Chapter 1 : Global marketing in the firm

This chapter contains an introduction to globalization. We will discuss the process

of developing the global marketing plan, the two main types of enterprises, the
development of the concept of global marketing, global integration and market
responsiveness, the value chain and global experimental marketing.
1.1

Introduction to globalization
Globalisation: the trend of companies buying, developing, producing and
selling products and services in most countries and regions of the world. It
increases the companies competitiveness and facilitates innovation.
Internationalisation: doing business in many countries of the world, but
often limited to a certain region, e.g. Europe. It is unlikely to be successful
unless the company prepares in advance.

1.2 the process of developing the global marketing plan

Five-stage decision model in global marketing:

1.3

Comparison of the global marketing and management style of

SMEs and LSEs
There are two types of enterprises:
LSEs (Large Scale Enterprises): firms with more than 250 employees.
Comprise 1% of all firms.
SMEs (Small and Medium-sized Enterprises): small firms have fewer than
50 employees; medium firms have fewer than 250 employees. Comprise
99% of all firms.
Resources

Formation
of strategy/
decision
making
process
Organisatio
n

Risk-taking

LSE

Many resources
Internalization of resources
Coordination of personnel,
financing, market knowledge
ect.
Deliberate strategy formation
Adaptive decision making mode in
small incremental steps (logical
incrementalism: taking small steps and
when proven successful then make a
strategic change
Formal/hierarchical
Independent or 1 person

Mainly risk-averse

SME

Limited resources
Externalization of
resources
(outsourcing)

Emergent strategy formation

Entrepreneurial decision
making model. The owner is
involved and dominates the
entire decision making

Informal
The owner/
entrepreneur usually
has the power to
inspire/control the firm
Sometimes risk

Flexibility
Taking
advantage
of scope
and scale
Using
information
sources

Low
Yes

Focus on long-term

Advanced technics: databases,

external consultancy, internet

taking/sometimes risk
averse
Focus on short term

High
Limited

Informal manner of data

gathering in inexpensive way:
Internal sources, face-to-face

1.4 Should the company stay at home or go abroad?

Solberg (1997) discusses the conditions under which a firm should stay at home
or go abroad. His framework, The nine strategic windows is based on two
dimensions:
Industry globalism: depends on the firms international competitive
structure within the industry. Local: the markets are independent form
each other. The firm operates in a multi-domestic market environment. For
example, a barber. Potentially global & Global: there are many
interdependencies between markets, customers and suppliers. The firm
operates in an industry that is dominated by a few powerful players. For
example, IT industries.
Preparedness for internationalisation: depends on the firms ability to
perform strategies in the international marketplace. Immature: the firm has
little international experience and a weak position in the home market.
Adolescent& Mature: the firm has a good basis for dominating the
international markets and is able to gain higher market shares.

1.5 development of global marketing concept

Global marketing: the firms commitment to coordinate its marketing activities
across national boundaries in order to find and satisfy global customer needs
better than the competition. Global marketing has his main purpose in finding or
consisting and satisfying the needs of the global customer. The nature of the
firm's response to global market opportunities depends on the assumptions of the
management. The firm's business can be described to the EPRG framework. This
framework contains four orientations:
1.
Ethnocentric: the home country and its needs are superior. Control is
centralised and approaches and equipment implemented in foreign
locations are identical to those in the home country.

2.

Polycentric: each country is unique and should be treated in a different

way. Control is decentralised and he firm tries to adapt to the different
conditions of different locations in order to maximize profits.
3.
Regiocentric: the firm tries to integrate, adjust and coordinate its
marketing programme within regions (e.g. Europe, Asia), but not across
them.
4.
Geocentric: the firm offers global products with local adaption.
1.6 Forces for global integration and market responsiveness
There are two dimensions that show the starting points of the LSEs and SMEs
strategy, their movement of strategy and their aimed strategy: global integration
and market responsiveness.
1.
Global integration: recognizing the similarities between international
markets and integrating them into the overall global strategy.
2.
Market responsiveness: responding to each markets needs and wants.
Forces for global integration (1). These forces support a shift towards
integrated global marketing.
1.
Removal of trade barriers (deregulation): it reduces time, costs and
complexity.
2.
Global accounts/customers: LSEs are demanding suppliers (SMEs) to
provide them with global products and services to meet their unique global
needs. SMEs need cross-functional customer teams in order to manage
these demands.
3.
Relationship management: the increasing importance of relationships with
external organisations and internal units (e.g. subsidiaries). These
relationships reduce market uncertainties, especially in dynamic
environments, but increase the need for coordination and communication.
4.
Standardized worldwide technology: the customers electronic demands
are high for homogeneity products, this increases the need for scale and
scope production.
5.
Worldwide markets: they are growing because they can rely on world
demographics.
6.
Global village: similar products and services can be sold to similar groups
of customers in any country in the world.
7.
Worldwide communication: due to internet it is easier and less expensive
to communicate and trade across different countries. Consequently,
customers are able to buy the same products and services in foreign
countries as in their home country.
8.
Global cost drivers
Forces for market responsiveness (2). These forces support a shift towards a
national, market responsive marketing.
Cultural differences: there are difficulties in international negotiations
and marketing management because of the differences in personal values
and assumptions of people.
Regionalism/protectionism: the grouping of countries into regional
clusters based on geographic proximity. These regional clusters form
trading blocs and create outsiders as well as insiders, this can result in
protectionism.
Deglobalization trend: moving away from the globalization trends and
regarding each market as special, with its own economy, culture and
religion. This trend develops due to the fear of (cultural) imperialism.

Chapter 2: initiation of internationalization

2.1 Introduction
If a firm expands its research and development, in most cases,
internationalization occurs. This happens if the production, selling and other
business activities will go into international markets. The next figure describes
the various stages in the pre-internationalization process.
1.
Input: proactive internationalization motives and the reactive
internationalization motives
2.
Process: Internal and external triggers which will lead to information
search and translation which will be used for the information on
internationalization. When this process is completed, the firm is
internationalization ready.
3.
Output: Action: internationalization trial.
2.2 Internationalization motives
Internationalization motives: the fundamental reasons (proactive and reactive)
Proactive motives
Reactive motives
growth and profit goals
competitive pressure
tax benefits
extend sales of seasonal product
economies of scale
proximity to international customers or
psychological distance
foreign market opportunities
unsolicited foreign order
managerial urge
overproduction
Technology
Domestic market: small and saturated
competence/unique product
2.3 Triggers of export initiation (change agents)
An agent outside the firm must initiate the process of internationalization and
carry it through to implementation. These are known as internationalization
triggers. We can describe two types of triggers:
Internal triggers
External triggers
Internal triggers
External triggers
Perceptive management (gain early
Market demand
awareness)
specific internal event (the interest
Network partners
from managers, foreign enquiries and
demand in the home market)
importing as inward
Competing firms
internationalization (The knowledge of
inward activities can play a role in the
outward activities)
Outside experts
The most important resource is information and knowledge. They play a critical
factor in the initiation of the internationalization process. For a company to grow
or initiate potential innovation in the international markets, appropriate
information is important to require. The international information can be
transformed into knowledge within the firm.

2.4. Internationalization barriers/risks

We can identify a variety of barriers and risks to successful export operations.
Critical factors that are holding back the internationalization initiation include the
following barriers:
insufficient knowledge
insufficient finances
lack of foreign channels of distribution
lack of productive capacity to dedicate to foreign markets
lack of foreign market connections
lack of export commitment
Cost escalation due to high export manufacturing, distribution and
financial expenses.
Barriers that holding back the further process of internationalization contains a
variety of groups in which the risks or barriers occurs:
1. General market risks
2. Commercial risks
3. Political risks
1. General risks include the following:
A comparative market distance, competition from other firms in foreign
markets, differences in product usage in foreign markets, language and
cultural differences, difficulties in finding the right distributor and
complexity of shipping services to overseas buyers.
2. Commercial risks include the following:
Difficulties in obtaining export financing, failure of export customers to
pay, delays or damage in the export shipment and distribution process and
exchange rate fluctuations when contracts are made in a foreign currency.
3. Political risks include the following:
foreign government restrictions, national export policy, complexity of trade
documentation, civil strife, revolutions and wars that are disrupting foreign
markets, high foreign tariffs on imported products, lack of tax incentives
for companies that export, lack of government assistance in overcoming
export barriers and a high value of the domestic currency relative to those
in export markets.

Chapter 5: Global marketing research

5.1. introduction
Two types of marketing research:
Marketing information system (MIS)
Decision support system (DSS)
5.2. The changing role of the international researcher
Previously market researchers did not evolve or interact with the decision makers
within a firm. Nowadays these jobs become more and more related to each other.
5.3. Linking global marketing research to decision-making process
We can describe five phases of global marketing decision, each with their own
information needed:
Phase 1: Deciding whether to internationalize. The information that is needed
contains assessment of global market opportunities, commitment of the
management to internationalize, domestic versus international market
opportunities and competitiveness of the firm compared with local and
international competitors.
Phase 2: Deciding which market to enter. The information that is needed contains
ranking of world markets according to market potential of countries, local
competitions,
political risks, trade barriers and cultural distance to potential market.
Phase 3: Deciding how to enter foreign markets. The information that is needed
contains the nature of the product, size of markets and segments, behaviour of
potential intermediaries and local competition, transport costs and government
requirements.
Phase 4: Designing the global marketing programme. The information that is
needed contains the behaviour of the buyer, competitive practice, available
distribution channels and media/promotion channels.
Phase 5: Implementing and controlling the global marketing programme. The
information that is needed contains negotiation styles in different cultures, sales
by product line, contribution margins and marketing expenses per market.
Information about a foreign country, its consumer preferences and tastes, etc. is
needed when entering the foreign country. There are two major sources of
information:
Primary data: information that is collected first-hand, generated by original
research tailor-made to answer specific research questions. It is specific, up-todate and relevant, however, it is time consuming and expensive.
Secondary data: information that has already been collected for other purposes
and thus is readily available. The information is quickly obtained and cheap,
however, it is general information inaccurate.
Note: primary research should only be done after insight in secondary
information.
5.4. Secondary research
Secondary research performed in the home country is less expensive and timeconsuming than research performed in a host country. Besides that, research
performed in the home country about the foreign market is objective.

Non-availability

Disadvantages of secondary research in foreign

markets:
developing countries have poor statistical services. The

of data:
Reliability of
data:

Data
classification:
Comparability
of data:

availability and accuracy of secondary data increases as the

level of economic development increases.
political considerations might affect the reliability of data.
Furthermore, the data might lack statistical accuracy due to
the data collection procedures.
Questions that are useful to judge the reliability of data
sources:
Who collected the data? Is there a reason for purposely
misrepresenting the facts?
For what purpose is the data collected?
How the data is collected (methodology)?
Are the data internally consistent and logical with
regard to the known data?
the data might be too broadly classified for use at the micro
level.
due to differences between national definitions of statistical
phenomena, data might not be ready to compare
immediately.

Note: nowadays people are very sensitive to the issue of data privacy. The
international marketer needs to take into account the privacy laws of a certain
nation.
Secondary data can be divided into two types of sources: Internal and external
data sources:
1. Internal data source
Information that must be available is:
Total sales
Sales by country
Sales by products
Sales volume by market segment: geographical or by type of industry.
Sales volume by type of channel distribution
Pricing information: to identify the effect of price changes on demand.
Communication mix information: to identify the effect of advertising
campaigns, sponsorship and direct mail on sales.
Sales representatives records and reports
2. External data sources
Secondary data is often used to estimate the size of potential foreign
markets. For this purpose historical data is required. Four approaches to
estimate the marketsize:
Proxy indicators: it uses indirect variables as a proxy, because direct
measures are difficult to obtain. It is inexpensive and easy to implement,
however, it can cause validity problems. For example, the number of
televisions owned by households is a proxy for a countrys economic
development.
Chain ratio method: logical ratios are used to reduce a base population. It
is inexpensive and easy to implement. For example, the total market
potential for washing machines: number of households * percentage of
households that have electricity * percentage of households that have a
running water supply.

Lead-lag analysis: determinants of demand and the rate of diffusion are

the same, but time is different in two countries. A difficulty is to identify
the relevant time lag and the factors that affect future demand.
Estimation by analogy: a correlation value (between a factor and the
demand for the product) for a known market is used in another, unknown
international market. For example, (population size of the country with the
known market / population size of the country with unknown market) *
sales of a product/service (the factor)

Note: it is assumed that other factors other than the correlation factor are similar
in both countries, for example, the same culture.
5.5 Primary research
There are two types of primary research:
1. Qualitative research: provides a holistic view of a research problem by
integrating a larger number of variables, but asking only a few
respondents.
2. Quantitative research: data analysis based on well-structured
questionnaires from a large group of respondents. Data analysis is based
on a comparison of data between all respondents.
Triangulation: the mix of qualitative and quantitative research methods. In this
way the accuracy and validity of the data improves.
The primary research design/ process:
Designing research for primary data collection leads to many decisions to make.
Step 1 research problem/ objective: determine the information requirements
Step 2 research approach: observations, survey, experiments (cause-and-effect)
Step 3 contact methods: mail, internet, telephone, personal
Step 4 sampling plan: sample unit, procedure (probability, non-probability), size
Step 5: pretesting/ data collection/ data analysis
5.6 other types of marketing research
Ad hoc research: It focuses on a specific marketing problem and collects data
at one time from one sample of respondents. For example, usage surveys.
Custom-designed studies: It is based on the specific needs of a customer
which makes it quite expensive.
Multi-client studies: The purpose is to answer specific questions without
relying on primary research in a cheap way. Two types of multi-client studies:
Independent research studies n(done independent and offert for sale)
Omnibus studies: research agencies make questionnaires for specific
segments in the foreign market and companies will buy them.
Delphi studies: It combines information of a group of exports. So, qualitative
measures are preferred above quantitative measures. The information is returned
to the participants who discuss and respond to it. After several rounds a
consensus between the key informants and the participants is developed.
Disadvantage: time consuming technique.
Continuous research: The sample remains the same over time (difference with
Ad hoc). It provides pictures that give in-depth view of the recent developments.
The panel consists of a sample of respondents that provide information at specific
intervals. Two types of panel:
Consumer panels: provide information on their purchases over time.

Retailer panels: provide information about the sales of brands by laser

scanning the barcodes on goods when they pass through the checkout.
Sales forecasting: Forecasting market sales together with a companys market
share can be used to forecast a companys own sales. Three types of forecasts:
Short-term forecasts: three months ahead, used for tactical matters
Medium-term forecasts: one year ahead
Long-term forecasts: three year or more ahead
Note: upturns and downturns cannot be predicted, such data must be
subjectively added by the forecaster.
Scenario planning: stories about plausible alternative futures. They are possible
futures rather than predictions. It is useful to identify growth strategies, potential
threats to a firms market position, and external industry changes that cause
falling market share or margins. Convergent forces: forces driving developments
in the same direction (marco-environment). Divergent forces: forces driving
developments apart from each other (cultural difference).
Chapter 6: economics and politics
Host country environment: Managers should continually monitor the
government, its policies and stability in order to measure the potential for
political change that could affect the operations of the firm.
Major

types of political risk:

Ownership risk: exposes property and life.
Operating risk: interference within the ongoing operations of a firm.
Transfer risk: when transfer capital between countries.

Government actions:
Import restrictions: to create markets for local industry. Effects:
interruption of operation of established industries.
Local-content laws: the requirement that sold products within a country
must have a certain portion of local content.
Exchange controls: are implemented when a country faces shortages of
foreign exchange. The controls must converse the supply of foreign
exchange for the most essential uses. Problem: Transfer risks foreign
investor obtains money in the currency of the home country.
Market control: in order to prevent foreign companies to compete in certain
markets.
Price controls: are carried out on essential products in order to control the
cost of living or the inflationary periods.
Tax controls: used to control foreign investments, it is a political risk. They
are often raised without warning and in violation of formal agreements.
Labour restrictions: associated with labour unions. They have a great
political influence.
Change of government party: the agreements between the government
and companies might change when a new government is created. This is
an issue that occurs most in developing countries.
Nationalisation (expropriation): means to takeover foreign companies by
the host government. This is the ultimate government tool to control
foreign companies.
Domestication: the creeping expropriation is a process whereby the
control of the owners of a foreign firm reduces due to controls and
restrictions placed by the government. These controls include: greater

decision-making powers accorded to nationals, more products produced

locally, gradual transfer of ownership to nationals, e.g.
Trade barriers: Trade barriers are trade laws (often tariffs) that favour local
firms and discriminate against foreign ones. There are two main reasons for trade
barriers:
To protect domestic producers: the effective costs of an imported
product are higher compared to the domestically produced products due to
the import tariffs.
To generate revenue: tariffs are a source of revenue of the government.
It often occurs in less-developed nations.
Note: A protected industry can be destroyed if it encourages ineffiency and later
starts to internationalise, and thus faces the international competition.

Trade barriers are grouped into two categories:

1. Tariff barriers: Tariff barriers are direct taxes and charges imposed on
imports that are used by governments to protect local companies from
outside competition. The most common forms are:

Specific: charges, in local currency, imposed on particular products

by weight or
volume.

Ad valorem: chares are a percentage of the import price (the value

of the goods).

Discriminatory: charges against a particular country because of

trade imbalance or
political purposes.
2. Non-tariff barriers: unknown quantity and less predictable than tariff
barriers. They occur more in times of recession. The most common nontariff barriers are:

Quotas: a restriction on the amount of a good that can enter or leave

the country during a certain period.

Embargoes: a complete ban on trade (import and export) in one or

more products
with a particular county. They are applied to accomplish
political goals.

Administrative delays: regulatory controls designed to affect the

rapid flow of
imports into a county negatively.

Local content requirements: laws stating that a specified amount of

a good or service must be supplied by producers in the domestic market.
6.3. The economic environment
Economic development results from three types of economic activity:
Primary: agriculture activities.
Secondary: manufacturing activities.
Tertiary: service activities, e.g. insurance percentage spend on these
activities increases when the income of consumers increases.
Exchange rate: how much of one currency must be paid to receive a certain
amount of another currency.Exchange rates influence business activities:
A weak currency: local currency is valued low compared to other
currencies.
Export is cheap and thus increases; import is expensive and thus
decreases.
A strong currency: local currency is valued high compared to other
currencies.
Export is expensive and thus decreases; import is cheap and thus
increases.
The law of one price means that an identical product must have an identical
price in all countries when price is expressed in a common denominator currency.
The requirements are identical quality, identical content and produced entirely
within a particular country. Useful to determine whether a currency is over or
undervalued.
Big Mac Currencies is an exchange-rate index that is based on the theory of
purchasing power parity (PPP). This theory states that a certain currency
should have the same value in all countries. It tries to eliminate the differences in
price levels between countries in order to equalize the purchasing power.
Furthermore, it tries to improve comparability by adjusting national income data.

Chapter 7: The sociocultural environment

7.1. Introduction
Hofstedes definition of culture: culture is the collective programming of the
mind which distinguishes the members of one human group from another. It
includes systems of values, and values are among the building blocks of
culture. Culture can be explained according to these three characteristics:
It is learned
It is interrelated
It is shared
7.2. Layers of culture
A framework of the different layers of culture can be used to understand the
various norms of behaviour and the individuals decision-making processes,
which are important when the firm wants to internationalise,
National culture 2. Business/industry culture 3. Company culture 4.
Individual behaviour
7.3. High- and low-context cultures
Edward T. Hall (1960) introduced the concept of high and low context in order to
understand the different cultural orientation:
Low-context cultures: rely on spoken and written language. There is a low
degree of complexity in communication, e.g. Swiss.
High-context cultures: more elements surrounding a message. The social
importance and knowledge, and the social setting of a person add extra
information to a message, e.g. Japanese
If the difference in context increases, the difficulty in achieving accurate
communication increases as well.
7.4. Elements of culture
Characteristic
Low context/
individualistic ( west
Europe, US)
Communication Explicit, direct
Sens of self and Informal handshakes
space
Dress
Varies widely, dress for
appearance
success
Food and
Eating is a necessity, fast
eating habits
food
Time
Linear, exact, promptness
consciousness
is valued (time = money)
Family and
Nuclear family, selffriends
oriented, value youth
Vales and
Independence,
norms
confrontation of conflict
Belief and
Egalitarian, challenge
attitudes,
authority, gender equity
Mental process
Linear, logical, sequential,
and learning
problem solving
Business/ work
Deal oriented, rewards
habits
based on achievement

High context/ collectivistic

( Japan, China, Saudi
Arabia)
Implicit, indirect
Formal hugs, bows and
handshakes
Indication of position in
society, religious rule
Eating is social event
Elastic, relative
(time=relationship)
Extended family, other
oriented, loyalty
Group conformity, harmony
Hierarchical, respect for
authority, gender roles
Lateral, holistic, accepting
lifes difficulties
Relationship oriented, reward
based on seniority

7.5. Hofstedes original work on national culture (4+1)

According to Hofstede, the way people in different countries interpret their world
varies along four dimensions: power distance, uncertainty avoidance,
individualism and masculinity:
Power distance: the degree of in equality between people in physical and
educational terms.
o
High power distance: power is concentrated,decisions are made by
top people (JAP)
o
Low power distance: power is widely dispersed, relationships are
egalitarian. (DNMK)
Uncertainty avoidance: the degree to which people in a country prefer
formal rules and fixed patterns of life to enhance security.
o
High uncertainty avoidance, risk aversion. Managers long-range
planning. Japan.
o
Low uncertainty avoidance, face the future as it takes. United States.
Individualism: degree to which people in a country learn to act as
individuals rather than members of a group.
o
Individualistic societies, people are self-centred, and search for
independence and
goal fulfilment of their own goals. United States.
o
Collectivistic societies, existence of group mentality. Members are
interdependent,
have high loyalty to the firm, and make decisions
decentralised. Japan.
Masculinity: the degree to which masculine values prevail over feminine
values.
o
Masculine cultures have different roles for men and women and they
perceive big as
important. United States.
o
Feminine cultures value the quality of life over materialistic ends.
Denmark.
Time perspective: the way members of an organisation exhibit a futureoriented perspective rather than a traditional history.
o
Long-term orientation: persistence, ordering relationships by status
and observing
this order. China.
o
Short-term orientation: personal steadiness and stability. European
countries.
7.6 The strengths and weaknesses of Hofstedes model
Strengths of Hofstedes research:
Large sample
Information population is controlled across countries. Thus, comparison
can be made.
Four dimensions tap into deep cultural values and make comparisons
between cultures.
The meaning of each dimension is relevant.
Comparison of so many cultures in much detail: the best there is.
Weaknesses of Hofstedes research:
It assumes that national boundaries and the limits of the culture
correspond. Though homogeneity cannot be taken for granted in a model
that includes so many different cultures.

Hofstede did research only among one single industry and one single
multinational. This assumes that the values of a small group represent the
values of a whole industry, which is not true.
There are technical difficulties due to overlap between dimensions.
The definitions of the dimensions might differ per culture.

7.7 Managing cultural differences

In order to avoid the unconscious reference to our own cultural values, Lee
suggested a four step approach to eliminate self-reference criterion (SRC):
1. Define the problem in terms of home country culture, traits, habits and
norms.
2. Define the problem in terms of host country culture, traits, habits and
norms.
3. Isolate the SRC influence and investigate how it complicates the problem.
4. Redefine the problem without SRC influence and solve the problem.
Chapter 8 : The International Market Selection Process.
8.1 Introduction
To identify the right markets and which one to enter, a few reasons are important:
It can be a major determinant of success or failure,
the decision influences the nature of foreign marketing programmes
the geographical location which are selected are affecting the abilities of
the firm to coordinate foreign operations.
8.2 International market selection: SME vs LSE
In SMEs IMS is often based on opportunities by the given market and intuition. If
this is not the case, it is based on three criteria:
Low psychic distance: enough information available about foreign markets.
Differences in language, culture, political system, level of
education/industrial development.
Low cultural distance
Low geographic distance
Note: young SMEs entered more distant markets much earlier than the old SMEs.
Reason to internationalise: they are selling to global customers that expect
delivery of the SMEs product and services in multiple countries. So, the SMEs
need global distribution networks. LSEs are drawing on existing operations, this
makes it easier to access to primary information. Therefore LSEs are more
proactive and make use of a step-by-step analysis.
8.3. Building a model for international market selection
There are several determinants of the firms choice for a foreign market. These
can be divided into two groups namely (1) environmental and (2) firms
characteristics
The Firm (2)
The environment (1)
Degree of internationalization
International industry structure
Size/ Amount of resources
Degree of internationalization of the
market
Type of industry/ nature of
Host country
business
- Market potential
- Competition
- Distance
- Market similarity
Existing network of relationships
Internationalisation goals

An international market has two different definitions:

The international market as a country or a group of countries.
The international market as a group of customers with nearly the same
characteristics.
Step 1: The selection of the relevant segmentation criteria
The criteria for effective segmentation are:
Measurability: the degree to which the size and purchasing power of
resulting 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.

Step 2: The development of appropriate segments

general characteristics (high degree of MASA)
Specific characteristics
(low degree of MASA)
Geographic location:
Cultural characteristics
Language
Lifestyle
Political factors
Personality
Demography
Attitudes, tastes,
predispositions
Economy
Industrial structure
Technological
Social organisation
Religion
Education
Step 3: The screening of segments to narrow down the list of markets
The screening will be divided into two stages: The preliminary and the finegrained screening.
Preliminary screening: screening only through external screening criteria.
Criteria examples: Restrictions in the export of goods, gross national
product per capita, government spending as a percentage of GNP and
number of cars owned per 1000 of the population
Fine-grained screening: the firms competitive power and special
competences in different markets are taken into account. It uses the
market attractiveness/competitive strength matrix, Figure 8.4. This results
in three categories of countries:
The degree of political, economic and financial stability can be assessed with the
macro-oriented Business Environment Risk Index (BERI). (coarse grained
macro oriented screening)

Step 4: Micro segmentation

Micro segmentation: variables are used to develop segments in each qualified
country.
Examples of variables: Demographic factors, lifestyles, behaviour of the buyer,
geography, psychographics and consumer motivations
8.4. Market expansion strategies
For choosing a strategy to expand in different markets, a firm needs to consider
two questions:
Will they enter markets incrementally (waterfall approach) or simultaneously
(shower approach)?
Incrementally: a product or technology is so new or expensive that only the
advanced countries can use it or afford it. Over time the price will reduce and
become inexpensive enough for developing and less developed countries
Simultaneously: entering all markets at the same time in order to make use of the
firms core competence and resources.
Concentration: concentrate resources on a limited number of similar markets.
Diversification: resources across a number of different markets.
Chapter 9: some approaches to choice of entry mode
9.1 Introduction
An entry mode is an institutional arrangement for the entry of a companys
products and services into a new foreign market. The main types are export
(CH10), intermediate(CH11) and hierarchical (CH12) modes.

There are three rules used to identify the strategy for the entry mode selection:

Naive rule: decision-maker uses similar entry modes in all foreign markets.
Ignorance of heterogeneity.
Pragmatic rule: decision-maker uses a workable entry mode for each
foreign market. Exporting firm starts with a low-risk entry mode, if this is
not successful it searches for another workable entry mode.
Strategy rules: before the choice of the entry mode is made, all alternative
entry modes are compared and evaluated.

9.2. The transaction cost approach

Basic idea: the existence of friction between the buyer and seller concerning
market transactions. This friction is caused by opportunistic behaviour in the
relation between a producer and an export intermediary.
9.3.
There
1.
2.
3.
4.

Factors influencing the choice of entry mode

a four groups of factors that influence the choice of entry mode:
Internal factors
External factors
Desired mode characteristics
Transaction-specific behaviour

1. Internal factors
Firm size: it is an indicator of the firms resource availability. SMEs use
export modes with low resource commitment. LSEs use hierarchical
modes.
International experience: the extent to which a firm has been involved in
operating internationally.
Product/service: physical characteristics influence the location of
production. Products with high complexity will use hierarchical modes.
Furthermore, soft service products are more likely to use hierarchical
modes than hard service products because of high control.
2. External factors
Sociocultural distance between home country and host country:
comparison of language, education level, business and industrial practices,
and cultural characteristics. Sociocultural differences might create internal
uncertainty. The greater the sociocultural distance the more likely a firm
will chose for a joint venture or a low-risk entry mode.
Country risk/demand uncertainty: the degree of risk depends on the
market and the method of entry. Expanding to high risk countries leads to
export modes because of low resource commitment. Existence of
economic risks (exchange rate risk, investment risk) and political risks.
Unpredictability increases the degree of risk, therefore high resource
commitment and flexibility is required.
Market size and growth: the larger the market size and the higher the
growth rate, the higher the resource commitment and the likelihood that
the firm will consider a complete owned sales subsidiary or a joint venture.
Small markets that are geographically isolated have low resource
commitment.
Direct and indirect trade barriers: these support the local production.
Preferences for local suppliers encourage joint ventures and intermediate
modes. When the firm establishes local production it uses a hierarchical
mode.

Intensity of competition: high intensity of competition in the host country

less profitable low resource commitments export modes.
Small number of relevant intermediaries available: this creates
opportunistic behaviour of the export intermediaries, which will lead to the
use of hierarchical models.

3. Desired mode characteristic

Control: the degree of control of management over operations in
international markets. Minimal resource commitment is corresponds with
little/no control over the marketing conditions abroad. Furthermore, joint
ventures reduce the management control. Complete owned subsidiaries
(hierarchical modes) provide the most control but require high resource
commitment.
Risk-averse: export or intermediate modes will be used if the decisionmaker is risk-averse due to low resource commitment. Joint ventures can
share risk.
Flexibility: hierarchical modes are costly and the least flexible.
4. Transaction-specific factors
Tacit nature of know-how: tacit knowledge has to do with complex products and
services, where functionality is very hard to express. Transferring tacit know-how
is costly, difficult and an incentive for the use of hierarchical modes.
Summary:
Export modes: low control, low risk, high flexibility, low resource
commitment.
Intermediate modes: contractual mode, shared control and risk, split
ownership, joint ventures.
Hierarchical modes: investment mode, high control, high risk, low
flexibility, high resource commitment.

Chapter 10: export modes

10.1 Introduction
Export mode: the firms products are produced in the domestic market or a third
country and then transferred directly or indirectly to the host market. Export is
the most common mode for initial entry into international markets.
We can define three major types of export channels:
Indirect export: the producing company does not perform the export
activities; this is done by another domestic company.
Direct export: the producing company performs the export activities and
has direct contact with the first intermediary in the host market.
Cooperative export: collaborative agreements with other firms with regard
to the exporting functions.
10.2 Indirect export modes
Exporting manufacturers use independent organisations that are located in the
producers country to perform the exporting activities. This is appropriate for a
firm with limited resources or international expansion objectives.
1. Export buying agent: a representative of foreign buyers who is located in
the exporters home country. The agent offers services to the foreign
buyers, e.g. identifying potential sellers and negotiating prices. The terms
of purchase are determined by the export buying agent and the overseas
buyer. The exporting firm sells its products to the export commission
houses (domestic buyer). Advantages: no problems with physical
movement of goods, little credit risk. Disadvantage: dependent on
purchaser.
2. Broker: performs a contractual function. It brings buyers and sellers
together, and operates in a specific area of products. For its services the
broker receives a commission (a percentage of the sold products) by the
principal. A broker may act for the seller or the buyer.
3. Export management company (EMC)/export house: specialised companies
that act as an export department for non-competing companies.
Represents a manufacturer and conducts businesses for them, such as
dealing with government regulations.
Advantage of EMCs: gain wider exposure of their products at lower overall
costs than firms could achieve by themselves. Disadvantage of EMC: that
are worth mentioning: The selection of markets might be based on what is
best for the EMC rather than for the manufacturer. EMCs are paid by
commission, this might lead to a focus on products with immediate sales
potential instead of those that require more effort but will lead to long-term
successes, EMCs might not pay enough attention to the manufacturers
products due to the many products of other manufacturers they serve and
EMCs might promote competitive products in the disadvantage of a firm.
4. Trading company: emphasis on financial services and manage countertrade activities. Counter-trade activities are about buying goods of a
specific market while obtaining other products from the same market in
exchange. The role of a trading company is to find a buyer for the inexchange products.
5. Piggyback: cooperation between unrelated companies called rider and
carrier, they are non-competitive and complementary. The brand name of
the rider may change to the carriers one.

10.3 Direct export modes

The manufacturer sells directly to an importer, agent or distributor located in the
foreign target market.
1. Distributor: independent company that stocks the manufacturers
product. It will have substantial freedom to choose own customers and
price. It profits from the difference between its selling price and its buying
price from the manufacturer.
2. Agent: independent company that sells on to customers on behalf of the
manufacturer (exporter). Usually it will not see or stock the product. It
profits from a commission (percentage) paid by the manufacturer on a preagreed basis.
Advantages of the use of distributors or agents:
They are familiar with the local market, customs and conventions.
They have business contacts and employ foreign nationals.
They have a direct incentive to sell through their profits.
Disadvantages of the use of distributors or agents:
They might be unwilling to put much effort in developing a market for a
new product because their profits are coupled to the sales.
Limited amount of market feedback because they view itself as a
purchasing agent rather than a selling agent for the exporter.
How to choice of an intermediary:
Obtaining recommendations from e.g. trade associations
Using commercial agencies
Poaching a competitors agent
Advertising in suitable trade paper
Aking npotential customers for suitable agent
What to look for in an intermediary

After selecting an intermediary

an agreement is made that covers the general provisions, the rights and
obligations of the manufacturer and those of the distributor. This agreement
contains the principles of the law of agency in all nations:
An agent cannot deliver the principals goods at an agreed price and resell
them for a higher amount without the principals knowledge and
permission.
Agents must pass on all relevant information to their principal and they
must maintain confidential concerning their principals affair.

The principal is liable for damages to third parties for wrongs committed by
an agent.

Evaluating international distribution partners

10.4 Cooperative export modes

Cooperative export is based on different manufactures with their own upstream
functions that are cooperating on the downstream functions through a common,
foreign-based agent, Figure 10.1. It is often used by SMEs that are unable to
achieve sufficient economies of scale due to the size of the local market or the
inadequacy of the resources available.
The cooperation can be tight or loose.
Loose cooperation: separate firms in a group sell their own brands through
the same agent.
Tight cooperation: creation of a new export association that is able to gain
economies of scale. Its major functions are:

Chapter 11 Intermediate entry modes

11.1 Introduction
Intermediate entry modes are vehicles for the transfer of knowledge and skills
between partners, in order to create foreign sales. The ownership and control is
shared between the parent firm and the local partner.The most important
arrangements of intermediate entry modes:
Contract manufacturing
Licensing
Franchising
Joint ventures/strategic alliances
11.2 Contract manufacturing
Contract manufacturing means that manufacturing is outsourced to an external
partner, specialised in production and production technology. These long-term
arrangements take place when a firm possess a competitive advantage, but is
unable to exploit this advantage e.g. due to resource constraints. However the
firm is able to transfer the advantage to another firm.
Factors that encourage a firm to produce in foreign markets:
Being close to foreign markets
Low foreign production costs
The existence of tariffs and quotas that restrict export
Government preference for national suppliers
11.3 Licensing
Licensing enables the firm to establish local production in foreign markets without
capital investment. Two main approaches:
Stand-alone licensing agreement: license specifies the legal basis for
transfer the rights and enable the licensor to earn royalties.
Licensing plus licensing agreement: license supports longer-term
relationship with the licensee.
A licensing agreement states that the licensor gives something of value to the
licensee in exchange for certain performance and payments. Thereby the licensor
may give the licensee the right to use one of the following:
A patent covering a product/process.
Manufacturing knowledge that is not stated in a patent.
Technical or marketing advice and assistance.
The use of a trademark/trade name
Cross-licensing: mutual exchange of knowledge/patents without cash payment
involvement.
Licensing can be viewed from the point of a licensor (licensing out) and of a
licensee (licensing in).
11.4 Franchising
Franchising is an agreement between the franchisor (home country) and the
franchisee (foreign country). Franchising means that the production and the sales
and services of the value chain are outsourced. Factors that stimulated the rapid
growth of franchising:
The replacement of manufacturing industries to service-sector activities.
Franchising is well suited to service and people-intensive economic
activities.
The growth of popularity of self-employment.
There are two major types of franchising:

Product and trade name franchising: a distribution system with contracts

between suppliers and dealers of products. These dealers make use of the
trade name, trademark and product line.
Business format. Business format franchising is an ongoing relationship
that includes a product/service and a business concept. The business
concept consists of a strategic plan.
11.5 Joint ventures/strategic alliances
Joint venture (JV): an equity partnership between two partners. The creation of a
new company in which foreign and local investors share ownership and control.
Reasons to set up JVs:
Complementary technology/management skills can lead to new
opportunities in existing sectors.
A partner in the host country can increase the speed of market entry.
Many less developed countries try to restrict foreign ownership.
Strategic alliance: a non-equity joint venture. There is not a new company
created. Two existing companies share costs, risks and profits
Considering the roles of partners in collaboration
Upstream-based collaboration: collaboration on R&D and production.
Downstream-based collaboration: collaboration on marketing, distribution,
sales and/or services.
Upstream/downstream-based collaboration: companies have different but
complementary competences at each end of the value chain.
Y-coalition: each partner in the alliance/JV contributes with complementary
product lines or services. Each partner takes care of all value chain activities
within their product line. Partners have the same competences. The first and
second type of collaboration.
X-coalition: the partners in the value chain divide the value chain activities
between them, because the companies have asymmetric competences. The third
type of collaboration.
There

are various stages in the joint-venture formation:

Step 1: joint-venture objectives
Step 2: cost-benefit analysis
Step 3: selecting partner(s)
Step 4: develop a business plan
Step 5: negotiation of joint-venture agreement
Step 6: contract writing
Step 7: performance evaluation

Chapther 12: Hierarchical modes

12.1 Introduction
In the hierarchical mode the firm completely owns and controls the foreign entry
mode. The question is of where the control in the firm lies.
A firm chooses to decentralize more and more of its activities to the main foreign
markets. While moving the firm also goes from one internationalization stage to
another:
Ethnocentric orientation, this orientation represents an extension of the
marketing methods used in the home country to foreign markets.
Polycentric orientation, this is represented by country subsidiaries. It is
based on the assumption that markets/countries around the world are so
different that the only way to succeed internationally is to manage each
country as a separate market.
Regiocentric orientation, represented by a region of the world.
Geocentric orientation, represented by the transnational organization. It is
based on the assumption that the markets around the world consist of
similarities and differences and that there is a possibility to create a
transnational strategy.
12.2 Domestic based representatives
A domestic-based sales representative is a person who resides in one country.
This is usually the home country of the employer, and travels abroad to perform
the sales function.

12.3 Resident sales representatives/foreign sales branch/foreign sales

subsidiary
The actual performance of the sales function is transferred to the foreign market.
In making the decision whether to use travelling domestic based representatives
or resident sales representatives a firm should considering the following:
Order-making or order taking. A firm will choose a travelling domestic
based sales representative when the type of sales job need to been done
in a foreign market and vice versa.
The nature of the product. The traveling salesperson is not an efficient
entry method when the product is technical and complex in nature and
when a lot of servicing or supplies of parts are required. In this case a more
permanent foreign base is needed.

12.4 Sales and production subsidiary

When a company believes that its products have long-term market potential in a
country that is stable (political, economic), then full ownership of sales and
production will provide the level of control to meet the firm's objectives. This
entry mode requires investments in time, money, commitment and management.
It is a risk to take. The main reasons for establishing some kind of local
production are:
To save costs. Costs can be saved in a variety of areas such as transport,
labour and raw materials
To gain new business. The best way to persuade customers to change
suppliers is a strong commitment in the form of local production.
To defend existing business.
To avoid government restrictions that might be in force to restrict imports
of certain goods.

12.5 Subsidiary growth strategies

The subsidiaries that are located in developed countries are vulnerable to being
closed and having their operations relocated in low- cost countries. This is a fact
what multinational corporations have to face. The cost differential is something
subsidiary managers have to be aware of and they need to constantly urge to
contribute beyond their core mandate, to move their activities up to the value
chain. The subsidiaries are employing four mutually reinforcing strategies to
enhance their position:
Seizing the initiative and growing the subsidiary autonomy
Building information networks to external partners
Creating a climate for entrepreneurship
Promoting subsidiary strategy development
12.6 Region centres (regional HQ)
We discussed the choice of foreign entry mode mainly in relation to one particular
country. It is called geographically focused start-up. This is an attempt to serve
the specialized needs of a particular region of the world.

12.7 t/m 12.10 niet gedaan

Chapter 14 Product decisions
14.4 The product life cycle
The product life cycle (PLC) concerns the life of a product in the market with
respect to business/commercial costs and sales measures. It is a theory in which
products or brands follow a sequence of stages including introduction, growth,
maturity and sales decline.
Time to market (TTM): the time it takes from the idea for a product being
conceived until it is available for sale. TTM is important in those industries where
products are outmoded quickly.
Rapid TTM leads to competitive success because:
Competitive advantage of getting to market sooner
Premium prices early in life cycle
Faster break-even on development investment and lower financial risk
Greater overall profits and higher return on investment
When firms produce in multiple countries, two different approaches appear
concerning the PLC:
International product life cycle (IPLC): macroeconomic approach,
describes the diffusion process of an innovation across national
boundaries.
o
Describes diffusion of an innovation across national boundaries
o
Demand grows first in innovating country and is then exported
o
Eventually demand grows in LDCs
PLCs across countries: microeconomic approach, the time period for a
product to pass through a stage might differ per market.

14.5 New products for international markets

Due to the increasing international competition, time is becoming a success
factor for companies that manufacture technologically sophisticated products.
Thus PLCs are getting shorter and companies are able to use the latest
technology. In addition, the time for marketing and R&D is reduced as well.

Quality deployment function (QDF) is a technique to translate customer

needs into new product attributes. It is used to identify opportunities for product
improvement or differentiation

The product communication mix

The degree of standardisation, adaptation and newness of the product.
The degree of standardisation and adaption of the promotion
Product
Standard
Adapt
New
Promotion
Standard
Straight
Product
Product
extension
adaption
intervention
Adapt
Promotional
Dual adaption Product
adaption
intervention
Both must be considered for international marketing. The five approaches to
product policy are:
Straight extension: introducing a standardised product with the same
promotion strategy throughout the world market. Advantage: savings on
market research and product development.
Promotion adaption: a standardised product with a promotional activity
that takes cultural differences between markets into account. Advantage:
relatively cost-effective strategy compared to strategies concerning
adapted products.
Product adaption: modifying the product while maintaining the core
product function, using the same promotion strategy throughout. The
adjustments to the product are necessary because the product needs to be
adapted to function under different physical environmental conditions.
Dual adaption: adapting both product and promotion for each market.
Often used when the previous three strategies has failed.
Product invention: adopted by firms, usually from advanced nations, that is
supplying products to less developed countries. Products are developed to
meet the needs of the individual markets. Fig 14.13
14.6 Product positioning
Product positioning: an element in the successful marketing of any
organisation in any market. It is the activity by which a desirable position in the
mind of the customer is created for the product. It starts with describing the
products and their attributes that are capable of generating a flow of benefits to
buyers and users. The position of a product is the location in the perceptual
space.
The country of origin, noticed by made in [country], influences the quality
perception of the product. Countries may have a good or poor reputation. The
country of origin is even more important than the brand name.
14.7 Brand equity
Brand equity is a set of brand assets and liabilities which can be clustered into
five categories. Brand equity is the premium a consumer would pay for the
branded product or service compared to an identical unbranded version of the

same product or service. It refers to the strength, depth and character of the
consumer-brand relationship: the brand relationship quality. The categories:
Brand loyalty. Encourages customers to buy a particular brand and repeat
buying the same brand over and over again.
Brand awareness: percentage of the customers that know the brand name.
Perceived quality: customers perception.
Brand associations: personal values linked to the brand.
Other proprietary brand assets: e.g. trademarks, patents.

Chapter 15 Pricing decisions and terms of doing business

15.1 Introduction
Pricing is part of the marketing mix. It is highly controllable and inexpensive to
change and implement. Price is the only are of the global marketing mix where
policy can be changed quick without implications of direct cost.
15.2 International pricing strategies compared with domestic pricing
strategy
Domestic pricing strategies are based on allocating the total estimated cost of
producing, managing and marketing and adding an appropriate profit margin.
International pricing strategies are more complex due to the external factors,
such as fluctuations in exchange rates, accelerating inflation and use of
alternative payment methods. Pricing decisions include setting the initial price as
well as changing the established price of products from time to time.
15.3 Factors that are influencing the international pricing decisions
Internal factors influencing international pricing:
Firm-level factors
Product factors
Objectives
Stage in PLC
Strategy
Place in productline
Firm positioning
Product features
Product development
Product positioning
Product location
Product cost structure
Market entry mode
Price escalation: all cost factord in the distribution channel add up and lead to
price escalation. The longer the channel the higher the final price in the foreign
maket. Management option to counter price escalation:
Rationalising the distribution process: reduce the links in the distribution
channel.
Lowering the export price form the factory: reducing the multiplier effect.
Establishing local production of the product
Pressurising channel members to accept lower profit margins
External factors influencing international pricing:
Environmental factors
Market factors
Government influence and
Customers perceptions
constraint
Inflation
Cutsomers ability to pay
Currency fluctuation
Nature of competition
Bussiness cycle stage
Competitors objectives, strategies, strenghts
and weaknesses
Grey market appeal
15.4. International pricing strategies
Three alternatives to determine the price level for a new product
1. Skimming: a high price and an aim to achieve the highest possible
contribution in a market.
2. Market pricing: an average price. Similar products already exist. The price
is based on competitive prices.
3. Penetration pricing: a low price. Approach used to stimulate market growth
and capture market shares.

Product line pricing

Product line pricing (pricing across products): various items in the line are
differentiated by pricing them appropriately to indicate a standard version and a
top-of-the-range version.
Price bundling: a certain price is set for several items within the product line (a
package).
Buy in/follow on strategy: the case where two products are linked together:
the original product item is priced very low, in order to get customers in
and try the product. The follow-on product is then sold at a significantly
higher price.
Product-service bundle pricing
Product-service bundle pricing: bundling product and services together in a
system-solution product, this increases the value of the product. If the customer
thinks that entry price is a key barrier, service contracts can be priced higher,
which allows for lower entry product pricing. Bundling prices for services and
products is a bad idea because the person who buys the service might not be the
one that buys the product.
The competitive advantage for products is the use of economies of scale.
The competitive advantage for services is the special skills.
Pricing across countries
Problem: how to coordinate prices between countries.
Opposing forces: 1) Achieve similar positioning in different markets by adopting
standardised pricing. 2) Maximize profitability by adapting pricing to different
market conditions.
Price standardisation: setting a price for the product as it leaves the
factory. Use a fixed world price that is applied in all markets after taking
account of factors such as exchange rates. It is a low-risk strategy, but
does not respond to local conditions. It is appropriate if the firm sells to
large customers with companies in several countries. The presentation of a
consistent image across markets and a potential for rapid introduction of
new products are advantages.
Price differentiation: set a price that is appropriate for local conditions.
Flexibility to coordinate prices from country to country. Weakness: lack of
control of headquarters, a bad image due to different prices in different
markets and the encouragement of grey markets.
Currency issue
in what currency should the price be quoted? The exporter has the following
options:
the foreign currency of the buyers country (local currency)
The currency of the exporters country (domestic currency)
The currency of a third country
A currency unit (e.g. euro)
Advantages of quoting in domestic currency can be more easy administration;
risks associated with changes in the exchange rate are borne by customer.

Advantages of quoting in the foreign currency

could be a condition of the contract,
could provide access to finance abroad at lower interest rates,
gaining additional profits when having good currency management o
customers are not able to compare goods in their own currency so they do
not know the exact price of a good.

15.6 Terms of sale and delivery

The price quotation describes a specific product, states the price and a delivery
location, sets the time of shipment and specifies payment terms. Furthermore, it
states whether the shipping costs are included or not in the price and when
ownership of goods passes from seller to buyer. Therefore incoterms are used.

EXW = Ex-works: the price quoted by the seller applies at a specified point
of origin. The buyer is responsible for all charges from this point. Minimum
obligation for the exporter.
FAS = Free alongside ship: the seller provides delivery free alongside (but
not on board) the transportation carrier at the point of shipment and
export. Time and cost of loading are not included. Buyer pays for loading
the goods onto the ship.
FOB = Free on board: the exporter pays all charges up to the point when
goods have been loaded on to a specific transport vehicle. A specific
loading point is the inland shipping point (often the port of export). After
this point the buyer is responsible for the goods.
CFR = Cost and freight: sellers liability ends when the goods are loaded on
board/carrier. Seller pays all transport charges, excluding insurance,
required to deliver goods by sea.
CFI = Cost, insurance and freight: same as CFR, but the seller must also
provide the insurance.
DEQ = Delivered ex-quay: same as CIF, but seller is also responsible for the
cost for the goods and other costs necessary to place the goods on the
dock.
DDP = Delivered duty paid: exporter is responsible for paying any import
duties and costs of unloading and inland transport in the importing
country, as well as all costs involve in insuring and shipping the goods to
that country. Risks concerning delivering are for the buyer.

Chapter 16: Distribution decisions

16.1 Introduction
Distribution (place) is part of the marketing mix. Distribution channels are the
links between producers and the final customers. Direct distribution: deal with a
foreign firm. Indirect distribution: deal with another home country firm that
serves as an intermediary.
16.2 external determinants of channel decisions
The table below presents a systematic approach to the major decisions in
international distribution. The external factors that influence internal decisions
are:
Customer characteristics: the size, geographic distribution, shopping
habits, outlet preferences and usage patterns of customers must be taken
into account.
Nature of product: transportation and warehousing costs, the products
durability, its ease of adulteration, its amount and type of customer service
required, the unit costs and its special handling requirements.
Nature of demand/location: the perceptions of customers are influenced by
income, product experience, the products end use, the product life cycle
position and the countrys stage of economic development. These
perceptions may force modification.
Competition: channels used by competing products are important because
channel arrangements that seek to serve the same market often compete
with each other.
Legal regulations/local business practices: a country may have specific
laws for distribution channels or intermediaries. Local business practices
can interfere with efficiency and productivity and may force a
manufacturer to employ a channel of distribution that is longer and wider
than desired. Due to vertical and horizontal transaction the price might
escalate.
Customer
characteristic
s (16.2)

Nature of
product
(16.2)

Nature of
demand
(16.2)

Major decisions
Decisions concerning structure of the
channel (16.3)

Managaging and controlling

distribution channels (16.4)

Manageing logistics (16.5)

Competiti
on (16.2)

Legal
regulations/local
bussiness practices
(16.2)

Subdecisions
Types of intermediary
Coverage
Length
Control resources
Degree of integration
Screening and selecting
intermediary
Contracting
Motivating
Controlling
Termination
Physical movement of goods through
the channel systems
Order handeling
Transportation

Inventory
Storage/ warehousing

16.3 The structure of the channel

Market coverage: coverage can relate to geographical areas or number of retail
outlets. Three approaches are available: intensive, selective or exclusive
coverage.
1. Intensive coverage: distributing the product through the largest number of
different types of intermediary and the largest number of individual
intermediaries of each type.
2. Selective coverage: choosing a number of intermediaries for each area to
be penetrated.
3. Exclusive coverage: choosing only one intermediary in a market.

Channel length: number of levels in the distribution channel.

Companies should first lengthen the channels as more intermediaries enter the
distribution system, but later shorten as a result of efficiencies. The channel
length influences the price escalation. Factors that influence channel width are
shown in in the figure below

The control/costs
The control of a member in the vertical distribution channel means its ability to
influence the decisions and actions of other channel members. The company
must decide how much control it wants to have over how each of its products is
marketed. The use of intermediaries leads to a loss of control over the marketing
of the firms products. The functions of an intermediary are:
Carrying of inventory
Demand generation/selling
Physical distribution
After-sales service
Extending credit to customers
Degree of integration
Control can be exercised through integration. Channel integration:
incorporating all channel members into one channel system and uniting them
under one leadership and one set of goals. There are two types of integration:
Vertical integration: seeking control of channel members at different levels of
the channel.
Conventional marketing channels: Manufacturer makes forward integration
when it seeks control of businesses of the wholesale and retail levels of the
channel.
The retailer makes backward integration when it seeks control of
businesses at wholesale and manufacturer levels of the channel.
The wholesaler can make forward and backward integration. This results in
the vertical marketing system.
Horizontal integration: seeking control of channel members at the same level
of channel.
Integration can be achieved through acquisitions or tight cooperative
relationships.
16.4 Managing and controlling distribution channels
Arnold (2000) made guidelines to the manufacturer in order to anticipate and
correct potential problems with international distributors:
1. Select distributors: do not let them select you.
2. Look for distributors capable of developing markets, rather than those with
a few obvious contacts.
3. Treat the local distributors as long-term partners, not temporary marketentry vehicles
4. Support market entry by committing money, managers and proven
marketing ideas
5. From the start, maintain control over marketing strategy
6. Make sure distributors provide you with detailed market and financial
performance data
7. Build links among national distributors at the earliest opportunity
Screening and selecting intermediaries
Five categories for selecting foreign distributors:
1. Financial and company strengths. Financial soundness, quality of
management team, reputation among current and past customers, ability

2.
3.
4.
5.
Other

to finance initial sales and growth, raise funding, provide promotion and
advertising funds and maintain inventory.
Product factors. Quality and sophistication of product lines, product
complementarily, familiarity with the product, condition of physical
facilities, patent security.
Marketing skills. Marketing management expertise and sophistication,
expertise with target customers, sales force, market share, on-time
deliveries.
Commitment. Willingness to invest in sales training, positive attitude
towards the manufacturer, undivided attention to product, willing to keep
sufficient inventory.
Facilitating factors. Connections with influential people, network, working
experience, government relations, knowledge of particular business.
subjects in this paragraph
Contracting ( distributors agreements)
Motivating
Controlling
Termination

16.5 Managing logistics

Logistics: a term used to describe the movement of goods and services between
suppliers and end users. There are two important phases in the movement of
materials: materials management(1) (movement of raw materials, parts and
supplies into and through the firm) and physical distribution(2) (finished products
transfer to customers). The goal is to gain effective coordination of both phases
to result in maximum cost-effectiveness while maintaining service goals and
requirements.
Other

subjects in this paragraph:

Order handeling
Most common export documents
Transportation
Greight forwarders
Inventory
Storage/ warehousing
Pakckaging
Third party logistics

16.6 Internet and the decisions for distribution

Internet has the power to change the balance of power among consumers,
retailers, distributors, manufacturers and service providers. Physical distributors
and dealers of goods and services are feeling increased pressure from ecommerce. Disintermediation: increase direct sales through Internet. This can
lead to channel conflict when manufacturers start competing with their resellers.
Four Internet distribution strategies:
Present only product information on the Internet
Leave Internet business to resellers
Leave Internet business to the manufacturer only
Open Internet business to everyone

16.8 Grey marketing/parallel importing (special case

Grey marketing/parallel importing: importing and selling of products through
market distribution channels that are not authorized by the manufacturer. It
occurs when the manufacturer uses significantly different market prices for the
same product in different countries and mainly exists for high-priced, high-end
products.
In this way an unauthorized dealer is able to buy branded goods intended for one
market at a low price and sell them in another, higher-priced, market.

Reasons for lower prices: The distributor has unexpected over-supply of a

product, lower transport costs, fiercer competition, higher product taxes. Grey
markets are fed by authorized dealers who can make profit or minimize a loss by
selling to unauthorized dealers.
Strategies to reduce grey marketing:
Seek legal redress: prosecute grey markets, time consuming and
expensive.
Change the marketing mix: three elements:
1. Product strategy: introducing a different product for each main market.
2. Pricing strategy: change the ex-works prices to the channel members to
minimize price differentials between markets or narrow the discount
schedules for large orders.
3. Warranty strategy: reduce or cancel the warranty period for grey market
products. Required is that the products can be identified through the
channel system.

Chapter 17 Communication
17.1 Introduction
17.2 The communication process
Without an established relationship between the seller and buyer: the
manufacturer (seller) sends a message through a form of media to an
identifiable target segment audience.
With an established relationship between the seller and buyer: the buyer is
placing orders (reverse marketing) on the seller.
Note: the relative share of sales volume of the buyers initiative will tend to
increase over time.
Effective communication consists of a sender, a message, a communication
channel and a receiver. Furthermore, the senders message might not be clear for
the receiver due to noise of rival manufacturers. Other factors influencing the
communication situation:
Language differences
Economic differences
Sociocultural differences
Legal and regulatory conditions
Competitive differences
17.3 Communication tools
Advertising
Advertising is visible form of communication. Important for the communication
mix of goods that serve a large number of small-volume customers that can be
reached through mass media.
Advertising methods vary from country to country, but the major objectives of
advertising remain the same. This includes the following:
Objectives setting
Increasing sales from existing customers: encourage them to increase the
frequency of their purchases through maintaining brand loyalty and
stimulating impulse purchases.
Obtaining new customers: increase consumer awareness and improve the
firms image among the new target group.

Budget decisions
Affordable approach: percentage of sales, the firm will automatically
allocate a fixed percentage of sales to the advertising budget. The
advantages and disadvantages are:

Adventages
Guarentees equility among markets
Easy to justify
Guarentees that the firm only spends as
much as it can afford

Disadvantages
Based on historical performance
Ignores necessity of increased spending
during declining sales
Doe not consider goals
Fails to address relationship between
advertising and sales

Competitive parity approach: duplicating the amounts spent on advertising

by major rivals. This is more difficult for foreign competitors than for homebased competitors. Furthermore, competitors might make a mistake.
Lastly, the competitor might be in a different situation than the firm is.

Objective and task approach: determining the advertising objectives and

then ascertaining the tasks needed to attain these objectives. Including a
cost-benefit analysis. Knowledge about the local market is required.

Message desicions: USP

Media decisions: Reach, Frequency, Impact