Unit 15 International Marketing ManagementBook Code MB0046 Smita Choudhary

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Contents Introduction Nature of international marketing concept International marketing concept International market entry strategies Approaches to international marketing International product policy International promotions policy International branding Country of origin effects International pricing

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Introduction After the globalization and liberalization of the Indian economy in the year 1991, Indian enterprises have started facing competition from the global brands. Hence, it has become very important for all the companies to analyze the international marketing environment and strategies to adapt to it. The companies which were operating in the domestic market are adapting their policies and strategies to suit the global needs. Companies want to enter into the international market because of the following reasons: They find potential in the foreign markets for their products. The domestic market is matured. Existing customers demand for the international availability of organization s products and services.

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Learning ObjectivesAfter studying this unit, you will be able to 1. Understand the nature of international market 2. Analyze the appropriate entry strategies for the firm in international market. 3. Examine the approaches to the international market. 4. Asses the importance of components of marketing mixes in the international market. 5. Bring out the importance of country of origin effects.

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Nature of International Marketing Concept International marketing is defined as The performance of business activities designed to plan, price, promote and direct the company s flow of goods and services to consumers or users in more than one nation for a profit . A company that wants to sell its product in international market should understand the environmental factors, consumer behavior, market forces and other characteristics of the international market.

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Differences between domestic marketing and international marketingCharacteristics 1. Culture 2. Data accessibility 3. Data reliability 4. Control 5. Consumer preferences 6. Product mix 7. Business operation 8. Currency exposure International Marketing Multi culture Very difficult Very low Difficult Vary from country to country Adaptability required More than one country Required Domestic Marketing Single culture and in some cases multi culture Easy High Relatively easy Vary in small extent Standardization required Home country only Required only if it is into importing6

Advantages of international marketing International marketing provides growth opportunities for the companies whose domestic market is maturing. For example, General motors is focusing its strategies on emerging markets like India It brings the major portion of sales and profits to the company. For example, Unilever s major revenue comes from the Asian markets. It generates employment. Indian textile sector which exports a large part of the product produced, is a very big employer after agriculture and retail. International markets are survival places for the companies. If one market become unattractive, the company can start its operation in another country or outsource the major functions to make business more efficient. It helps in improving the standard of living in the country.7

The International Marketing Concept The marketing concept states that a firm should try to evaluate market opportunities before production, assess potential demand for goods, determine the product characteristics desired by the consumers, predict the prices consumers are willing to pay and then supply goods that fulfill the needs and wants of target markets. For international marketing this means creating new products and adapting existing products to satisfy the needs of world markets. Products have to be adapted according to the tastes, needs and other characteristics of consumers in specific regions. It cannot be assumed that an item which sells well in one country will be equally successful in other country.

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International Market Entry StrategiesOrganizations that plan to go for international marketing should answer some basic questions like In how many countries the company would like to operate? What are the types of countries it wants to enter? To answer the above questions, companies evaluate each country on the basis of Market size Market growth Cost of doing business Competitive advantage Risk level.

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If the company finds that the markets are attractive, it then decides about how to enter this market. Companies can enter international market using any one of the following strategies: 1. Exporting 2. Licensing 3. Contract manufacturing 4. Management contract 5. Joint ownership 6. Direct investment

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1. Exporting Exporting is the techniques of selling the goods produced in the domestic country in a foreign country with some changes. For example, Gokaldas textiles export the clothes to different countries from India. Exporting may be indirect or direct. In indirect exporting, company works with independent international marketing intermediaries. This is cost effective and less risky. In direct exporting, organization exports the goods on its own by taking all the risks. Maruti Udyog Limited exports its cars on its own. Company can also establish foreign branches to sell their products. Adani exports, a leading exporter from India has international office in Singapore.

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2. Licensing According to Philip Kotler, Licensing is a method of entering a foreign market in which the company enters into an agreement with a license in the foreign market, offering the right to use a manufacturing process, trademark, patent, or other item of value for a fee or royalty . For example, Torrent pharmaceuticals has license to sell the cardiovascular drugs of Chinese manufacturer Tasly. Licensing may cause some problems to the parent company. Licensee may breach the agreement and can use the technology of the parent company.

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3. Contract manufacturing: In this strategy, a company enters the international market with a tie up with the manufacturer to produce the product or the service. For example, Gigabyte technology has contract manufacturing agreement with Dlink India to produce and sell their mother boards. Another manufacturer is TVS electronics. It produces key boards in its own name and for other companies also. 4. Management contracting In this strategy, a company enters the international market by providing the know how of the product to the local manufacturer. The capital, marketing and other activities are carried out by the local manufacturer. Therefore, it is less risky.

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5. Joint ownership It is a type of joint venture in which an international company invests equally with a domestic manufacturer. Therefore it has equal right in the controlling operations. For example, Barbara a lingerie manufacturer has joint venture with Gokaldas images in India. 6. Direct Investment In this method of entry into international market, companies invest in manufacturing or assembling. The company gets the low cost advantages of the other country. Many manufacturing firms invested directly in the Chinese market to get its low cost advantage. Some governments provide incentives and tax benefits to the company which manufactures the product in their country. It may become risky if the market matures or the government is unstable.14

Approaches To International Marketing Each company adopts different approach on the basis of its expertise or strength. Some companies adapt same product for all the markets while some differentiate the products according to each country. The three common approaches used in the international market are a) Domestic market extension approach b) Multi domestic market orientation c) Global market orientation

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a) Domestic market extension approach: Companies that adopt this strategy think that international markets are secondary to its domestic markets. b) Multi domestic market orientation: In international markets every country is different in terms of preferences and consumer profile. Companies develop different market plans for such markets. For example, In France men use more cosmetics than the women where as in India women use more cosmetics than men. A cosmetics company should change the product positioning differently. c) Global market orientation: In this approach company thinks that products needs are same in every country. Hence, the company standardizes its products or services. For example, Sony walkman is same across the world. The product information brochure contains explanation in different languages of different countries. The final product is same in all the countries.

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International Product Policy Customers are not satisfied with products and the company if it does not fulfill their needs. Therefore product planning has become an important part of international marketing plan. Due to uniqueness of different countries companies have to think different ways of product offerings and support promotion programs. Organizations adopt five different types of product strategies in the international markets. They area) b) c) d) e) Product extension Communication adaptation Product adaptation Product and communication adaptation Product invention17

a) Product extension: It is marketing a product in the international market without change in the product and promotion activities. Microsoft office 2007 and Microsoft servers are similar in indian and USA market and communication is also same. b) Communication adaptation: Company does not change the product but adopts different communication strategy in the foreign market. Colgate sells its toothpaste in a same way all over the world. Their communication strategy varies in different countries. In India and USA white teeth are preferred by the consumers while in Indonesia yellow teeth are preferred. Hence Colgate changed its communication strategies for these countries. c) Product adaptation: Marketer understand the different needs of the consumer and changes the product according to the local tastes the communication strategies are same. Majority of the Indian consumers are vegetarians. KFC started selling vegetarian burgers in India though it is famous for chicken. The communication strategies of KFC remain same all over the world.18

d) Product and communication adaptation: The product is changed according to the needs of local market. Nokia increased the volume options in India as most of the places here are overcrowded. Consumers in India do not know English well. Hence Nokia changed its promotion to regional languages also. This is adoption of product and communication by the company. This strategy is also known as dual strategy. e) Product invention: Here, marketer develops entirely new product to suit the requirements of the local customers. Nokia manufactured 1100 cell phone only for the Indian market and promoted it as made for India. In this strategy company may adopt same communication strategy in the other country or change according to the local market.

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International Promotions Policy In the international market there are many languages and dialects and different perceptions. Hence communication becomes a challenge. The marketer may face the language barrier, culture barrier, legal barriers in some countries. Global promotional program have three objectives. Global objectives Regional objectives Local objectives

Global promotion program may be standardized or adapted. Standardization helps the company to reduce cost and add value to the product. The disadvantage is that local customers can not understand global messages.

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Advertisements will have modifications according to local markets. If marketer wants to sell their products in Japan should not use white color as it is considered only for mourning. Communication should not contain anything using cow in Nepal as it is considered sacred. Global marketers also use sales promotion, public relation and direct marketing techniques to communicate it to the consumer. Amway, a direct marketing company adapts same strategy in India. Cadbury and Microsoft also use public relation and sales promotion techniques to communicate the messages. Sales promotion includes issue of coupons, special offers, and distribution of free samples.

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International businesses that want to use sales promotions for cross border campaigns face some problems because many countries consider some sales promotion techniques as unfair and are under strict legal control. Money off vouchers is legal in Spain but not in Germany. Lower price for the next purchase are legal in Belgium but illegal in Denmark. In Germany and certain other countries free gifts are forbidden if they constitute a genuine incentive to buy.

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International Branding Brand names used in foreign markets should be internationally acceptable, unique and easily recognizable, culture free, legally available and not subject to local restrictions. Brand name communicates the company s messages and appeals to consumers. Brand names encourage the consumer to purchase the product. Brand name should be small, easy to pronounce and should have proper meaning.

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Brand positioning: The various factors that influence using single or multiple positioning strategies are:a) b) c) d) The influence of local substitutes on the foreign brand The coverage of the brand( mass versus niche) Acceptability for product uniqueness in all purchase points Brand name suitability in the particular market.

Advantages of brand standardization in the global marketsa) Firms concentration on the positioning will be effective. b) It helps in saving the costs. c) A standardized product and standardized promotion helps to have same packaging.

Limitations of Brand Standardization Stereotype image of the national products (Germany for engineering, hina for low price product): If the customer thinks all products from China are low in price and quality, the effort the Chinese company does in other market will fail. Patriotism of the people and their opinion that their national brand is 24 better than others.

Top Ten Brands of 2007 (Business Week)Brand 1. Coca cola 2. Microsoft 3. IBM 4. GE 5. Nokia 6. Toyota 7 Intel 8. McDonalds 9. Disney 10. Mercedes Country origin USA USA USA USA Finland Japan USA USA USA Germany of Sector Beverages Software Software Diversified Valuation(in Million$) 65,324 58,709 57,091 51,569

Telecommunicati 33,696 on Automobiles Computer Hardware Restaurants Media Automotive 32,070 30,954 29,398 29,210 23,56825

Country of Origin Effects Country of origin is the country of manufacture, production, or growth where an article or product comes from. Country of origin as a marketing strategy Country of origin helps to differentiate the product from the competitors. The country of origin has an effect on willingness to buy a product. Studies have shown that consumers may preference to buy products from their own country or may avoid some products that come from certain countries.

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Ambiguous country of origin labeling Many products made within the European Union carry the country of origin label or marking Made in EU or Made in EC . Some non-EU manufacturers in Europe and some others outside Europe use ambiguous markings, such as Made in Europe (made anywhere else in Europe, but not in the EU or EC; It may be any country geographically close to Europe or the EU) or Made for Europe (made anywhere else in the world, but not in Europe or the European Union). These tactics are used for deceiving consumers, where a buyer who does not know English well may believe from looking at the label that the non-EU product he is interested in is made in the EU.

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Country of origin in international trade When shipping products from one country to another, the products may have to be marked with country of origin, and the country of origin is generally required to be indicated in the export/import documents and governmental submissions. Country of origin will affect the rate of duty, whether it is eligible for special duty or trade preference programs, antidumping, and government procurement. Today, many products come in parts and pieces from different countries and then assembled together in a third country. In such cases, it s difficult to know the country of origin, and different rules are used to determine the correct country of origin.

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International Pricing Determination of selling prices The price of an organization depends on following factors:a) b) c) d) e) f) g) h) Customer perception towards the product. Total demand for the good The degree of competition in the market. Competitors price reactions Substitute products and its effect on the product. Products brand image Cost of production and distribution. Price elasticity of demand for the product

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Transfer pricing Transfer pricing means determination of the prices at which an MNC moves goods between its subsidiaries in various countries. The criteria for setting the transfer price areThe price at which the item could be sold on the open market. Cost of production or acquisition. Acquisition/ production cost plus a profit mark up Senior management s perceptions of the value of the item to the overall international operations. 5. Political negotiations between the units involved. 1. 2. 3. 4.

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