Chap011

(1)

I n t e r n a t i o n a l M a r k e t i n g

Global Marketing

Management:

Planning and

Organization

Chapter 11

1 4 t h E d i t i o n P h i l i p R. C a t e o r a M a r y C. G i l l y J o h n L . G r a h a m

McGraw-Hill/Irwin

International Marketing

(2)

11-2

What Should You Learn?

•

How global marketing management differs from

international marketing management

•

The increasing importance of international

strategic alliances

•

The need for planning to achieve company goals

(3)

Basic Entry Decisions

Question:

What are the basic entry decisions for

firms expanding internationally?

•

A firm expanding internationally must decide

– which markets to enter

– when to enter them and on what scale

(4)

11-4

Global Perspective

Global Gateways

Global Perspective

Global Gateways

•

Multinational companies

– Confronted with increasing global competition for expanding markets

– Changing their marketing strategies and altering their organizational structure

– Nearly 75% of North American and European corporations are revamping their business processes

•

Smaller companies

– More flexible

(5)

11-5

Global Marketing Management

•

1970s – “standardization versus adaptation”

•

1980s – “global integration versus localization”

•

1990s – “global integration versus local

responsiveness”

The fundamental question was whether the global

homogenization of consumer tastes allowed

(6)

11-6

•

The trend back toward localization

– Caused by the new efficiencies of customization

– Made possible by the Internet

– Increasingly flexible manufacturing processes

(7)

11-7

•

Global markets continue to homogenize and

diversify simultaneously

– Best companies will avoid trap of focusing on country as the primary segmentation variable

(8)

11-8

The Nestle Way –

Evolution Not Revolution

The Nestle Way –

Evolution Not Revolution

•

Nestle – world’s biggest marketer of infant formula,

powdered milk, instant coffee, chocolate, soups,

and mineral water

•

Nestle strategy

– Think and plan long term

– Decentralize

– Stick to what you know

– Adapt to local tastes

•

Long-term strategy works for Nestle

– Because the company relies on local ingredients

(9)

11-9

Benefits of Global Marketing

•

When large market segments can be identified

– Economies of scale in production and marketing

– Important competitive advantages for global companies

•

Transfer of experience and know-how

– Across countries through improved coordination and

integration of marketing activities

•

Marketing globally

– Ensures that marketers have access to the toughest customers

– Market diversity carries with it additional financial benefits

– Firms are able to take advantage of changing financial

(10)

11-10

Planning for Global Markets

•

Planning is the job of making things happen that

might not otherwise occur

•

Planning allows for:

– Rapid growth of the international function

– Changing markets

– Increasing competition, and the

(11)

11-11

•

Planning is both a process and philosophy

– Relates to the formulation of goals and methods of accomplishing them

► Corporate planning ► _{Strategic planning} ► _{Tactical planning}

•

Company objectives and resources

– Each new market requires

► _{A complete evaluation, including existing commitments, relative to the parent} company’s objectives and resources

(12)

11-12

•

International commitment

– Commitment in terms of

► _{Dollars to be invested}

► _{Personnel for managing the international organization}

► _{Determination to stay in the market long enough to realize a return in} investments.

(13)

11-13

International Planning Process

(14)

11-14

The Planning Process

•

Phase 1

– Preliminary analysis and screening

– Matching Company and Country Needs.

•

Phase 2

– Adapting marketing mix to target markets

– Are there identifiable market segments that allow for common marketing mix

– Which cultural/ environmental adaptations are necessary?

– Will adaptation costs allow profitable market entry?

•

Phase 3

– Developing the marketing plan

(15)

11-15

Alternative Market-Entry Strategies

•

An entry strategy into international market

should reflect on analysis

– Market characteristics

► _{Potential sales}

► _{Strategic importance}

► _{Strengths of local resources} ► _{Cultural differences}

► _{Country restrictions}

– Company capabilities and characteristics

► _{Degree of near-market knowledge} ► _{Marketing involvement}

(16)

• _{Uppsala Interntionalization Model (U-M) was proposed by}

researchers from University of Uppsala, among many are Jan Johanson, Jan-Erik Vahlne, and Wiedersheim-Paul.

• _{According to Johanson and Vahlne (1990, 1976), the}

internationalization of the firm, which has its theoretical base in the behavioral theory of the firm, is seen as the process in which the enterprise gradually increases its international involvement. This process evolves in an interplay between the development of knowledge about foreign markets and operations on one hand and an increasing commitment of resources to foreign markets on the other.

• _{The model distinguish between four different modes of}

(17)

U- Model of Internationalization

•

Stage 1: No regular export activities

•

Stage 2: Export via independent representative

(agents)

•

Stage 3: Establishment of an overseas sales

subsidiary

(18)

(19)

11-19

(20)

11-20

•

Companies most often begin with modest export

involvement

•

A company has four different modes of foreign

market entry

– Exporting

– Contractual agreements

– Strategic alliances

– Direct foreign investments

(21)

11-21

Exporting

•

Exporting accounts for some 10% of global

activity

•

Direct exporting – the company sells to a

customer in another country

•

Indirect exporting – the company sells to a buyer

(importer or distribution) in the home country,

(22)

11-22

Exporting

•

The Internet

– Initially, Internet marketing focused on domestic sales

– A surprisingly large number of companies started receiving orders from customers in other countries,

► _{Resulting in the concept of}_{international Internet marketing (IIM)}

•

Direct sales

(23)

11-23

Contractual Agreement

•

Contractual agreements

– Long-term,

– Nonequity association between a company and another in a foreign market

•

Licensing

– A means of establishing a foothold in foreign markets without large capital outlays

– A favorite strategy for small and medium-sized companies

(24)

11-24

Contractual Agreement

•

Franchising

– Franchiser provides a standard package of products, systems, and management services

– Franchise provides market knowledge, capital, and personal involvement in management

– Expected to be the fastest-growing market-entry strategy

•

Two types of franchise agreements

– Master franchise

► _{Gives the franchisee the rights to a specific area with the authority to sell or} establish subfranchises

(25)

11-25

Strategic International Alliances

• A strategic international alliance (SIA)

– A business relationship established by two or more companies to cooperate out of mutual need

– To share risk in achieving a common objective

• SIAs are sought as a way to shore up weaknesses and increase competitive strengths

• Firms enter SIAs for several reasons

– Opportunities for rapid expansion into new markets

– Access to new technology

– More efficient production and innovation

– Reduced marketing costs

– Strategic competitive moves

(26)

11-26

Building Strategic Alliances

(27)

11-27

•

Many companies entering SIAs

– To be in strategic position to be competitive

– To benefit from the expected growth in the single European market

•

International joint ventures (IJVs)

– A partnership of two or more participating companies that have joined forces to create a separate legal entity

– Four characteristics define joint ventures ► _{JVs are established, separate, legal entities}

► _{The acknowledged intent by the partners to share in the management}

of the JV

► _{There are partnerships between legally incorporated entities such as companies,}

chartered organizations, or governments, and not between individuals

(28)

11-28

Strategic International Alliances

•

Consorti

a

– Similar to joint ventures and could be classified as such except for two unique characteristics

► _{Typically involve a large number of participants}

► _{Frequently operate in a country or market in which none of the participants} is currently active

(29)

11-29

Direct Foreign Investment

•

Factors that influence the structure and

performance of direct investments

– Timing

– The growing complexity and contingencies of contracts

– Transaction cost structures

– Technology transfer

– Degree of product differentiation

– The previous experiences and cultural diversity of acquired firms

(30)

11-30

Organizing for Global Competition

•

Devising a standard organizational structure is

difficult

– Because organizations need to reflect a wide range of company-specific characteristics

•

Companies are usually structured around one of

three alternatives

– Global product divisions responsible for product sales throughout world

– Geographical divisions responsible for all products and functions within a given geographical area

– A matrix organization consisting of either of these arrangements

(31)

11-31

Schematic Marketing Organization Plan

Combining Product, Geographic,

and Functional Approaches

Schematic Marketing Organization Plan

(32)

11-32

Locus of decision

•

Considerations of where decisions will be made,

by whom, and by which method constitute a

major element of organizational strategy

– Corporate headquarters

– International headquarters

– Regional levels

– National levels

– Local levels

(33)

11-33

Centralized Versus

Decentralized Organizations

Centralized Versus

Decentralized Organizations

•

Most organizational patterns of multinational

firms fit into one of three categories

– Centralized

– Regionalized

– Decentralized

•

No single traditional organizational plan is

adequate for today’s global enterprise

(34)

11-34

Summary

•

To keep abreast of the competition and

maintain a viable position for increasingly

competitive markets, a global perspective is

necessary

•

Cost containment, customer satisfaction, and a

greater number of players mean that every

opportunity to refine international business

practices must be examined in light of

(35)

11-35

Summary

•

Important avenues to global marketing that

must be implemented in the planning and

organization of global marketing management

– Collaborative relationships

– Strategic international alliances

– Strategic planning

(36)

What is foreign direct investment?

• Foreign direct investment (FDI) occurs when a firm

invests directly in new facilities to produce and/or market in a foreign country

• Once a firm undertakes FDI it becomes a multinational enterprise

• There are two forms of FDI

– A greenfield investment (the establishment of a wholly new operation in a foreign country)

(37)

Greenfield or Acquisition?

Question:

Should a firm establish a wholly owned

subsidiary in a country by building a subsidiary

from the ground up (greenfield strategy), or by

acquiring an established enterprise in the target

market (acquisition strategy)?

•

The number of cross border acquisitions are

increasing

•

Over the last decade, 50-80 percent of all FDI

(38)

Greenfield or Acquisition?

• Acquisitions

– are quick to execute

– enable firms to preempt their competitors

– can be less risky than green-field ventures

• Acquisitions fail when

– the firm overpays for the assets of the acquired firm

– there is a clash between the cultures of the acquiring and acquired firm

– attempts to realize synergies by integrating the operations of the acquired and acquiring entities run into roadblocks and take

much longer than forecast

(39)

Greenfield or Acquisition?

Question: How can firms reduce the problems associated with acquisitions?

• Firms can reduce the problems associated with acquisitions

– through careful screening of the firm to be acquired

(40)

• Question: Why are greenfield ventures attractive?

• Greenfield ventures are attractive because they allow the firm to build the kind of subsidiary company that it wants

• However, greenfield ventures

– are slower to establish

– are risky because they have no proven track record

(41)

Research framework

Bruce Kogut & Harbir Singh

Research framework

Bruce Kogut & Harbir Singh

Country-level Country-level variables variables Industry-level variables Firm-level variables

Modes of entry

Modes of entry

1.

1. AcquisitionAcquisition 2.

2. Joint- ventureJoint- venture 3.

3. GreenfieldGreenfield

(42)

Foreign Direct Investment

in the World Economy

Foreign Direct Investment

in the World Economy

•

The majority of cross-border investment involves

mergers and acquisitions rather than greenfield

investments

•

In the last two decades, there has been a shift

(43)

Theories of

Foreign Direct Investment

Theories of

Foreign Direct Investment

Question: Why do firms prefer FDI to either exporting

(producing goods at home and then shipping them to the receiving country for sale) or licensing (granting a foreign entity the right to produce and sell the firm’s product in return for a royalty fee on every unit that the foreign entity sells)?

(44)

Benefits and Costs of FDI

(45)

•

The main benefits of inward FDI for a host

country are

1. the resource transfer effect

2. the employment effect

3. the balance of payments effect

(46)

Benefits and Costs of FDI

•

There are three main costs of inward FDI

1. the possible adverse effects of FDI on competition within the host nation

2. adverse effects on the balance of payments

(47)

• The benefits of FDI to the home country include

1. the effect on the capital account of the home

country’s balance of payments from the inward flow of foreign earnings

2. the employment effects that arise from outward FDI

(48)

Benefits and Costs of FDI

•

The most important concerns for the home

country center around

1. The balance-of-payments

(49)

How can firms enter foreign markets?

• Firms can enter foreign markets through

– exporting

– licensing or franchising to host country firms

– a joint venture with a host country firm

– a wholly owned subsidiary in the host country to serve that market

• The advantages and disadvantages of each entry mode is determined by

– transport costs and trade barriers

– political and economic risks

(50)

Basic Entry Decisions

Question:

What are the basic entry decisions for

firms expanding internationally?

•

A firm expanding internationally must decide

– which markets to enter

– when to enter them and on what scale

(51)

Entry Modes

Question: What is the best way to enter a foreign market?

• Firms can enter foreign market through

1. Exporting

2. Turnkey projects

3. Licensing

4. Franchising

5. Joint ventures

6. Wholly owned subsidiaries

(52)

Selecting an Entry Mode

Question:

How should a firm choose a specific

entry mode?

•

All entry modes have advantages and

disadvantages

•

The optimal entry mode depends to some

degree on the nature of a firm’s core

competencies

•

Core competencies can involve

1. technological know-how

(53)

Selecting an Entry Mode

•

Firms facing strong pressures for cost reductions

are likely to pursue some combination of

exporting and wholly owned subsidiaries

(54)

Question:

Should a firm establish a wholly owned

subsidiary in a country by building a subsidiary

from the ground up (greenfield strategy), or by

acquiring an established enterprise in the target

market (acquisition strategy)?

•

The number of cross border acquisitions are

increasing

•

Over the last decade, 50-80 percent of all FDI

(55)

• Acquisitions

– are quick to execute

– enable firms to preempt their competitors

– can be less risky than green-field ventures

• Acquisitions fail when

– the firm overpays for the assets of the acquired firm

– there is a clash between the cultures of the acquiring and acquired firm

– attempts to realize synergies by integrating the operations of the acquired and acquiring entities run into roadblocks and take

much longer than forecast

(56)

Greenfield or Acquisition?

Question: How can firms reduce the problems associated with acquisitions?

• Firms can reduce the problems associated with acquisitions

– through careful screening of the firm to be acquired

(57)

• Question: Why are greenfield ventures attractive?

• Greenfield ventures are attractive because they allow the firm to build the kind of subsidiary company that it wants

• However, greenfield ventures

– are slower to establish

– are risky because they have no proven track record

(58)

Exporting and Improting

Question: Who benefits from exporting?

• Both large and small firms can benefit from exporting

• Firms wishing to export must

– identify export opportunities

– avoid a host of unanticipated problems associated with doing business in a foreign market

– become familiar with the mechanics of export and import financing

– learn where to get financing and export credit insurance

(59)

What are the benefits of exporting?

• The benefits from exporting can be great--the rest of the world is a much larger market than the domestic market

• Larger firms may be proactive in seeking out new export opportunities, but many smaller firms take a reactive

approach to exporting

(60)

Improving Export Performance

Question: How can exporters improve their performance?

• To improve their success, exporters should

– acquire more knowledge of foreign market opportunities

– consider using an export management company (EMC)

– adopt a successful export strategy

► _{hire an EMC}

► _{focus on just few markets}

(61)

Export and Import Financing

Question: How can firms deal with the lack of trust that exists in export transactions?

• Problems arising from the lack of trust can be solved by using a third party who is trusted by both - normally a reputable bank

– Exporters prefer to be paid in advance, while importers prefer to pay after shipment arrives

(62)

Export and Import Financing

Question: How is payment actually made in an export transaction?

• Most export transactions involve a draft, also called a bill of exchange

• A sight draft is payable on presentation to the drawee

while a time draft allows for a delay in payment - normally 30, 60, 90, or 120 days

(63)

Export Assistance

Question: Where can exporters get financing help?

• U.S. exporters can draw on two forms of government-backed assistance to help their export programs

1. they can get financing aid from the Export-Import Bank

2. they can get export credit insurance from the

(64)

Countertrade

Question: What alternatives do exporters have when conventional methods of payment are not an option?

• Exporters can use countertrade when conventional means of payment are difficult, costly, or nonexistent

• There are five types of countertrade

1.barter

2. counterpurchase

3. offset

4. switch trading

(65)

Countertrade

•

In the 1960s the Soviet Union and the

Communist states of Eastern Europe, whose

currencies were generally nonconvertible, turned

to countertrade to purchase imports

•

Many developing nations that lacked the foreign

exchange reserves required to purchase

necessary imports turned to countertrade during

the 1980s

(66)

Countertrade

•

Firms that are unwilling to enter a countertrade

agreement may lose an export opportunity to a

competitor that is willing to make a countertrade

agreement

•

Countertrade is most attractive to large, diverse

multinational enterprises that can use their