Chapter 5: Export Expansion Strategy

Four entry mode;

1. Exporting
• Indirect exporting – the use of home country agencies to get the product to the foreign market   

                                                               i.      Piggybacking – the use of already exported product’s transportation and distribution facilities.

                                                             ii.      Consortia – used by smaller exporter banding together to sell related or unrelated products abroad

• Direct exporting – the firm itself contacts the buyers abroad, be their independent agents and distributor or firm’s own subsidiaries.

                                                               i.      Direct sales

·        mail order

·        e-commerce

2. Licensing
• Involve offering a foreign company the rights to use the firm’s proprietary technology and know how for a fees, royalty on revenue

                                                               i.      Franchising – the firm provide the technological expertise to the seller abroad and also helps with the management of the franchisee and often with capital investment that is needed for start up

                                                             ii.      Turnkey contract – provide for the construction of whole plants and often the training for personnel capable of running the operations. (construction firm)

                                                            iii.      Contract manufacturing – involves hiring a firm to produce a prespecified product (textile manufacturing / Nike shoes)

3. Strategic Alliance
• Are collaborations between companies, sometimes competitor to exchange or share some value activities

                                                               i.      Joint venture – involve capital investments and the creation of a new corporate unit jointly with a foreign partner (partner create an equity based new unit)

                                                             ii.      Manufacturing Alliance

                                                            iii.      Distribution Alliance – the partners agree contractually to use an existing distribution network jointly

                                                           iv.      R&D Alliance

4. Wholly owned manufacturing subsidiary
• The company commits investment capital in plant and machinery that will be at risk in the country.
• The presence of actual manufacturing operations help support marketing activities
• A sale subsidiary manage distribution and marketing of the product in the local market.
• Establishing a sale subsidiary involves taking control of the marketing in the country and thus strategically important
• For marketing effectiveness, the control o the sales effort should generally be in the hand of the company itself.

The impact of entry barriers;

• The height and the nature of the market entry barriers directly influence the entry mode chosen by a company.

Entry barrier – connotes any obstacle making it more difficult for a firm to enter a product market (e.g, custom procedure so lengthy that they prohibit an importer’s fresh produce from getting to store before spoiling)

 // these is to protect the domestic market from foreign competitor.

Cost of barrier

• Higher price for consumer
• Barrier create additional cost for the foreign entrant
• Gatekeeper will have the chance to profit from a monopolistic position
• As it can collect “rent” by charging premium price
• When trade barrier are high, the supplier might opt to invest in production within the country, elimination the need for an importer

Tariff and Non tariff Barrier

• Most of the tariff are higher for a complete assembly, lower for parts and components
• It is common to lower or even waive a tariff when the imported product or component has a certain level of local content pr when imports involves production for re-export. – thus lead to foreign investment in plant
• In general, trade barriers will lead the foreign entrant to reexamine the firm’s existing integration activities in its value chain, from supplies to final sale.

Government regulation

• The EU homogenization of a myriad of regulations is another example of how government rules are changing in the globalizing economy.
• It also may limit the company capability without the help of native partner – joint venture – local partner can help in negotiating with government and make the company become insider.

Distribution access;

• Retailer has no shelf space, they carry competing brands, and they don’t trust that the new brand will sell
• Difficult to gain distribution access mean that the firm, even after successful entry might compete with a handicap.
• Drawback of close distribution ties;
• When the channel member or supplier are not efficient, the ties may be more a burden than a benefit.
• Lack of access to distribution channel usually mean that a firm need to consider strategic alliance or even sell the product unbranded  in and OEM arrangement with the firm already established.
• Another access barrier is the possibility that the firm cannot hire capable local talent

Natural Barriers

• Competition among several differentiated brand tend to create – natural barrier
• When customer satisfaction and brand loyalty are high
• Or country of origin biases favour a domestic brand, it may difficult to break in

Advance V.s Developing country

Exit Barrier

• Make the firm reluctant to exit the market due to:
• Nonrecovered investment have been made
• People hired surmount
• Contract sign
• The potential loss of goodwill accompanying withdrawal from an important and visible market
• Hurt the global brand name
• In the era of global marketing, the company needs sufficient resources and capability to nurture and sustain its products and brands, thus overcome exit barrier by never having to face them

Dumping;- commonly defined as selling goods in some markets below cost

Reason for dumping

1. an entry to a large competitive market by selling at very low price
2. when a company over produced and want to sell the product in market where its has no brand franchise to protect
3. Reverse dumping – would be done in extreme case where the share at home needs to be protected while monopolistic market positions abroad can be used tp generate surplus fund

Cultural Distance and Learning

// not surprisingly, many companies begin exporting tentatively, try to learn “on the job” and commit resources only gradually

The Cultural distance effect;

• Companies find it natural to look for countries abroad where their experience in the home market would be most useful, where the intercultural synergy would be maximized.
• Most of the export expansion path followed by firms begin with countries “psychologically” or “culturally” similar to their own or to countries they already export to.
• Cultural distance effect work so as to create very natural biases which are not necessarily counterproductive since they are often supported by the success of the actual entry.
• Most countries try to export first to their neighbour.

The international learning curve

• Gradually increase the productivity of the manager involved
• Allow gradually accumulation of know how about how to do business abroad.
• The reason behind the pattern is to limit transaction cost
• Transfer / transaction cost increase when company going far away from home market, in term of;
• Geography
• Culture
• Economic development
• Company learn to do business globally, understand ho to analyze foreign environments
• And gains capabilities and widen the repertoire (develop new resources)
• Learning curve is at work when the experienced international marketer eyes new and important markets.

Internationalization ;

• Refers to the process by which a company’s global expansion has taken place
• Initially, country’s that are similar are entered
• Culture,
• Near in distance
• As more know how and skill in international affair are accumulated, a “learning curve” phenomenon – management become less tied to similarities requirement and more different market are explored.
• Internationalization stage can be identified;-
• Stage 1: Indirect exporting, licensing
• Stage 2: Direct exporting, vie independent distributor
• Stage 3: Establishing foreign sales subsidiary
• Stage 4: Local assembly
• Stage 5: Foreign production

Born Global :

• Are firm that from the outset view the world as one market
• Are typically small technological-based businesses
• Their FSA lie in new innovation and technological breakthrough
• Rely on networking for most of their expansion abroad
• Their FSA involve technical eminence with substantial added value and differentiated designs
• Tend to rely on advance telecommunication to reach their customer in diffeent countries because;
• Limited organization and managerial resources
• Typically found in B2B markets, where targeted sales and network relationships matter a great deal.
• Less reliance on a large home market

Export Expansion Strategy: Waterfall V.s Sprinkler strategy

Chapter 1: The Global Marketing Job

Global Marketing – marketing activities coordinated and integrated across multiple country market.

-         standardized product

-         uniform packaging

-         identical bran names

-         synchronized product introduction

-         similar advertising message

-         coordinated sales campaign across markets in several countries

International marketing – encompassing all marketing effort in foreign countries whether coordinated or not, involving recognition of environmental differences, foreign trade analysis and so on.

In order to perform the global management task successfully, the marketing manager need to have some understanding of all the basics of international business and the characteristics of the market environment in the foreign country

Companies want the employees to view the world as an integrated entity and not favour the home country over others. Foster a global organization culture.

Multidomestic market –product market in which local customer have preferences and functional requirements widely different from one another’s and others’ elsewhere.

Different country or market have different taste and preferences which cause by the tradition, culture, fashion, education, upbringing agriculture and climate, :- The product had to be adopted to each country’s preference. Marketing could not be uniform.

Global Market – those market in which buyer preferences are similar across countries. A typical  characteristic of a glbal market have both customer and competitive aspect.

With global communication and spreading affluence, many previously multidomestic markets are becoming more susceptible to organization . as multidomestic markets open up and become global, the rest of the world is able to pick and choose among the best that the multidomestic offers. Increasing affluence generates a desires for variety and create opportunities for local specialties from foreign countries in leading countries. Increasing similarities of preferences had led to the success of global products, which in turn has fostered homogeneity of market

To success in the globally standardized product;-

-         Often the best value product due to

o       Higher quality

o       More advance features

o       At better price

o       Tend to be stronger on intangible extras such as;

§         Status and brand image

Product life cycle;

• Global product will often generate new growth in mature markets as customers return sooner for upgrades and more modern fetures.
• These product need to be global because they achieve success by being;
  • Tested against the world’s most demanding customer wherever they may be.
• They need to be standardized  sp that they can be offered at competitive prices and become core player in these leading market.

In global product market, the firm need to develop technological capabilities to be able to compete by introducing new products.

The key success is the

• speed
• and flexibility in new product development
• and a well known and highly regarded global brand.

Global Brand – brand that are available, well known and highly regarded throughout the world’s market. In global market with standardized global product, a global brand name is necessary for success – which is why many firm consolidate their brand portforlio around a few major brands as globalization proceed.

Leading Market – The global firm wants to be present even if the competition is fierce and profitability is uncertain.

Leading markets are characterize by;

o       strong competitor and demanding customers;

o       they are free from government regulation

o       and protective measures;

o        product and services incorporate the latest technology;

o       and companies are strong at the high-end of the product line.

Change in leading market – as follower market mature and customers become more sophisticate and as domestic producer develop new competitive skills, the follower markets may become new leading market.

Different leading market features some market segmentation and product differentiation. E.i

The existing of lead markets and the need for the firm to be in such markets push the firm toward global strategies in order to take full advantage of the benefit gained from being in the lead markets. The firm can draw on lessons from competitors and customers in leading markets to design marketing strategies elsewhere.

Product Life Cycle – country markets are often in greatly different stages of product life cycle.

• Introduction
• Growth
• Saturation
• Matured (market share and profitability become typically more important objectives)
• Decline

PLC is relevant for market segmentation and product positioning (good at the later stage of PLC when customers are good at evaluating competing offering).

Market segmentation; involves partitioning a given market into similar customer group

Product positioning; refers to the perceptions or image that target customer have of a product or services. Image that a firm would like the customer to have.

Driver toward globalization (5 Major Driver)

1. Market Driver

o       Common customer needs – with technology anf global communication, customer are being exposed to similar messages and product – create homogeneous group of customer. Preferences tend to be less localized or provincial and approach a global standard.

o       Global customer – customer that need the same product or service in several countries.

o       Global channel – distribution and logistic firm which provide seamless transportation and storage around the world, have had a similar positive effect on the emergence of global marketing strategies. New integrated network make it possible for marketer to sell their products around the world.

o       Transferable marketing – is using the same marketing ideas in different countries. This can mean the same packaging, advertising, brand names, and other marketing mix elements.

2. Competition – there is legitimacy in trying to match competitor’s move, and it makes the task of convincing doubtful shareholders and reluctant subsidiary management easier.

o       The presence of the competitor in a firm’s domestic market increases the need for the firm to venture abroad, if for no  other reason than to counterattack in foreign markets.

o       The emergence of strong global competitor has served to develop the necessary facilities and infrastructure for domestic companies to go global.

o       Global business not only sell their product abroad, but also transfer skill and technology across the countries, making it easier for domestic companies to expand globally.

3. Cost – to achieve economies of scale

o       Global sourcing advantage – enjoy the cost saving from low-wage country, improve logistic and distribution system and the growth of inexpensive global communication.

o       Scope economies tend to favour globally uniform brand names and communications and improve logistics and telecommunication make it possible to manage distribution of product and services centrally.

1. Technology – revolution of internet is the most powerful technology driver oward globalization.

·        E-commerce allows one-t-one marketing across countries with customization and personal attention at minimum cost.

·        Ignoring geographical distance

2. Government

·        Add favourable trade policies, acceptance of foreign investment, compatible technological standard, and common marketing regulations.

·        ISO 9001 – global standard of quality certification.

·        The return of investment in improved operations to gain certification is higher the more countries the company does business in.

Limitation to global marketing.

1. Negative industry driver

·        Lack of homogeneous markets and persistent differences in customer preferences across countries may prohibit globalization of marketing

2. lack of resources

·        not all the companies have the required resources (managerial and financial) to implement global marketing effectively

3. localized mix requirement

·        hard to standardized product – language and cultural barriers

4. antiglobalization threat

·        a firm that is not sensitive to local conditions will be more likely target for terrorist activities.

Global localization;

 A more common approach is for company to globalize its product strategies by marketing the same product lines, product designs and brand every where but  to localize distribution and marketing-communications. (different level of after-sales support  because of the different conditions of use in different counties)

// the more closer a marketing mix activity is to the point of purchase or after-sales service, the more need for customization.

Knowledge asset – are basically intangible assets;

·        brand equity

·        good will

·        patents

·        technical and managerial know how

marketing in foreign environment helps develop knowledge assets because of exposure to;

·        new customer,

·        new competitors,

·        new technology,

·        and new ways of doing things

Learning organization – are organization whose competitive advantage is not only lodged in existing assets and capabilities, but in the ability of the organization to innovate, to create new products, to develop new markets, to adopt new distribution channels, to find new advertising media and to discard outdated product and tired sales routine.

// presence in leading market is necessary to keep track of new technological development for tomorrow’s products and services.

Global Marketing objectives; reason for going abroad

1. exploiting market potential and growth
2. gaining scale and scope returns ay home
3. learning from a leading market – learn about new technology and competition
4. pressuring competitor- increasing the competitive pressure in the stronghold market might divert the competitor’s attention from other market.
5. diversifying market – firm’s dependence on any one market will be lessened
6. learning how to do business abroad – the company knowledge assets will be enhanced by exposure to global markets and competitors.

The manager’s 3 hats

1. Foreign entry role

·        The marketing manager need to learn the details of doing business overseas

·        Finding the right middle man

·        Quantitative and qualitatively evaluating foreign markets

·        Negotiating for join marketing ventures

·        Help to set up subsidiaries

·        And learning to understand foreign customer’s product and services requirements.

2. local marketing role

·        because of the different environment, the local marketing efforts is usually carried out with the help of several natives

·        in some countries, the PEST environment differs so much that the expatriate become ineffectives and drag on the organization

·        the typical approach today is to leave day-to-day management to natives and et Western manager play a more strategic roles.

3. global management role

·        Using the learning and experience gained from foreign entry and local marketing, the marketer is now working on deriving global benefits from the firm’s presence in various markets