MARKETING MATERIAL
Structure Globalization Comparative Advantage Economies of Scale Triad Power
Transnationals Export or Not Unsuitable Markets Market Research Market Entry
Country Risk Product Decision Price Decision Counter-Trading Export
Licensing Joint Ventures Local Sales Agents Distributors Strategic Alliances
9442 MARKETING Chapter 12
- International Marketing
Introduction
In this chapter, we look at the two extremes of this specialized
area, in order to illustrate what is involved. Globalization is
much discussed by experts, but apparently less often implemented
in practice. However, the theories are explored in this chapter,
in some detail; as are those relating to multinational
operations.
The basic market entry decision is, however, the focus of the
central part of the chapter; using, in this case an approach
based on screening.
The decision having been taken, the detailed product and price
decisions are then investigated, before the main tactical
approaches are developed in some depth.
The latter part of the chapter moves to the other end of the
spectrum, dominated by agents who support small and medium-sized
exporting organizations.
So far I have talked about marketing as if the geographical
dimension was one of the least important. But even within one
country there may be significant regional differences. Within
countries as large as the USA regional differences may be
dramatic; from New England to the West Coast, and from Alaska to
Texas, the range of natural environments (as well as the range of
population groups) varies enormously; as do the market needs:
hence the greater emphasis on regional marketing in that
country.
However, the biggest difference is that between countries. The
thin red lines drawn upon maps may appear to be less significant
than the geographical features they so often parallel; but they
are no less important in terms of the influences at work in the
marketing environment that they encircle --despite the much
reported emergence of globalization, and country groupings such
as the EC.
This chapter is, accordingly, an introduction to the various ways
in which these differences affect marketing, and to the special
techniques which may be deployed to deal with these differences.
It is a general overview, though, and those who become involved
in international marketing would be well advised to study one of
the books dedicated to this topic; for it can be a very
specialized form of marketing.
The most important factor in any organization's relationship with
the various national markets is its own structure. The
stereotypical relationship is that between a purely national
company, such as Rolls-Royce Cars, and its `overseas' markets; in
which case the company will see almost all its relationships as
those of exporting. Because these relationships are, in many
important respects, different from those applying to the rest of
marketing, they will form the focus of much of this chapter.
At the other end of the spectrum are a few giant transnationals,
which can afford almost to disregard national boundaries; or at
least are able to consider them merely as unavoidable nuisances.
Various definitions, and matching terminologies, are offered by
different commentators; but the main types of structure, in terms
of handling international business, are as follows:
'Transnationals'. These are the truly global organizations,
such as IBM or Shell, which operate in most countries; with
marketing organizations in all of these, and production units
(and even development laboratories) in a fair number. These
organizations can afford to view national markets as purely
regional affairs; with each region having its own marketing
characteristics --but, otherwise, with no special mar+eting
problems.
'Multinationals'. These organizations, such as Unilever and
General Mills, also operate in many countries. On the other hand,
they tend to have individual operating companies in each country,
which market to (and `manufacture' for) that market. Country
organizations are, therefore, subsidiaries which control their
own operations largely independently of the other country
organizations. The marketing process is, thus, almost a purely
national operation; with the parent only controlling the
operations at the group level (and then typically in terms of the
flow of funds).
'International traders'. These are organizations, such as
Renault and Cinzano, which are typically based in one country,
and produce most of their output there. In other countries they
have sales subsidiaries (and sometimes limited production --
often assembly --operations). They are largely in the business
of export, facing the problems which are described later in this
chapter. On the other hand, they already have an international
structure which can address these problems and compartmentalizes
them, so that they may largely be dealt with as normal marketing
activities.
'Exporters'. These represent the majority of the
organizations that trade internationally. Their main base, often
overwhelmingly so, is their `domestic' (home) market. Exporting,
as a minority activity, is subject to the problems described
later in this chapter.
'Domestic producers'. These form the largest number of
organizations in any national market. They do not involve
themselves in overseas markets; perhaps wisely so, as many small
export operations are lossmakers, although the formation of
`international' groupings such as the EC may force them to face
the issue.
AUDIT 14.1
Into which of these categories does your organization fall? Into
which categories do your main competitors fall?
There has been much
talk of globalization. Indeed, the impact of the transnationals
and multinationals cannot be ignored: they often account for a
major part of any nation's business activity. Warren
Keegan - 2 - identifies a number of forces which have
led to the expansion of international business:
the international monetary framework --the rapid development of
the international financial markets
the world trading system --in particular the influence of GATT
global peace --now reinforced by the demise of communism
domestic economic growth --making these markets more receptive
to imports
communications and transportation technology --so that business
can be carried out on a global basis
the global competition --one of the responses to the above
factors
Michael Marien - 3 - offers as slightly different analysis, but
with much the same message:
An impressive array of current and potential driving forces
propels this development. Among technologies, communications and
computers are in the forefront in linking the world (and are
themselves being linked), and air transport has facilitated
physical movement of people. Leading idea-drivers include
transnational corporations, `Europe 1992', the new capitalism of
deregulation and global competition, and the thawing Cold War.
The theme has been reinforced by Theodore Levitt: - 4 -
The result [of technology] is a new commercial reality --the
explosive emergence of global markets for globally standardised
products, gigantic worldscale markets of previously unimagined
magnitudes.
At its most basic level, when one now walks into a supermarket,
be it in Europe or the USA, one is immediately at home. The
layout is much the same, and the products are much the same --
and are promoted in much the same way.
As might be expected, in the light of his general work on
competitive strategy, Michael Porter - 5 - has identified a
range of factors which revolve around two main areas of
activity, comparative advantage and economies of scale.
Production can be located in those countries which have the most
favourable cost or quality factors; which is why the computer
component industries have established plants in Taiwan.
It should be noted that conventional economic theory explains
the whole of international trade on this basis. One country has
an `absolute advantage' over another in terms of producing a
specific product, because the factors of production are more
favourable (lower wage costs, material costs, capital costs and
so on). In bilateral trade, therefore, the country with the
comparative advantage will export the product, in return for
products with regard to which the other country has a comparative
advantage.
As with most economic theories, the theory is then overlain with
additional levels of complexity, to try to explain why real life
diverges from the basic theory. In practice, the patterns which
emerge in the developed world are very much more complex;
particularly because the almost random fluctuations in the
international money markets (often led by government
intervention) make the scale of such `absolute advantage'
difficult to gauge. In any case, global organizations seem to
carry this `absolute advantage' with them; and base their country
by country allocations of production and other functions on
factors other than simple price advantage.
On the other hand, there is little doubt that management
accounting in a multinational context has failed to reach the
levels of provision of useful information which are now deemed
essential on the national level. As Kenneth Simmonds - 6 -
comments:
Rather than relying on transfer prices to signal cost information
indirectly and inefficiently, a direct indication of short and
long-term cost-volume-profit relationships would enable market
units to propose actions that would fit an overall strategy.
Management accounting has traditionally advocated the use of
cost-volume-profit data within the single market firm. But
management accounting within multinationals has not moved to
provide system-wide cost-volume-profit relationships. There is no
body of literature about how to transmit and use international
cost-volume-profit data. In fact, there is nothing about how
management accountants might construct cost-volume-profit
calculations on a system basis for multi-plant multinationals
with all the differences in costs and currencies this implies.
Thus, a comparative disadvantage may simply appear to occur
because all the developmental (and/or head office) overheads are
being charged against the home country. In any case, providing
low-cost countries with experience in new technology can also
very quickly lead to the creation of new international
competitors.
In addition, as Yoram Wind - 7 - points out:
... there is no evidence that consumers are becoming universally
more price conscious. In fact some of the products often viewed
as global are fairly expensive --Cartier watches, Louis-Vuitton
handbags or Canon cameras. Furthermore, the desirability of
focusing on price positioning is very questionable.
Concentrating the total demands of a number of countries on a
limited number of plants, and sharing the accumulated experience
(as well as engaging in joint purchasing across these plants),
should lead to economies of scale. Procter & Gamble, for example,
successfully concentrated detergent production on fewer plants
than Unilever, potentially gaining a cost advantage in the
process (although this was possibly undermined by the shift to
liquid detergents, which may have been less susceptible to
economies of scale). Similarly, there might be some economies to
be achieved by global marketing; for example, expensive
commercials could be used in several countries. McCann-Erickson,
as reported by Quelch and Hoff, - 8 - said that they saved $90
million in production costs, over 20 years, on Coca-Cola
commercials in this way.
Hamel and Prahalad, - 9 - however, make the important point
that the impacts of global organization may be complex:
It is more difficult to respond to the new global competition
than we often assume. A company must be sensitive to the
potential of global competitive interaction even when its
manufacturing is not on a global scale. Executives need to
understand the way in which competitors use cross-subsidization
to undermine seemingly strong domestic share positions.
In other words, a company's business may be destroyed by
`dumping' when a foreign competitor is determined to buy entry
into the market.
What is less clear is the degree to which the many multinationals
(as opposed to the relatively few transnationals, or `global
corporations' as Levitt calls them) themselves actually see, and
exploit, a global marketplace. Some of the suppliers of expensive
industrial capital equipment, IBM in computer mainframes and
Boeing in airliners for example, may be able to bestride the
world. To a lesser --usually continental --extent, suppliers of
`consumer durables', such as Ford in cars and Electrolux in
washing machines, can also tap wider markets.
What is interesting, in marketing terms, is how few truly global
consumer brands there are. Coca-Cola, Heinz, Kellogg's, Marlboro
and McDonald's spring immediately, to mind; representing, at
least to some, symbols of US economic domination. But, beyond
these and a few other similar examples, there are fewer global
brands than might be expected. Unilever has developed Lux soap as
an international brand for decades, and has more recently
promoted Timotei shampoo across a wide range of countries. But,
like many other companies (including its main competitor, Procter
& Gamble), most of its brands are purely national; even when the
national companies produce virtually identical products (but
under different brand names).
Many of the `international brands' are national brands translated
(often literally as exports) to the world stage. Thus Johnny
Walker scotch whisky, Volkswagen German cars, and Dole Hawaiian
pineapples are firmly based on national identities. There is no
doubt that many would argue for a different categorization; and
that the difference between transnational and international
brands is not that significant. Even so, it should not be so
surprising that there are so few genuinely global brands.
Marketing theory assumes, correctly in most cases, that the
product or service (and the whole marketing mix) has to be
matched to customer needs and wants. The theory of global brands,
on the other hand, assumes that `global customers', with almost
exactly the same `global tastes', can be found. But even Luciano
Benetton, quoted in a Harvard Business School Case, - 11 -
said:
When speaking of `second generation' Benetton, I am thinking of a
new business reality which is extra-European in scope. But we
have to take into account the diverse requirements of the markets
we are planning to enter.
The complication is that `global marketing', in its purest
sense, requires the differences between countries to be
negligible, or at least so small that they can be ignored in
practice (but compare, for instance, Japan with the USA, or
Nigeria with Italy). In most instances this is just not
realistic; and each national market has to be approached
separately, and often in a very specific way.
Returning to that supermarket mentioned earlier, the products
may look the same in Europe and the USA, but the brands will
typically be very different. This will partly be due to genuine
differences in the formulation, to match local tastes, but it
will also reflect the comparative strengths of the corporations
(and their history of acquisitions) in those markets.
Perhaps the most dramatic example of the failure of `global
marketing' was that of the Parker Pen Company. In the mid-1980s
it set out to bring its marketing, across 154 countries, under a
`global marketing' umbrella, with all major decisions and
standards centralized. Unfortunately, as it soon found, the
markets 'were' different. As a result the single,
worldwide, campaign (`Make Your Mark With Parker') was a failure,
and Parker Pen has apparently now lost much of that worldwide
business.
True globalization has only been achieved in a few markets, which
seem to require one or more of the following characteristics to
be present:
'Technological development'. A number of these markets are
driven by highly developed, and rapidly changing technology; and
it is this technology itself which gives the cross-country and
cross-cultural uniformity. At the same time the expense of
developing the technology also offers economies of scale to
justify the globalization process.
'Innovation'. Some markets have been conquered by the global
organizations which first marketed an innovatory product or
service, which they have then rolled out to the national markets
before significant competitors have begun to emerge.
'Concept-based'. Some brands have developed such powerful
concepts or images (verging on `mini-cultures' in their own
right) that they have been able to overwhelm local cultures --at
least in the field in which they hold sway.
'Conviction marketing'. Similarly, the owners of most of
these brands have been so convincing that they have been able to
overpower, and often obliterate, local differences. Thus, Hunt
'et al'. - 12 - make the point, about the dramatic success
of Honda in the motorcycle market, that `Honda turned market
preference around to the characteristics of its own products and
away from those of American and European competitors'. It is also
interesting that some of the most successful global brands seem
to be able to embody a considerable element of what is best in
their original national cultures.
Standardization versus Adaptation
In the literature, this whole debate has now been condensed down
to a dichotomy between `standardization' (that is, global
marketing, the standardization of products across all markets)
versus `adaptation' (the classic marketing approach to the
individual needs of markets and consumers). Henzler and
Rall - 13 - usefully summarize the debate in the form of a
matrix (figure 14.3). They then come to three critical questions.
First:
1. 'Is our business suited to globalization?'...
What might peak demand for the product in the major markets
amount to, and what factors will affect it? Realistically, how
uniform are customer needs from one country or region to
another?... What further performance potential in the value-added
chain could be realized by a shift to a global orientation ...
They illustrate this aspect using an analysis of various
industries across their matrix (figure 14.4). The two further
questions, assuming that the first test is passed are:
(Fig. 14.3 near here)
(Fig. 14.4 near here)
2. 'What is our best strategy?'...
3. 'Can we implement this strategy?'...
If the company has no significant competitive advantage and the
market is already occupied by global competitors, a
globalization strategy may make little or no sense. In such a
situation, the wise course may well be to retreat into a
specialized niche or a customer segment with extremely high
service requirements.
More obvious still has been the decision actually to rename
brands in various countries, in order to have truly global
brands. Thus, the UK `Marathon' brand (chocolate bar) was very
expensively renamed by Mars as `Snickers', to bring it into line
with other countries.
`Global' markets are made up of `national' markets which have
very different weightings, and the major economies of the
developed world account for a dramatically disproportionate share
of these markets. While not denying the importance of other
markets, Kenichi Ohmae - 15 - stresses the key role of the
three major markets (which he terms the `Triad'):
By now, the strategic significance of Japan, the United States
and Europe should be obvious: This Triad is where the major
markets are; it is where the competitive threat comes from; it is
where the new technologies will originate. As competition becomes
keener, it is where preventative action against protectionism
will be needed most. To take advantage of the Triad's markets and
forthcoming technologies and to prepare for new competitors, the
prime objective of every corporation must be to become a true
insider in all these regions.
This view places considerable emphasis upon being a truly
`global' organization (at least in terms of these three massive
markets), but Ohmae graphically justifies his view with a chart
(figure 14.6) which shows just how much of worldwide consumption
and production they represent in the key product areas
(particularly those of high technology).
Transnationals/Multinationals and Exporters
Subject to their decisions as to how they will treat their brands
around the world (as global, international or merely, but most
frequently, national) the marketing departments of multinationals
and transnationals can largely ignore the complexities of
international marketing. All they need do is apply the practices
taught in the rest of this book. Paradoxically, therefore, the
theory of international marketing is least relevant to its most
significant practitioners.
Indeed, the major requirement for international success would
appear to be established success in a (strong) domestic market,
and usually dominance of that domestic market. Only then do the
organizations have the financial and structural strengths to
penetrate overseas markets on the scale that is necessary to
dominate them too. In particular, the flows of funds cross-
subsidize the emerging overseas operations (which often have to
invest very heavily to overcome locally entrenched competitors),
until these become self-funding and then, in turn, cash
generators on the large scale. Therefore, the truly global
corporations have their roots in very strong national marketing,
and eventually manage to treat the whole world as one national
market.
It is true, as Hamel and Prahalad - 18 - suggested, that:
Global competitors must have the capacity to think and act in
complex ways. In other words, they may slice the company in one
way for distribution, in another for investments, in another for
technology, and in still another for manufacturing.
Thus, for example, IBM has a truly global strategy for its
development laboratories, a continental strategy for its
manufacturing plants, but a largely nationally based strategy for
marketing (although based on globally enforced standards and
prices). The main thrust of the rest of this chapter is,
accordingly, concerned with those organizations which are
essentially national, based primarily in one country, but who
have extended, or wish to extend, their operations `overseas'.
The main question for them is how best to handle this genuinely
alien marketing environment.
AUDIT 14.2 (for those whose organizations are transnational or
multinational)
To what extent is your organization globally structured? Does it
make use of comparative advantage or economies of scale, in this
context?
To what extent is its marketing organized globally? Does it
pursue policies of standardization or of adaptation?
To what extent does it have global `brands'?
To what extent do the `Triad' markets dominate global sales for
your organization's products or services?
In general, there are three main initial decisions in
international marketing:
The first question to be asked therefore, of organizations which
are currently limited to their national market, is quite simply
whether they should export at all. There is often a considerable
amount of `emotional' pressure on medium-sized firms, not least
from governments which want to improve their sagging balances of
trade, to `export'. The reality is that, apart from the
ubiquitous multinationals, probably very few organizations
benefit significantly, at least in financial terms, from their
`international operations'.
There are, of course, the notable exceptions. On the other hand,
the many achieve, at best, only mediocre results. 'Any
organization needs to ask, very carefully indeed, why it should
export'. What will it gain from its planned overseas
operations, and can it handle them efficiently?
AUDIT 14.3
Does your organization operate overseas (or has it done so in the
past), and if so, where and how? What proportion of its annual
turnover and what part of profit is generated abroad?
If it operates overseas, why does it do so; and if not, why not?
There is, of course, one major constraint on any organization's
global ambitions: Will its products or services translate to
other markets? It is not clear, for example, that there is as yet
a large-scale market for haggis in England, let alone in the rest
of Europe.
AUDIT 14.4
How suitable for foreign markets is your organization's product
or service? Can it be changed to make it suitable?
In relation to these questions, and those in the rest of the
chapter, base your answers upon an overseas operation that your
organization has recently been involved in, or on one in which it
is thinking of becoming involved. If your organization has no
overseas ambitions this chapter may only be of academic interest
to you. If you wish to continue to play this market audit `game'
(in this case only as an activity, since it will not be part of
the picture that you are building up of your organization) then
you should focus on a foreign country which you know reasonably
well where your organization might choose to operate.
In the context of this foreign operation, what do you believe are
the key variables (factors) that are important in your existing,
national, marketing operation? They might include `good
distribution', or `a product matched to consumer tastes', or `the
correct advertising platform', and so on. List, say, the five
most important factors in the form of the related objectives that
you will be trying to achieve; for example, to obtain sound
distribution, to research consumer needs and then match them, to
produce measurably effective advertising and so on.
How workable are these objectives? How precise are they? How can
they be predicted and monitored? How comprehensive are they?
If you are considering an actual marketing operation, how well do
these objectives match what your organization has actually
achieved? What are the differences, and why do you believe that
these have occurred?
The purpose of clarifying these objectives is that, when the
information about the target market has been collected, any
significant divergences will become immediately obvious. If the
strategic objectives cannot be met, no amount of brilliant
tactical manoeuvring will rectify the situation.
Eliminating Unsuitable Markets
One approach to targeting export markets is to select, for
consideration, just those countries where `experience' (or
hearsay) has suggested there may be worthwhile business. This
approach (sometimes called an `expansive' one) starts with a
`cluster' of countries (often those located, in geographical
terms, close to the original domestic market) which have
characteristics similar to those that the organization is
familiar with.
Another approach (sometimes described as `contractible'), and one
which might be worth pursuing, even if in parallel with the first
one, is to start with 'all' countries and then eliminate
those which are proved to be unsuitable. The effect may
ultimately be the same, but this approach has the virtue of not
unnecessarily eliminating the potential markets which are less
than obvious.
There are a number of methods which can be used to filter out
unsuitable markets. However, I will simply examine a number of the factors which may be used to initially screen out the most obvious non-runners:
In the elimination of export markets, the first filter is
obvious, while the remaining sets of filters will require more
information. One part of this information, the key `product' and
market parameters, should already have been derived from the work
you have done in the rest of the book. The remaining information,
about the various markets, will be derived from the sources to be
described later in this chapter:
'Common sense'. For some products or services, there may be
groups of countries which are clearly unlikely to buy significant
quantities. For example, some strict Islamic countries are poor
markets for alcoholic drinks, and the poorest of the Third World
countries are unlikely to be large-scale purchasers of
computers.
'Size of population'. Some countries (for example, Belize or
Bhutan) are so small as to be smaller than some English or
American counties; and their markets for imported goods may be
smaller than some towns in the developed world. The
`infrastructure' which is needed to export to these countries may
only be justified therefore, by products with very large sales
worldwide.
'State of development'. Even the larger Third World
countries (such as Ethiopia or Bangladesh) - 21 - may be so
underdeveloped that a population the size of a European country
will, once more, generate a market that is scarcely larger than a
French or American town.
`'Regulatory considerations''. There are a number of
countries which have regulations or laws that can constrain the
marketing of certain products, or the activities of certain
organizations (particularly foreign companies). The main areas of
concern will probably be:
'Prohibition'. Certain categories of product may be legally
barred; for example, alcoholic drinks in Saudi Arabia. Less
obvious are bans such as that which the US government imposes on
high technology equipment being shipped to some third countries,
and which can apply even to products which only contain small
elements of US technology (and even then perhaps made under
licence).
'Foreign ownership'. In order to protect emerging local
industries, a number of countries impose restrictions on the
`ownership' of local companies. This may mean that it becomes
impossible to establish a local branch, or that the conditions
which would be imposed are unacceptable.
'Currency restrictions'. Because of their fragile economies,
some countries have controls on the `export' of currency;
sometimes to the total exclusion of commercial money
transactions. This may make it impossible to extract any profit
from the country --or even to receive payment for a product
shipped into the country --unless a complex web of barters is
set up.
'Tariffs'. By far the most common (official) trade barriers
are those enforced by tariffs. For a variety of reasons, some
countries, including some of the strongest trading nations, will
require extra duties, payable on certain categories of imported
goods, so that these will be at a cost disadvantage (and hence a
price disadvantage, typically of between 5 per cent and 30 per
cent, but sometimes more than 100 per cent) against local goods.
'Non-tariff barriers'. At least tariff barriers are highly
visible. `Non-tariff' barriers can be much less obvious. For
example, before the EC harmonization of standards, France and
Germany required imported products to have expensive changes made
to them to meet local standards. `Structural' barriers, such as
very complicated distribution systems, are even more difficult to
detect.
'Economic considerations'. GDP (Gross Domestic Product) in
total, and its growth rate --and, in particular, GDP per capita
--can say a lot about the potential spending power and patterns
of a country's population. These figures are available in
reference books, such as the OECD economic surveys or the United
Nations Yearbooks, which may often be found at the larger
reference libraries. However, care should be exercised in using
any such data on a comparative basis, since the bases for the
different sets of data may not be strictly comparable. 'Social
and business structures'. The regulatory implications of
social structures have already been mentioned. However, the
culture itself can play a decisive role in deciding whether a
product is to be accepted. The special problems of Islamic
countries have already been cited, but there are many other
cultural barriers. Business cultures also have their
idiosyncrasies. In certain countries, for example, it is a way of
life for `access' to be `purchased'; in US and European eyes this
may be seen as bribery, but locally it is often seen simply as
part of the normal costs of trading. Equally, in certain
countries the structure of business may be very informal, so that
it takes a deal of accumulated expertise to understand exactly
what the deal that you just struck actually means. In other
countries still, the negotiation procedures are alien, ranging
from the haggling of the bazaar (which is meant to be an
entertainment in itself for both participants) to the
sophisticated nuances of Japanese business (most of which are
lost on Western businessmen). The state of development of the
society can be gauged by the degree of literacy, and the
employment levels --as well as employment by sector (service
versus manufacturing versus primary agriculture, for example).
The level of education may become a deciding factor in the use of
any product which requires a degree of skill, or the following of
written instructions.
'Living standards'. Individual living standards may often
be estimated by reference to a few simple measures, such as
ownership of television sets or telephones or cars. Indications
of the `infrastructure' may be obtained from measurements such
as the percentage of houses with mains drainage. Certain
infrastructure elements may be very important to specific
products or services: General Foods failed to make a success of
selling packaged cake mixes in Japan, despite heavy promotion,
because very few Japanese households own ovens in which to bake
cakes. The `skew' of living standards can be estimated from the
distribution of income in general, or by the extent of the
`luxury' industries.
'Accessibility'. The final set of questions to be asked
relates to the ease of access to a given market. The potential
that it offers may be placed on one side of the scale, but the
costs of tapping that potential (of providing the necessary
exporting infrastructure) must be put on the other side before
any sensible decision can be made. Key factors may be:
'Distance'. With the advent of the 747 airliner and
container ships, the world can now sometimes be thought of as a
`global village'. Trade between many countries is now an easy
matter in physical terms, and electronic communication is even
easier in terms of remote contacts. However, there are still
many places --and indeed whole countries --which are not tied
into the trade routes; and where the transport of goods, and even
of visiting businessmen, may impose significant problems.
'Language and culture'. It may be quite possible to obtain
a local agent who speaks your language well (or to find an
interpreter), but an ignorance of the local language can bar an
exporter from many of the `signals' which he or she could expect
to use in interpreting a market. `Aesthetic' considerations also
must not be ignored. In Japan, for instance, the McDonald's
`clown' advertising failed, because a white face signifies death.
Of course, taste varies considerably. Heinz Ketchup is a global
brand, but its formulation is different in different countries,
to account for local tastes.
'Business infrastructure'. The support available to assist
import business in a given market can vary widely; and needs to
be taken into account. In the first place, are there suitable
agents to handle the product or service? Does your own
government have a sound trade department in its local embassy, to
provide accurate information and advice? What is the
`bureaucracy' like, in terms of importing? What is the business
etiquette? Punctuality, for instance, may vary considerably
across national boundaries, and may wreak havoc with carefully
crafted schedules for visits.
Having made the various decisions, having entered the market and
having achieved an adequate level of sales, the
transnational/global corporation will then need to consider how
its `portfolio' of country operations is balanced, and how their
different strengths (and weaknesses) complement the overall
operation. Carol Kennedy - 22 - looks at this in terms of a
matrix which measures position in terms of competitive strength
against development (or `life-cycle'). She illustrates this with
reference to 3M's position (figure 14.11).
(Fig 14.11 near here)
AUDIT 14.5
Using the above categories of filters (and any others which are
relevant), remove those countries which do not pass the various
levels of screen:
common sense
size of population
regulatory considerations (prohibition, foreign ownership,
currency restrictions, tariffs and non-tariff barriers)
economic considerations
social and business structures
living standards
accessibility (distance, language and culture and business
infrastructure)
As with any new venture, the next stage in the approach to an
overseas market should be to conduct market research. In many
respects this will follow the same paths as those of domestic
market research, as described in chapter 2: any research overseas
must follow as rigorous an approach.
There are, though, other aspects, in particular those
relating to sources of data and in the handling of remote
research agencies, which are also peculiar to export marketing.
As usual, you can undertake the desk research yourself, or you
can `subcontract' it to a specialist department in your own
organization or use an outside consultant. Whichever the route, the first step, as always, is to search through the existing `literature'. The sources of data are very different and perhaps more limited than those for the larger home markets of many exporters:
'Government sources'. Most governments are anxious to
promote exports, and invest considerable sums in research around
the world, for the benefit of their exporters. They will,
typically, maintain trade departments in each of the main
embassies; collecting commercial intelligence. In many countries
this information is usually provided to exporters via an overseas
trade agency, but local chambers of commerce and the main banks
may also be able to help.
In addition, there are a number of commercial publishers, such
as:
Euromonitor --'Market Research Europe, International/European
Marketing, Data and Statistics' and 'Consumer Europe'
EIU (Economist Intelligence Unit) --'Marketing in Europe'
AUDIT 14.6
What desk research does your organization normally undertake in
the context of overseas markets?
If you wish to carry out a more detailed task, use the resources
of your local library to collect the information that is
available on the chosen overseas markets.
(This may be an extensive exercise, which will be productive only
if you are actually involved in export management. For most
managers a visit to the library (to establish what material is
held) should prove sufficient to determine how valuable this data
is --and possibly to give a superficial indication of the
potential and problems of these overseas markets.)
This largely follows the rules described in chapter 2: the most
obvious difference is that the work will be conducted in another
country. To handle this problem there are a number of possible
solutions, including:
'Do-it-yourself'. The conditions for conducting market
research (the sampling framework, the regulatory requirements,
the social environment, who is available to use as interviewers,
and so on) vary considerably from country to country. In Muslim
countries, for instance, the housewife may not be permitted to be
interviewed unless her husband is present. Vern Terpstra - 26 -
reports that almost 30 per cent of domestic mail in Brazil is
never delivered, somewhat limiting the validity of mail surveys
there. The research of Parameswaran and Yaprak - 27 - resulted
in the conclusion that:
... the same scales may have different reliabilities in different
cultures, and the same scales may exhibit different reliabilities
when used by the same individual in evaluating products from
different cultures ... This argues against simple comparisons of
research results in cross-national marketing.
DIY is, thus, even less advisable than in domestic market
research.
'Use a local agency (in each of the foreign countries)'.
This follows the usual national practice, of appointing a
research agency to carry out the fieldwork, as described in
chapter 2; but, in this case, the agency is in the foreign
country. However, this approach does require a significant amount
of (expensive) time, visiting the market to brief the agency and
supervise activities.
'Use a multinational agency'. This is the easiest approach,
as easy as using an agency in your own market (which is where the
office you deal with will be located). The `global' agency is, on
the other hand, only as strong as its local links (which will
probably be subcontractors in the smaller countries). This may
cause problems for specialist investigations, for example those
in industrial markets, where the local subcontractor might not
have the skills needed to handle such work.
'Use a domestic agency (to coordinate foreign agencies)'.
This allows for a free choice of local agencies in the foreign
markets; but it assumes that the domestic agency has a good grasp
of the foreign local scene, comparable with that of the
multinational agencies.
It is generally recommended that one of the last two alternatives
is adopted; to organize research locally (in the foreign market)
is beyond the capacity of most organizations.
AUDIT 14.7
What market research does your organization carry out in overseas
markets? How reliable is it? How does it compare with the
domestic research? What improvements might you suggest?
Once the screening process has reduced the number of potential
countries down to a relatively small number, these can be
categorized (and prioritized) by the techniques that you would
use in judging any move into a new market. You should recognize,
however, that such a move should be considered as a
diversification, even though the products or services involved
may be the mainline ones from the home market. Diversification,
you will remember, should be the subject of that much more
serious consideration.
At the end of this process of prioritization you should have
divided your potential overseas markets into a number of
categories; each requiring different courses of action. Three of
these categories may, for example, be:
markets not to be exploited
markets to be covered by agents or distributors
markets for major development
Depending upon the strategies adopted (based on the portfolio
planning, say) some of the major markets will be scheduled for
development at some time in the future, whereas others will
require immediate attention.
One of the factors which needs to be taken into account,
particularly by the multinationals, is the risk that their
investments in a particular country will be nullified; either by
`investment recovery risk', resulting from government action
(such as expropriation or war), or `cashflow risk', due to
radically reduced economic returns (from strikes, debt and
currency problems, and so on). John Stopford - 28 - categorizes
such risks diagrammatically:
'World system risk'. This is the risk to the whole system of
international trade, posed by problems such as the `North/South
Divide' and Third World debt
'Country risk'. This is the general risk of doing business
in the particular country (which is often the only `country risk'
discussed, even though it may only be of direct interest to
international banks)
'Project risk'. Most importantly, John Stopford identifies
the fact that the specific risk of each project may vary
considerably (an exploiter of raw material supplies may be in
danger of nationalization, whereas at the same time a supplier of
essential `high-tech' equipment may be received with open arms).
However, this element is not often taken into account.
There are a number of suppliers of `country risk analyses', based
on tracking political and other indicators in these countries
(with an overall risk factor calculated from these), including
Frost & Sullivan and Business International. Their reports are of
greatest use to the major banks, whose country-level lending may
be at risk. They may be of less direct use to corporations
involved in specific market sectors, which are not addressed by
such reports.
The best advice is to include an assessment of such risks in the
overall research, and then to monitor developments (including
political developments) closely.
A further level of decision to be taken, even if the `entry
decision' is made, is `With what product?' Many global marketers
appear to use the same product worldwide, a simple `extension' of
what is offered in the home market; and it is true that
McDonald's and Coca-Cola, for example, offer identical products
worldwide.
On the other hand, many multinationals market very different
products in diverse countries. These are often marketed as
different brands: however, sometimes the brand name is the same,
but the formulation is different, to meet local needs. General
Foods (the manufacturer of Maxwell House), for instance, blends
different coffees for the UK (where it is mainly taken with
milk), for France (where it is often taken black) and for Latin
America (whose consumers like a taste of chicory). This may not
just be a matter of taste or culture but of physical needs; the
Japanese, being physically small, demand smaller versions of
almost everything --including some consumer durables.
Even if the product, or service, is the same in all markets, the
promotional vehicles --and the promotional messages --may be
very different. The cultural constraints may mean that exactly
the same basic message has to be told in different ways to be
meaningful to different national audiences.
Some global organizations, such as IBM, might choose to maintain
much the same prices worldwide (although, typically, these will
be higher than those in the domestic market of the parent
company), always subject to the limitations imposed by varying
currency exchange rates. Others, such as those in the
pharmaceutical industry, may set prices by what each market will
bear, leading to very different prices in each country.
The problem with significant variations between country prices,
particularly where the countries are close to each other, is that
customers may indulge in `cross-border shopping' to take
advantage of the lower prices; or, even worse, wholesalers may do
so --and create a `grey market' in the higher price country
(thus destabilizing marketing operations in that country).
The price that the parent company charges for the product it
ships into the country is called the `transfer price'. This can
be based upon actual, or notional, costs; IBM, for instance, is
very careful to ensure that it reflects true costs. However, it
can occasionally be manipulated to avoid or minimize local
taxes. In any case, as we saw earlier in this chapter, Kenneth
Simmonds - 29 - believes that international management
accounting practices are not sound enough to provide for accurate
transfer prices.
On the other hand, some exporters have been known to set very low
prices in some overseas markets; `dumping' product, with the
intention of undermining local suppliers, so that there will
ultimately be less competition, and the prices can then be raised
to a profitable level.
This category of international trading, which includes barter
deals, counter-purchasing, buy-backs, switch trades, offset deals
and compensation trading, accounts for a significant proportion
of international trade. According to Shipley and Neale - 30 -
it `now forms 20--30 per cent of world trade, with total yearly
value possibly exceeding $100 billion'. The main forms are:
barter --payment for goods by goods, with no direct involvement