Competing In Foreign Markets: A Global Perspective on National

Challenges

By

Dr Michael McDermottNorthern Kentucky University

International Marketing Challengesand The National Dimension

Objectives of this presentation• Identify a framework for examining groups of

countries with similar Country-of-Origin effect• Examine the international marketing challenges

facing these countries• The challenge facing the country has a direct

bearing upon the challenge facing individual companies

The Domestic Environment

• Has a major impact upon the international marketing challenges facing the country and its companies

• This is the Country of Orign effect

Do we agree?

• Like it or not, the CoO dimension imposes considerable restrictions on corporate strategic options?

Strategy

Internationalisation

The Company/Organisation

The Country of Origin

Developing a Classification of COO

• Consider the following:–Extent of natural resources

–Level of economic development

Country of Origin - Typology

• Four main groupings can be

identified:

1. Resource-poor Undeveloped

2. Resource-rich Undeveloped

3. Emerging Economies

4. Developed Economies

International Marketing Challenges:The Macro-Micro Relationship

Economy Type Key Requirement Key International Marketing Challenge

Resource-poor undeveloped economy

Attract inward investment

Location marketing

Resource-rich undeveloped economy

Beat the ‘commodity trap’ in primary goods

Commodity Marketing

Emerging Economy (phase 1)

Manufacturing expertise

International Subcontracting relationships

Emerging Economy (phase 2)

As above, plus international marketing

Brand development, global distribution

Developed Economy As above, plus Innovation

Attaining and exceeding World class status

World ClassCompany

EffectiveEfficient

World ClassMarketer

World ClassManufacturer

DifferentiationLow-Cost

World Class Manufacturing Company

• Countries that have the lowest costs, often generate world class producers

• But such countries generally do not offer a positive CoO effect

• Therefore companies in these countries struggle to become world class marketers

• They seek to overcome this disadvantage by establishing a presence in lead, developed country markets

World Class Marketing Company

• Countries that have the highest costs, often generate world class marketers

• But such countries generally do not offer a competitive, low cost manufacturing location

• Therefore companies in these countries struggle to remain world class producers

• They seek to overcome this disadvantage by establishing a presence in lower cost markets

The World Class Company

• Almost by definition it will be a global company• Seeking out locations offering cost advantages• And those that offer marketing advantages• Compare and contrast companies from Germany

and Taiwan• Both need to globalise, albeit often for different

reasons

CostsLow High

CoOEffect

Negative

Positive

Cell 1 Cell 2

Cell 3 Cell 4

The Relationship Between the Country of Origin Effect and Costs

CostsLow High

CoOEffect

Negative

Positive

Low-CostNon-competitive

WorldClass Differentiation

The Relationship Between the Country of Origin Effect and Generic Strategy

CostsLow High

CoOEffect

Negative

Positive

The StartingPoint

LeastCompetitive

Most Competitive

The UsualDestination

The Impact of Economic Development

• Costs will rise with economic development• So companies in Cell 1 find themselves

heading for the least competitive situation• Faced with rising costs, and a low CoO

effect• What do they do?

The Impact of Economic Development

• Just consider the changes in international marketing strategy of Asian companies in Japan, South Korea, Taiwan

• Consider the speed of their change– Many seek to change their strategy, but others to

prolong their strategy

• Now consider the nature of change in China and the strategic response of Chinese companies

Summary

• The Country-of-Origin effect is a significant issue - for companies in emerging developing and emerging economies

• It also has implications for companies based in developed country

• Yet some companies are much better known than their CoO (eg Nokia and Finland)

Summary

• A period of transition in choice of generic strategy invariably results in:

• A change in nature of entry mode• And also modifications in the four Ps

Country of Origin - Typology

• Resource-poor Undeveloped

• Resource-rich Undeveloped

• Big Emerging Economies

• Developed Economies

Resource-poor Undeveloped Markets

• Industry

• CoO Effect

• Indigenous Company

• Target Market(s)

• End-user attitude

• Cottage

• Strongly negative

• Inefficient

• Domestic

• No choice

Marketing Implications

• Attract export-oriented inward investment - acquisition or greenfield

• Provides stimuli to local enterprises

• Creation of relationships with MNEs

• Fosters exports of labour-intensive products

Marketing Implications

• needs to focus upon selling the country itself, not products

• Only through success in the above, are indigenous firms ever likely to succeed in international markets

• Key skill requirement - location marketing

Resource-rich Undeveloped Economies

• Industry

• CoO Effect

• Indigenous Company

• Primary sector

• Often positive

• Non-competitive

Resource-rich Undeveloped Economies

• Entry Mode• Target Market(s)• IM Activities

• Indirect exporting• Buyers in

developed countries• None - other than

relationship with buyers

Implications

• Poor - because limited value added activities undertaken

• Positive CoO benefits lost to indigenous interests

• Indigenous firms have minimal participation in international marketing

• Poor, so often unattractive target market too

Marketing Implications

• Extend operations along the value chain

• Co-operation with local rivals

• New terms for existing relationships, or

• New set of relationships

• Key skills requirement - processing, distribution

Emerging Economies - Phase 1

• Industry• CoO Effect• Company Strategy• Target Market(s)• Entry Mode

• Secondary • Negative• Low cost• Developed & open• Subcontracting

Emerging Economies - Phase II

• Industry• CoO Effect• Company Strategy• Target Market(s)• Entry Mode

• Secondary • Neutral• Value for money• Global, protected• Direct Exporting, fdi

Emerging Economies - Product Policy

Phase I

• Imitation

• Lacks brand identity

• Suspect Quality

• Minimal R&D

Phase II

• Innovation

• Create brand

• Quality

• Committed to R&D

Emerging Economies - Phase 1

• Distribution• Promotion• Pricing

• Minimal• Industrial selling• Aggressive• Dumping• Low margin

Emerging Economies - Phase II

• Distribution• Promotion• Pricing

• Extensive• Advertising• Penetration• Higher margin

Key Skills Requirements

• PHASE I• Production expertise

• PHASE II• Overcome CoO• NPD• Brand management• Distribution management• Creativity

Developed Country Economies

• Industry• CoO Effect• Company Strategy• Target Market(s)• Entry Mode

• All three• Related to product• Value driven• Regional/Global• All - M&A prominent

Developed Country Economies

• Product• Branding issues • NPD• Adaptation vs standardisation• Customisation

Developed Country Economies

• Promotion• Distribution

• Pricing

• One-to-one• Buyer power - own labels• Build in emerging economies• Avoid grey imports• Skimming often in BEMs

CoO and Impact upon International Marketing Challenges

• Considerable diversity in charac-teristics of countries

• But all share desire/need to increase exports

• All face hurdles - some more severe than other

Meeting the Challenge

• Are some economies/companies doomed to become/remain commodity exporters?

• Can emerging economies create global giants?

• Can a negative CoO effect be overcome?