reverse marketing strategy starts with fundamental market research and with an evaluation of reverse marketing options (possible suppliers).

§ 12.7 Internationalisation of subcontractors.

There are four basic routes of internationalisation:

Route 1: Following domestic customers. If a contractor is internationalising and establishing a production unit in a foreign country, some contractors may be replaced by local suppliers.

Route 2: Internationalisation through the supply chain of an MNC. Deliveries to one division of a multinational corporation (MNC) may lead to deliveries to other divisions, or parts of its network.

Route 3: Internationalisation in cooperation with domestic or foreign system suppliers. System suppliers may be involved by taking over the management of a whole supplies of subsystems. These system suppliers result in a new layer of subcontractors. The collaboration between the subcontractors will be characterized by exchange of tacit, not easily transferable knowledge.

Route 4: Independent internationalisation. This route is used to gain economies of scale in production forces.

§ 12.8 Project export (turnkey contracts)

Project export is a very complex international activity involving many market players (mostly in the industrial market) It involves supplies or deliveries that contain a combination of hardware and software. Hardware is the blanket term for the tangible, material or physical contribution of the project supply (buildings, machines, inventory, transport equipment, and is

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specified in the quotation and contract between buyer and seller in the form of drawings, unit lists and descriptions). Software is the blanket term for the intangible contributions in a project supply. This includes know-how and service (includes advisory services an assistance in connection with various applications and approvals like environmental approval, financing of the project, planning permission. There are three types of know-how:

Technology know-how. Comprising product, process and hardware know-how.

Project know-how. Comprising project management, assembly and environmental know-

how.

Management know-how. Involves tactical and operational management, specifically

marketing and administrative systems.

Difference of marketing of projects and marketing of products:

Decision of purchase. A large number of people and a heavily bureaucratic system.

The product is designed and created during the negotiation process where requirements are put forward.

From disclosure of needs to the purchase decision takes years. Therefore the total marketing costs are very high.

When the project is taken over by the project buyer, the buyer-seller relations cease.

The project’s size and time used for planning and implementation result in financial demands which make it necessary to use external sources of finance. Four segments arise:

Multilateral organizations as primary source of finance (such as world bank)

Bilateral organizations.

Government institution acts as buyer.

Private person or firm acts as buyer.

Advantages and disadvantages of buyer-seller relationships for contractor and subcontractor.

Advantages Disadvantages

Contractor (Buyer)

The contractor is flexible by not investing in manufacturing facilities.

The subcontractor can source the products more cheaply (because of e.g. cheaper labour costs) than by own production.

The contractor can concentrate on in-house core competences.

Complementation of the innovation can be carried over from the subcontractor.

The availability of suitable manufacturers (subcontractors) cannot be assumed.

Outsourcing tends to be relatively less stable than in-house operations.

The contractor has less control over the activities of the subcontractor.

Subcontractors can develop into competitors.

Quality problems of outsourced products can harm the business of the contractor.

Assistance to the subcontractor may increase the costs of the whole operation.

Subcontractor

(Seller)

Access to new export markets because of the internationalisation of the contractor (especially relevant for the so-called late starters).

Exploits scale economies (lower costs per unit) through better capacity utilization.

Learns product technology of the contractor.

Learns marketing practices of the contractor.

Risk of becoming dependent on the contractor because of expanding production capacity and concurrent overseas expansion of sale and marketing activities in order to meet the demands of the contractor.

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Chapter 13 Global E-commerce

Learning objectives

Describe the development of internet and e-commerce in the main regions of the world.

Explain the reasons for the rapid development of e-commerce.

Explore how e-commerce functions in the two main market types: B2B, B2C, C2B, C2C.

Discuss the reality behind ‘disintermediation’ (bypassing resellers).

Discuss alternative routes of global e-commerce strategies.

§ 13.1 Introduction

The development of the internet as a new distribution channel will result in a shift of power from manufacturers and the traditional retail channels to the consumers. The increasing consumer power can be explained in the following way:

The search for convenience. Gathering information and purchasing on-line becomes more easily than through traditional channels.

The incorporation of the net into the purchase process. Pre-purchase and post-sale use the net is exploding, regardless of where the product is bought.

A shift in loyalties. Consumers reward on-line merchants with higher repeat-purchase behaviour.

Future buying plans. Survey results indicate an increasing consumer disposition to buy on-line.

E-commerce: the enablement of a business vision supported by advances information technology to increase the effectiveness of the business relationships between trading partners.

§ 13.2 Types of products

The products sold in e-commerce markets can be grouped into two categories: physical and purely digital goods and services.

Physical products. Advantages: scope for real-time interaction within a vast networked community, possibility of using sophisticated market mechanisms, illusion of almost infinitive inventory.

Digital goods and services. Example: financial information, news services, reference and learning material, entertainment and multimedia products, software distribution, distributed database services and remote computation services.

The individualization of goods. The ease of customisation, and ability to adapt to variations in consumer preferences, lead to the possibility of individualising goods in the electronic markets.

Comparison between the industrial economy (the physical marketplace) and the digital economy (the market space). E-commerce encompasses a range of electronic interactions between organizations and their up- and downstream trading partners.

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§ 13.3 The global rise and structure of e-commerce

The rise and structure of e-commerce on three geographic levels:

Global level. In four years the internet has evolved from a basic communications tool into a vast communications and interactive market of products, services and ideas. Relative to the population, the United States, Canada, the Nordic countries and Australia have at least twice the level of internet access so far achieved by the United Kingdom, Germany, Japan and France.

USA level.

European level.

Figure 13.2 page 336, figure 13.3 page 337, table 13.1, table 13.2, figure 13.4 **NOTE THE ABOVE MENTIONED FIGURES COULD NOT BE SUMMARISED BECAUSE THEY DESCRIBE THE GLOBAL SITUATION IN (US, EUROPE AND ASIAN) MARKET LIKE A CASE STUDY.

BUT REMARK THAT IT CONTAINS RELEVANT INFORMATION AND INTERESTING ANNOUNCEMENTS THAT SHOULD BE READ BY ALL OF YOU FOR THE FINAL EXAM!!!!!!!!!!!!!!

§ 13.4 Types of e-commerce – defining new business models

The different e-commerce markets may be divided into four categories:

B2B e-commerce EDI: Electronic Data Interchange. The transfer of structured data, by agreed message standards, from one computer system to another by electric means (no human intervention). Is used for the exchange of structured data (precise, recognized method of assembling data) between the computer systems of trading partners.

Traditional EDI Internet

Proprietary, dedicated network

Highly structured, machine-readable data

High cost

More secure

Open network

E-mail, video, voice, image.

Low cost

Less secure

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Growth is expected to be strong in every market until 2003:

In North America e-commerce penetration will triple from 7 per cent to 24 per cent.

In Western Europe it will grow from 3 per cent to 11 per cent.

In Asia Pacific it will flow from 2 per cent to 9 per cent.

Latin America will move from 2 per cent to 7 per cent.

B2C e-commerce Example : eTrade, amazon.com

C2B e-commerce Is a kind of reverse auction where the buyer (consumer) rather than the seller initiates the transaction.

C2C e-commerce Example: online auctions as eBay

§ 13.5 Exploring buying behaviour in the e-commerce market

Segmenting and exploring consumer behaviour in the B2C market Hofacker divides internet into two main segments:

Hedonic surfers. Use the web by experiencing, often strong non-verbal aspect, images are important, surfers are relatively unfocused, spontaneous browsing.

Utilitarian searchers Are on a mission, have a work mentality, use the web in a instrumental and rational way, are looking for specific information.

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Consumer decision making process

Problem recognition

Difference traditional market: new kinds of communication, enable identification of individual consumer needs and wants, and subsequent design and delivery of individual and customized communications.

Information search

Management of information is the primary role of the agent or broker in the marketplace.

Evaluation of alternatives

Word-of-mouth communication, the reference of family, colleagues and friends are a central influence at this stage.

Purchase decision

Post-purchase behaviour

Exploring business behaviour in the B2B market

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§ 13.6 Disintermediation in e-commerce – myth or reality?

The essential argument is that the use of IT allows manufacturers to internalise activities that have been traditionally performed by intermediaries. The traditional distribution model is linear but with the internet, value chains are being deconstructed and reconstructed in different ways. This process has given a rise to a new class of intermediaries. The value-add is no longer in logistic aggregation but rather an information aggregation.

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§ 13.7 Developing dynamic global e-commerce

Ad. Level 3: A successful site has many benefits:

It tightens relationships with existing customers and business partners.

It offers new revenue-generating opportunities- through new channels as well as new business models.

It offers opportunities to reduce costs by streamlining processes.

It provides a competitive advantage.

The following phases are involved in developing and implementing a successful e-commerce strategy:

Identification of the process, product or business area that is most applicable for an e-commerce initiative.

The company’s e-commerce goods.

Definition of ‘internal’ and ‘external’ actors.

Evaluation of competitor strategies.

Integration of e-commerce with existing distribution channels and partners.

Putting the right internal competences/. Skills in place.

What are the drivers and barriers of e-commerce? Drivers:

For the supplier o Reduced working capital (less inventory, reduced administration) o Global reach o More efficient distribution (disintermediation means fewer distribution channels) o Ability to develop relationships with customers.

For the customer o More choices (greater product depth and global reach) o Ease of purchase and monitoring delivery

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o More individual products (via ‘mass customisation’ of products) o Cost saving o Faster product cycle time (ordering, shipping, billing) o On the b2b market the customer has better possibilities of swapping between

suppliers than with EDI

Barriers (for both supplier and customer)

When entering the global market there may be different barriers to different countries:

language barriers, cultural barriers, limited internet access, different legislation, logistical barriers, etc..

Web-technology is not user friendly

Security fears

E-commerce is not suitable for certain types of product

Conflicting interests

Poor performance leading to slow download.

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PART IV DESIGNING THE GLOBAL MARKETING PROGRAMME

Chapter 14 Product decisions

14.2 The dimensions of the international product offer

There are three levels of a product according to Kotler (1997):

1. Core product benefits 2. Product attributes 3. Support services

Notify that it is much easier to standardize the core product benefits (functional features, performance etc.) than it is to standardize the support services, which often have to be tailored to the business culture and sometimes to individual customers.

14.3 Developing international service strategies

Before considering possible international service strategies, it is important to consider the special nature of global service marketing. Services are characterised by the following features:

­ Intangibility (cannot be touched or tested) ­ Perish ability (cannot be stored for future usage) ­ Heterogeneity (are rarely the same because they involve interactions between

people) ­ Inseparability (time of production is very close or even simultaneous with the time of

consumption)

There are some specific problems in marketing services internationally. There are particular difficulties in achieving uniformity of the different marketing parameters in remote locations where exerting control can be especially problematic. Pricing too, can be extremely difficult, because fixed costs can be a very significant part of the total service costs. Consumers’ ability to buy and their perceptions of the service they receive may vary considerably between markets, resulting in significantly different prices being set and profits generated. Moreover preserving customer loyalty in order to obtain repeat business may prove difficult because of the need to provide personalized services.

Categories of supplementary service:

The core service provider whether a bed for the night or a bank account, is typically accompanied by a variety of supplementary elements, which can be grouped into eight categories (Lovelock and Yip, 1996):

1. information 2. consultation and advice 3. order taking 4. hospitality (taking care of the customer) 5. safekeeping (looking after the customer’s possessions) 6. exceptions 7. billing 8. payment

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Service in the business-to-business market:

Business-to-business markets differ from customer markets in many ways.

­ Fewer and larger buyers, often geographically concentrated. ­ A derived, fluctuating and relatively inelastic demand. ­ Many participants in the buying process. ­ Professional buyers. ­ A closer relationship. ­ Absence of intermediaries. ­ Technological links.

14.4 The product life cycle

The concept of the product life cycle (PLC) provides useful inputs into making product decisions and formulating product strategies. Products, like individuals, pass through a series of stages. Each stage is identified by its sales performance and characterized by different levels of profitability, various degrees of competition and distinctive marketing programmes. The four stages of PLC are: introduction, growth, maturity and decline.

The PLC emphasizes the need to review marketing objectives and strategies as products pass through various stages.

Limitations of the PLC:

1. Misleading strategy prescriptions (if a product’s sale is declining, management should not conclude that the brand is in the decline stage).

2. Fads (fashions that are adopted very quickly by the public, peak early and decline very fast).

3. Unpredictability (the duration of the PLC stages is unpredictable. Critics charge that markets can seldom tell what stage the product is in).

PLC for different countries:

­ International PLC (a macroeconomic approach). ­ PLC’s across counties (microeconomic approach).

International PLC theory (Vernon 1966):

Typically demand first grows in the innovating country. In the beginning excess production in the innovating country (greater than domestic demand) will be exported to other advanced countries, where demand also grows. Only later does demand begin in less developed countries (LDCs). Production, consequently takes place first in the innovating country. As the product matures and technology is diffused , production occurs in other industrialized countries and then in less developed countries. Efficiency/comparative advantages shift from developed countries to developing countries. Finally, advanced countries, no longer cost-effective, import products from their former customers.

PLC’s across counties (microeconomic approach)

In foreign markets, the time span for a product to pass through a stage may vary from market to market. In addition, due to different economic levels in different countries a specific product can be in different PLC stages in different countries.

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14.5 New products for the international market

As a consequence of increasing international competition, time is becoming a key success factor for an increasing number of companies which manufacture technologically sophisticated products. This time competition and the level of technological development mean that PLC’s are getting shorter and shorter. In parallel to shorter PLC’s, the product development times for new products are being greatly reduced.

The product communication mix

Product and promotion go hand in hand in foreign markets and together are able to create and destroy markets in very short order. Keegan (1995) has highlighted the key aspects of marketing strategy as a combination of standardization or adaptation of the product and promotion elements of the mix, and offers five alternative approaches to product policy:

1. Straight extension (one product, one message world-wide). 2. Promotion adaptation (leaving a product unchanged but fine-tuning promotional

activity to take into account cultural differences between markets). 3. Product adaptation (by modifying only the product a manufacturer intends to maintain

the core product function in the different markets). 4. Dual adaptation (by adapting both products and promotion for each market, the firm is

adopting a total differentiated approach). 5. Product invention (products are specifically developed to meet the needs of the

individual markets).

14.6 Product positioning

Product positioning is a key element in the successful marketing of any organization in any market. The product or company which does not have a clear position in the customer’s mind consequently stands for nothing and is rarely able to command more than a simple commodity or utility price.

The county of origin of a product, typically communicated by the phrase ‘made in…’has a considerably influence on the quality perception of the goods. The country of origin is more important than the brand name and can be viewed as good news for western firms that are attempting to penetrate the eastern European region with imports whose brand name is not yet familiar.

When considering the implications of product positioning it is important to consider that positioning can vary from market to market, because the target customers of the product differ from country to country.

14.7 Brand equity

Dr. David Aaker of the University of California at Berkeley, one of the leading authorities on brand equity, has defined the term as ‘a set of brand assets and liabilities linked to the brand, its name and symbol that add to or subtract form the value provided by a product or service to a firm or to the firm’s customers.

The assets and liabilities can be clustered into five categories:

1. Brand loyalty. Encourages customers to buy a particular brand time after time and remain insensitive to competitors’ offering.

2. Brand awareness. Brand names attract attention and convey images of familiarity.

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3. Perceived quality. ‘Perceived’ means that the customers decide upon the level of quality, not the company.

4. Brand associations. The values and the personality linked to the brand. 5. Other proprietary assets. Include trademarks, patents, and marketing channel

relationships.

14.8 Branding decisions

The functions of branding are as follows:

­ To distinguish a company’s offering and differentiate one particular product from its competitors.

­ To create identification and brand awareness. ­ To guarantee a certain level of quality and satisfaction. ­ To help with promotion of the product.

All these purposes have the same ultimate goals: to create new sales or induce repeat sales.

Private label When a company sells its own –label products. The advantages of private label are: possibility of larger market share and no promotional problems. The disadvantages are: Severe price competition and lack of market identity.

Co-branding Co-branding is a form of cooperation between two or more brands with significant customer recognition, in which all the participants’ brand names are retained. It is of medium to long-term duration and its net value creation potential is too small to justify setting up a new brand and/or legal joint venture. The motive for co- branding is the expectation of synergies which create value for both participants, above the value they would expect to generate on their own.

Ingredient branding An ingredient supplier should fulfil the following requirements:

­ The ingredient supplier should be offering a product that has a substantial advantage over existing products. DuPont’s Teflon, NutraSweet, Intel chips and the Dolby noise reduction system are all examples of major technological innovations, the result of large investments in R&D.

­ The ingredient should be critical to the success of the final product. NutraSweet is not only a low-calorie sweetener, but has a taste that is nearly identical to that of sugar.

Local brand versus global brand A company has the option of using the same brand in most or all of its foreign markets, or using individual, local brands. A single, global brand is also known as an international universal brand. A global brand is an appropriate approach when a product has a good reputation or is known for quality.

14.9 Implications of Internet/e-commerce for product decisions IT has been used to get closer to customers. The new business platform recognizes the increased importance of customisation of products and services. Increased commoditization of standard features can only be countered through customisation, which is most powerful when backed up by sophisticated analysis of customer data. Dynamic customisation is based on three principles: modularity, intelligence and organization.

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14.10 Green marketing strategies

Global awareness about the environment is also being aroused by media reports on ecological disasters such as Chernobyl, the Exxon Valdez oil spill, acid rain and global warming. Because of ecological grass root campaigns gain widespread recognition and support, and global media networks such as CNN continue report on environmental issues and disasters, today’s consumer is becoming environmentally conscious.

Strategic options The choice of strategic environmental posture will depend on how an organization wants to create value for its green customers and how change oriented its approach is. If a firm is more oriented to cost reduction than to benefit enhancement for customers, pollution prevention strategies would probably be chosen in preference to the development of ‘green’ products: for example by using natural or recycled materials. If a firm is more proactive than accommodative, it tends to be more innovative than otherwise.

Environmental management in the value chain perspective Management cannot afford to be myopic in looking at the finished product without considering the manufacturing and R&D phases as they relate to consumers’ perceptions of what constitutes a green product. Nor can a company use traditional marketing principles to gain product acceptance.

Eco-labelling schemes Over the years eco-labelling schemes have been implemented in a number of EU countries in an attempt to promote the use of products and production methods which are less harmful to the environment. The first scheme was introduced in West Germany 1978. Today the organizers of the scheme claim that 80 per cent of German households are aware of the scheme and it receives widespread support from manufacturers. National bodies that award the eco-labels for products act as a kind of jury, assessing the environmental performance of a product by reference to agreed specific environmental criteria for each product group.

Strategic alliances with environmental groups (green peace) can provide five benefits to marketers of consumer goods (Mendleson and Polonsky,1995):

1. They increase the consumer confidence in green products and their claims. 2. They provide firms with access to environmental information. 3. They give the marketer access to new markets. 4. They provide positive publicity and reduce public criticism. 5. They educate consumers about key environmental issues for the firm and its

products.

14.11 Total quality management and ISO 9000 certification

Total Quality Management is a broad organizational approach and may be defined as follows:

­ Total, all persons in the firm are involved. ­ Quality, customer requirements are met precisely. ­ Management, senior executives are fully committed.

The ISO 9000 standards ensure that products are produced using certified methods of manufacture, thereby eliminating product quality variation. However ISO 9000 certification does not guarantee that a manufacturer produces a ‘quality’ product. The end product is only as good as the design and process specifications require.

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The five standards of ISO 9000:

­ ISO 9000. This is the road map for the series. IT is the overall term covering the other four standards in the series:9001, 9002, 9003 and 9004.

­ ISO 9001. This is the most comprehensive of the standards. It is a quality assurance that requires the demonstration of a supplier’s capability to fulfil the requirements during all phases of operation: design, development, production, installation and servicing.

­ ISO 9002. This standard is a subset of ISO9001 with the areas of design and development of the product removed. The standard sometimes used as an interim standard before expanding to the more comprehensive ISO 9001. It is also the most commonly used standard for service companies. The quality guidelines are used to ensure that the service is provided using a consistent process that is described in the quality documents.

­ ISO 9003. This model provides a standard of quality assurance for firms only involved in final inspection and testing of products. Firms using this standard are basically performing the inspection function of the product that would normally be done by the customer when the product is received.

­ ISO 9004. This standard provides a set of guidelines by which the management of a company can implement and develop an effective quality management system. There is heavy emphasis on meeting company and customer needs.

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Chapter 15 Pricing decisions and terms of doing business

15.2 International pricing strategies compared with domestic pricing strategies

For many SME’s operating in domestic markets, pricing decisions are based on the relatively straightforward process of allocating the total estimated cost of producing, managing and marketing a product or service and adding an appropriate profit margin. Problems for these firms arise when costs increase and sales do not materialize or when competitors undercut them. In international markets, however, pricing decisions are much more complex, because they are affected by a number of additional external factors, such as fluctuations in exchange rates, accelerating inflation in certain countries and the use of alternative payment methods such as leasing, barter and counter-trade.

15.3 Factors influencing international pricing decisions

Factors affecting international pricing can be broken down into two main groups (internal and external factors) and four subgroups:

1) Internal factors:

Firm-level factors

Corporate and marketing objectives

Competitive strategy

Firm positioning

Product development

Production locations (cost of production inputs)

Market entry modes

Product factors

Stage in PLC

Place in product line

Most important product features: quality, service etc.

Product positioning (USP)

Product cost structure (manufacturing, experience effects, etc.)

2) External factors:

Environmental factors

Government influences and constraints: import controls, taxes, price controls

Inflation

Currency fluctuations

Business cycle stage

Market factors

Customers’ perceptions (needs, tastes)

Customers’ ability to pay

Nature of competition

Competitors’ objectives, strategies and relative strengths/weaknesses

Grey market appeal

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15.4 International pricing strategies

Skimming In this strategy a high price is charged to ‘skim the cream’ from the top end of the market, with the objective of achieving the highest possible contribution in a short time. For a marketer to use this approach, the product has to be unique, and some segments of the market must be willing to pay the high price.

Problems with skimming are as follows:

Having a small market share makes the firm vulnerable to aggressive local competition.

Maintenance of a high-quality product requires a lot of resources and a visible local presence, which may be difficult in distant markets.

If the product is sold more cheaply at home or in another country, grey marketing (parallel importing) is likely.

Market pricing If similar products already exist in the target market, market pricing may be used. The final customer price is based on competitive prices. This approach requires the exporter to have a thorough knowledge of product costs, as well as confidence that the PLC is long enough to warrant entry into the market.

Penetration pricing A penetration pricing policy is used to stimulate market growth and capture market shares by deliberately offering products at low prices. This approach requires mass markets, price-sensitive customers and reduction in unit costs through economies of scale.

Experience curve pricing Price changes usually follow changes in the products stage in the life cycle. As the product matures, more pressure will be put on the price to keep the product competitive despite increased competition and less possibility of differentiation.

For example after the introduction stage (during part of which the price is below the total unit cost), profits begin to flow. Because supply is less than demand, prices do not fall as quickly as costs. Consequently, the gap between costs and prices widens, in effect creating a price umbrella, attracting new competitors. However , the competitive situation is not a stable one. At some point the umbrella will be folded by one or more competitors reducing the prices in an attempt to gain market shares. The result is that a shake-out phase will begin: inefficient producers will be shaken out by rapidly falling market prices, and only those with a competitive price/cost relationship will remain.

Pricing across products (product line pricing)

With across-product pricing, the various items in the line may be differentiated by pricing the appropriately to indicate, for example, an economy version, a standard version and the top-of-the-line version. Furthermore some items in the product line may be priced very low to serve as loss leaders and induce customers to try the product. A special variant of this is the so-called buy in-follow on strategy (Weigand, 1991). This strategy is different from a low introductory price, which is based on the hope that the customer (of habit) will return again at higher prices. With the buy in-follow on strategy, sales of two products or services are powerfully linked by factors such as legal contracts, patents, trade secrets, experience curve advantages and technological links.

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Pricing across countries

Price standardization. This is based on setting a price for the product as it leaves the

factory. At its simplest, it involves setting a fixed world price at the headquarters of the firm.

Price differentiation. This allows each local subsidiary or partner to set a price which is

considered to be the most appropriate for local conditions, and no attempt is made to coordinate prices from country to country.

European pricing strategy

Europe was a price differentiation paradise as long as markets were separated. But it is becoming increasingly difficult to retain the old price differentials. There are primarily two developments which may force companies to standardize prices across European countries:

1. International buying power of cross-European retail groups. 2. Parallel imports/grey markets. Because of differentiated prices across countries,

buyers in one country are able to purchase at a lower price than in another country. As a result there will be an incentive for customers in lower-price markets to sell goods to higher-price markets in order to make profit.

Transfer pricing Transfer prices are those charged for intra company movement of goods and services. Many purely domestic firms need to make transfer-pricing decisions when goods are transferred from one domestic unit to another. While these transfer prices are internal to the company, they are important externally because goods being transferred form country to country must have a value for cross-border taxation purposes.

There are three basic approaches for transfer pricing:

Transfer at cost.

Transfer at arm’s length.

Transfer at cost plus. A good transfer-pricing method should consider total corporate profile and encourage divisional cooperation. It should also minimize executive time spent on transfer-price disagreements and keep the accounting burden at a minimum.

15.5 Implications of Internet/e-commerce for pricing across borders

The main detailed implications of the Euro that it will:

Lower prices for consumers by making the prices transparent across Europe.

Create a real singly market by reducing ‘friction’ to trade caused by high transaction costs and fluctuation currencies.

Enhance competition by forcing companies to concentrate on price, quality and production instead of hiding behind weak currencies.

Benefit SME’ s and consumers by making it easier for the former to enter ‘foreign’ markets, and allowing the latter, increasingly via the Internet, to shop in the lowest priced markets.

Establish inflation and interest rate stability via the new European Central Bank.

Lower the costs of doing business through lower prices, lower interest rates, no transaction costs or loss through exchanging currencies, and the absence of exchange rate fluctuations.

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15.6 Terms of sale/delivery terms

Free alongside ship (FAS). Under this term the seller must provide for delivery of the

goods free alongside, but not on board, the transportation carrier (usually an ocean vessel) at the point of shipment and export. This term differs from that of FOB, since the time and cost of loading are not included in the FAS term. The buyer has to pay for loading the good on the ship.

Free on board (FOB). The exporter’s price quote includes coverage of all charges up to

the point when goods have been loaded on to the designated transport vehicle. The designated loading point may be a named inland shipping point, but is usually the port of export. The buyer assumes responsibility for the goods the moment they pass over the ship’s rail.

Cost and freight (CFR). The sellers liability ends when the goods are loaded on board a carrier or are; in the custody of the carrier at the export dock. The seller pays all the transport charges (excluding insurance, which is the customers obligation) required to deliver goods by sea to a named destination.

Cost insurance and freight (CIF). This trade term is identical with CFR except that the seller must also provide the necessary insurance. The sellers obligations still end at the same stage (i.e. when goods are loaded aboard), but the sellers insurance company assumes responsibility once the goods are loaded.

Delivered ex quay (DEQ). Ex Quay means from the import dock. The term goes one step beyond CIF and requires the seller to be responsible for the cost of the goods and all other costs necessary to place the goods on the dock at the named overseas port, with the appropriate import duty paid.

Delivered duty paid (DDP). The export price quote includes the costs of delivery to the importers premises. The exporter thus responsible for paying any import duties and costs for unloading and inland transport in the importing country, as well as costs involved in insuring and shipping the goods to that country. These terms imply maximum exporter obligations. The seller also assumes all the risks involved in delivering to the buyer. DDP used to be known as ‘Franco domicile’ pricing.

15.7 Terms of payment

The exporter will consider the following factors in negotiating terms of payment for goods to be shipped:

Practices in the industry.

Terms offered by competitors.

Relative strength of the buyer and the seller.

Cash in advance The exporter receives payment before shipment of the goods. This minimizes the exporter’s risk and financial costs, since there is no collection risk and no interest costs on receivables.

Letter of credit A letter of credit is an instrument whereby a bank agrees to pay a specified amount of money on presentation of documents stipulated in the letter of credit, usually bill of lading, an invoice and a description of the goods. In general LC have the following characteristics:

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They are an arrangement by banks for settling international commercial transactions.

They provide a form of security for the parties involved.

They ensure payment, provided that the terms and conditions of the credit have been

fulfilled.

Payment by such means is based on documents only and not on the merchandise or

services involved.

Three forms:

1. Revocable L/C. This gives the buyer maximum flexibility as it can be cancelled without notice to the seller up to the moment of payment by the bank.

2. Irrevocable but unconfirmed L/C. This is as good as the credit status of the establishing bank and the willingness of the buyer’s country to allow the required use of foreign exchange.

3. Confirmed irrevocable L/C. This means that a bank in the seller’s country has added its own undertaking to that of the issuing bank, confirming that the necessary sum of money is available for payment, awaiting only the presentation of shipping documents.

Documents against payment Here the buyer must make payment for the face value of the draft before receiving the documents conveying title to the merchandise. This occurs when the buyer first sees the draft (sight draft).

Documents against acceptance When a draft is drawn credit is extended to the buyer on the basis of the buyers acceptance of the draft calling for payment within a specified time and usually at a specified place.

Open account The exporter ships the goods without documents calling for payment, other than the invoice. The buyer can pick up the goods without having to make payment first.

Consignment Here the exporter retains title of the goods until the importer sells them. Exporters own the goods no longer in this method than any other, and so the financial burden and risks are at their greatest. The method should be offered only to very trustworthy importers with an excellent credit rating countries where political and economic risk is very low. Consignments tend to be mainly used by companies trading with their own subsidiaries.

15.8 Export financing

Commercial banks This is a convenient way to finance all the elements of the contract such as purchasing, manufacturing, shipping and credit.

Export credit insurance Available to most exporters through governmental export agencies or through private insurers. Cover the following:

Political risks and non- convertibility of currency.

Commercial risks associated with non-payment by buyers.

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Factoring Factoring means selling export debts for immediate cash. In this way, the exporter shifts the problems of collecting payment for completed orders over the organizations or factors that specialize in export credit management and finance.

Forfeiting An exporter of capital goods has a buyer that wishes to have medium-term credit to finance the purchase. The buyer pays some of the cost at once and pays the balance in regular instalments for, say, the next five years. The principal benefit is that there is immediate cash for the exporter, and along with the first cash payment by the buyer, forfeiting can finance up to 100 per cent of the contract value.

Bonding Is a written instrument issued to an overseas buyer by an acceptable third party, either a bank or an insurance company. It guarantees compliance of its obligations by an exporter or contractor, or the overseas buyer will be indemnified for a stated amount against the failure of the exporter/contractor to fulfil its obligations under the contract.

Leasing The exporter receives prompt payment for goods directly from the leasing company. A leasing facility is best set up at the earliest opportunity, preferable when the exporter receives the order.

Counter trade A seller provides a buyer with products and agrees to a reciprocal purchasing obligation with the buyer in terms of an agreed percentage (full or partial) of the original sales value.

­ Barter. This is a straight forward exchange of goods for goods without any money transfer.

­ Compensation deal. (part payment by importer, part use goods of buyer) ­ Buy-back agreement.

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Chapter 16 Distribution decisions

Over the next few years, the challenges and opportunities for channel management will multiply, as technological developments accelerate channel evolution. Data networks are increasingly enabling end users to bypass traditional channels and deal directly with manufacturers and service providers. Electronic Data Interchange (EDI) is now used for the exchange of orders and invoices between suppliers and their customers. By on-line monitoring of stocks, customers are also able to order directly from suppliers on a just-in-time (JIT) basis, and thereby to avoid holding stock altogether or to minimize the time it is held.

16.2 External determinants of channel decisions

Customer characteristics The customer is the keystone in any channel design. Thus, the size, geographic distribution, shopping habits, outlet preferences and usage patterns of customer groups must be taken into account when making distribution decisions.

Nature of product For low-priced high-turnover convenience products, the requirement is an intensive distribution network. On the other hand, it is not necessary or even desirable for a prestigious product to have a wide distribution.

Nature of demand/location Product perception are influenced by the customers income and product experience, the product’s end use, its life cycle position and the country’s stage of economic development. Also infrastructure can effect the demand.

Competition The channels used by competing products and close substitutes are important because channel arrangements that seek to serve the same market often compete with one another. In addition, local and global competitors may have agreements with the major wholesalers in a foreign country that effectively create barriers and exclude the company from key channels. Sometimes the alternative is to use a distribution approach totally different from that of the competition and hope to develop a competitive advantage.

Legal regulations/local business practices A country may have specific laws that rule out the use of particular channels or intermediaries. For example The Treaty of Rome prohibits distribution agreements (e.g. grants of exclusivity) that affect trade or restrict competition.

16.3 The structure of the channel

Market coverage Coverage can be geographical areas (cities and major towns) or number of retail outlets. Therefore the company has to create a distribution network to meet its coverage goals. There are three types of coverage: Intensive, selective and exclusive coverage.

Channel length This is determined by the number of levels or different types of intermediaries. Longer channels tend to be associated with convenience goods and mass distribution.

Control/cost The control of one member in the vertical distribution channel is the ability to influence the decisions and actions of other channel members. Channel control is of critical concern to

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international marketers wanting to establish international brands and a consistent image of quality and service world-wide.

Degree of integration Channel integration is the process of incorporating all channel members into one channel system and uniting them under one leadership and one set of goals. There are two different types of integration:

1. Vertical integration: seeking control of channel members at different levels of the channel.

2. Horizontal integration: seeking control of channel members at the same level of the channel (i.e. competitors).

Vertical integration can take two forms: forward and backward.

The manufacturer can make forward integration, when it seeks control of businesses of the wholesale and retail levels of the channel.

The retailer can make backward integration, seeking control of businesses at the wholesale and manufacturers levels of the channel.

The wholesaler has two possibilities: both forward and backward integration.

16.4 Managing and controlling distribution channels

Screening and selecting intermediaries

At this stage, the international marketer knows the type of distributor that is needed. The potential candidates must now be compared and contrasted against determined criteria.

Contracting (distributor agreements)

When the international marketer has found a suitable intermediary, a foreign sales agreement is drawn up. Before final contracting arrangements are made it is wise to make personal visits tot the prospective channel member.

In general contracts should include:

­ Contract duration ­ Geographic boundaries ­ Terms of payment and delivery ­ Products and conditions of sale ­ Means of communication.

Motivating

Geographic and cultural distance make the process of motivating channel members difficult. Motivating is also difficult because intermediaries are not owned by the company. Since intermediaries are independent firms, they will seek to achieve their own objectives, which will not always match the objective of the manufacturer. The international marketer may offer both psychological and monetary rewards.

Controlling

Control problems are reduced substantially if intermediaries are selected carefully. However, control should be sought through the common development of written performance objectives. For example: sales turnover per year, market share growth rate, introduction of new products, price charged and marketing communications support.

Control should be exercised through periodic personal meetings.

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Termination

Typical reasons for the termination of a channel relationship are as follows:

The international marketer has established a sales subsidiary in the country.

The international marketer is unsatisfied with the performance of the intermediary.

16.5 Managing logistics

Most common export documents:

Transportation documents

Bill of lading: This receipt for the cargo and a contract for transportation between a shipper and a transport carrier. It may also be used as an instrument of ownership.

Dock receipt: This is the document acknowledging receipt of the cargo by an ocean carrier.

Insurance certificate: This is evidence that insurance is provided to cover loss or damage to the cargo while in transit.

Banking documents

Letter of credit: This is a financial document issued by a bank at the request of the importer, guaranteeing payment to the exporter if certain terms and conditions surrounding a transaction are met.

Commercial documents

Commercial invoice: This is a bill for the products from the exporter to the buyer.

Government documents

Export declaration: This includes complete information about the shipment.

Consular invoice: This is a document signed by a consul of the importing country that is used to control and identify goods shipped there.

Certificate of origin: This is a document certifying the origin of the products being exported, so that the buying country knows in which country the products were produced.

Transportation

This deals primarily with the mode of transportation, which usually constitutes 10-15% of the retail costs of imported goods. There are four main modes of transport: road, water, air and rail.

Freight forwarders

Freight forwarders provide a wide range of services, but the general activities and services provided are as follows:

Coordination of transport services.

Preparation and processing of international transport documents.

Provision of warehousing.

Expert advice.

Inventory (at the factory base)

To maintain product movement in the delivery pipeline, in order to satisfy demand. Cost elements involved in managing an inventory: storage, interest on capital tied up, taxes lost sales etc. In deciding the level of inventory to be maintained, the international marketer must consider two factors: order cycle time and customer service levels.

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Storage/warehousing (foreign markets)

Warehousing decisions focus on three main issues:

1. Where the firm’s customers are geographically located. 2. The pattern of existing and future demands. 3. The customer service level required (i.e. how quickly a customer’s order should

be fulfilled.

Third- party logistics (contract logistics)

The main thrust behind the idea is that individual firm are experts in their industry and should therefore concentrate only on their operations. Third-party logistics providers , on the other hand, are experts solely at logistics, with the knowledge and means to perform efficient and innovative services for those companies in need. Advantage is usage of network in the foreign market. Disadvantage loss of firm’s control in supply chain.

16.6 Implications of Internet/e-commerce for distribution decisions

Physical distributors and dealers of goods and services that are more conveniently ordered and/or delivered on-line are indeed subject to increasing pressure from e-commerce. This disinter mediation process, with increasing direct sales through the Internet, leads manufacturers to compete with their resellers, which results in channel conflict.

The extend to which these effects are salient depends upon which of the following four Internet distribution strategies are adopted by the manufacturer:

1. Present only product information on the Internet. 2. Leave Internet business for distributors. 3. Leave Internet business only to the manufacturer. 4. Open Internet business to everybody.

The fear of cannibalising existing distribution channels an potential channel conflict requires manufacturers to trade off existing sales through the traditional distribution network and potential future sales through the Internet. Unfortunately, history suggests that most companies tend to stay at declining distribution networks too long.

**16.7 Special issue 1: International retailing

page 503 till 508

**16.8 Special issue 2: Grey marketing (parallel importing)

508 till 510

**NOTE THE ABOVE MENTIONED PARAGRAPHS COULD NOT BE SUMMARISED BECAUSE THEY DESCRIBE THE GLOBAL SITUATION IN (US, EUROPE AND ASIAN) MARKET LIKE A CASE STUDY.

BUT REMARK THAT IT CONTAINS RELEVANT INFORMATION AND INTERESTING ANNOUNCEMENTS THAT SHOULD BE READ BY ALL OF YOU FOR THE FINAL EXAM!!!!!!!!!!!!!!

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Chapter 17 Communication decisions (promotion strategies0

The different types of communication tool. • Advertising. • Public relations. • Sales promotion

• Direct marke • Personal selling.

The role of communication in global marketing is similar to that in domestic operations: to communicate with customers so as to provide information that buyers need to make purchasing decisions. To communicate with and influence customers,several tools are available. Advertising is usually the most visible component of the promotion mix,but personal selling,exhibitions,sales promotions,publicity(PR)and direct marketing(including the Internet) are also part of a viable international promotion mix.

Communication tools

Advertising Advertising is one of the most visible form of communication.Because of its wide use and its limitations as a one-way method of communication,advertising in international markets is subject to a number of difficulities. Advertising is often the most important part of the communications mix for consumer goods,where there are a large number of small-volume customers who can be reached through mass media. For most business- to –business markets, advertising is less important than the personal selling function.

Objectives setting Although advertising methods may vary from country to country, the major advertising objectives remain the same. Major advertising objectives (and means)might include some of the following: • Increasing sales from existing customers by encouraging existing customers to increase

the frequency of their purchases; maintaining brand loyalty via a strategy that reminds customers of the key advantages of the produt; and stimulating impulse purchases.

• Obtaining new customers by increasing consumer awareness of the firm’s products and improving the firm’s corporate image among a new target custmoer group.

Budget decisions Controversial aspects of advertising include determinging a proper method for deciding the size of the promotional budget,and its allocation across market and over time.

Affordable approach/percentage of sales The most popular of these methods is the’percentage of sales method’,whereby the firm automatically allocates a fixed percentage of sales to the advertising budget. Advantages and disadvantages of this method are metioned on the page 521.

Competitive parity approach This involves estimating and duplicating the amounts spent on advertising by major rivals.

Objective and task approach The weaknesses of the above approaches have led some firms to follow this approach which begins by determining the advertising objectives and then ascertaining the tasks needed to attain these objectives. This approach also includes a cost/benefit analysis, relating objectives to the osts of achieing them . To use this method, the firm must have good knoledge of the local market.

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Message decisions(creative strategy) This concerns decisions about what unique selling proposition (USP) needs to be communicated, and what the communication is intended to achieve in terms of consumer behaviour in the country concerned.

Standardization bersus adaptation Standardizing international advertising can lead to a number of advantages for the firm. The adaptation of global ideas can be achieved by various tactics,such as adopting a modular approach,adapting international symbols and using international advertising agencies.

Media decisions A key question in media selection is whether to use a mass or target approach. Furthermore, media selection can be based on the following criteria: • Reach. This is the total number of people in a target market exposed to at least one

advertisement in a given time period(opportunity to see, or OTS). • Frequency. This is the average number of times within a given time period that each

potential customer is exposed to the same advertisement. • Impact. This depends on compatibility between the medium used and the message.

As a way of distributing advertising messages through new communication channels, co-promotion has got a strong foothold. (See Exhibit 17.3. Co-promotion in practice: McDonald’s and LEGO)

Main media types. • Television • Radio • Newspaper(print)

• Magazines(print) • Cinema • Outdoor advertising

Angency selection. If the international marketer decides to outsource the international advertising functions, he or she has a variety of options including the following: • Use different national(local)agencies in the international markets where the firm is

present. • Use the services of a big international agency with domestic overseas offices.

Advertising evaluation Testing advertising effectiveness is normally more difficult in international markets than in domestic markets than in domestic markets. An important reason for this is the distance and communication gap between domestic markets and foreign markets.Consequently, many firms try to use sales results as a measure of advertising effectiveness.

Testing procedures(the following is primarily based on Griffin(1993)) • Pretesting print advertisements/direct mail When an advertising manager doubts which of two print advertisements he should use for a campaign, he can use a ‘split-run’ test to determine the reader response from the two versions.

• Prestesting TV advertisements. Testing finished advertisements More techniques exist for testing advertisements once they have been produced.

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Public relations Word-of-mouth advertising is not only cheap, it is very effective. Public relations (PR) seeks to enhance corporate image building and influence favourable media treatment.PR is the marketing communications function that carries out programmes designed to earn public understanding and acceptance. Several methods can be used to gain PR. Such methods include the following: • Contribution of prized at different events. • Sponsorship of events(sproting, cultural,etc.) • Press releases of news about the firm’s products, plant and personnel. • Announcements of the firm’s promotional campaign. • Lobbying(government)

Sales promotion Sales promotion is defined as those selling activities that do not fall directly into the advertising or personal selling category. Sales promotion is a short-term effort directed primarily to the consumer and/or retailer, in order to achieve specific objectives: • Consumer product trial and/or immediate purchase. • Consumer introduction to the shop. • Encouraging retailers to use point-of-purchase displays for the product. • Encouraging shops to stock the procduct.

Some of the different types of sales promotion: • Price discounts. • Catalogues/brochures. • Coupons

• Samples • Gifts • Competitions.

The success of sales promotion depends on local adaptation.

Direct marketing Direct marketing is the total of activites by which products and services are offered to market segments in one or more media for informational purposes or to solicit a direct response from a present or prospective customer or contributor by mail,telphone or personal visit. Direct marketing covers direct mail (marketing database), telephone selling and marketing via the Internet. A number of factors have encouraged the rapid expansion of the international direct marketing industry.

Personal selling Advertising is a one-way communication process that has relatively more ‘noise’,whereas personal selling is a two-way communication process with immediate feedback and relatively less ‘noise’. Personal selling is an effective way to sell products, but it is expensive.

If personal selling costs on business-to-business markets are relatively high,it is relevant to economize with personal selling resources, and use personal selling only at the end of the potential customer’s buying process. Computerized database marketing (direct mail, etc.) is used in a customer screening process, to point out possible customers, who will then be ‘taken over’by salespersons. Their job is to turn ‘hot’ and ‘very hot’ customer candidates into real customers. Sales-force automation(SFA)programs are hard to sell in Latin America. The case metioned on the page 536(exhibit 17.6)

International sales force organization In international markets, firms often organize their sales forces similarly to their domestic structures, regardless of differences from one country to another. This means that the sales force is organized by geography,product,customer or some combination of these.

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Type of international sales force Management should consider three options when determining the most appropriate international sales force. The salespeople hired for sales positions could be expatriates, host country nationals or third coutry nationals. • Expatriate salespersons. These are viewed favourably because they are already familiar

with the firms’s products ,technology,history and policies. • Host country nationals. These a re personnel who are based in their home coutry. • Third country nationals. These are empolyees transferred from one country to another For example , a German working for a German company in the US is an expatriate. The same German working for a US company in Germany is a host country national. He is a third country national if assigned to France.

Trade fairs and exhibitions A trade fair or exhibition is a concentrated event at which manufacturers,distributors and other vendors display their products and /or describe their service to current and prospective customers,suppliers, other business associates and the press. TFs offer international firms to the opportunity to gather vital infomational quickly ,easily and cheaply.

Examples of adaptation(localization)stragegies (page 543-544)

Courvoisier Cognac: Hong Kong/china VS Europe

Prince cigarettes: UK VS Germany

Gammel Dansk (Danish Distillers/Danisco): Denmark VS Germay Lux soap(Unilever): UK VS India LEGO FreeStyle: Euope VS the Far East

Implications of Internet/e-commerce for communication decisions Unlike marketing in the physical marketplace the Internet/e-commerce encompasses the entire ‘buying’ process. Market communication strategies change dramatically in the on-line world. It is almost certain that a continual stream of new market communication stragegies will emerge as the Internet medium evolves. Although some companies do business exclusively on the Web, for most the Internet offers exciting opportunities to develop an additional sales channel. This new channel can extend a company’s reach significantly, enabling it to do business with a new customer base that was previously unreachable. Develooping a successful on-line marketing programme boils down to the same objectives as in the physical world: how to create an audience. How, then, can a Web audience be created? The Web audience development process consists of the following six phases(USWeb/CKS,1999) Re 1: Integration of Internet strategy into an overall business strategy Re 2: Design requirments that are unique Re 3: Techniques for audience creation Re 4: Methods of advertising the site Re 5 : Effective promotions that attract attention Re 6 : Measurement and analysis to ensure ongoing success

A very important communication tool for the future is the Internet. Any company eager to take advantage of the Internet on a global scale must select a business model for its Internet ventures and estimate how information and transactions delivered through this new direct marketing medium will influence its existing distribution and communication system

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PART V IMPLEMENTING AND COORDINATING THE GLOBAL MARKETING PROGRAMME

Chapter 18 International sales negotiations

Negotiations are necessary to reach an agreement on the total exchange transaction, comprising such issues as the product to be delivered, the price to be paid, the payment schedule and the service agreement. First and foremost, the cultural background of the negotiating parties is different. If we look at international buyer-seller relations, the natinal culture is only one level in the cultural hierarchy that will influence the behaviour of the individual buyer or seller. This cultural distance can be expressed in terms of differences in communication and nigotiatin behaviours, the concepts of time, space or work patterns, and the nature of social rituals and norms. The cultural distance between two partners tends to increase the transaction costs, which may be quite high in crosscultural negotiations. Basic to negotiating is, of course, knowing your own strengths and weaknesses, but also knowing as much as possible about the other side, understanding the other’’s way of thinking and recognizing his or her perspective. Even starting from a position of fweakness, there are strategies that a salesperson can pursue to turn the negotiation to his or her advantage.

The culture shock felt by expatriates indicates that sending negotiators and salespeople to foreign markets is often diffioult and complex to implement successfully. Five important areas of implementation include (1) making the initial decision to empploy and expatriate sales force, (2) indentifying and selecting qualified candidates, (3) providing adequate training, (4) maintaining ongoing support and (5) achieving satisfactory repatriation

The ethical question of what is right or appropriate poses many dilemmas for international marketers, Bribery is an issue that is defined very differently from country to country. What is acceptable in one country may be completely unacceptable in another.

To be successful in Chinese nigotiations you have to relize that guanxi (personal relationships) will continue to play an active role in the political, economic, social and cultural life of Chinese societies. Therefore, in dealing with the Chinese, a foreign businessperson requires a basic understanding of guanxi dynamics, even though he or she does not necessarily have to play by Chinese rules.

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Chapter 19 Organization and control of the global marketing programme

§ 19.1 Introduction The overall objective of this chapter is to study intra-organizational relationships as part of the firm’s attempt to optimize its competitive reponse in areas most critical to its business. As market conditions change, and companies evolve from purely domestic entities to multinationals, their organizational structure, coordination and control systems must also change.

Organization of global marketing activities The way in which a golbal marketing organization is structured is an important determinant of its ability to exploit effectively and efficiently the opportunities available to it. It also determines the capacity for reponding to problems and challenges . Company operating internationally must decide whether the organization should be structured along functions ,products,geographical areas or combinations of the three(matrix).

Functional structure Of all the approaches, the functional structure is the simplest.here management its primarily concerned with the efficiency of the company. Many companies begin their international business activities a s aresult of having received enquiries from abroad. The company, being new to international business,has no international specialist and typically has few products and few markets. In this early setage of international involvement, the domestic marketing departement may have the responsiibility for golbal marketing activities. But as the international involvement intensifies, and export department or international department may become part of the organizational structure. The export department maybe a subdepartment of the sales and marketing department. Or may have equal ranking with the other functional departments. This choice will depend on the importance assigned to the export activities of the firm. Because the export department is the first step in internationalizing the organizational structure. It should be a fully fledged marketing organization and not merely a sales organization. The functional export department design is particularly suitable for small and medium-sized firm,as well as largeer companies, which are manufacturing standardized products and are in the early stages of developing international business,having low product and area diversities. International divisional structure As international sles grow, at some point an international division may emerge This division becomes directly responsible for the development and implementation of the overlall international stategy. The international division concentrated intrnational expertise, information flows about foreign market opportunities ,and authority over international activities. How ever, manufacturing and other related functions remain with the domestic divisions in order to take advantage of economies of scale International divisions best serve firms with new products that do not vary singnificantly in terms of their enviornmental sensitivity, and whose international sales and profits are still quite insignificant compared with those of the domestic divisions.

Product structure A typical procduct diviosn structyure is presented in Figure 19.3 In gerneral,the product structure is more suitable for companies with more expenrience in international business and marketing, and with diversified product lines and extensive $&D activities. The product divsion structure is most appropriate under conditions where the products have potential for world-wide standardization. One of the major benefits of the approach is improved cost efficiency through centralization of manufacturing facilities for each product line. This is crucial in industires in which competitive position is determined by world market share,which in turn is often determined by the degree to which manufacturing is ratlonailized(utilization of economies of scale).

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Geographical structure If market conditions with respect to product acceptance and operating conditions vary considerably across world market ,then the geographical structure is the one to chooose. This structure is especially useful for companies that have homeopeneous range of products. But at the same time need fast and efficient world-wide distribution. Typically, the world is divided into regions(divisions),as shown in figure 19.4 Many food beverage, care and pharmacetical companies use this type of structure. Its main advantage is its ability to respond easily and quickly to the enviornmental and market demands of a regional or national area through minor modifications in product design, pricing, market communication and packaging. Therefore, the structure encourages adaptive global marketing programmes.

Matrix structure The product sturcture tends to offer better opportunities to rationalize production across contires.thus gaining production cost-efficiencies. On the other hand , the geographical structure is more responsive to local market trends and needs, and allows for more coordination in a whole region. Some global companies need both capabilities, so they have adopted a more complex structure: the matrix structure. The international matrix structure consistes of two organizational structures intersecting with each other. As a consequence there are dual reporting relationships. These two structures can be a combination of the gerneral forms already discussed. The typical international matrix structure is the two dimensional structure that emphasize product and geotgraphy. The matrix structure deliverately creates a dual focus to ensure that conficts between product and geographical area concerns are identified and then analyzed objectively The structure is useful for companies that are both product diversified and geographically spread. By combining a product management approach with a market oriented approach, one can meet the needs both of market and of products. The example case of Unilever and its global marketing of Magnum. Page 597 Controlling the golbal marketing programme The final, but often neglected, stage of international market planning is the control process. Not only is control important to evaluate how we have performes, but it completes the circle of planning by providing the feedback necessary for the start of the next planning cycle. Unfortunately however,’control’ is often viewed by the people of an organization as being negative .It individuals fear that control process will be used not onlhy to judge their performance, but as a basiss fotr punishing them . then it wi8ll be feared and reviled. The evaluation and control of golbal marketing probably repersents one of the weakest areas of marketing practice in many companies.there is no such thing as a ‘standard’ system of control for marketing. The function of the organizational structure is to provide a framework in which objectives can be met.. How ever a set of instruments and processes is needed to influence the behaviour and performance of organization members to meet the goals. The critical issue is the same as with organizational structures: what is the ideal amount of control? On the one hand, headquarters needs information to ensure that international activites contribute maximum benefit to the overall organization. One the other hand, controls should not be construed as a code of law The key question is to determine how to establish a control mechanism capabnle of early

interception of emerging probblems. cOnsidered here are various criteria action. These concepts are important for all businesses, but in the international arena they are vital.

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Design of a control system In designing a control system, management must consider the costs of establishing and maintaining it and trade them off against the benefits to be gained. The desing of the control system can be diveded in to two groups dependt on the object of control: • Output control(typically based on financial measures). • Behavioural controls(typically based on non-finanmcial measures.)

We will now develp a global marketing control system based primarily on output controls. Marketing control is an essential element of the marketing planning process because it provides a review of how well marketing objectives have been achieved. A framework for controlling marketing activities is given in Figure 19.6 The markeing control system begins with the company setting some marketing activites in motion . this may be the result of certain objectives and strategies, each of which must be achieved within a given budget. Hence budgetary control is essential. The next step in the control process is to establish specific performance standards which will need to be achieved for each area of activity if overall and sub-objectives are to be achieved. Markeing performance measures and standards will vary by company and product according to the goals and objectives delineated in the marketing plan. The next step is to locate responsiblity. In some cases responsiblity ultimately falls on one person, in other it is shared manager and sles force. It is important to consider this issue, since corrective or suportive action may need to focus on those responsible for the succdess of marketing activity. In order to be sucessful , the people involved and affected by the control process should be consulted in both the design and implementation stages of marketing control. Above all they will need to be conviced the purpose of control is to imporve their own levels of success and that of the ompany. Subordinates need to be involved in setting and agreeing their own standards of performance, preferably through a system of management by objectives. Performance is then evaluated against these standards, which relies on an eficient information system. A judegement has to be made about the degree of success and failure achieved and what corrective or supportive action is to be taketn . This can take various forms. • Failure which is attributed to the poor perormance of individuals may result in the giving

of advice regarding future attitudes and actions, training and /or punishment. • Failure which is attribute to unrealistic marketing objectiveds and performance may cause

managemt to lower objectives or lower marketing standards.

Many firms assume that corrective action needs to be taken only when results are less than those reqquired or when budgets and costs are being excecede. In fact, both ‘negative’and positive deviations may require corrective action. Tt is also necessary to determine such things as the frequency of measurement . More frequent and more detailed measurement usually means more cost. We need to be careful to ensure that the costs of measurement and the control process itself do not exceed the value of such measurements and do not overly interfere with the acitivites of those being measured. The impact of the envionment must also be taken into account when desinging a control system. • The control system should be measure only dimensions over which the organizations has

control. • Control systems should harmonize with local regualtions and customs.

Feedforwared control Much of the information provided by the firm’s marketing control system is feedback on what has been accomplished in both financial and non –financial terms. As much the control process is remedial in its outlook. It can be argued that control systems should be forwared

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looking and preventatinve, and that the control process should start at the same time as the planing process. Such a form of control is feedforwared control. Feedforward control would continously evaluate plans,monitoring the environment to detect changes that would call for revising objectives and strategies. Feedforwared control monitiors variables other than performance ; variables that may change before perfomance itself changes. The result is that deviations can be controlled before their full impact has been felt. Such a system is proactive in that it anticipates envionmental change, whereas after-the-fact and steering control systems are more reactive in that they adeal with changes after they occfur. Feedforward control focuses on finfomation that is prognostic: it tries to discover problems waiting to occur. Formal processes of feedforward control can be incorporated into the business marketer’s total control programme to enhace its effectiveness considerably. Utilization of a feedforward approach would help ensure that planning that control are treated as concurrent activites.

Key areas for control in marketing Kotler distinguishes four types of marketing control, each involving different approaches, different purposes and a different allocation of responsibilities. These are shown in table 19.3. (page 604) . Annual plan control and profit control are the most obvious areas of concern to firms with limited resources.

Annual plan control The purpose of annual plan control is to determine the extent to which marketing efforts over the year have been successful. This control will centre on measuring and evaluating sales in relation to sales goals, market share analysis and expense analysis.

Profit control Besides the marketing variables presented in talbe 19.4 the golbal marketing budget normally contains inventory costs for finished goods. As the production size of these goods are normally ase based on input from the sales and marketing department , the inventory of unsold goods will also be the responsilbilty of the international marketing manager or director. Furthermore, the golbal marketing budget may also contain customer-specific or contry-specific product development costs. If certain new products are preconditions for selling in certain markets. In contrast to budgest, long-range plan extent over periods from two years up to ten years. And their content is more qualitative and judgemental in nature that that of budgets. For SMEs shorter periods are the nom because of the perceived uncertainty of diverse foreign envionments.

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