1 International Strategic Management International Strategic Management International Marketing May 30th, 2005 What is International Marketing ? What is International Marketing ? Kahler 1977: Export or international Business Bradley 1991: Establishment of organizations to do business in international markets – in two or more countries Stahr 1993: All activities of a company to attract customers in selected countries Czinkota/ Ronkainen 1998: Planning and executing transactions across border ... Backhaus/Büschken/Voeth: International Marketing, 2000
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International Strategic ManagementInternational Strategic Management
International Marketing
May 30th, 2005
What is International Marketing ?What is International Marketing ?
Kahler 1977: Export or international Business
Bradley 1991: Establishment of organizations to do business in international markets – in two or more countries
Stahr 1993: All activities of a company to attract customers in selected countries
Czinkota/Ronkainen 1998: Planning and executing transactions across border...
Backhaus/Büschken/Voeth: International Marketing, 2000
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Major Decisions in International MarketingMajor Decisions in International Marketing
1. Deciding whether to go abroad
2. Deciding which markets
to enter
3. Deciding how and when
to enter the market
4. Deciding on the marketing
program
5. Deciding on the marketing organization
1. Deciding whether to Go Abroad1. Deciding whether to Go Abroad
Traditional MotivationKey suppliersSeeking new marketsLower cost of production
New MotivationIncreasing EOSBalloning R&D investmentsShorter production life cycle...
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1. Deciding whether to Go Abroad1. Deciding whether to Go Abroad
Risks when going abroad...
Most companies would prefer to remain domestic businessesMajor concerns of going abroad:
– Unstable governments– Foreign-exchange problems– Foreign-government entry requirements and bureaucracy– Tariffs and other trade barriers– Corruption– Technological Pirating– High cost of product and communication adaptation– .....
2. Deciding which Markets to Enter2. Deciding which Markets to Enter
Company must also decide on the types of countries to considerPre-selection of highest potential markets(„candidate selection“)
Therefore, it has to analyse:– Market potential (macro-economic view)– Foreign country strategy
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Analysis of Market Potential (Phase 1)Analysis of Market Potential (Phase 1)
Macroenvironmental Factors– Population and income of target country– Structure of Consumption
producer vs. consumer goodsluxury vs. necessity
– Production indicatorsof key industries, cars, steel, etc.
– Pricesof raw materials, financing, etc.
– Economic Systems
2. Deciding which Markets to Enter2. Deciding which Markets to Enter
Info needed for this analysis:– Consumer decision making process
Use of productWho buys? When? Why? Where? How often?
– Competitor analysisBarriers of entry?
– PLC analysisProduct launch possible in appropriate stage of foreign country`s PLC?
2. Deciding which Markets to Enter2. Deciding which Markets to EnterAnalysis of Foreign Country Strategy (Phase 2)Analysis of Foreign Country Strategy (Phase 2)
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2. Deciding which Markets to Enter2. Deciding which Markets to EnterInformation Information NeedsNeeds
Comparability of informationProblem of equivalence in standardized international market research
Construct equivalencefunctional equivalencedo the examined concepts, objects or behavior patterns in the different countries have the same role or functions (e.g.: bikes in the USA or in Holland)conceptual equivalencehow do people interpret objects, stimuli or behavior? do these exist in the same way in different countries(e.g.: family in USA: parents + child; Italy: clan )category equivalenceare the examined concepts, objects or behavior patterns classified in the same categories in different countries? (e.g.: in some countries beer is considered a soft drink)
Measure equivalenceCalibration equivalence (use of corresponding monetary and physical units as well as considering the different interpretations of colors, shapes, etc.) Translation equivalence (equivalence of the general sense of verbal, as well as non-verbal stimuli through retranslating or parallel translation )Metric equivalence (reaction of the test persons on e.g. 5- or 6-point, increasing or decreasing scales; meaning of identical scores in different countries)
Sampling equivalenceIndividual vs. group (selection of country specific and relevant test persons depending e.g. on the number of persons involved in decision making processes)Sample representativity(establishing the comparability of the national representative samples)
2. Deciding which Markets to Enter2. Deciding which Markets to EnterInformation Information NeedsNeeds
Fine Selection:1. Analysis of country-specific chances for success
Port-folio-Analysis
Risk-Point-evaluation approach
2. Analysis of political risks
- Checklist-approach- Point-evaluation approach
sequential evaluation approach
Rough Selection: 1 Analysis of general consumption requirements
International segmentation
AnalyticalheuristicalSegmentation approach
Source: Meffert/Bolz: Internationales Marketing Management, 2. Auf., 1994, S. 113
step
approach
Prof. Dr. Michael Dowling -Universität Regensburg
• Indirect Export• Direct Export• Licensing• Joint Ventures• Direct Investment
Risk
Return
IndExport
Dir Export
Licen-sing
JV
Dir Inv
3. 3. DecidingDeciding howhow to to EnterEnter thethe MarketMarket
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3. 3. DecidingDeciding howhow to to EnterEnter thethe MarketMarket
Source: Meffert/Bolz: Internationales Marketing Management, 2. Aufl., 1994, S. 119
Foreign CountryLowHighHigh
Direct investment
Foreign CountryHighMiddleMiddle – high
Joint Ventures
HomeMiddleLowLowLicensing
HomeLowHighLowDirect Export
HomeLowLowVery lowIndirect Export
Institutional settlementDependencyControlCapital
emplyoment
The international company (= licensor) agrees to make available to another company abroad (=licensee) use of its patents and trademarks, its manufacturing know-how, its trade secrets and its managerial and technical services.
The foreign company agrees to pay the licensor a royalty or other form of payment
3. Deciding how to Enter the Market3. Deciding how to Enter the MarketLicensingLicensing
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Pro’s:A way of getting a foothold in a foreign market without a large capital investmentmost attractive to firms that are new to the international business areafewer exchange rate riskcircumvent trade barriers (e.g. no duties)circumvent production restriction in the domestic markettest foreign markets
Con’s.:Danger of establishing a future competitorless control over licensees operations, which could result in damage to the licensor‘s reputationlimited licensing returns
Source: Phatak, A.: International Management, 1996, S.250
3. Deciding how to Enter the Market3. Deciding how to Enter the MarketLicensingLicensing
Another form of licensingUsually: a company initially establishes a brand name for its products, service, quality etc. in the home market and a standardized business system to operate the business. It then franchises the entire business system in a foreign countryExamples: McDonald‘s, Holiday Inn, Bang & Olufsen
3. Deciding how to Enter the Market3. Deciding how to Enter the MarketFranchisingFranchising
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Joint VenturesJoint Ventures
Foreign investors join local investors to create a JVShared ownership and controlJVs often necessary or desirable for economic or political reasonsCharacteristics:
– Direct control of distribution channels:company owned points of sales
– International business is critical part of headquarter strategy– Joint ownership may lead to management conflicts
3. 3. DecidingDeciding howhow to to EnterEnter thethe MarketMarket
Direct InvestmentDirect Investment
Direct ownership of foreign-based assembly or manufacturing facilitiesAdvantages:
– Cost economies (e.g. cheaper labor or raw materials, freight savings)
– Better relationship with foreign government, customers, local suppliers, etc.
– Full control of marketing mixDisadvantages:
– Country-specific economic and political risks– Investment (also in time and education)
3. 3. DecidingDeciding howhow to to EnterEnter thethe MarketMarket
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Direct InvestmentDirect Investment
Pro’s for direct investment by acquiring another company
rapid market entry and start of production
acquisition of contacts, a performing organization, local knowledge and a qualified labor force
gain of time saves moneyno creation of additional production
capacities
Pro’s for direct Investment by building a own factory
implementation of modern technologybetter image within the host country
due to new job creation
3. 3. DecidingDeciding howhow to to EnterEnter thethe MarketMarket
3. 3. DecidingDeciding howhow to to EnterEnter thethe MarketMarketFactors influencing market entry choice
After deciding HOW to enter the market:WHEN should the selected markets be entered?
Two strategies:sprinkler approachwaterfall approach
3. 3. DecidingDeciding howhow to to EnterEnter thethe MarketMarket
Sprinkler-Approacha company enters several markets within a very short period of time.
Reasons for choosing the sprinkler approach:- short product life cycles (e.g. like in the computer industry)- high R & D investments have to be amortized- gain first mover advantages and building up barriers for follower
Timing of Market Entry
1 YearTime line 0
Country FCountry ECountry DCountry CCountry BCountry A
Entry
Years0 1
Source: Backhaus et al: Internationales Marketing, 3 Aufl., 2000 S.137
3. 3. DecidingDeciding howhow to to EnterEnter thethe MarketMarket
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Waterfall-Approachcompanies expand there abroad business step by step in a sucessive manner
Reasons for choosing the waterfall approach:-- the expected product life cycle is very long-- low competition on the selected country markets
Timing of Market Entry
0 1 2 3 4 5 6 Years
Source: Backhaus et al: Internationales Marketing, 3 Aufl., 2000 S.127
3. 3. DecidingDeciding howhow to to EnterEnter thethe MarketMarket
Country A
Country B
Country C
Country D
Country E
Country F
Entry
Timing of Market Entry
Advantages of the Waterfall-approachpossibility to grow with its foreign business in terms of organization and resources less resources required than with the sprinkler approachless risky than the sprinkler approachextention of the product life cycle
3. 3. DecidingDeciding howhow to to EnterEnter thethe MarketMarket
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Prof. Dr. Michael Dowling -Universität Regensburg
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing Program
Companies must decide how much to adapt their marketing to localconditions
Two Extremes– Standardized marketing worldwide– Differentiated marketing (adjustment to each target market)
Strategic level Instrumental level
Contents
- Marketing
strategy
- physical product - brand policy - communication
policy - distribution policy - pricing policy
Processes
- Information systems
- Segmentation models
- Controlling systems
- advertisement
planning - distribution planning
Source: Meffert/Bolz: Internationales Marketing-Management, 1994, S 148
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing ProgramScope of Standardization
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4. 4. Deciding on the Marketing ProgramDeciding on the Marketing ProgramProduct Policy
…refers to decisions about product, program, branding and service in an international setting:
According to Bernd/Fantapié Altobelli/Sander: Internationale Marketing-Politik, S. 58, 1997
Source: Meffert/Bolz: Internationales Marketing , 2. Aufl., 1994, S. 174
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing ProgramProduct Policy
Potential to Standardize of different Product Categories
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4. 4. Deciding on the Marketing ProgramDeciding on the Marketing ProgramProduct Policy
Traditional or culturally sensible products (e.g. food)
Differentiation
cars: standardized core product; adaptation to national markets by e.g. using different exhaust gas filter in accordance to specific country standards.
Shaver switching from 110 to 220V
Intermediary Solution
Modular approach
Built-in flexibility
high-tech or luxury products (e.g. films, luxury watches etc.)
Standardized products
ExamplesSolution
According to Kreutzer: Global Marketing, 1989,S. 281,
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing ProgramProduct Policy
Branding using...
...Product names
...Products signs
Standardization pitfalls...
...with respect to pronouncability, associations, meaning, protectability of a product name
...when the product sign is equal with the brand name (e.g. Coca Cola)
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4. 4. Deciding on the Marketing ProgramDeciding on the Marketing ProgramProduct Policy
Barriers to StandardizationLegal barriers: quality standards and norms, Technological barriers: e.g. different standards in power supply, Linguistic barriers: pronouncability of the products nameImage barriers: e.g. linkage between package and perceived qualityPhysiological barriers: e.g. different body sizesConsumption patterns: function of a product
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing ProgramCommunication Policy
Source: Backhaus/Büschgen/Voeth, 1996, S. 191
Path of Standardization
C.-TARGETS
C.-STRATEGY
C.--INSTRUMENTS
Public Relations
Advertising
Sales Promotion
Corporate IdentityPublic
RelationsCommercial
DesignMedia
Selection
Message
Tonality
Pictures
Color
Music
Text
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Example: Advertising/ Language
102451123521621003I
14178810035455319671994100D
52631199830713110100211616F
4858404273612825347212311001644E
FINNORSWIAUSSWEDENGREPORBELNETHSPAFRAUKITAGER
Source: Mooij, Advertising Worldwide, 2nd Edition, New York, 1994, S. 288
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing ProgramCommunication Policy
Language knowledge in Europe (%)
Example: Advertising / Media Selection
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing ProgramCommunication Policy
35197Sri Lanka
2101006South Corea
23150Africa
250318Middle East
308592Eastern Europe
444817Western Europe
150292Latin America
7892017North America
RadioTV
Communication Infrastructure in selected Countries and Regions (per 1000 citizen)
Source: Sookdeo: The New Global Consumer, in: Fortune, Autumn-Winter 1993, pp. 68-77
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4. 4. Deciding on the Marketing ProgramDeciding on the Marketing ProgramCommunication Policy
Source: Cateora, International Marketing, 1993, pp. 524; Ricks, Big Business Blunders, 1983, pp. 63
Element Country/Culture Interpretation
stewardess serveschampagne to passengers
Europe/USA
Islamic countries
demonstration of good service
attempt to influence religious values(Violation of standards concerning foodand behavior)
perfume, backgroundof raindrops
Central- and Southern Europe
parts of Africa
rain as a symbol for freshness
rain as a symbol for fertility
Marlboro-Cowboy USA
Hong Kong
Argentina
symbol for freedom and manliness
cowboy looks like a coolie
cowboy has a low social standing;useless tramp
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing ProgramCommunication Policy
Barriers to StandardizationLegal barriers: prohibition of comparative advertising, prohibition of advertising for certain products, prohibition of foreign languages in advertisingTechnological barriers: media diffusionLinguistic barriers: knowledge of foreign languages, understanding and interpretation of words, symbols, color and musicImage barriers: link between media characteristics and product qualityConsumption patterns: media usageCompetitive situation: e.g. average advertising budget, cost for media, typical forms of communication
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4. 4. Deciding on the Marketing ProgramDeciding on the Marketing ProgramPricing Policy
Determinants of international pricing
Internal determinantsinternational organizational structurecost structureway of transfer pricingdecisions on other parts of the marketing mix
External determinantspolitical, legal and economical frameworkbehaviour and preferences of customerscompetitive structure and behaviourexchange rate volatilityoccurance of gray markets
- between A and B: 0,50 - between A and C: 1,00 - between B and C: 1,50
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4. 4. Deciding on the Marketing ProgramDeciding on the Marketing ProgramPricing Policy
Basic Strategies in International PricingStandardizationDual pricing strategyDifferentiationPrice – corridor
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing ProgramPricing Policy
Barriers to Standardization
Legal barriers: e.g. restrictions on discounts
Technological barriers: Existence of facilities for electronic data exchange, inter-bank payment etc.
Image barriers: importance of price as an indicator for quality
Consumption patterns: typical price behavior, economic limitations of customers; Conditions expected, e.g. respite for payment
Competitive situation: average price level
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4. 4. Deciding on the Marketing ProgramDeciding on the Marketing ProgramDistribution Policy
Issues of an international distribution policy
distribution structure:structure of distribution channel through which goods pass from producer to userkey issues: characteristics of middlemen, selection criteria of distributors, contractual producer-distributor relationship
distribution process:- physical handling and distribution of goods- passage of ownership- buying and selling negotiations (producer-middlemen, middlemen-customer)key issues: choice of locations, choice of logistic partners, technical and organizational handling
Basic decisions with strategic characteroutsourcing degree of distribution taskslength of distribution channelvariety of distribution systemsexclusivity arrangements with channel members
4. 4. Deciding on the Marketing ProgramDeciding on the Marketing ProgramDistribution Policy
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4. 4. Deciding on the Marketing ProgramDeciding on the Marketing ProgramDistribution Policy
Barriers to StandardizationLegal barriers: regulations on store design and size, Technological barriers: existence of infrastructure Geographical barriers: climate, natural barriersImage barriers: customers association between outlet type and product quality Consumption patterns: typical outlets for certain productsCompetitive situation: channel blockage, channel cost
Effects of Standardization & DifferentiationEffects of Standardization & Differentiation Cost and turnover effects of
Standardization Differentiation
Cost de-crease
Decreasing costs for research and development of products
More effective co-ordination and control Scale and experience effects in production,
marketing, logistics Easy transferability of human resources (less
training requirements) Reduction of losses incurred due to arbitrage
Possible downward adaptation of product quality in technically less developed markets
Limited service problems in technically less developed markets with inexperienced users
Differentiation of prices may lead to higher sales volume (quantity) in different country markets and, as a consequence, to sinking costs (economies of scale + scope)
Turn-over
increase
Unified product and corporate image across country markets leads to increased brand equity
Positive spill over effects between markets Possible homogenization of country markets
through standardized products Elimination of parallel imports through price
standardization
Adaptation to customer needs and expectations leads to higher national price level
Differentiation of prices may lead to higher sales in different national markets and to increased overall turnover
Possibility of serving niche markets in certain countries with specialized products
Common aspects of standardization: the imitation of ideas and concepts by competitors can be prevented. Three basic risks: 1. Restraint of innovative processes 2. Danger of conflicts between headquarter and subsidiaries 3. Danger of a global mega flop (e.g.: The New Coca Cola)
Source: Segler (1986), p. 213.
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Deciding on the Marketing OrganizationDeciding on the Marketing Organization
Would you authorize Wolfgang Berndt‘s third request tolaunch Vizir in Germany?
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P&G: P&G: VizirVizir LaunchLaunch
Eurobrand Decision
Formation of six teamsAssignmentsPresentations: 01.06., 13:30-15:00
P&G: P&G: VizirVizir LaunchLaunch
Eurobrand Decision
There will be six teamsEach team representing whethera subsidiary in a certain country
– UK - France– Germany - Italy– ETC– HQ
Groups with only German students or only Erasmus-Students willnot be acceptedEach group has about seven membersGroup formation: announce the group members and a spokesmento the instructor by completing the „List of Participants“ for one ofthe six teams
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P&G: P&G: VizirVizir LaunchLaunch
Example
Local Management UKYou are responsible for the UK subsidiary of Procter &Gamble. You have to analyze if Vizirmight be launched in the UK with a specific UK strategy or if it is possible to have a panEuropean approach with the same product at the same time.You have to analyze the pro's and con's of the two approaches but anyway you are convincedthat only a national (British) approach is viable.Among others, you have to address the following issues:1. Should Vizir be launched in the UK (at all) ?2. What effect would a pan-European approach have for the UK subsidiary?3. How do different washing habits fit with a pan-European approach?4. Analyze the relationship between profitability and a pan-European strategy!5. You should be prepared for further discussions!
Prepare a short presentation (max. 10 minutes) for the scheduled meeting in Brussels. UsePowerPoint slides and a beamer. Refer on the information and figures given in the case.Attending groups will be:• local management Germany (with Wolfang Berndt)• local management Italy• local management France• ETC (with Charlie Ferguson)• P&G headquarter, Cincinnati.
P&G: P&G: VizirVizir LaunchLaunch
Presentation: 7-5 minutesDiscussion: up to 5 minutesEvaluation of the case study:
– Max. 5 points– Presentation criteria:
Content ( questions answered; correctness; logic of argumentation…)Style ( draw audience attention; enthusiasm; eye contact with theaudience; gesture; persuasiveness..)TimingPeer evaluationThe groups participation in discussion
Order of presentations will be randomlyNot each group member has to presentEverybody has to attendHandout has to be distributed to the instructor before presentationIn case your Powerpoint-file is not working ensure a backup solution
