International Marketing, Market Selection, Modes of Entry in International Markets

International Business Management

Mrs. Charu Rastogi, Asst. Prof.

What is Marketing?

Marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating, offering, and exchanging products of value with others. (Kotler)

Process, Exchange, Value

Mrs. Charu Rastogi, Asst. Prof.

Marketing process
Create value for customers and build customer relationships Capture value from customers in return

Understand the marketplace and customer needs and wants

Design a customerdriven marketing strategy

Construct a marketing program that delivers superior value

Build profitable relationships and create customer satisfaction

Capture value from customers to create profits and customer quality

Marketing technology

Global
Mrs. Charu Rastogi, Asst. Prof.

Ethics and social responsibility

markets

What is international marketing?

- International marketing is the process of planning and
conducting transactions across national borders to create exchanges that satisfy the objectives of individuals and organizations (Czinkota and Ronkainen) - International marketing focuses its resources on global market opportunities and threats (Keegan and Green)

- International marketing is the motor of the internationalization process of the firm (Usunier)
- It is a tool used to obtain improvement of the firms position in the global market - Strategy and action, global and local
Mrs. Charu Rastogi, Asst. Prof.

International Marketing Decisions

Deciding whether to go abroad Deciding which markets to enter Deciding how to enter the market Deciding on the marketing program Deciding on the marketing organization
Mrs. Charu Rastogi, Asst. Prof.

What are the similarities and differences between international marketing and domestic marketing?

Similarities: basic concepts, practices and tools are almost identical, key success factors are the same Differences: more strategic, more variables, more complex, cultural differences, legal constraints, information sources, managing distances, entry mode choice

Mrs. Charu Rastogi, Asst. Prof.

Driving Forces of International Marketing

Technology Culture Market Needs Costs Free Markets Economic Integration Peace Strategic Intent Management Vision, Strategy and Action

Mrs. Charu Rastogi, Asst. Prof.

Restraining Forces of International Marketing

Culture Market Differences Costs National Controls Nationalism Peace vs. War/ Stability Management Myopia Organization History Domestic Focus

Mrs. Charu Rastogi, Asst. Prof.

International Marketing Challenges

Unstable governments Political restrictions Incompatibility of technical standards Foreign-exchange problems Government bureaucracy/Corruption Tariffs and other trade barriers Technological pirating High cost of product and communication adaptations

Mrs. Charu Rastogi, Asst. Prof.

Standardization vs. adaptation

Factors encouraging standardization

Economies of scale in production Economies in R&D Economies in marketing Global competition Shrinking of world market Converging, homogeneous cultures

Factors encouraging adaptation

Differing use conditions Government and regulatory influences Local competition Differing consumer behavior patterns True to marketing concept
Mrs. Charu Rastogi, Asst. Prof.

Degree of standardization, Degree of adaptation, global/local paradox

Need for adaptation

High

Degree of cultural grounding

Low Industrial/Technology intensive Consumer

Nature of product
Mrs. Charu Rastogi, Asst. Prof. Source: Czinkota and Ronkainen

Market Selection

Firm related factors Market related factors Other factors

Mrs. Charu Rastogi, Asst. Prof.

Market Selection: Firm related factors

Ethnocentric: everything is centered on the domestic market. Polycentric: several important foreign markets exist. Regiocentric: the market is composed of several large economic regions. Geocentric: the world is one large global market.

Mrs. Charu Rastogi, Asst. Prof.

Market Selection: Firm related factors

Ethnocentric Approach International operations are secondary Centered on the domestic market Searching for identical segments in foreign markets National headquarters International division Polycentric Each country is relatively independent Each market is unique Taking into consideration differences in foreign markets Geocentric The world is one common market Global vision of the world Unifying differences in the world market

Vision Priority

Planning center Structure

Subsidiary in each World country headquarters Division for each zone Matrix structure

Mrs. Charu Rastogi, Asst. Prof.

Market Selection: Firm related factors

Ethnocentric Staff Marketing strategy Management style Production Partnerships Performance measures Citizens from the domestic market Extension Polycentric Citizens from each market Adaptation Geocentric Most qualified Extension, Adaptation, Creation Integrated and interactive Low-cost sources of supply Strategic alliances World market share

Centralized Domestic Agent, licensing Domestic market share

Decentralized Local Joint-ventures Local market share

Mrs. Charu Rastogi, Asst. Prof.

Market Selection: Market related factors

A)General factors

economic factors business regulations political factors

B) Specific factors

trends in domestic market trends in export and import nature of competition supply conditions of raw materials

Mrs. Charu Rastogi, Asst. Prof.

Market Selection: Other Factors

Political restrictions Special requirements Product specification Distant location Market accessibility Business community

Mrs. Charu Rastogi, Asst. Prof.

Market Selection Process

International marketing objectives
Commercial production Parameters for selection

Test marketing

Preliminary screening

Evaluation and selection

Short listing of markets

Mrs. Charu Rastogi, Asst. Prof.

Entry mode choice

Considered by many as the most important aspect of a firms internationalization strategy

Entry mode will determine long-term success or withdrawal from foreign markets Poor decisions can be very costly for the firm

Mrs. Charu Rastogi, Asst. Prof.

Factors in the entry mode decision

Target country market factors Target country environmental factors Target country production factors Home country factors

External factors Entry mode decision

Internal factors

Company product factors

Company resource and commitment factors

Mrs. Charu Rastogi, Asst. Prof.

Elements of market entry strategies

Entry operation

Choice of target product/market

Setting objectives and goals

Choice of entry mode

Design the marketing plan

Target market

Control systems: monitoring operations / Revising entry strategy

Mrs. Charu Rastogi, Asst. Prof.

Different types of entry modes

Exporting (commercial strategy, commercial modes)

Foreign direct investment (industrial strategy, integrated modes) Associated or contractual modes (contractual strategy, competitive alliances)

Mrs. Charu Rastogi, Asst. Prof.

Entry mode continuum

Exporting

Contractual modes

FDI

Commitment, risk, control, profit potential

Mrs. Charu Rastogi, Asst. Prof.

Types of exporting

Indirect exporting

Distributor / export merchants Export agent EMC

Export department Export sales representatives E-business Export groups Piggyback exporting
Mrs. Charu Rastogi, Asst. Prof.

Direct exporting

Cooperative exporting

Foreign direct investment (FDI)

The ultimate form of foreign involvement

Direct ownership of foreign-based assembly, manufacturing or sales facilities

The company can buy part or full interest in a local company (M&A) or build its own facilities Considered the preferred mode of entry

Mrs. Charu Rastogi, Asst. Prof.

Advantages and disadvantages of FDI

Advantages
-

Cost economies (labor, raw materials, incentives, freight savings, etc) Better image in host country Deeper relationship with government, customers, local suppliers, distributors Better adaptation Full control of investments Long term objectives

Disadvantages
-

High initial and operating costs High level of risk

Mrs. Charu Rastogi, Asst. Prof.

FDI options

Make-or-buy decision

Greenfield investment Mergers and acquisition

Branch or subsidiary

Structure Legal status

Analyzing FDI project

Assessing profitability Discounted cash flow analysis

Mrs. Charu Rastogi, Asst. Prof.

Associated entry modes

Newest, most recent forms of international business Transfer of technology or know-how between two firms Shared risks Only option in countries where the government requires foreign firms to use local capital

Better access to local market knowledge

Mrs. Charu Rastogi, Asst. Prof.

Types of associated entry modes

Joint venture: foreign and local investors share ownership and control of local operations

Licensing: licensor licenses a foreign company to use a manufacturing process, trademark, patent, trade secret or other item of value for a fee
Management contracts: firm exports management services instead of a product, separation between ownership and management International Franchising: contractual association between a franchisor (manufacturer, wholesaler or service organization) and franchisees (independent business people who buy the right to own and operate units in the franchise system). Franchising is based on some unique product, service or method of doing business. Industrial franchising Distribution franchising Service franchising
Mrs. Charu Rastogi, Asst. Prof.

Comparing different entry mode options

High
Franchising Licensing
FDI

Contribution of knowhow

Wholly owned subsidiary (M&A)

Branch office

Management contract AD / Concessionaire

Minority shareholding through partial acquisition ITC / distributor Foreign buying department

Majority JV investment (local partner know-how)

Low

Low

Level of ownership
Mrs. Charu Rastogi, Asst. Prof.

High

Case Study: DIFFERENT FOR GAMBLE

Procter and Gamble (P&G), a global consumer products giant, stormed the Japanese market with American products, American managers, American sales methods and strategies. The result was disastrous until the company learnt how to adapt products and marketing style to Japanese culture. P&G which entered the Japanese market in 1973 lost money until 1987, but by 1991 it became its second largest foreign market. P&G, acclaimed as the Worlds most admired marketing machine entered India, which has been considered as one of the largest emerging markets, in 1985. It entered the Indian detergent marketing in the early nineties with the Ariel brand through P&G India (in which it had a 51 percent holding which was raised to 65 per cent in January 1993, the remaining 35 percent being held by the public). P&G established P&G Home products, a 100 percent subsidiary later (1993) and the Ariel was transferred to it. Besides soaps and detergents, P&G had or introduced later product portfolios like shampoos (Pantene) medical products (VicksProf. range, Clearasil and Mrs. Charu Rastogi, Asst. Mediker) and personal products (Whisper feminine hygiene products,

The Indian detergents and personal care products market was dominated by Hindustan Lever Ltd. (HLL). In some segments of the personal care products market the multinational Johnson & Johnson has had a strong presence. Tata groups Tomco, which had been in the red for sometime, was sold to Hindustan Lever Ltd.(HLL). HLL, a subsidiary of P&Gs global competitor, has been in India for about a century. The take over of Tomco by HLL further increased its market dominance. In the low priced detergents segment Nirma has established a very strong presence. Over the period of about one and a half decades since its entry in India, P&G invested several thousand crores. However, dissatisfied with its performance in India, it decided to restructure its operations, which in several respects meant a shrinking of activities - the manpower was drastically cut and thousands of stockists were terminated. P&G, however holds that, it will continue to invest in India. According to Gary Cofer, the country manager, it takes time to build a business category or brand in India. It is possibly an even more demanding geography than Mrs. Charu Rastogi, Asst. Prof. others.

China, on the other hand, with business worth several times than in India in less than 12 years, has emerged as a highly promising market for P & G. When the Chinese market was opened up, P & G was one of the first MNCs to enter. Prior to the liberalisation, Chinese consumers had to content with shoddy products manufactured by government companies. Per capita income of China is substantially higher than Indias and the Chinese economy was growing faster than the Indian. Further, the success of the single child concept in China means higher disposable income. Further it is also pointed out that for a global company like P&G, understanding Chinese culture was far easier since the expat Chinese in the US was not very different from those back home where as most Indian expats tended to adapt far more to the cultural nuances of the immigrant country.
Mrs. Charu Rastogi, Asst. Prof.

One of P & Gs big bets in India was the compact technology premium detergent brand Ariel. After an initial show, Ariel, however, failed to generate enough salesconsumers seem to have gone by the per kilo cost than the cost per wash propagated by the promotion. To start with, P&G had to import the expensive state-of-the art ingredients, which attracted heavy customs duties. The company estimated that it would cost Rs. 60 per kilo for Ariel compared to Rs. 27 for Surf and Rs. 8 for Nirma. Because of the Rupee devaluation of the early 1990s, the test market price of Rs. 35 for 500 gms was soon Rs. 41 by the time the product was launched. HLL fought Ariel back with premium variants of Surf like Surf Excel. It is pointed out that, in hindsight, even P & G managers privately admit that bringing in the latest compact technology was a big blunder. In the eighties, P & G had taken a huge beating in one of its most profitable markets, Japan, at the hands of local company Kao. Knowing the Japanese consumers fondness for small things, Kao weaved magic with its new-found compact technology. For a company that prided itself on technology, the drubbing in Japan was particularly painful. It was, therefore, decided that compacts would now be the lead brand for the entire Asia-Pacific region.
Mrs. Charu Rastogi, Asst. Prof.

When P & G launched Ariel in India, it hoped that the Indian consumer would devise the appropriate benchmarks to evaluate Ariel. As compacts promised economy of use, P & G hoped that consumers would buy into the low-costper wash story. But selling that story through advertising was particularly difficult, especially since Indian consumers believed that the whasing wasnt over unless the bar had been used for scrubbing. Even though Ariel was targeted at consumers with high disposable income, who represented half the urban population, consumers simply baulked at the outlay.

Thereafter, one thing led to another. Ariels strategy of introducing variants was a smart move to Flank Lever at every price point by cleverly using the brands halo effect. And by supporting the brand in mass media and retaining the share of voice. By 1996, it had become clear that Ariels equity as a highperformance detergent had begun to take a beating. Its equity as a top-ofthe-line detergent was getting eroded... Nowhere in P&Gs history had a concept like Super Soaker been used to gain volumes.... It was decided that Super Soaker would no longer be supported, nor would Ariel bar be supported in media.
Mrs. Charu Rastogi, Asst. Prof.

Questions

Discuss the reasons for the initial failure of P&G in Japan. Where did P&G go wrong (if it did) in the evaluation of the Indian market and its strategy ? Discuss the reasons for the differences in the performance of P&G in India and China.

Mrs. Charu Rastogi, Asst. Prof.