Marketing Management Of International Trade October - December 2011 Ing. Ilona Bergquist, MBA.

Marketing ManagementOf International Trade

October - December 2011

Ing. Ilona Bergquist, MBA

LESSON 2: ENTRY MODES AND STRATEGIES FOR INT. BUSINESS

Unit 1: Forms of market entry

– Forms of market entry, advantages and disadvantages

– Organizational structures

Unit 2: International strategies

– Developing international strategies

– Preparing analysis of the market

LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE

Approaches to Foreign Market Entry

Amount of resources committed to foreign market

Level of

con

trol over

fore

ign

acti

vit

ies

Indirectexport

Export throughagent or

distributor

Joint venturewith local partner

Licensing

Franchising

Wholly owned

subsidiary (Greenfield

or Acquisition strategy)

Three-pronged strategy for int’l markets: 1. company owned stores 2. JV3. Licensees

1. Owned breweries 2. JV3. in USA keeps importing

SPECIAL MODES: Contract mfg

Turnkey projects

FOREIGN DIRECT INVESTMENT

DECISION FACTORS:-Ownership advant.-Location advant.-Need for control-Resources avail.-Global strategy


Unit 1: Forms of market entry Exporting through trading companies

– Link buyers and sellers in different countries but are not involved in manufacturing (acts like a wholesaler)

– TC buy products in one country (at the lowest price and consistent quality) and sell them to buyer in another country

– Important function of TC – it takes title to products and performs all activities necessary to move products to the targeted foreign country

–

– 24 hour a day online world trade system that connects 20 million co.in 245 countries, offering more than 60 mil products and services, handling online payments, customs, tariffs, inspection of goods

Advantages Disadvantages

Risk reduction / gradual market entryAvoids restrictions on foreign investment, TC provides producers with info on products that meet quality & price expectations in int’l markets, TC may offer other services (consulting, m. research, advert., insurance, legal assistance, warehousing)

Vulnerability to tariffsPotential conflicts with distributorsLogistical complexities

3MM firem z 66 zemí


Licensing

– Leasing a legally protected property (such as a trademarked or copyrighted name, logo, likeness, character, phrase or design) to another party in conjunction with a product, service or promotion

– Contractual agreement between licensor (owner of the property) and licensee (manufacturer or retailer). The licensee pays commissions/ royalties on sales or supplies used in manufacturing; licensee may also pay initial down payment when licensing agreement is signed

– Alternative to direct investment (lack of resources, strategic or political reasons, or when the core competencies of the company are not related to the products being sold (Int’l Olympic Committee)

–

ROOSEVELT CHINA NVESTMENT CORP.

Excusive license to produce and sell Pepsi Cola in NL


Low financial risk (way of assessing mrkt potential)Avoiding tariffs or restriction on foreign investmentLicensees provide knowledge of local marketsSteady stream of royalties

Limited profitsDependence on licenseePotential conflicts with licenseePossibility of creating future competitor


Franchising

– Form of licensing in which a company (franchiser) grants a franchisee the right to market its product, using its name/logo/methods of operations, advertising, products and other elements associated with franchiser’s business in return for a financial commitment (fee) and agreement to conduct business

– Difference from licensing: Franchiser has MORE CONTROL THAN WITH LICENSING (agreement ensures certain standard of behavior from franchisees which protects the franchisers’ name Franchisee gets MORE SUPPORT from franchiser


Low financial risk Avoiding tariffs or restriction on foreign investmentFranchisees provide knowledge of local marketsConsistent revenue stream thru fixed fee & royalties

Limited profitsDependence on franchiseePotential conflicts with franchiseePossibility of creating future competitor


Franchising

McDonald

In CR: Straight Franchise: 14mil CZKBus. Facilities Lease: 2mil CZK, renting for 3Y


http://www.czech-franchise.cz/


Contract Manufacturing

– “Hiring a foreign firm to produce a designated volume of the co’s products(or a component of a product) to specification and the final product carries the domestic’s firm name”

– Marketing can be handled by the contract manufacturer or the contracting company

– Most popular forms of contract manufacturing:outsourcing - contracting noncore operations with org. that specializes in that operation (can be product or service)offshoring - moving a process that was done domestically at the local factory to a foreign country (can be done by its own subsidiary or third party)offshore outsourcing - contracting with an organization to perform some or all business functions in a country other than where the product/service will be sold


Lowering cost (resources to manufacturing)Lowers financial risk

Reduced control (may effect quality, delivery schedules…), Reduced learning potentialPotential PR problems (need to monitor working conditions)


Joint Venture (in Int’l Mktg)

– Partnership between domestic firm and a foreign firm or government; control may be split or one party may have the decision making power

– Typical situations when JV formed: • large capital investment required• political necessity due to government restrictions on foreign

ownership (eBay closed its online auction site and entered into JV with Chinese firm Tom Online)

• acquisition is not feasible or the risks/constraints leave no other alternative

– JV are assuming greater global importance (cost advantages and the number of inexperienced firms entering foreign markets)


Local partner has good knowledge of the economic and socio-political situation, andmay have privileged access to local resources

Requires trust …unintentional transfer of know-how


Joint Venture (in Int’l Mktg)

– Strategic Alliances: partnerships to create competitive advantage on a worldwide basis (unlike JV, they typically mean working together – mean more involvement than in JV)

– Typically large companies from developed countries, may be rivals in certain markets while working together in other markets. Partners often keep their identities, each bringing core competency.

– Predominant means of competing in automobile, computer and airline industries (Sky Team Alliance).

– Strategic Alliances first created by Japanese automobile co. to overcome issues with import quotas to US (Mitsubishi/Chrysler, Toyota/GM, Mazda/Ford)


Direct Ownership

– Company owns subsidiaries or other facilities overseas

China’s largest oil producer and refiner

China’s top power company, provides energy to 1 bil people in CH, founded in 2002


High profit potentialMaintaining controlAcquiring knowledge of local marketAvoiding tariffs

High financial and managerial investmentHigher exposure to political riskVulnerability to restrictions on foreign investmentGreater managerial complexity


Organizational structure has to support the int’l marketing strategy

Three basis structures of int’l organization:

1. Export departments - exporting, using trading companies, licensing

2. International divisions - exporting, TC, licensing, franchising, contract mfg and JV (typically organized on the basis of geography for int’ div.). Should be used when the company a) intends to market only a small portion of products internationally, and b) when foreign sales account for only a small portion of total sales

3. Internationally integrated organizations Most likely among org. with direct ownership in foreign operations

a) Product division structures – used by most MNC, high degree of diversification (e.g. P&G). Each division is a self-contained entity responsible for its operations, HQ are in charge of strategic direction for the firm

b) Geographic areas structures – firms with low degree of diversification (Accenture). Ensures local responsiveness, but NOT ideal for reducing global cost and transferring knowledge across regions

c) Global matrix structures – designed to achieve global integration and local responsiveness. Means that employees belong to two divisions and often report to two managers (poorly implemented can result in added bureaucracy)


Unit 1: Forms of market entry

– Forms of market entry, advantages and disadvantages

– Organizational structures

Unit 2: International strategies

– Developing international strategies

– Preparing analysis of the market


The Levels of Strategy

CORPORATE STRATEGY

Single Business Related DiversificationUnrelated

Diversification

BUSINESS UNIT STRATEGY

Differentiation Overall Cost Leadership Focus strategy

FUNCTIONAL STRATEGY

Hyundai

LG electronics

Cadbury Schweppes Root Beer

Sales Marketing R&D Finance HR Operations


Components of Int’l strategy (Corp. and BU Level)

Distinctive Competence: What do we do exceptionally well compared to local competitors? (cutting edge technology, well-know/respected brand names, efficient distribution network…)

Scope of Operations: May be defined in geographical terms or market /product terms (ex. Disney theme park in US, Japan, France, Hong Kong while movie distribution and merchandise in 200 countries)

Resource Deployment: How will we allocate resources to these markets? (Production, R&D resources focused to few countries)

Synergy: How can different elements of our business benefit each other? (“The whole is greater than the sum of the parts.”)


Developing International Strategies

Develop a mission

statement

Perform a SWOT

analysis

Set Strategic Goals

Develop tactical goals

and plans

Develop a control

framework

Organization’s purpose, direction. Wells Fargo: Satisfy all our customers’ financial needs, help them succeed financially, be known as one of America’s great companies and be the number one financial service provider in each of our markets”.

External analysis of markets (PEST), competitors, production costs, labor productivity etc. Internal analysis of strengths and weaknesses. Can be done by the value chain (Mktg, Sales, Service, IT, HR, R&D, Sourcing/Logisitcs)Strategic goals for int’l markets: should be Specific, Measurable, Acceptable, Realistic, Time-limited (i.e. number of customers in Y1, getting certain project/state commission, launching new line of products, etc)

Tactics for markets and business units, including product lines, marketing mix, distribution channels, etc.

KPI - can be sales /profit goals, market share, visitors attendance (# of customers), distribution levels, etc.


External AnalysisSTEEP (PEEST) analysis

Info examples Sources:

Socio-demographic / ethical

Cultural values, education levels, population growth/ structure (age, ethnics), regional split….

CSU (www.czso.cz)

Technology Science research expenditures, communication technologies dev., internet penetration….

CSUEuromonitor

Economic GDP, inflation, Avg. HH income, banking structure, HH debt level, initiating business, capital / financing sources

Euromonitor,KPMGhttp://europa.eu.int (EU portal)http://mkaccdb.eu.int (Market Access Databasewww.mzv.czwww.mpo.czwww.businessinfo.czwww.kompass.czTel. line for export 800 133 331

Ecology Environmental protection, using renewable sources of energy, recycling mat. legislation…

Ecology websites

Political Tariffs, taxes, consumer protection laws, hygienic conditions for food mnfg….

Governmental website

http://www.mzv.cz/

http://www.mpo.cz/

http://www.businessinfo.cz/


External Analysis

MARKET analysis

Category Size, growth, seasonality, promo volumes, prices, segment sizes… Trends…

Competition Share, growth, innovation, strengths/weakness, target segments, pricing strategy

Companies’ websites

Supplier / retailer Stability of suppliers, retailer structure / distribution channels, margins, pricing

Datamonitor, web

Customer Customer/consumer needs, expectations Ipsos, GFK, AISA, MB…


Marketing Planning (developing tactical plans) Cooperation needed with other

functional dept. (production, finance, sales…)

Product categories needs to be based on what customer needs/wants are – key strategic brands vs. cash cows; launch support vs. maintanance

Target groups can be defined based on mktg research

Small firms 5-10 segments, while largefirms can have 50 (ie. CocaCola)

Pricing – based on fixed and variable costs,competitive pricing, demand, effect (pressure) of retailers (listing fees, etc)

Prices can vary – home country 100%, country X at 80%, country Y at 120% (i.e. medication US/CZ)

Distribution – convenient to customers,mix of distr. channels (internet, retailers, direct sales..) … For some distr. channelsthe firm can have different products

Product categories to be marketed

Target segments /

groups

Determining pricing

strategy

Determining distribution

strategy

Communication Mix

development

http://www.costco.com/Home.aspx?cm_re=1_en-_-Top_Left_Nav-_-Top_logo&lang=en-US


Marketing Planning

Communication Development

Frequent Mistakes – no skilled marketing managers, not using advertising or graphic design firms,driven by own perceptions from home country and not getting local knowledge

Smaller firms better off with a full-service ad agency (PR, promo, web, in-store…)

Possibility to cooperate with distributors or local sales people on promo activities

Types of marketing communication:

Advertising (TV, print, radio, billboards, digital signage)

Direct Sales/Mktg (door-to-door selling, exhibitions, catalogs, telemarketing)

Promo activities (sweepstakes, shows, coupons, sales, samples, grand openings, loyalty programs….)

PR (sponsorships, PR articles, events with celebrities/Brand advocates…)

Exhibitions – verify structure of customers from past years, secure good placement of the booth, have relevant promo material/samples, secure quality personal at the booth, leverage additional programs taking place there

Communication Mix

development

Next Session

Key topic areas: International trade development, role in the economy, benefits for

companies

Entry modes for international business and developing international strategies

International marketing

Marketing Research; Creating and leveraging knowledge

Managing business plans; Managing HR

Home work:

Readings

1. Connect and Develop: Inside P&G’s New Model for Innovation

2. Tap Your Subsidiaries for Global Reach

Case Studies

The Global Branding of Stella Artois

Hitting the Wall: Nike and International Labor Practices

Marketing Management Of International Trade October - December 2011 Ing. Ilona Bergquist, MBA.

Documents

Transcript of Marketing Management Of International Trade October - December 2011 Ing. Ilona Bergquist, MBA.