International Marketing

14th Edition P h i l i p R. C a t e o r a M a r y C. G i l l y John L. Graham

Global Marketing Management: Planning and Organization

Chapter 11
McGraw-Hill/Irwin International Marketing 14/e

Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

What Should You Learn?

How global marketing management differs from international marketing management The increasing importance of international strategic alliances

The need for planning to achieve company goals

The important factors for each alternative market-entry strategy

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Basic Entry Decisions

Question: What are the basic entry decisions for firms expanding internationally? A firm expanding internationally must decide
which markets to enter when to enter them and on what scale how to enter them (the choice of entry mode)

Global Perspective Global Gateways

Multinational companies
Confronted with increasing global competition for expanding markets Changing their marketing strategies and altering their organizational structure Nearly 75% of North American and European corporations are revamping their business processes

Smaller companies
More flexible May enable them to reflect the demands of global markets and redefine programs more quickly

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Global Marketing Management

1970s standardization versus adaptation 1980s global integration versus localization 1990s global integration versus local responsiveness The fundamental question was whether the global homogenization of consumer tastes allowed global standardization of the marketing mix.

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Global Marketing Management

The trend back toward localization
Caused by the new efficiencies of customization Made possible by the Internet Increasingly flexible manufacturing processes

From the marketing perspective customization is always best

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Global Marketing Management

Global markets continue to homogenize and diversify simultaneously
Best companies will avoid trap of focusing on country as the primary segmentation variable Other segmentation variables are more important: climate, language group, media habits, age, or income groups

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The Nestle Way Evolution Not Revolution

Nestle worlds biggest marketer of infant formula, powdered milk, instant coffee, chocolate, soups, and mineral water Nestle strategy
Think and plan long term Decentralize Stick to what you know Adapt to local tastes

Long-term strategy works for Nestle

Because the company relies on local ingredients Markets products that consumers can afford
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Benefits of Global Marketing

When large market segments can be identified
Economies of scale in production and marketing Important competitive advantages for global companies

Transfer of experience and know-how

Across countries through improved coordination and integration of marketing activities

Marketing globally
Ensures that marketers have access to the toughest customers Market diversity carries with it additional financial benefits Firms are able to take advantage of changing financial circumstances
11-9

Planning for Global Markets

Planning is the job of making things happen that might not otherwise occur Planning allows for:
Rapid growth of the international function Changing markets Increasing competition, and the Turbulent challenges of different national markets

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Planning for Global Markets

Planning is both a process and philosophy
Relates to the formulation of goals and methods of accomplishing them

Corporate planning Strategic planning Tactical planning

Company objectives and resources

Each new market requires

A complete evaluation, including existing commitments, relative to the parent companys objectives and resources

Defining objectives clarifies the orientation of the domestic and international divisions, permitting consistent policies

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Planning for Global Markets

International commitment
Commitment in terms of

Dollars to be invested Personnel for managing the international organization Determination to stay in the market long enough to realize a return in investments.

The degree of commitment to an international marketing cause reflects the extend to a companys involvement

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International Planning Process

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The Planning Process

Phase 1 Preliminary analysis and screening
Matching Company and Country Needs.

Phase 2 Adapting marketing mix to target markets

Are there identifiable market segments that allow for common marketing mix Which cultural/ environmental adaptations are necessary? Will adaptation costs allow profitable market entry?

Phase 3 Developing the marketing plan Phase 4 Implementation and control

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Alternative Market-Entry Strategies

An entry strategy into international market should reflect on analysis
Market characteristics

Potential sales Strategic importance Strengths of local resources Cultural differences Country restrictions Degree of near-market knowledge Marketing involvement Management commitment

Company capabilities and characteristics

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 Uppsala Interntionalization Model (U-M) was proposed by researchers from University of Uppsala, among many are Jan Johanson, Jan-Erik Vahlne, and Wiedersheim-Paul. According to Johanson and Vahlne (1990, 1976), the internationalization of the firm, which has its theoretical base in the behavioral theory of the firm, is seen as the process in which the enterprise gradually increases its international involvement. This process evolves in an interplay between the development of knowledge about foreign markets and operations on one hand and an increasing commitment of resources to foreign markets on the other.

The model distinguish between four different modes of entering an international market, where successive stages represent higher degrees of international involvement:

U- Model of Internationalization
Stage 1: No regular export activities Stage 2: Export via independent representative (agents) Stage 3: Establishment of an overseas sales subsidiary Stage 4: Overseas production/ manufacturing units

The internationalization process of the firm

Alternative Market-Entry Strategies

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Alternative Market-Entry Strategies

Companies most often begin with modest export involvement A company has four different modes of foreign market entry
Exporting Contractual agreements Strategic alliances Direct foreign investments

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Exporting
Exporting accounts for some 10% of global activity Direct exporting the company sells to a customer in another country

Indirect exporting the company sells to a buyer (importer or distribution) in the home country, who in turn exports the product

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Exporting
The Internet
Initially, Internet marketing focused on domestic sales A surprisingly large number of companies started receiving orders from customers in other countries,

Resulting in the concept of international Internet marketing (IIM)

Direct sales
Particularly for high technology and big ticket industrial products

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Contractual Agreement
Contractual agreements
Long-term, Nonequity association between a company and another in a foreign market

Licensing
A means of establishing a foothold in foreign markets without large capital outlays A favorite strategy for small and medium-sized companies Legitimate means of capitalizing on intellectual property in a foreign market

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Contractual Agreement
Franchising
Franchiser provides a standard package of products, systems, and management services Franchise provides market knowledge, capital, and personal involvement in management Expected to be the fastest-growing market-entry strategy

Two types of franchise agreements

Master franchise

Gives the franchisee the rights to a specific area with the authority to sell or establish subfranchises

Licensing

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Strategic International Alliances

A strategic international alliance (SIA)
A business relationship established by two or more companies to cooperate out of mutual need To share risk in achieving a common objective

SIAs are sought as a way to shore up weaknesses and increase competitive strengths Firms enter SIAs for several reasons
Opportunities for rapid expansion into new markets Access to new technology More efficient production and innovation Reduced marketing costs Strategic competitive moves Access to additional sources of products and capital
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Building Strategic Alliances

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Strategic International Alliances

Many companies entering SIAs
To be in strategic position to be competitive To benefit from the expected growth in the single European market

International joint ventures (IJVs)

A partnership of two or more participating companies that have joined forces to create a separate legal entity Four characteristics define joint ventures

JVs are established, separate, legal entities The acknowledged intent by the partners to share in the management of the JV There are partnerships between legally incorporated entities such as companies, chartered organizations, or governments, and not between individuals Equity positions are held by each of the partners

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Strategic International Alliances

Consortia
Similar to joint ventures and could be classified as such except for two unique characteristics

Typically involve a large number of participants Frequently operate in a country or market in which none of the participants is currently active

Consortia are developed to pool financial and managerial resources and to lessen risks

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Direct Foreign Investment

Factors that influence the structure and performance of direct investments
Timing The growing complexity and contingencies of contracts Transaction cost structures Technology transfer Degree of product differentiation The previous experiences and cultural diversity of acquired firms Advertising and reputation barriers

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Organizing for Global Competition

Devising a standard organizational structure is difficult
Because organizations need to reflect a wide range of company-specific characteristics

Companies are usually structured around one of three alternatives

Global product divisions responsible for product sales throughout world Geographical divisions responsible for all products and functions within a given geographical area

A matrix organization consisting of either of these arrangements

With centralized sales and marketing run by a centralized functional staff, or a combination of area operations and global product management

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Schematic Marketing Organization Plan

Combining Product, Geographic, and Functional Approaches

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Locus of decision
Considerations of where decisions will be made, by whom, and by which method constitute a major element of organizational strategy
Corporate headquarters International headquarters Regional levels National levels Local levels

Tactical decisions normally should be made at lowest possible level

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Centralized Versus Decentralized Organizations

Most organizational patterns of multinational firms fit into one of three categories
Centralized Regionalized Decentralized

No single traditional organizational plan is adequate for todays global enterprise

Seeking to combine the economies of scale of a global company with the flexibility and marketing knowledge of a local company

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Summary
To keep abreast of the competition and maintain a viable position for increasingly competitive markets, a global perspective is necessary

Cost containment, customer satisfaction, and a greater number of players mean that every opportunity to refine international business practices must be examined in light of company goals

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Summary
Important avenues to global marketing that must be implemented in the planning and organization of global marketing management
Collaborative relationships Strategic international alliances Strategic planning Alternative market-entry strategies

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What is foreign direct investment?

Foreign direct investment (FDI) occurs when a firm invests directly in new facilities to produce and/or market in a foreign country Once a firm undertakes FDI it becomes a multinational enterprise

There are two forms of FDI

A greenfield investment (the establishment of a wholly new operation in a foreign country) Acquisition or merging with an existing firm in the foreign country

Greenfield or Acquisition?
Question: Should a firm establish a wholly owned subsidiary in a country by building a subsidiary from the ground up (greenfield strategy), or by acquiring an established enterprise in the target market (acquisition strategy)? The number of cross border acquisitions are increasing Over the last decade, 50-80 percent of all FDI inflows have been mergers and acquisitions

Greenfield or Acquisition?
Acquisitions

are quick to execute enable firms to preempt their competitors can be less risky than green-field ventures Acquisitions fail when the firm overpays for the assets of the acquired firm there is a clash between the cultures of the acquiring and acquired firm attempts to realize synergies by integrating the operations of the acquired and acquiring entities run into roadblocks and take much longer than forecast there is inadequate pre-acquisition screening

Greenfield or Acquisition?
Question: How can firms reduce the problems associated with acquisitions? Firms can reduce the problems associated with acquisitions through careful screening of the firm to be acquired by moving rapidly once the firm is acquired to implement an integration plan

Greenfield or Acquisition?
Question: Why are greenfield ventures attractive? Greenfield ventures are attractive because they allow the firm to build the kind of subsidiary company that it wants

However, greenfield ventures

are slower to establish are risky because they have no proven track record can be problematic if a competitor enters via acquisition and quickly builds market share

Research framework
Bruce Kogut & Harbir Singh
Cultural distance

Major focus Country-level variables

Uncertainty
avoidance R&D Advertising

Sector
Diversification

Industry-level variables

Modes of entry
1. 2. 3. Acquisition Joint- venture Greenfield

Country experience
Multinational Experience

Firm-level variables

Asset size

Foreign Direct Investment in the World Economy

The majority of cross-border investment involves mergers and acquisitions rather than greenfield investments In the last two decades, there has been a shift towards FDI in services

Theories of Foreign Direct Investment

Question: Why do firms prefer FDI to either exporting (producing goods at home and then shipping them to the receiving country for sale) or licensing (granting a foreign entity the right to produce and sell the firms product in return for a royalty fee on every unit that the foreign entity sells)? Dunnings Electic Paradigm: Ownership, Location, Internalization

Benefits and Costs of FDI

The benefits and costs of FDI must be explored from the perspective of both the host (receiving) country and the home (source) country

Benefits and Costs of FDI

The main benefits of inward FDI for a host country are
1. 2. 3. 4. the resource transfer effect the employment effect the balance of payments effect effects on competition and economic growth

Benefits and Costs of FDI

There are three main costs of inward FDI
1. 2. 3. the possible adverse effects of FDI on competition within the host nation adverse effects on the balance of payments the perceived loss of national sovereignty and autonomy

Benefits and Costs of FDI

The benefits of FDI to the home country include

1. the effect on the capital account of the home countrys balance of payments from the inward flow of foreign earnings 2. the employment effects that arise from outward FDI 3. the gains from learning valuable skills from foreign markets that can subsequently be transferred back to the home country

Benefits and Costs of FDI

The most important concerns for the home country center around
1. 2. The balance-of-payments Employment effects of outward FDI

How can firms enter foreign markets?

Firms can enter foreign markets through

exporting licensing or franchising to host country firms a joint venture with a host country firm a wholly owned subsidiary in the host country to serve that market The advantages and disadvantages of each entry mode is determined by
transport costs and trade barriers political and economic risks firm strategy

Basic Entry Decisions

Question: What are the basic entry decisions for firms expanding internationally? A firm expanding internationally must decide
which markets to enter when to enter them and on what scale how to enter them (the choice of entry mode)

Entry Modes
Question: What is the best way to enter a foreign market?

Firms can enter foreign market through

1. Exporting 2. Turnkey projects 3. Licensing 4. Franchising 5. Joint ventures 6. Wholly owned subsidiaries Each mode has advantages and disadvantages

Selecting an Entry Mode

Question: How should a firm choose a specific entry mode? All entry modes have advantages and disadvantages

The optimal entry mode depends to some degree on the nature of a firms core competencies
Core competencies can involve
1. technological know-how 2. management know-how

Selecting an Entry Mode

Firms facing strong pressures for cost reductions are likely to pursue some combination of exporting and wholly owned subsidiaries This will allow the firms to achieve location and scale economies as well as retain some degree of control over worldwide product manufacturing and distribution

Greenfield or Acquisition?
Question: Should a firm establish a wholly owned subsidiary in a country by building a subsidiary from the ground up (greenfield strategy), or by acquiring an established enterprise in the target market (acquisition strategy)? The number of cross border acquisitions are increasing Over the last decade, 50-80 percent of all FDI inflows have been mergers and acquisitions

Greenfield or Acquisition?
Acquisitions

are quick to execute enable firms to preempt their competitors can be less risky than green-field ventures Acquisitions fail when the firm overpays for the assets of the acquired firm there is a clash between the cultures of the acquiring and acquired firm attempts to realize synergies by integrating the operations of the acquired and acquiring entities run into roadblocks and take much longer than forecast there is inadequate pre-acquisition screening

Greenfield or Acquisition?
Question: How can firms reduce the problems associated with acquisitions? Firms can reduce the problems associated with acquisitions through careful screening of the firm to be acquired by moving rapidly once the firm is acquired to implement an integration plan

Greenfield or Acquisition?
Question: Why are greenfield ventures attractive? Greenfield ventures are attractive because they allow the firm to build the kind of subsidiary company that it wants

However, greenfield ventures

are slower to establish are risky because they have no proven track record can be problematic if a competitor enters via acquisition and quickly builds market share

Exporting and Improting

Question: Who benefits from exporting?

Both large and small firms can benefit from exporting

Firms wishing to export must identify export opportunities avoid a host of unanticipated problems associated with doing business in a foreign market become familiar with the mechanics of export and import financing learn where to get financing and export credit insurance learn how to deal with foreign exchange risk

What are the benefits of exporting?

The benefits from exporting can be great--the rest of the world is a much larger market than the domestic market Larger firms may be proactive in seeking out new export opportunities, but many smaller firms take a reactive approach to exporting Many novice exporters have run into significant problems when first trying to do business abroad, souring them on following up on subsequent opportunities

Improving Export Performance

Question: How can exporters improve their performance? To improve their success, exporters should acquire more knowledge of foreign market opportunities consider using an export management company (EMC) adopt a successful export strategy

hire an EMC focus on just few markets enter a foreign market on a small scale

Export and Import Financing

Question: How can firms deal with the lack of trust that exists in export transactions? Problems arising from the lack of trust can be solved by using a third party who is trusted by both - normally a reputable bank Exporters prefer to be paid in advance, while importers prefer to pay after shipment arrives A letter of credit is attractive because both parties are likely to trust a reputable bank even if they do not trust each other

Export and Import Financing

Question: How is payment actually made in an export transaction? Most export transactions involve a draft, also called a bill of exchange A sight draft is payable on presentation to the drawee while a time draft allows for a delay in payment normally 30, 60, 90, or 120 days The bill of lading is issued to the exporter by the common carrier transporting the merchandise to serve as a receipt, a contract, and a document of title

Export Assistance
Question: Where can exporters get financing help?

U.S. exporters can draw on two forms of governmentbacked assistance to help their export programs

1. they can get financing aid from the Export-Import Bank 2. they can get export credit insurance from the Foreign Credit Insurance Association

Countertrade
Question: What alternatives do exporters have when conventional methods of payment are not an option? Exporters can use countertrade when conventional means of payment are difficult, costly, or nonexistent There are five types of countertrade 1. barter 2. counterpurchase 3. offset 4. switch trading 5. compensation or buyback

Countertrade
In the 1960s the Soviet Union and the Communist states of Eastern Europe, whose currencies were generally nonconvertible, turned to countertrade to purchase imports Many developing nations that lacked the foreign exchange reserves required to purchase necessary imports turned to countertrade during the 1980s
There was a notable increase in the volume of countertrade after the Asian financial crisis of 1997

Countertrade
Firms that are unwilling to enter a countertrade agreement may lose an export opportunity to a competitor that is willing to make a countertrade agreement Countertrade is most attractive to large, diverse multinational enterprises that can use their worldwide network of contacts to dispose of goods acquired in countertrading