CHAPTER 6

Entering Global Markets

The multinational corporation knows a lot about a great many countries and congenially adapts to
supposed differences..... By contrast, the global corporation knows everything about one great thing. It
knows about the absolute need to be competitive on a worldwide basis as well as nationally and seeks
constantly to drive down prices by standardising what it sells and how it operates. It treats the world as
composed of a few standardised markets rather than many customised markets.
Theodre Levitt
1
Introduction
Companies may enter overseas markets for various reasons. These include saturated and intensely
competitive domestic markets, diversification of risk on a geographical basis, opportunity to realise
economies of scale and scope, entry of competitors into overseas markets, the need to follow customers
going abroad and the desire to compete and learn in a market with sophisticated consumer tastes. This
chapter focuses on how global companies enter different markets across the world. We will take up how
companies operate in global markets in the next chapter and global branding in Chapter as these topics
deserve a separate treatment.
Key issues in global marketing:
Typically, marketing includes the following activities! "
#arket research.
Concept $ idea generation.
%roduct design.
%rototype development $ test marketing
&election of packaging material, si'e and labelling
%ositioning
Choice of brand name
Choice of advertising agency
(evelopment of advertisement copy
)xecution of advertisements
*ecruitment and posting of sales force
%ricing
&ales %romotion
&election and management of distribution channels.
&ome of these activities are amenable to a uniform global approach. +thers involve a great degree of
customisation. ,gain, within a broadly defined activity, some sub activities can be more easily globalised
while others cannot. -or instance, product development may be customised to suit the needs of different
markets but basic research may be conducted on a global basis. ./n Chapter 0, we have already covered how
global companies manage *$(1.
, global marketing strategy typically evolves over a period of time. /n the initial phase, the main concern
for a global company is to decide which market.s1 to enter. Then comes choosing the mode of entry. ,
related decision is whether to expand across several markets, simultaneously or one at a time. With growing
overseas presence, global companies have to resolve issues such as customisation of the marketing mix for
1
2arvard 3usiness *eview, #ay"4une, 156.
local markets and in some cases, development of completely new products. /n the final phase, global
companies examine their product portfolio across countries, strive for higher levels of coordination and
integration and attempt to strike the right balance between scale efficiencies and local customisation. ,s
mentioned earlier, in this chapter, we focus on entry strategies. +ther issues relating to global marketing are
covered in Chapter 7 and Chapter .
E!ibit 6"#
$nderstanding o%erseas markets: T!e #& C Analysis Model
%hillips, (oole and Lowe have suggested a model to help companies identify the information to be collected while
entering an overseas market. The 18 Cs of this model are!
Country! 9eneral information, environmental factors
Choices! Competition, strengths and weaknesses of competitors
Concentration! &tructure of market segments, geographical spread.
Culture! #a:or characteristics, consumer behaviour, decision making style.
Consumption! )xisting and future demand, growth potential.
Capacity to pay! %ricing, prevailing payment terms.
Currency! %resence of exchange controls, degree of convertibility.
Channels! 9eneral behaviour, distribution costs and existing distribution infrastructure.
Commitment! #arket access, tariff and non"tariff barriers.
Communication! )xisting media infrastructure, commonly used promotional techni;ues.
Contractual obligations! 3usiness practices, insurance, legal obligations
Caveats! &pecial precautions to be taken
'ealing (it! cultural issues
3efore entering a new market, companies must carefully understand the cultural environment, and avoid
common pitfalls. Cultural anthropologist, 4 , Lee has used the term, Self eference !riterion to describe the
tendency of people to be biased by their own cultural experience and value systems while interpreting a
business situation in an overseas environment. #anagers must look at the business problem both in terms of
the home country and host country cultures to minimi'e the cultural bias. They must avoid ethnocentricism,
the tendency to view the home culture as being superior to the host culture. ,t the same time, cultural
differences should not be overestimated. &ometimes it is the <foreign= element which appeals to local
customers.
Two commonly used examples in the literature on global marketing illustrate these points. %rocter $
9amble .%$91 introduced the ,ce detergent in #exico without modifying the chemical composition. %$9
did not take into account that people used washing machines in the >& while #exicans washed clothes in
rivers. Conse;uently the product failed to click. Later, %$9 not only modified the chemical composition but
also packed it in smaller si'es using plastic bags instead of cardboard to keep the detergent dry. /n contrast,
the leading toy maker, #attel decided to customi'e its 3arbie doll for the 4apanese market. -or eight years,
sales did not pick up momentum. +nly when #attel reintroduced 3arbie with more western looks, did sales
take off.
/n his book, <*edefining 9lobal &trategy,= %anka: 9hemawat attributes the rampant copyright violations in
China to the country?s Confucian values. +ne Confucian principle encourages replication of the results of
past intellectual endeavours! </ transmit, rather than create, / believe in and love the antecedents.= Culture
has an important influence on the marketing mix. Culture also determines buying motivation. -or example,
in highly feminine and low uncertainty avoidance cultures, people look for safety and value. Culture also
influences pricing. %ricing is dependent on how willing customers are to pay for products. While in some
cultures, high price may signal premium ;uality, in others, it can be interpreted as taking customers for a
8
ride. Culture can also affect the distribution strategy. -or example, in some cultures, direct selling is looked
down upon. ,von, for example, had to reorient its direct selling approach in countries like China and
Taiwan. Last but not the least, culture has a ma:or influence on the communication strategy. ,dvertising
campaigns that are highly effective in one culture may be counter productive in another.
,t the same time, global companies should always watch out for commonalities across cultures. ,n
universal is a mode of behavior which spans cultures. -or example, music as an art form is applicable across
cultures. &o the musical song type commercial can be used across cultures. 2owever, the type of music used
may have to be varied across cultures. 3ecause of greater travel and better means of communication such as
satellite television and the /nternet, trends in categories such as clothing and beverages are converging.
9lobal marketers must look for universals so that they can standardise some elements of the marketing mix
to cut costs and keep the price affordable to customers.
To conclude this section, global companies, based on the cultural issues, can group markets logically and
accordingly formulate their entry strategy. They can prioriti'e markets, decide which markets to enter
simultaneously, which to enter se;uentially and which not to enter at all. /n some cases, it may also make
sense to identify a beach head market, i.e., a small market which is similar to a bigger market. This way, the
risks can be minimi'ed and the learning from operating in the beachhead, applied to the larger market.
E!ibit 6"&
)undaram and *lack+s t!ree ste, -rame(ork -or ,olitical risk analysis"
Step "#
(etermine the critical economic@business issues relevant to the firm.
,ssess the relative importance of these issues.
Step $#
(etermine the relevant political events.
(etermine the probability of their occurrence.
(etermine the cause and effect relationships.
,ssess the government?s ability and willingness to respond.
Step %#
(etermine the initial impact of probable scenarios.
(etermine possible responses to the initial impact.
(etermine initial and ultimate political risk.
$nderstanding ne( markets
While choosing new markets, global companies must consider various macro and micro factors. #acro level
issues include the political@regulatory environment, financial@economic environment, socio cultural issues
and technological infrastructure. ,t a micro level, competitive considerations, availability of manpower,
local infrastructure such as transportation $ logistics network and sophistication of mass media for
advertising are important. /t usually makes sense to do a preliminary screening on the basis of different
criteria and then do an in"depth analysis of the selected countries. The factors which need to be examined
carefully, include legal and religious restrictions, political stability, economic stability, income distribution,
literacy rate, education, age distribution, life expectancy and penetration of television sets in homes.
%olitical risks, especially the attitude of the local government and political parties need to be evaluated
carefully, .&ee )xhibits! A.8, A.6, A.B, A.0, A.A.1.
Let us examine some of these factors with reference to /ndia. /ndia has attracted a lot of attention in recent
years as the offshoring hub of the world. 3ut /ndia is also a very attractive market with millions of
6
consumers with a pent up demand for goods and services which were not available in the country till
recently. ,ccording to a study conducted by the #cCinsey 9lobal /nstitute
8
, private spending in /ndia
amounted to *s. 17 trillion .D678 billion at the then exchange rate of *s. B0.7@D1. #cCinsey expects this
number to go up to *s. 7E trillion by 8E80. ,s incomes increase and population grows, marketers can look
forward to some mouthwatering opportunities.
E!ibit 6".
T!e Economist -rame(ork -or measuring ,olitical risk /#0162
Politics /34 ,oints2
%roximity to superpower or trouble maker .61
,uthoritarianism .71
Longevity of regime .01
/llegitimacy of regime .51
9enerals in power .A1
War@armed insurrection .8E1
Economics /.. ,oints2
9(% per capita .1
/nflation .01
Capital -light .B1
-oreign debt as a proportion of 9(% .A1
-ood production per capita .B1
2igh proportion of exports, accounted for by raw materials .A1
Society (17 points)
%ace of urbanisation .61
/slamic fundamentalism .B1
Corruption .A1
)thnic tension .B1
/n the last 8E years, /ndia has come a long way. /n 150, 56F of the population lived on D1 per day. 3y
8EE0, that number had come down to 0BF. )xtreme poverty in rural areas declined from 5BF in 150 to
A1F in 8EE0. #cCinsey expects the country?s urban population to expand from 61 million today to 086
million in 8E80. 3esides growing urbani'ation, another trend which will enthuse global marketers is the
growth of the middle class segment with an income of *s. 8EE,EEE to *s. 1,EEE,EEE per year. This segment
currently .in 8EE71 makes up 0F of the population. #cCinsey expects that by 8E80, this segment may make
up B1F of the population. ,nd for luxury goods marketers too, opportunities might open up as the segment
earning more than *s. 1,EEE,EEE, making up about E.8F of the population today will grow to 8F by 8E80G
That segment of 8B million people will be larger than the population of ,ustralia by 8E80. These
demographic trends would seem to indicate that while spending on necessities such as food will decline in
relative importance, that in discretionary areas such as health care, education, personal transportation
vehicles and various fashion@luxury goods will increase.
While all these are indeed exciting opportunities, global marketers must also take note of the various
challenges involved while operating in /ndia. To start with, there are regional disparities. The south and the
west are doing well while the north .with the exception of 2aryana, 2imachal %radesh and %un:ab1 and the
east are lagging behind. /ndia?s urbani'ation is proceeding slowly .&ome 85F of /ndians live in cities
compared to BEF in case of China and BF in case of /ndonesia1. 3ut even this modest growth has started
8
)ric ( 3einhocker, (iana -arrell, ,dil & Hainulbhai, <Tracking the growth of /ndia?s middle class,= #cCinsey
Iuarterly, Jo. 6, 8EE7
B
putting pressure on infrastructure. #umbai?s infrastructure problems are legendary and 3angalore and
2yderabad seem to be headed in the same direction. #eanwhile growing competition may put pressure on
margins as more and more #JCs enter the country.
&tar TK illustrates some of the key challenges involved while entering new markets. *upert #urdoch took
over the satellite network in 1550. #urdoch was attracted by &tar?s focus on an elite segment of
cosmopolitan ,sians who seemed to be having a strong appetite for recycled )nglish language
programming. +nly later, #urdoch reali'ed that many ,sian viewers despite knowing )nglish, preferred
local language content. #urdoch also failed to take into account the political dynamics in China. +ne of his
statements, that satellite TK would be an unambiguous threat to totalitarian regimes everywhere backfired.
The Chinese government promptly imposed ma:or restrictions on the operation of foreign satellite TK
services in China.
E!ibit 6"5
T!e *usiness En%ironment Risk Intelligence /*ERI2 -rame(ork /#0612
Internal !auses
-ractionalisation of the political spectrum
-ractionalisation by language, ethnic and religious groups
Coercive measures used to retain power
#entality L xenophobia, nationalism, corruption, nepotism, willingness to compromise.
&ocial conditions, including population density and wealth distribution
+rganisation and strength of forces for a radical left government.
&'ternal !auses
(ependence on and@or importance to a hostile ma:or power
Jegative influences of regional political forces.
Symptoms
&ocietal conflicts L demonstrations, strikes, street violence
/nstability L non constitutional changes, assassinations, guerilla wars.
Entering ne( markets
Companies have to choose between simultaneous and incremental(se)uential entry into different markets.
&imultaneous entry involves high risk and high return. /t enables a firm to build learning curve advantages
;uickly and pre"empt competitors. +n the other hand, this strategy consumes more resources, needs strong
managerial capabilities and is inherently more risky.
/n contrast, incremental entry involves less risk, less resources and a steady and systematic process of
gaining international experience. The main drawbacks with this method are that competitors have time to
catch up and retaliate. Within a given market too, companies have to decide on incremental or phased
expansion. ,gain, let us take the case of /ndia. &etting up a national presence can take some doing. 3ut the
task looks easier when certain practical realities are kept in mind. While /ndia is huge, much of the target
segment for many global marketers lies in the mega cities of (elhi, #umbai and the six largest urban
agglomerations L Colkata, Chennai, 2yderabad, 3angalore, ,hmedabad and %une. 3y focusing on these
areas, ;uicker results can be obtained more cost effectively.
0
E!ibit 6"3
T!e Political Risk )er%ices /PR)2 -rame(ork
The %*& framework considers various variables to estimate the probability of a ma:or loss due to political risk. #ost of
the variables are related to direct government actions. These variables are!
);uity restrictions
)xchange controls
-iscal@monetary expansion
-oreign currency debt burden
Labour cost expansion
Tariffs
Jon"tariff barriers
%ayment delays
/nterference in matters such as personnel, recruitments, etc.
%olitical turmoil
*estrictions on repatriation of dividends or capital
(iscriminatory taxation
Timing is another important issue while entering new markets. ,n early entrant can develop a strong
customer franchise, exploit the most profitable segments and establish formidable barriers to entry. +n the
other hand, an early entrant may have to invest heavily to stimulate demand and build the distribution
infrastructure, especially in developing economies. Competitors who enter the market later, may be able to
market their wares incurring relatively low promotional expenditure.
The key ;uestions while entering overseas markets
6
include!
Which product line@lines should be used as the launch vehicle for globali'ationM
Which markets should be entered firstM
What would be the optimal mode of market entryM
2ow rapidly should the company expand globallyM
+ne of the best examples of a company which entered the right overseas market at the right time is &u'uki
#otor of 4apan. &u'uki looks well positioned today in emerging markets, even though it is small compared
to Toyota, 9eneral #otors and -ord, thanks to the bold strategy pursued by Chairman, +samu &u'uki.
&u'uki chose to go to /ndia instead of Jorth ,merica or )urope, at a time when /ndia was still a <caged
tiger.= 2e saw the underdeveloped /ndian car market as a great opportunity. ,fter about 80 years of
operations in /ndia, &u'uki has a 00 percent share of the /ndian car market. &u'uki?s venture in /ndia called
#aruti >dyog Ltd is the unchallenged leader in the /ndian auto industry.

C!oosing t!e mode o- entry
While entering new markets, a company has various options. These include contract manufacturing,
licensing, franchising, *oint ventures, strategic alliances and wholly owned subsidiaries.
Contract manu-acturing
, local partner can be appointed to manufacture the product. Contract manufacturing avoids the need for
heavy investments and facilitates a ;uick entry with a lot of flexibility. 3ut, there can be supply bottlenecks
6
,nil C 9upta, Ki:ay 9ovindara:an, <2ow to build a global presence,= -inancial Times L %rentice 2all, #astering
9lobal 3usiness, %earson, 1555.
A
in such arrangements if the partner does not make the necessary investments and production does not keep
pace with demand. /t may also be difficult to maintain the desired ;uality levels, if the partner does not have
the re;uired expertise@commitment.
7icensing
Licensing confers the right on a local partner to utili'e a specific asset such as patent, trademark, copyright,
product or process for a fee over a specified period of time. Licensing is particularly advantageous for
companies that lack the resources and expertise to invest in foreign facilities. Licensing not only allows a
company to get around import barriers but also lowers exposure to political@economic stability in the foreign
market. )xcept for the fluctuations in royalty income, all the other risks are absorbed by the local partner.
Licensing of course comes with some disadvantages. *evenues from licensing may cannibali'e those which
were getting generated by exports earlier. /t is ;uite possible that the licensee may not be fully committed to
the agreement, especially in the long run. /f the commitment@enthusiasm of the licensee is half baked, the
revenues generated will be well below their potential. /f a trademark is involved, any wrong or short term
opportunistic moves by the licensee will end up tarnishing the trade mark. Licensing builds up a future
competitor .if licensees decide to part ways1 and restricts future market development. Iuality control is also
a source of worry in licensing.
E!ibit 6"6
Integrati%e and de-ensi%e strategies to manage ,olitical risk
Integrative approaches
(evelop good communication channels with the host government.
#ake expatriates familiar with the language, customs and culture of the host country.
#ake extensive use of locals to run the operations.
3e prepared to renegotiate the contract, if the local government considers it to be unfair.
/nvest in pro:ects of local importance, such as education.
>se :oint ventures to make the locals feel a part of the firm.
-ollow fair, open and accurate financial reporting practices.
Defensive approaches
&ource key components from outside to ensure continued dependence on the firm.
>se as few host"country nationals as possible in key positions.
&elect :oint venture partners from more than one country. The host government may be reluctant to offend many
governments simultaneously.
#ake full use of intellectual property rights such as patents and copyrights to protect proprietary technology.
*aise as much e;uity and debt as possible from the host country
/nsist on host government guarantees wherever possible.
Ceep local retained earnings to the minimum.
Source! 2odgett $ Luthans, </nternational #anagement,= #c9raw 2ill, 155B.
8ranc!ising
-ranchising is similar to licensing but more complex, with the franchisee being in charge of various
managerial processes, typically including a strong service element. The franchisee gets the right to use the
franchisor?s trade name, trademarks, and expertise in a given territory for a specific period of time. /n global
marketing, master franchising is often used. The franchisor appoints a master franchisee who in turn sells
local franchises within the country@region.
7
-ranchising involves limited financial investment. ,s in licensing, the investments and risks of the
franchisor are limited. &ince the profits of franchisees are directly related to their efforts, they can be highly
motivated. 3ut finding suitable franchisees is not easy. The franchisor may also find it difficult to exercise
control over franchisees. Iuality control is again an area of concern in franchising.
9oint :entures
/n a :oint venture, a company agrees to share e;uity@other resources with another partner.s1 to establish a
new entity in the market being entered. The partners are typically local entrepreneurs or local government
agencies@government linked companies. -or example, &u'uki the 4apanese car maker established a highly
successful :oint venture with the /ndian government in the early 15Es. The :oint venture virtually redefined
and significantly expanded the /ndian car market. /t helped &u'uki to deal with government regulations
effectively. (espite occasional tensions, the :oint venture survived for several years. +nly a couple of years
back, the /ndian government began divesting its stake as part of its efforts to relin;uish control on the
economy. Today &u'uki?s /ndian subsidiary, #aruti >dyog Ltd sells more cars in /ndia than the parent
company sells in 4apan.
4oint ventures can be of two types. , cooperative *oint venture involves collaboration between the partners,
without any e;uity investments. -or example, the foreign party may bring to the table manufacturing
expertise while the local partner may provide distribution support. &uch :oint ventures may also take the
shape of strategic alliances. .This is covered in the next section1. /n an e)uity *oint venture, the partners pool
in capital too. &tarbucks has taken the :oint venture route for entering the *ussian market. The partner is #2
,lshaya, a Cuwait retail firm that operates &tarbucks locations in the middle east.
>nlike licensing@franchising, the revenue potential in a :oint venture is greater. &o is the control over local
operations. 4oint ventures also generate more synergies. -or example, the local partner can bring to the table
expertise on the local environment, distribution network, personal contacts with government officials and
close relationships with opinion leaders in the country. -ull control cannot be exercised over a :oint venture
but a global company can call the shots by putting key people in critical functions.
, :oint venture spreads risk, minimises capital re;uirements and provides ;uick access to expertise and
contacts in local markets. 2owever, most :oint ventures lead to some form of conflict between partners. /f
these conflicts are not properly resolved, they tend to collapse.
(ifferences between partners can arise in areas such as pricing, resource allocation and control over key
assets. +ften, the reason for such tensions is a clash of ob:ectives. >nilever?s :oint venture with ,C/ in
&outh Corea, for example, had to be terminated after seven years, following disagreements in various areas"
branding, resource allocation and new product development. &imilarly the :oint venture between %rocter $
9amble and 9odre: in /ndia was terminated following ma:or differences .%lease see box item1. 9oldman
&achs, the global investment bank started off with a :oint venture in /ndia. ,fter about 1E years, 9oldman
decided to go on its own, in a country with mouth watering prospects. /ndia?s market capitali'ation recently
touched
B
D1 trillion, up from D8E billion five years ago. 9oldman has ;uickly put together a team of
expatriates who understand the company?s systems and cultures well. The team has got off to a flying start,
being involved in two record breaking deals L Kodafone?s D11 billion purchase of 2utchinson )ssar and
/C/C/ 3ank?s DB billion public issue.
Alliances
Companies may sometimes come together, in a more informal arrangement, to pursue important goals that
are beneficial to both organi'ations. The nature of the alliance can vary depending on the ob:ectives and the
skills being pooled in. &ometimes, the partners may share technological expertise. /n other cases, they may
B
Time, +ctober 10, 8EE7.

pool distribution assets. ,lliances can be a useful tool to defend the existing market position, catch up with
competitors and in some cases restructure. ,lliances are not easy to manage. +ften they collapse after a
period of time. The ones which do well are characteri'ed by top management commitment, clear ob:ectives
and cultural similarities among the companies involved. , dynamic approach is desirable as the scope of an
alliance often tends to change over time. .,lliances are covered in more detail in Chapter 51.
T!e P ; G < Godre= s,lit
/n late 1558, the ,merican -#C9 .-ast #oving Consumer 9oods1 giant, %rocter $ 9amble .% $ 91 and a leading
/ndian business group, 9odre: set up a marketing :oint venture, %$9 "9odre: .%991 in which %$9 held a 01F stake
and 9odre: the remaining B5F. (avid Thomas, %$9Ns country manager in /ndia was appointed as C)+ while ,di
9odre:, the head of the /ndian company, became the chairman.
%$9 paid 9odre: roughly *s 0E crores to ac;uire its detergent brands, Trilo, Cey and )'ee. 9odre: became the sole
supplier to the :oint venture on a cost plus basis. %$9, on its part, gave a commitment that it would utilise 9odre:Ns
soap making capacity of E,EEE tonnes per annum. 9odre: was allowed to complete its existing manufacturing
contracts for two other #JCs, 4ohnson $ 4ohnson and *eckitt $ Coleman, but could not take up any new contracts.
%$9, on its part, would not appoint any other supplier until 9odre:Ns soap making capacity had been fully utilised.
9odre: transferred BEE of its sales people to the :oint venture.
-or both sides, the :oint venture seemed to make a lot of sense. %$9 got immediate access to 9odre:Ns soap making
facilities. /t would have taken %$9 at least a couple of years to implement a greenfield pro:ect. 9odre: also had
expertise in vegetable oil technology for making soaps. This expertise was useful in a country like /ndia, where beef
tallow could not be used and soap manufacturers had to depend on vegetable oil such as palm oil and rice bran oil.
%$9 also gained immediate access to a well connected distribution network consisting of some two million outlets.
)ven though %$9 had been around in /ndia for some time, its /ndian operations were essentially those of the erstwhile
*ichardson 2industan, which dealt primarily in pharmaceutical products such as Kicks. The non"pharma distribution
network of 9odre:, acted as a fine complement to %$9Ns existing pharma network. 9odre:, on the other hand, was
struggling with unutilised capacity. 9odre: also hoped to pick up useful knowledge from %$9, in areas such as
manufacturing, brand management and surfactant
0
technology. /n short, it looked as though the :oint venture had
created a win"win situation, with tremendous learning opportunities, for both partners.
The %$9 9odre: alliance became operational in ,pril 1556. ,round this time, %$9 increased its stake in its /ndian
subsidiary %$9 ./ndia1 from 01F to A0F, while 9odre:, after having operated for several years as a private company,
went public. %$9 engineers introduced new systems such as 9ood #anufacturing %ractices and #aterial *esources
%lanning in 9odre: plants. The two companies seemed to show a considerable amount of sensitivity to the cultural
differences between them. -or about a year, it looked as though things were going fine. Thereafter, elements of
distrust began to surface and the two companies found the differences in management styles too significant to be
brushed aside. 3y (ecember, 155B, rumours were rife that %$9 and 9odre: did not see eye to eye on many key issues.
+ne of the main problems that the :oint venture faced was that performance did not match up to expectations. /n 1558,
9odre: had sold 85,EEE tonnes of soap. ,fter increasing to BA,EEE in 155B the figure declined sharply to 6,EEE tonnes
in 1550. While sales volumes did not pick up as expected, costs began to rise. (ue to the cost plus agreement, 9odre:
had little incentive to cut costs. /nformed sources felt that 9odre: was charging *s 1E,EEE more per tonne than the
accepted processing costs. 9odre:, on its part, was unhappy that %$9 was not doing enough to promote brands like
Cey and Trilo that it had nurtured over the years. /t was also uncomfortable with %$9Ns methodical and analytical
approach as opposed to its own instinctive method of launching brands at breakneck speed. %$9, on its part, felt that
there was little logic or coordination in 9odre:Ns brand building exercises. /ts multinational, worldwide policy set its
own priorities, as explained by a %$9 executive
A
! OWe believe in introducing long"term brands with sustainable
consumer propositions. Without that, we :ust donNt know how to sell.O 3y mid 155B, sharp differences had developed
0
&urfactant is a key chemical ingredient in soaps and detergents to facilitate the cleansing action.
A
<Why %$9 and 9odre: broke up=, 3usiness /ndia, 4uly 10"8, 155A.
5
between %$9 and 9odre:. , senior 9odre: executive, 2.C. %ress, on deputation to the :oint venture, was ;uietly eased
out and sent back to a 9odre: group company.
, report in a leading /ndian maga'ine
7
aptly summed up the situation! O/n an atmosphere of fraying trust, the
advantages of the alliance faded into the background.= %$9 reali'ed it had gained distribution strengths but found
itself locked into an unsustainable manufacturing agreement and a loss making :oint venture. 9odre: felt let down on
two counts. <The capacity was not being utilised as guaranteed and more crucially, %$9Ns manufacturing process was
not delivering any benefit to 9odre:Ns painstakingly built portfolio of brands.O
/n late 155A, %$9 and 9odre: announced that the alliance was being terminated. The two companies would have little
to do with each other, except for 9odre: continuing to make Camay on behalf of %$9 for two more years and
providing office space to %$9 at its Kikhroli complex. %99 would be taken over by %$9, which would also retain the
detergent brands, Trilo, Cey and )'ee. #ost of %99Ns 00E people and the distribution network consisting of some
6EEE stockists would stay with %$9. 9odre: would absorb about 1EE sales people and get back its seven soap brands,
which had been leased to %99.
3oth %$9 and 9odre: felt that the amicable parting of ways made sense. ,di 9odre: remarked

! OThis will enable us

to pursue business expansion opportunities that have occurred as a result of liberali'ation.O (avid Thomas explained
that the parting of ways would enable
8
Oboth parties to independently pursue the broad array of growth prospects
offered by the strong pace of economic reform.O
>!olly o(ned subsidiaries
, wholly owned subsidiary gives a global company full control over the operations. #arketing, operations,
and sourcing can all be planned and executed exactly the way the company would like it to be. 3y setting up
a subsidiary, the company also indicates its strong commitment to the local market. 3ut the risks of this
approach are also high. The company will have to bear the full burden of losses if things go wrong.
#oreover, heavy resource commitments will have to be made in terms of management time and attention.
&ubstantial political risks may also be involved. 3ut in some cases, wholly owned subsidiaries may be
unavoidable. /ndeed, they may make a lot of business sense. -or example, many global banks are setting up
Pcaptive? off shoring centres in /ndia. +ne of the key reasons for not using third party vendors is
confidentiality of client data. Whenever there is a danger of leakage of proprietary knowledge, wholly
owned subsidiaries may be the route to take.
E!ibit 6"6
>!en local ,roduction is more a,,ro,riate
0
The local market is larger than the minimum efficient scale of production.
&hipping and tariff costs associated with exporting to the target market are high.
The need for local customi'ation of the product design is high.
Local content re;uirements are strong.
The company is short of capital.
The physical, linguistic and cultural distance between the host and home country is great.
The subsidiary needs to have low operational integration with the rest of the multinational corporations.
9overnment regulations re;uire local e;uity participation.
7
<Why %$9 and 9odre: broke up=, 3usiness /ndia, 4uly 10"8, 155A.

3usiness /ndia, 4uly 10"8, 155A

5
,nil C 9upta, Ki:ay 9ovindara:an, <2ow to build a global presence,= -inancial Times L %rentice 2all, #astering
9lobal 3usiness, %earson, 1555.
1E
Green-ield %entures %s Ac?uisitions
9reenfield pro:ects are time consuming and delay market access. They also involve big investments. +n the
other hand, the delay may be worth its while as greenfield pro:ects can be designed exactly the way the
company wants and can incorporate state of the art technology and features which maximise efficiency and
flexibility. 9reenfield pro:ects can be structured as :oint ventures or wholly owned subsidiaries.
,c;uisitions are a faster way of entering a market, compared to setting up greenfield operations. 3y
ac;uiring the >& based 9eneral Chemical /ndustrial products for D1 billion, and earlier the >C based
3runner #ond 9roup, /ndia?s Tata Chemicals has become the world?s second largest soda ash manufacturer.
,c;uisitions can give ;uick access to distribution channels, management talent and established brand names.
,c;uisitions can also help companies consolidate an industry and thereby increase profitability as a result of
greater bargaining power vis"a"vis buyers and suppliers. Lakshmi #ittal?s /spat group is probably the best
example. The group has masterminded ac;uisitions across the world leading not only to a global presence
but also higher profitability for the industry as a whole. 3ut ac;uisitions involve heavy risk. The valuation of
the ac;uired company may be too high in relation to the benefits reali'ed. ,c;uisitions also involve the
integration of the ac;uired entity. Karious factors especially the cultural issues can undermine the integration
process. >nlike greenfield operations, ac;uisitions do not offer much flexibility in areas such as human
resources, logistics, plant layout and manufacturing. This is probably why the share price of Tata Chemicals
fell after the ac;uisition of 9eneral chemical was announced.
The cement industry is a good example of how global companies are expanding their presence in emerging
markets by ac;uisitions
1E
. /n recent years, the big four cement manufacturers, Lafarge .-rance1, 2olcim
.&wit'erland1, Cemex .#exico1 and 2eidelberg .9ermany1 have been involved in 18 takeovers. 2olcim
alone has been involved in six. /ndia has been one of the main scenes of action. Lafarge has ac;uired the
cement division of Tata &teel as also *aymond Cement, while 2eidelberg has taken over #ysore cement.
2olcim has taken over ,CC and 9u:arat ,mbu:a. These ac;uisitions have helped the global cement
companies to establish themselves ;uickly in a market .without adding to the domestic capacity and thereby
lowering cement prices1which has been growing at about F in the recent past and is expected to grow even
faster in the coming years, thanks to strong infrastructure spending. /ndeed, /ndia is the second largest
consumer of cement in the world after China. #eanwhile, for these global companies, markets back home
are increasingly saturated. 3ut one challenge for the global companies is making these ac;uisitions
profitable. 2olcim has paid a substantial premium for its stake in ,mbu:a Cements which it has purchased in
tranches. (oubts remain whether enough value will be created to :ustify this premium.
Market Researc!
#arket research can help a global company to reduce its exposure to risk, identify the markets to enter and
the mode of entry. /n an existing market, research can help arrive at the optimal marketing mix. The basic
principles of marketing research do not change when we move from domestic to international marketing.
3ut the ob:ectives in case of international marketing research tend to be more complex because of the
various dimensions involved. ,t the same time, the implementation poses various challenges. (ue to local
cultural, economic, social and political factors, the research design cannot be standardised across markets.
&urvey methods may vary depending on literacy levels and the kind of communications media available.
Clearly, an optimal balance must be struck between centralisation which would facilitate easier coordination
and control and decentrali'ation which would mean greater adaptation to different local@regional
environments. , key decision here is whether to use a large international research firm or several small
research firms. #oreover, the research activities have to be carefully designed and organi'ed, depending on
whether it is necessary to examine the some market segment across many countries, a particular geographic
region or specific sectors within particular countries.
1E
#ahesh Jayak, <2olcim?s /ndia &trategy,= 3usiness Today, +ctober 7, 8EE7. pp. 16"1BE.
11
The research design must take into account cultural differences across regions. &ome elements such as the
sample to population ratio and the information to be collected for each product category can be
standardised. 2owever, ;uestionnaires have to be carefully designed, taking into account the sensitivity of
both the local government and the local people. /n particular, personal and embarrassing ;uestions have to
be avoided in certain countries. Jotwithstanding these difficulties, opportunities to globalise should not be
overlooked. -or example, clusters of countries might need the same ;uestionnaire.
Acer+s $) -oray runs into trouble
,cer, the Taiwanese computer maker illustrates the challenges faced by companies based in emerging markets while
entering developed markets. ,fter developing a strong presence in south east ,sia and Latin ,merica, ,cer decided to
target the >& market with its popular ,spire 2ome %C. ,cer soon found itself being outmaneuvered by stronger rivals
such as (ell with superior marketing capabilities. ,s the ,spire line began to pile up losses, ,cer announced that it
would concentrate on its %ower %Cs, backed by a D1E million marketing campaign to target small and medium
businesses. ,cer also indicated that it might launch low cost computer appliances called QCs priced D8EE or lower
once they were established in ,sia. 3ut ,cer?s market share slipped from 0.BF .late 15501 to 6.8F .late 1551 and it
began to make losses in the >& market.
%art of the problems arose because customers for ,cer?s contract manufacturing arm worried about spill over of
business secrets to and cross subsidi'ation of ,cer?s offerings under its own brand name. /n 8EEE, /3# cancelled a
ma:or order, reducing its share of contract manufacturing in ,cer?s revenues from 06F in the first ;uarter of 8EEE to
only 8AF in the second ;uarter of 8EE1.
-ounder &tan &hih had once told his executives that a strong presence in ,merica was vital to the development of a
global brand
11
! </t?s almost a mission impossible but all of our people are ready to fight for that mission.= These hopes
however were belied and after losing DB0 million in the >&, in 1555, ,cer began to retreat from the >& consumer
market.
,cer decided to target developed countries with contract manufacturing and offer its own brands in the ,sian region.
The contract manufacturing activities were spun off into a separate arm called Wistron. *ecently, ,cer has made a bold
move by announcing it will buy leading %C maker, 9ateway for D71E million. This will not only significantly,
strengthen ,cer?s presence in the >&, taking its market share from about 0.8F to 1E.F but also make it the world?s
third largest %C maker ahead of China?s Lenovo. ,fter the ac;uisition is completed, ,cer will generate sales of more
than D10 billion and ship over 8E million %Cs every year. 3ut ,cer will continue to trail well behind the market leaders
in the >&, (ell .8.BF1 and 2ewlett %ackard .86.AF1
18
.
There are six steps in conducting global market research!
(efining the research problem.s1.
(eveloping the research design.
(etermining information needs.
Collecting the data .secondary and primary1.
,nalysing the data and interpreting the results.
*eporting and presenting the findings of the study.
3efore beginning the research, a global company must ask some basic ;uestions!
What information do we needM What will we do with the information when we get itM
Where can we get this informationM /s it available in files, in a library, or online from a databaseM
Why do we need this informationM
11
3usiness Week, +ctober 18, 155, p 86.
18
,ccording to /(C.
18
When do we need the informationM
What is this information worth to usM
What would be the cost of not getting the informationM
/t is always useful to start with desk research as it simple, fast and cost effective. Then information readily
available from overseas sources can be tapped. The more developed the country, the greater the information
available and better the ;uality of databases. ,fter identifying the right source, the information must be
collected and analysed. Common sense and logic must be used to evaluate the comparability and accuracy of
the information obtained from overseas sources.
There are two broad categories of information. &econdary sources provide information already collected by
someone. %rimary research means starting from scratch and collecting data specifically for the pro:ect or
assignment being conceptuali'ed. /n most cases, a combination of primary and secondary research is
involved.
3asic approaches to marketing research can vary across countries
#.
. -or example, 4apanese market
researchers rely far less on statistical tools than their counterparts in the >&. The 4apanese are somewhat
cynical about <scientific= research for various reasons!
Careless random sampling can lead to mistaken :udgments as some people may be indifferent towards
the product.
Customers may not be genuine when talking.
Customers may be conservative and react negatively to new products.
%eople tend to exaggerate.
/nsufficient information is given to survey participants.
/nstead of conducting surveys, 4apanese market researchers often go to the field and observe how customers
use the product. &uch market research activities also go by the name of in situ surveys or anthropological
studies. -or example, car maker Toyota found through observation that women with long fingernails had
problems in opening car doors and handling various knobs on the dashboard.
#arket research is also more tightly integrated with product development in 4apan. #arket research teams
include both product engineers as well as sales and marketing representatives. The insights engineers gain
while interacting with customers are directly incorporated into the product.
Companies in other parts of the world too are moving towards anthropological studies. Tesco the >C retailer
seems to be following a similar approach in the >&. The retailer has spent years doing painstaking market
research in the >&. Tesco?s representatives have spent time with ,merican families looking into their kitchen
cupboards, watching them cook and following them as they shop.
#any marketers are realising that market research has to go beyond the obvious to the underlying
subconscious mind which is at work all the time whether people realise it or not. ,s a senior executive of
Jokia recently mentioned
1B
, <+f course the products have to be well engineered and you have got to give
people rational reasons to buy something. 3ut there are very few customers out there who buy only based on
a rational, linear decision process. )motional reasons L largely connected to the subconsious L play a critical
role. This is especially true for items or ob:ects that are consumed in the public domain. /n these situations,
16
<2ow does 4apanese market research differM,= #asaaki Cotabe and Cristiean 2elsen, 9lobal #arketing
#anagement, 4ohn Wiley $ &ons, 8EE1.
1B
#cCinsey Iuarterly, Jo. 6, 8EE7
16
people don?t buy :ust for rational reasons.= &imilarly, a top official of RahooG recently remarked
10
, <We do a
lot of ethnographic work, where we get out and observe customers in their environment L at home, at work.
What we?re looking for, are pain points. What are they struggling withM &ometimes, that?s the most fertile
area for real, breakthrough innovation.=
Conclusion
While entering overseas markets, global companies must take into account various factors L social,
economic, political and cultural. They must understand the local marketing environment, especially the local
infrastructure and the cultural issues. The risks involved with different entry options must be carefully
evaluated. There is a well known saying, <Well begun is half done.= &imilarly, the right entry strategy in an
overseas market can generate tremendous competitive leverage for global companies.
10
#cCinsey Iuarterly, Jo. 6, 8EE7
1B
10