Chapter 8:Global Market

Participation

INTERNATIONALIZING MARKETING OPERATIONSOpportunistic ExpansionPursuing Potential Abroad and Diversifying RiskExploiting Different Market Growth RatesFollowing Customers AbroadGlobalizing for Defensive ReasonsBorn Globals Is There a First-Mover Advantage?

EVALUATING NATIONAL MARKETSStandalone Attractive MarketsGlobally Strategic Markets

GEOGRAPHIC MARKET CHOICESTargeting Developed EconomiesTargeting Developing CountriesTargeting Transitional EconomiesTargeting BRIC

COUNTRY SELECTIONThe Screening ProcessCriteria for Selecting Target CountriesListing Selection CriteriaGrouping International Markets

Internationalizing - Is the term use for a firm’s expansion from its domestic market into

foreign markets- Is a strategic decision that affect’s any firm, including its operation and

management

Two directions of Internalization:

• Increasing movement of the firm in the individual foreign country

• Successive establishment of operations in new countries

Motives Ranging behind a company’s decision:* Opportunistic* Strategic

Opportunistic expansion is an internalization strategy that is adopted:a. in response to unsolicited orders from overseas customersb. for defensive reasonsc. due to saturation in the domestic marketsd. due to the need to expand higher growth rate markets

Reasons Of Companies expanding internationally:(1) Lure of increasing sales and profits from entering

new markets(2) Possibility of avoiding risks inherent to operating in

only one marketBorn-Globals-term referring to a firm that establishes marketing and other businesses operations abroad upon formation of the firm or immediately thereafter.-this is the organizations that from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries.

Difference of Born-Globals from International Organizations:

• They originate internationally• Have a global focus and commit their resources

to international ventures• Begin with a borderless world view and

immediately develop. Strategies to expand themselves abroad.• Have many distinctive features that allow them

to start and thrive in the international area.

First Mover Advantage- a market advantage relating to

brand awareness, sales and profits that accrues to the first significant competitor to enter a new market.

II. EVALUATING NATIONAL MARKETS

• Whether a domestic firm is first internationalizing or an established multinational is looking to extend its global bench, deciding which markets to enter and prioritizing those markets, is a major requirement for successful global marketing strategy.

National Market can appear attractive in number of ways:1. The potential primary market need to be assessed2. The size of the market and its growth rate

* The less competitive a national market, the better chance to attain a larger market share.

Globally Strategic Markets – are the current and future battlegrounds where global competitors engage one another.

Must-win Markets – Markets crucial to a firm’s global market leadership.

Multinationals – have major sales in their home markets and consequently want global suppliers to understand – and supply – their needs those markets.

Lead Markets - Countries or regions that posses major research

and development sites for an industry or are recognized for being trendsetters.

•They are characterized as having demanding customers who push for quality and innovation.

Lead Markets may be:1. Global 2. Regional

III. Geographic Market ChoicesDeveloped Countries Developing Countries Transitional Economies

Richest market Poor markets Many close to Western Europe

Potential sources of major profits Great variation in national markets

Some members are of European Union

Lead markets Generally higher growth potential Educated population

Major markets of key competitors Poorer markets are usually less competitive

Cultural distance from West varies across countries

Home markets of many global customers

Cultural distance is higher for triad firms but lower for regional competitors

Higher growth potential, especially for Russian Federation

Lower political risk Government incentives may be available for less attractive markets

Less developed legal infrastructure relating to business and marketing

Higher political risk Higher political risk

Some developing countries emerging as lead markets and home markets of global competitors

Developed countries have post-industrial economies, meaning the service sector provides more wealth than the industrial sector. They are contrasted with developing countries, which are in the process of industrialization, or undeveloped countries, which are pre-industrial and almost entirely agrarian.

10 Developed Countries: 1. United States 6. Netherlands 2. Canada 7. Sweden 3. United Kingdom 8. Switzerland 4. Germany 9. Japan 5. France 10. Australia

Developed economies account for a disproportionately large share of world gross national product (GNP) and thus tend to attract many companies. Competition from both international firms and local companies is usually more intense in these markets, developed countries are often deemed to be more standalone attractive than are most developing countries.

Three parts of the triad:1. United States2. Europe 3. Japan

* The importance of the triad countries in international trade, global companies go to great lengths to balance their presence such that their sales begin to mirror the relative size of the three regions.

Developing countries- May appear to be attractive markets for several

reasons- Market growth can sometimes be higher than in the

triad, as a result of higher population growth

Middle-class consumers - are appearing in markets once seen as consisting of a small elite and a large impoverished underclass.

Developing Countries:* Latin America * Middle East* Africa * some parts of Asia

BRIC - Brazil, Russia, India and China

IV. Country Selection

The Screening Process is used to identify good prospects.Two common errors that companies make in screening process:1. Ignoring countries that offer good potential for the

company’s product2. Spending too much time investigating countries that

are poor prospects

Stages of the Selection Process:3. Using maroindicators to discriminate between

countries that represent basic opportunities and those that either little or no opportunity or involve risk.

Macroindicators - describe the total market in terms of economic, social, geographic, and political information. - This data are useful in estimating the total market size of a country or region

2. The screening process focuses on microlevel considerations, such as competitors, ease of entry, cost of entry and profit potential.

3. Evaluation and rank-ordering of the potential target countries on the basis of corporate resources objectives and strategies.

Criteria for Selecting target Countries

• Market Size and Growth Measures of market size and growth can be made on both macro and micro basis.

Macro Basis – may be determined that the country needs a minimum set of potential resources to be worth further considerationMicro indicators – usually indicate actual consumption of a company’s product or similar product, therefore signaling a perceived need.- Can be used to estimate market size further

• Political Conditions

Indicators of Political Risk*probability of nationalization *percentage of voters who are* bureaucratic delays communist*number of expropriations * restriction on capital movement*number of riots or assassinations * government intervention*political executions * limits on foreign ownership*soldier/civilian ratio

• Competition

• Market Similarity -managers believe that their success in the home market is more easily transferrable to markets similar to the one in which they already compete.

Psychic Distance – the perceived degree of similarity between markets.

Two dangers of choosing markets on the basis of similarity:1. The benefits of similarity need to be balanced against the market size.

2. Selecting national markets based on perceived similarity is the fact that firms can overestimate the degree od similarity between markets.

Psychic- Distance paradox- a phenomenon in which a market thought to be similar to another market turns out to be dissimilar-culture shock experienced by managers entering foreign markets that they have perceived to be similar to their own.

Grouping International MarketsTwo principles that drive the need for larger market groupings:1. Critical Mass - used in physics and military strategy, embodies the idea that a certain minimum amount of effort is necessary before any impact will be achieved.- the minimal effort and investment needed to compete effectively in a market. 2. Economies of Scale – is a term used in production situations; it means that the greater levels of production result in lower costs per unit, which obviously increases profitability.- profitability gained through the phenomenon that as the size of a production run increases, per-unit costs decrease

Four reasons why the costs of marketing products within a group of countries are lower than the costs of marketing products to the same number of disparate countries:

1. The potential volume to be sold in a group of countries is sufficient to support a full marketing effort.

2. Geographic proximity makes it easy to travel from one country to another, often in two hours or less.

3. The barriers to entry are frequently the same in countries within an economic group.

4. In pursuing countries with similar markets, a company gains leverage with marketing programs.