The American Marketing Association defines marketing as the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and
organizational goals. A firm is considered an international organization when it engages in cultivating exchange relationships with individuals or organizations beyond its national boundaries. The decision to do business overseas is usually influenced either by the domestic or global economy.
Companies might be pushed into international marketing by the general lack of opportunity in the domestic markets. Organizations might be pulled into global markets, without necessarily abandoning their domestic markets, by growing opportunities for their products or services in other countries. Firms attempting to compete on a global basis should be aware that nations differ greatly in their political, legal, economic, and cultural environments. Complexity of the international marketing environment necessitates a careful consideration of whether to market aboard, where to market, and what objectives to pursue.
ASSESSING FOREIGN MARKETS
In general, in considering global marketing, an organization faces five major types of decisions. First, before expanding the firm's operations overseas, is to determine whether the firm's resources are compatible with the foreign market opportunities. If the response to this first determination is affirmative, the second consideration is the market-selection decision, that is, which foreign market or markets to enter. The third decision concerns the mode of entry and operational consideration in the attractive markets. The fourth, the marketing mix decision, considers the appropriate product, promotion, price, and distribution programs for the selected markets. Finally, the marketing organization decision determines the best way for the firm to achieve and maintain control over its international business operations.
Once a firm has prepared a list of promising markets to enter, the difficult task is to collect data related to the market potential and environmental forces of each country. Conducting research in the international market is difficult because of language diversity, general distrust of outsiders, high illiteracy rates in some countries, and the prevailing local customs.
In general, companies select markets that rank high on market attractiveness. Among factors influencing market attractiveness are: high market growth potential, low political risk, favorable attitudes to foreign investment, and favorable competitive environment. Once a final decision is made about a country to enter, companies have several entry options. The entry modes are classified into export, contractual, and investment entry modes.
The export entry mode is either indirect or direct. With indirect exporting a company may use domestic or international intermediaries, such as domestic-based export merchants or agents, trading companies, brokers, local wholesalers, and retailers. Indirect exporting is perhaps the lowest risk type of international marketing. The main drawback of indirect marketing, especially through domestic-based export merchants, is that the company relinquishes most of its international marketing activities to the merchants. Companies eventually may decide to handle their own export activities.
With direct exporting a company also has several options. For example, it may establish a domestic-based export department or division to handle export activities. The company may also establish an overseas sales branch. Finally, the company may use foreign-based distributors who buy and sell the goods on behalf of the company. In direct exporting, the investment level and risk factors are somewhat greater, but so is the potential return.
Contractual entry modes include licensing, turnkey construction contracts, and management contracts. Foreign licensing is a simple way of getting involved in international marketing. In licensing arrangements, a firm offers the right to use its intangible assets (manufacturing process, trade secrets, patents, company name, trademarks, or other items of value) to a licensee in exchange for royalties or some other form of payment. The licensor gains entry at little risk; the licensee gains production expertise or a well-known product or brand name. The major drawbacks of licensing are: (1) it is less flexible than exporting; (2) the firm has less control over a licensee than over its own exporting or manufacturing abroad; and (3) if sales are higher than expected, the licensor's profits are limited by the licensing agreement.
A turnkey construction contract is a mode of entry that requires that the contractor make the project operational before releasing it to the owner. Management contracts give a company the right to manage the day-to-day operations of a local company. Here the domestic firm supplies the management know-how to a foreign company that supplies the capital.
Investment entry modes include sole ownership and joint ventures. Sole ownership investment
|Five international product and promotion strategies|
|Do not change product||Adapt product||Develop new product|
|Promotion||Do not change promotion||Straight extension||Product adaptation||Product invention|
|Adapt promotion||Communication adaptation||Dual adaptation|
entry strategy involves setting up a production subsidiary in a foreign country. Joint ventures involve a joint-owner-ship arrangement between a U.S. company, for example, and one in the host country to produce and market goods in a foreign market.
The ultimate form of international involvement is direct ownership of foreign-based assembly or manufacturing facilities. If a company wants full control (and profits), it may choose this mode of entry. Companies new to international operations would be well advised to avoid this scale of participation because direct investment entails the highest risk. Among potential risks a firm may face are currency devaluation, worsening markets, or expropriation.
Once a decision for a market entry mode has been made, a firm must decide how much, if any, to adapt its marketing mix—product, promotion, price, and distribution—to a foreign market. Warren J. Keegan (1995) distinguished five adaptation strategies of product and communication to a foreign market (see Table 1). These strategies are discussed briefly below.
In straight extension the same product is marketed to all countries (a "world" product), except for labeling and language used in the product manuals. The assumption behind this strategy is that consumer needs are essentially the same across national boundaries. Straight extension can be successful when products are not culture sensitive and economies of scale are present. The Philip Morris USA tobacco company used this strategy successfully with its Marlboro brand cigarette. The strategy has also been successful with cameras, consumer electronics, and many machine tools.
A product modification strategy keeps the physical product essentially the same; modifications, however, are made to meet local conditions or preference in package sizes or colors. Manufacturers of computers, copiers, cars, and calculators have been successful in using this strategy. Companies may develop a country-specific product. If this strategy is employed, the product is substantially altered or new products are produced across countries. For example, hand-powered washing machines have been successfully marketed in Latin America.
It is extremely difficult to standardize advertising across countries because of variations in economic, social, and political environments. Companies, however, can use one message everywhere, varying only the language or color. Marlboro and Camel cigarettes, for example, essentially use the same message in their international promotion programs. Transferability of an advertising message is still a difficult problem even when the primary benefits of the product remain intact across national boundaries. Some promotional blunders are well known to marketing students. Coors's slogan "Turn it loose" in Spanish was read by some as "suffer from diarrhea"; in Spain, Chevrolet's Nova translated as "it doesn't go"; and a laundry soap ad claiming to wash "really dirty parts" was translated in French-speaking Quebec to read "a soap for washing private parts."
The fourth strategy, dual adaptation, involves altering both the product and the communications. The classic example comes from National Cash Register, which manufactured a crank-operated cash register and promoted it to businesses in less-developed countries.
When products cannot be sold as they are, product invention strategy may be used. Ford and other automakers have sold completely different makes of cars in Europe than the ones they sell in the United States. Brewing companies have sold alcohol-free beer in countries where sales of alcoholic beverages are prohibited.
Multinational companies find it difficult to adopt a standardized pricing strategy across countries because they have to deal with fluctuating exchange rates, differences among countries in transportation costs, governmental tax policies, and controls (such as dumping and price callings). Keegan proposed three global pricing alternatives. The first policy is called extension/ethnocentric. Under this policy, the firm sets the same price throughout the world and the customers absorb all freight and import duties. The main advantage of this policy is its simplicity, but its weakness is its failure to take into account local markets' demand and competitive conditions.
The second alternative is called adaptive/polycentric. Under this policy, local management establishes whatever price it deems appropriate at any particular time. This policy is sensitive to local conditions; nevertheless, it may favor product arbitrage where differences in price between markets exceed the freight and duty cost separating the markets.
The last alternative is called invention/geocentric pricing. This policy is an intermediary position. It neither sets a single worldwide price nor relinquishes total control over prices to local management. This policy recognizes both the importance of local factors (including costs) and the firm's market objectives.
CHANNELS OF DISTRIBUTION
Two major types of international alternatives are available to a domestic producer. The first is the use of domestic middlemen who provide marketing services from their domestic base. If this arrangement is chosen, there are several domestic middlemen available from which the companies may choose. Export management companies, manufacturers' export agents, trading companies, and complementary marketers are possible alternatives.
If a company is unwilling to deal with domestic middlemen, it may decide to deal directly with middlemen in foreign countries. This alternative shortens the channel of distribution, thereby bringing the manufacturer closer to the market. The main drawback of this alternative is that foreign middlemen are some distance away and, therefore, more difficult to control than domestic ones.
International marketing has become increasingly important to U.S. firms. At the same time, global markets are becoming riskier because of fluctuating exchange rates, unstable governments, high product-communication adaptation costs, and several other factors. Therefore, the first step in considering expanding to the overseas markets is to understand the international marketing environment. Second, the firm should clearly define its objective for international operations. Third, in considering which foreign markets to target, a firm must analyze each country's physical, legal, economic, political, cultural, and competitive environments. Once the target market or markets are selected, the firm has to decide how to enter the target market. Companies must next decide on the extent to which their product, price, promotion, and distribution should be adapted to each country. Finally, the firm must develop an effective organization for pursuing international marketing.
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