International Marketing Management...Market development Market development is the name given to a...

International Marketing Management

Topic 3. Internationalization. The country selection.

Commercial internationalization

Countries

Products

Segments

Begins with the best combination choice between the 3 factors.

Commercial internationalization

1. Market penetration - the same product, the same segment

2. Product Development – product adaptation for the same segments

3. Market Development – the same product , different segments

4. Diversification – different products for different segments

Commercial Internationalization

Market penetration

Market penetration is the name given to a growth strategy where the business focuses on selling existing products into existing markets.

Market penetration seeks to achieve four main objectives:

• Maintain or increase the market share of current products – this can be achieved by a combination of competitive pricing strategies, advertising, sales promotion and perhaps more resources dedicated to personal selling

• Secure dominance of growth markets

• Restructure a mature market by driving out competitors; this would require a much more aggressive promotional campaign, supported by a pricing strategy designed to make the market unattractive for competitors

• Increase usage by existing customers – for example by introducing loyalty schemes

Market development

Market development is the name given to a growth strategy where the business seeks to sell its existing products into new markets.

There are many possible ways of approaching this strategy, including:

• New geographical markets; for example exporting the product to a new country

• New product dimensions or packaging: for example

• New distribution channels (e.g. moving from selling via retail to selling using e-commerce and mail order)

• Different pricing policies to attract different customers or create new market segments

• Market development is a more risky strategy than market penetration because of the targeting of new markets.

Product development

Product development is the name given to a growth strategy where a business aims to introduce new products into existing markets. This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets.

A strategy of product development is particularly suitable for a business where the product needs to be differentiated in order to remain competitive. A successful product development strategy places the marketing emphasis on:

• Research & development and innovation

• Detailed insights into customer needs (and how they change)

• Being first to market

Diversification

Diversification is the name given to the growth strategy where a business markets new products in new markets.

• This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience.

• For a business to adopt a diversification strategy, therefore, it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks. However, for the right balance between risk and reward, a marketing strategy of diversification can be highly rewarding.

The planning process

The company should base its international development processes on a well structured

approach or PLANNING logics

The adopted approach is influenced by the internationalization motivations of the company:

1. REACTIVE MOTIVATION 2. PROACTIVE MOTIVATION

The logics of planning

Features Reactive approach Proactive approach

TimeCountry

Objectives

ResourcesMode of entry

Product developmentProduct adaptation

Distribution

Price

Communication

Short timeNot systemic selection

Profit increase

The minimum possibleNot rationalized

Only for domestic marketLimited, only for the new

market entryLimited control of

intermediariesBased on costs

Rely on intermediaries

Medium and long-termThorough analysis

To consolidate the market position

All needed resourcesRationalized choice

Domestic and foreign MKAdaptation to MK needs

Controlled distribution

Set according to the demand and competition

Planned by company according to the country

specifics

Proactive approachThe decision to entry foreign markets it is linked with a well developed

marketing strategy which is based on :

Analysis of environmental conditions( actual and future)

Define the best positioning of the company taking in

consideration its resources, strengths and weaknesses.

Planning process steps.

1. The objectives of the commercial internationalization

2. Available resources

3. The selection of countries

4. The strategies and methods of entry

5. Marketing policies oriented to the customers.

Objectives Resources Countries Strategy Marketing

policies


Defining objectives

Choosing the right

instruments for development of

the product-country-segment

Control actions

Selecting the strategies

and methods of entry

Marketing plan

development and

adaptation

Consolidation of market position

Results

Target market

An example of strategic planning of commercial internationalization








policies

The objectives of the commercial internationalization

A. Increase the turnover and profitability

B. Face the competition

C. Take advantage from the creation of international segments of demand.

D. Risk diversification

E. Increase the product life-cycle.

F. Improve the Company Image.


A. Increase the turnover and profitability

stagnant domestic market

developing foreign markets

economy of scale

exploit the competitive advantage


B. Face the competition

Tackle a foreign competitor on its own market

Imitation of competitors

Following the international customers


C. Take advantage from the creation of international segments of demand.


D. Risk diversification


E. Increase the product life-cycle.


F. Improve the Company Image.








policies

Available resources.

To analyze the resources and skills not only the

competitive advantages that a company has.

Critical factors of success in different markets

The resources and skills of the competitors that have to be

tackled

StrengthWeaknesses and threats

Available resources.








policies

The selection of countries

Country’s market opportunity = to identify the individuals or group of individuals who’s needs are not satisfied quantitatively or qualitatively.

The correct selection of country is important because:

affects the process of international marketing strategy development

The wrong choice imply the additional expenditures and high opportunity costs

The small and medium size companies

Usually the small firms do not conduct any market research but base their decisions on:

Contacts and information collected during the exhibitions in foreign countries from occasional commercial agents.

On the distance (geographical or cultural ) between the domestic market and foreign market

How much the competitors gains (cluster effect)

The risks of this approach

To neglect countries with high potential only because of lack of contacts in that countries

To operate in low potential countries, exporting occasional and small quantities.

To sell only in neighboring countries

Concentration of sales in few countries

OCCASIONALTY

The analytical process of country selection

The companies’ analysis should take in consideration:

Attractiveness of the market = demand , the specific

characteristics of market segments, the success factors , product perception and

Market Accessibility = entrance barriers (natural, artificial )

Classification of countries

Strategic countries High priority countries

Marginal countries(to avoid)

Countries to be selectedA

ttra

ctiv

en

ess

Accessibility

Countries attractivenessIn order to asses the countries attractiveness companies should develop an International Marketing Information System.

Market Research:

International market

environment

Secondary and primary research

The process of country selection

The list of potential markets

1

2

3

First screening

Second screening: potential market

estimation for the offered product

Third screening : the coherence

between the demand and the company supply

Reasonable countries

Sector attractive countries

Company attractive countries

> Industry specific

> Firm specific

Sector attractiveness: market share estimation.

In case of non- durable goods:

• Nt : number of population that live in the target geographical area

• Pt : % of potential buyers

• Ot : maximal nr of uses in a spacific period of time

• DPt: maximal Q used at every use.

MKtpot= Nt x Pt x Ot x DPt


In case of non- durable goods:



• Ot : maximal nr of uses in a spacific period of time

• DPt: maximal Q used at every use.

MKtpot= Nt x Pt x Ot x DPt

60mln30% problems of hair loss = 18mln3 use/week = 156 vials/year 2 vials/ at one use

MKtpot= 60mln x 30% x 156 x 2 = 5,62mln vials


In case of durable goods:



• Uuse t : nr of units already in use

• Urep t : nr of units to replace

MKtpot= (Nt x Pt ) - Uuse t +Urep t








20 mln population 50% afford this product = 10mln Coverage 75% = 7,5 mln units already in use Average life 10 years = 30% already aquired it

(10 years ago) After 10 years = 4,5 mln units to replace

MKtpot= (20mln x 50%) - 7,5mln + 2,25mln =4,75mln


Lead –lag analysis of sales historical data of a certain product in a certain country (one variable is correlated to another).


Barometric analysis : the correlation between Demand of a product and a certain indicator.

Company attractive countries.

There is an effective market share for the company?

- Demand elasticity.

- The compatibility of the supply and costs for product adaptation

Country risks > political risks

- political instability risks

- control risks over the investment property

- operating risks

- capital transfer risks.

The case of Nestle.

Attractive and Accessible countries Often the number of attractive countries is very large, thus the company should evaluate their opportunity estimating:

The number of countries to which direct their efforts

The period of time for the development of internationalization strategies

the competitive position in selected countries.

The cluster of countries

The possible alternatives can be realized in 2 ways

Country Multiplication

Country Concentration




Horizontal strategy+

Balanced portfolioSegment specialization

-Country analysis

Division of resources



Country Concentration Vertical strategy

+Concentration of

resourcesCountry knowledge

-Unbalanced portfolio

Sectorial specialization




Country Concentration

The country selection is determined by the homogeneity of analyzed countries and the knowledge of country environment

Other factors of selection

the growth rate of demand in different countries

the degree of stability of demand in different countries

The function of sales reaction to the marketing efforts

Available resources

Time advantages of innovating companies

Necessity and costs of product adaptation

The importance of economies of scale and experience

The degree of control (over investments)

The time of international development

There are 2 approaches

Sequential approach

Parallel approach



Sequential approach

Before the expansion

Investment an financial risks

+The transfer of experience

Targeted approach

Parallel approach

Small enterprises with little international experience



Sequential approach

Parallel approach

The parallel entrance in more countries

+ Exploitation of time

competitive advantage

Anticipation of competition

Global enterprises with large international experience, competitive advantage and investment potential.


Topic 4: Target Markets: Segmentation and Evaluation.

What are markets?

Market

The relationship between supply and demand of a

specific product

A large geographic areaSpecific location where the products are bought and sold

What are markets?An aggregate of people who as individuals or as organizations have needs for products in a product class and have the ability, willingness and authority to purchase such products

1. Must need or want a particular product.

2. Must have the ability to purchase the product.(a function of buying power).

3. Must be willing to use their buying power.

4. Must have the authority to buy specific products(under 18 > no cigarettes).

For a group of people to be a market must meet following conditions:

Types of markets?

Individuals who buy household goods

intended for consumption and have not the main purpose to

making profit

Individuals that purchase a specific kind of products for

: resale, direct use in production, or use in

general daily operations (producers, resellers,

government and institutional)

Consumer market Organizational market

Selecting Target Markets

Market approach

Total approachSegmentation

approach

All customers have the similar needs

A single marketing mix One type of product , one

price and promotional program for everybody

Ex. Sugar, Salt and some farm produce

Customers have different needs Different products are developed

for different customers Different marketing mix

strategies

Total market approach

A large proportion of customers must have similar needs for product The organization must be able to develop and maintain a single

marketing mix that satisfies consumers’ needs Company must identify the set of product needs that are common to

most customers in a market.

Segmentation approach

Market segmentation: the process of dividing the total market into market groups consisting of people who have relatively similar product needs.

Ex: Soft drinks market > cola drinkers, non-cola drinkers and drinkers of diet drinks.

Concentration strategy

Multi-segment strategy


Concentration strategy

Multi-segment strategy

The organization directs its activity toward a single market segment

One marketing mix. Allows firms to specialize Permits firm with limited

resources to compete with much larger firms that have overlooked some smaller segments.

The company “puts all eggs in one basket” no risk diversification

More market segments A separate marketing mix for each

segment. Higher marketing costs Additional segments may absorb

the excess of capacity. Risk diversification

Conditions for effective Segmentation 1. Consumers need must be heterogeneous

2. The segment must be identifiable and divisible

3. The market must be divided in such a way that the segments can be compared with respect to estimated sales potential, costs and profits.

4. At least one segment must have enough profit potential to justify the marketing efforts

5. The company must be able to reach the segment with a particular marketing mix.

Segmentation Variables.Characteristics of individuals, groups or organizations that are used for dividing a market into segments

The segment variables must be measurable ( age, location, sex not like intelligence )

Number and size of segments is influenced by:

Resources and capabilities of a firm

Type of product

The degree of variation in consumers’ needs

Segmentation Variables.

1. Demographic variables

2. Geographic variables

3. Psychographic variables

4. Behavioristic variables

Segmentation Variables.

Single or Multi-Variable Segmentation

Single characteristics give the marketers only moderate precision in designing a marketing mix to satisfy individuals in a specific segment

Multivariable segmentation is used to divide a total market, provide more information about the individuals in each segment than does single variable segmentation.

The larger the number of variables the greater the number of resulting segments this reduces the sales potential of many of the segment

Multi-Variable Segmentation

Market share estimation.

There are 2 general approaches

Break down approach- a general economic forecast then the market potential derives from economic forecast

Buildup approach – the estimation of the quantity of a product is acquired in a certain geographic area (calculation oriented directly to market potential estimation without economic forecast)








20 mln population 50% afford this product = 10mln Coverage 75% = 7,5 mln units already in use Average life 10 years = 30% already aquired it

(10 years ago) After 10 years = 4,5 mln units to replace

MKtpot= (20mln x 50%) - 7,5mln + 2,25mln =4,75mln

Sales Forecasts

The amount of a product that a company expects to sell during a specific period o time.

Sales projections could be : short –time, medium or long time

Types:

Executive judgments- intuition of one or more executives

Surveys - asking the customers

Sales force forecasting surveys- members of sales firm force

Expert forecasting surveys – experts are helping in forecasting

Time series analysis – using the firms historical sales data.

Correlation method- the correlation between sales and one or more variables(demographics, income per capita, GNP)


Topic 5 :Methods of entry in International markets








policies

The strategies and methods of entryThere are 3 main methods of foreign market entry:

I. Exports

II. Foreign production facility

III. Agreements between companies

The process of international commercial activity of firms develop according to a linear logics and where the final point is the foreign production facility

The strategies and methods of entry

I. Exports

Exporting is the process of selling of goods and services produced in one country to other countries.

The exports are characterized by:

Limited investments

High level of reversibility

There are two types of exporting: direct and indirect

Exports

Indirect exports

The firm enter the foreign market by

mean of an international

commercial agent that is based in home

country

Direct exports

The firm is going directly to the international market

by mean of own commercial agents or

organization (abroad) and cooperate directly with

foreign companies

Exports

Indirect exports

Direct exports

Home country

Foreign country

Foreign country

Home country

Middleman

Middleman

Exports

Domestic market

Foreign Market

Borders

Exporting agencies

Exporting consortium

Export buying agents

Trading company

Trading company

Importing distributors

Sales representatives

Ind

irec

t ex

po

rts

Dir

ect

exp

ort

s

Indirect Exports.

The role of foreign traders (middlemen) –they are connecting the supply and demand of different markets.

Indirect Exports.Advantages• Fast market access• Concentration of resources

towards production• Little or no financial

commitment as the clients' exports usually covers most expenses associated with international sales.

• Low risk exists for companies who consider their domestic market to be more important and for companies that are still developing their R&D, marketing, and sales strategies.

• No direct handle of export processes.

Disadvantages• Higher risk than with direct exporting • Little or no control over distribution,

sales, marketing, etc. as opposed to direct exporting

• Wrong choice of distributor, and by effect, market, may lead to inadequate market feedback affecting the international success of the company

• Potentially lower sales as compared to direct exporting (although low volume can be a key aspect of successfully exporting directly).

• Export partners that incorrectly select a specific distributor/market may hinder a firm's functional ability.

Exports

Domestic market

Foreign Market

Borders

Exporting agencies

Exporting consortium

Export buying agents

Trading company

Trading company

Importing distributors

Sales representatives

Ind

irec

t ex

po

rts

Dir

ect

exp

ort

s

Indirect Exports. Exporting agencies

Belongs to the exporter’s country

Specialized on sectorial or geographical base.

Is buying products from the producer.

It deals with the administrative operations, logistics and sale own its behalf and risk.

+ The producer doesn’t support any transactional risks ,

doesn’t care about the (no) logistics operations

- No price and distribution control, it could imply negative consequences in the future.

Indirect Exports. Trading company

The most complex form of commercial intermediary.

It takes the risks of commercial transactions by buying the products and selling them taking in consideration the profitability.

Is coordinating logistic structures, financial resources, managerial resources, information and even advertising.

Indirect Exports. Trading company

Responsibilities:

Buying and selling on own behalf or on behalf of third parties

Collaboration for the introduction of the product in the market

Assessment of the feasibility and convenience

Customer service at different stages

Management of countertrade operations

Organization of financing package

Provision of specialized services

Search for partners

Inspection, transportation and storage services

Types of Trading company

Trading companies

specialized on geographic areas

General Trading company

TC specialized on some

countries and some specific

products

Commodity dealers

Few countries

Numerous countries

Coverage

Typ

es

of

exp

ort

ed

pro

du

cts

All types of

products

Certain types of products

Indirect Exports. Exporting consortium

Aggregation in the form of a consortium of companies (private or mixed) with the aim of exporting the products of associated businesses and carrying out joint promotional activities .

There are 2 types of consortium:

Promotional consortium ( for services)

Sales consortium( operating)

Promotional consortium

Provide general support services:

Participation in exhibitions and fairs

Advertising on foreign markets

Market research activities

Legal advice and assistance, financial, currency, customs, insurance assistance

Organizing visits of foreign agents.

Promotional consortium

Sales consortium

They buy the products from the consortium members to sell them in international markets in two ways:

• Without taking the commercial risk - operating on behalf of the member undertakings and require a commission

• With commercial risk – operating on their behalf, retaining the profit but and all related risks.

Sales consortium

Export buying agents.Traders who usually reside in the country of exporter, where they act as representatives of large foreign buyers (industrial raw materials or commercial companies for finished products)

Acquiring products on behalf of others, do not acquire ownership of the goods

•This activity ties the parts by a commission contract : the agent has the right to purchase on behalf of the foreign client - > the agents subordinates to foreign customers, not the exporter.(they are paid by foreign client )

• Activities: research suppliers, market research, commodity inspection, suggestion of adaptations. Compensation: % commission.

Export buying agents.

2.Direct ExportingDirect contact between an exporter and local reality (foreign country agents)

Direct exports represent the most basic mode of exporting made by a (holding) company, capitalizing on economies of scale in production concentrated in the home country and affording better control over distribution.

There are no intermediaries.

Direct export is often the most appropriate method of entry when:

• The distributional problems are complex (ex. wide range of products for different channels)

• It requires the direct management of post-sale service

• The products are very specialized

• The mark-ups (commission) of intermediaries are very high

• the volumes of products are small

2.Direct Exporting

Advantages• Control over selection of foreign

markets and choice of foreign representative companies

• Good information feedback from target market, developing better relationships with the buyers

• Better protection of trademarks, patents, goodwill, and other intangible property

• Potentially greater sales, and therefore greater profit, than with indirect exporting

Disadvantages• Higher start-up costs and

higher risks as opposed to indirect exporting

• Requires higher investments of time, resources and personnel and also organizational changes

• Greater information requirements

• Longer time-to-market

2.Direct Exporting

The mode of direct exporting:

1. Establishing a relationship with an importer

2. Direct negotiation with the foreign customer

3. Establishment of sales network designed especially to local

market

4. Establishment of own organizational unit in the country

foreign

2.Direct Exporting.Establishing a relationship with an importer

Advantages

• Limited absorption of financial and managerial resources

• Allows the entrance in markets with entry barriers

• Unlike the agent, has a warehouse

• The economic risk is taken by the importer and not by the exporting company

Disadvantages Direct contact with the

market (the client portfolio is controlled by importer)

Low control on importer actions: he can damage the image of exporting company.

2.Direct Exporting.Direct negotiation with a foreign customer

• Exporting companies can negotiate directly with the foreign customer if:

operate on commission (industry B2B)

maintain direct contact with large groups of modern distribution

use electronic commerce

2.Direct Exporting.E-commerce.

Advantages for the manufacturer:

• Ability to create report

• Database - CRM - Direct Marketing

• sale 365/24/7

• Accessibility worldwide

• Possibility of continuous changes

• Freedom of access

• Cheap, direct channel

• Wide range of communication

• Affordable communication

2.Direct Exporting.E-commerce.

Disadvantages for the manufacturer:

Competition from all over the world

Reduced possibility of influencing the audience behavior

Accessibility linked to the rate of "Computer literacy"

Because there is no possibility "touch & feel" is suitable only in cases of the brand, trade mark or known sites

2.Direct Exporting.Establishment of sales network designed especially for local market

A. Direct sales network

Subordinated sale

staff (in foreign country)That are

responsible for:

Keeping in contact with customers to collect orders

Checking the compliance of the supply with demand

Identify the new requirements of market and provide required

assistance

The contacts can be taken without a permanent basis abroad or by mean of a representative office


B. Indirect sales network

The most widespread is the

figure of agent or

representative ,located in the

Importer country , with the task

to:

Promote sales for and on behalf ofcompany's principal

(with agent representation)

Transfer orders to the company manufacturer, which deals

their execution(in the case of agents with warehouse, is also involved the

delivery)


Advantages

• The variable commission costs

• Knowledge of customer (invoices and delivery direct to the customer)

• Knowledge of the market

• Price control

Disadvantages

• If multi-agent, promotes the more profitable product (even there are brands that are leading)

• Orientation to the sale rather than the service

• Low involvement on business objectives

• The risk of insolvency (lettersirrevocable credit, factoring,

discounts, etc.)

2.Direct Exporting.Own organizational unit.

It 'a almost mandatory solution when the products are:

a) high quality

b) characterized by a well-known brand

c) High level of demand

d) high competition

2.Direct Exporting.Own organizational unit

Advantages

• Easy access to information on the consumer needs and local demand

• Ability to adapt products to the local market needs

• Tighter integration with resources and local expertise

• Higher level of service, strict control of market making activities

• Ability to acquire the enterprise image "Local", while maintaining domestic production

Disadvantages

• Start-up costs

• Need to know corporate law, tax, labor, etc.. of foreign country

• Difficulty to integrate local staff with the staff of the parent company

• Lack of facilities and infrastructure in emerging or developing countries

II. Foreign Production facility(Wholly owned enterprise)A wholly owned subsidiary includes two types of strategies:

Greenfield investment and Acquisition

1. Greenfield investment is the establishment of a new wholly owned

subsidiary.

- complex and costly,

- high risk due to the costs of establishing a new business in a new country.

+ able to provide full control to the firm and

+ has the most potential to provide above average return.

are preferred in service industries where close contact with end customers and high levels of professional skills, and customization are required.

is attractive if there are no competitors to buy or the transfer competitive advantages

II. Foreign Production facility(Wholly owned enterprise)A wholly owned subsidiary includes two types of strategies:

1. Greenfield investment

A firm may need to acquire knowledge and expertise of the existing market by third parties, such consultant, competitors, or business partners.

This entry strategy takes much time due to the need of establishing new operations, distribution networks, and the necessity to learn and implement appropriate marketing strategies to compete with rivals in a new market.

II. Foreign Production facility(Wholly owned enterprise)

A wholly owned subsidiary includes two types of strategies:

2. Acquisition

Advantages

+ quick access to the foreign market

+ the fastest, and the largest, initial international expansion of any of the alternative.

+ a way to achieve greater market power.

Many multinational corporations apply acquisitions to achieve their greater

market power require buying a competitor, a supplier, a distributor, or a business in highly related industry to allow exercise of a core competency and capture competitive advantage in the market.

Acquisition is lower risk than Greenfield investment because of the outcomes of an acquisition can be estimated more easily and accurately.



2. Acquisition

Disadvantages

- Integrating two organizations can be quite difficult due to different organization cultures, control system, and relationships.

- some companies significantly increased their levels of debt which can have negative effects on the firms because high debt may cause bankruptcy.

- Too much diversification may cause problems(due to a lack of management of diversification)



2. Acquisition

III. International agreements

“Collaboration, based on common interests, in which the participants commit themselves to each other, even in an informal manner, to cooperate and to follow a particular line of conduct for

the benefit of all the involved companies “

There are the following agreements:

Franchising agreement.

A system in which semi-independent business owners (franchisees) pay fees and royalties to a parent company (franchiser) in return for the right to become identified with its trademark, to sell its products

or services, and often to use its business format and system

Tends to be long term

the franchisor offers a broader package of rights and resources which usually includes: equipment, managerial systems, operation manual, initial trainings, site approval and all the support necessary for the franchisee to run its business in the same way it is done by the franchisor.

franchising is limited to trademarks and operating know-how of the business(no commercial secrets disguised ).

The franchising

The franchisee usually pays a one-time franchise fee plus a percentage of sales revenue as royalty, and gains:

(1) immediate name recognition,

(2) tried and tested products,

(3) standard building design and décor,

(4) detailed techniques in running and promoting the business, (5) training of employees, and

(6) ongoing help in promoting and upgrading of the products.

The franchiser gains rapid expansion of business and earnings at minimum capital outlay.


Advantages • Low political risk

• Low cost

• Allows simultaneous expansion into different regions of the world

• Well selected partners bring financial investment as well as managerial capabilities to the operation.

Disadvantages• Franchisees may turn into

future competitors• Demand of franchisees may be

scarce when starting to franchise a company, which can lead to making agreements with the wrong candidates

• A wrong franchisee may ruin the company’s name and reputation

• Comparing to other modes such as exporting and even licensing, international franchising requires a greater financial investment to attract prospects and support and manage franchisees

The franchising Types:

1. Industrial franchising- the franchisor and franchisee are industrials. The franchisor grants the know-how and the right to produce and sell the products.

2. Service Franchising - The franchisor grants the right to the franchisee to provide a certain type of services(reparation services, or diagnostics of cars)

3. Distribution Franchising - The franchisor is producing the goods and sells them to the franchisee which is selling the goods in a certain geographical zone(the distribution of fuels, cosmetic products or electronics)

The franchising

Methods of organization:

1. The creation of franchising units – the simplest method, the franchisor concludes a direct contract with the franchisee (it could be national or international)

2. Territorial franchising – covers selected territories by opening simultaneously or successively a certain number of units of shops

The key success for franchising is to avoid sharing the strategic activity with any franchisee especially if that activity is considered importance to the company. Sharing those strategic activity may increase the potential of the franchisee to be our future competitor due to the knowledge and strategic spill over.

Licensing agreement.An international licensing agreement allows foreign firms, either exclusively or non-exclusively to manufacture a proprietor’s product for a fixed term in a specific market.

A licensor in the home country makes limited rights or resources available to the licensee in the host country.

The rights or resources may include:

patents, trademarks, managerial skills, technology, and others that can make it possible for the licensee to manufacture and sellin the host country a similar product to the one the licensor has already been producing and selling in the home country without requiring the licensor to open a new operation overseas.

The licensor earnings usually take forms of one time payments, technical fees and royalty payments usually calculated as a percentage of sales.

Licensing agreement.Advantages

• Obtain extra income for technical know-how and services

• Reach new markets not accessible by export from existing facilities

• Quickly expand without much risk and large capital investment

• Pave the way for future investments in the market

• Retain established markets closed by trade restrictions

• Political risk is minimized as the licensee is usually 100% locally owned

• Is highly attractive for companies that are new in international business

Disadvantages

• Lower income than in other entry modes

• Loss of control of the licensee manufacture and marketing operations and practices leading to loss of quality

• Risk of having the trademark and reputation ruined by an incompetent partner

• The foreign partner can also become a competitor by selling its production in places where the parental company is already in.

Piggy Back

Agreement by which a manufacturer or distributor (carrier) offering a foreign manufacturer or distributor (rider) the services of their own sales organization.

Piggy Back

Advantages for carrier

• Can choose the product so that it integrate in already existing range of products , a complete it

• Can take advantage of the excess of commercial capacity of the rider and imply complementary or related products

Advantages for rider

• It avoids the costs associated with the establishment of own sales network

• Access to distribution channels using the relations of carrier who will promote its products

4. Joint-venturejoint-venture is a form of cooperation whereby 2 or more partners from different countries conduct a production activity, marketing and financial trading in common ,in the context of an independent juridical entity by sharing risks and benefits.

Implies the unification of financial resources, materials, work force and the sharing the responsibilities in order to produce certain amounts of production.

There is a cooperation between partners concerning the research and development activities, trial order, mass production and technical assistance.

This type of cooperation usually is used by firms that has the same range of products and could be expressed by :

Technical and industrial cooperation agreements

The creation of mixed enterprises

The creation of strategic alliances

4. Joint-venture

Potential problems include:

Conflict over asymmetric new investments

Mistrust over proprietary knowledge

Performance ambiguity - how to split the pie

Lack of parent firm support

Cultural clashes

If, how, and when to terminate the relationship

Joint ventures have conflicting pressures to cooperate and compete:

• Strategic imperative: the partners want to maximize the advantage gained for the joint venture, but they also want to maximize their own competitive position.

• The joint venture attempts to develop shared resources, but each firm wants to develop and protect its own proprietary resources.

• The joint venture is controlled through negotiations and coordination processes, while each firm would like to have hierarchical control.

The Strategic Alliance Strategic Alliance is formed when at least 2 companies, usually transnational ones, reunite their resources into cooperation, that exceed in terms of volume and implications the limits of a joint venture.

In case of strategic alliances is not necessarily the creation of new entities. Participants preserve their legal and economic identity long after the creation of the alliance.

In the formation of strategic alliance each part contributes with certain resources, often complementary to those brought by the other partner.

Strategic Alliances are made, as a rule, among multinational enterprises from developed countries. They are formed usually in the area of creation and development of new products, that requires utilization of highly developed technology, that is to say in the early stages of product life cycle.

Enterprises enter into strategic alliances with potentially competing firms.

Strategic Alliances

Characteristics of strategic alliances:

1. They are frequently between firms in industrialized nations.

2. The focus is often on creating new products and/or technologies rather than distributing existing ones.

3. They are often only created for short term durations.

Strategic Alliances

Advantages :

Technology exchange

Global competition

Industry coverage

Economy of scale

Risk reduction

Strategic alliance is an alternative to mergers.

The Strategic Alliance -examplesStarbucks• According to Rebecca Larson, assistant Professor of Business at Liberty University,

Starbucks partnered with Barnes and Nobles bookstores in 1993 to provide in-house coffee shops, benefiting both retailers. In 1996, Starbucks partnered with Pepsico to bottle, distribute and sell the popular coffee-based drink, Frappacino. A Starbucks-United Airlines alliance has resulted in their coffee being offered on flights with the Starbucks logo on the cups and a partnership with Kraft foods has resulted in Starbucks coffee being marketed in grocery stores. In 2006, Starbucks formed an alliance with the NAACP, the sole purpose of which was to advance the company's and the NAACP's goals of social and economic justice.

Apple• According to "An Overview of Strategic Alliances," Apple has partnered with Sony,

Motorola, Phillips, and AT&T in the past. Apple has also partnered more recently with Clearwell in order to jointly develop Clearwell's E-Discovery platform for the Apple iPad. E-Discovery is used by enterprises and legal entities to obtain documents and information in a "legally defensible" manner, according to a 2010 press relea

• Hewlett-Packard and Disney have a long-standing alliance, starting back in 1938, when Disney purchased eight oscillators to use in the sound design of Fantasia from HP founders Bill Hewlett and Dave Packard. When Disney wanted to develop a virtual attraction called Mission: SPACE, Disney Imagineers and HP engineers relied on HP's IT architecture, servers and workstations to create Disney's most technologically advanced attraction.

Turnkey projects

A turnkey project refers to a project when clients pay contractors to design and construct new facilities and train personnel.

• A turnkey project is way for a foreign company to export its process and technology to other countries by building a plant in that country. Industrial companies that specialize in complex production technologies normally use turnkey projects as an entry strategy.

• One of the major advantages of turnkey projects is the possibility for a company to establish a plant and earn profits in a foreign country especially in which foreign direct investment opportunities are limited and lack of expertise in a specific area exists.

• Potential disadvantages of a turnkey project for a company include risk of revealing companies secrets to rivals, and takeover of their plant by the host country. Entering a market with a turnkey project CAN prove that a company has no long-term interest in the country which can become a disadvantage if the country proves to be the main market for the output of the exported process.








policies

International Marketing Management...Market development Market development is the name given to a...

Documents

Transcript of International Marketing Management...Market development Market development is the name given to a...