International Strategic Management
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  • International Strategic Management International Marketing May 30th, 2005 What is International Marketing ?Kahler 1977: Export or international BusinessBradley 1991: Establishment of organizations to do business in international markets – in two or more countriesStahr 1993: All activities of a company to attract customers in selected countriesCzinkota/Ronkainen 1998: Planning and executing transactions across border...Backhaus/Büschken/Voeth: International Marketing, 2000 1
  • Major Decisions in International Marketing 3. Deciding1. Deciding 2. Deciding how and whenwhether to which markets to enter thego abroad to enter market 5. Deciding on 4. Deciding on the marketing the marketing organization program 1. Deciding whether to Go Abroad Traditional MotivationKey suppliersSeeking new marketsLower cost of production New MotivationIncreasing EOSBalloning R&D investmentsShorter production life cycle... 2
  • 1. Deciding whether to Go AbroadRisks when going abroad... Most companies would prefer to remain domestic businesses Major 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 Enter Company must also decide on the types of countries to consider Pre-selection of highest potential markets („candidate selection“) Therefore, it has to analyse: – Market potential (macro-economic view) – Foreign country strategy 3
  • 2. Deciding which Markets to Enter Analysis of Market Potential (Phase 1) Macroenvironmental Factors – Population and income of target country – Structure of Consumption producer vs. consumer goods luxury vs. necessity – Production indicators of key industries, cars, steel, etc. – Prices of raw materials, financing, etc. – Economic Systems 2. Deciding which Markets to Enter Analysis of Foreign Country Strategy (Phase 2)Info needed for this analysis: – Consumer decision making process Use of product Who buys? When? Why? Where? How often? – Competitor analysis Barriers of entry? – PLC analysis Product launch possible in appropriate stage of foreign country`s PLC? 4
  • 2. Deciding which Markets to Enter Information Needs Comparability of information Problem of equivalence in standardized international market research Construct equivalence functional equivalence do 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 equivalence how 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 equivalence are 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)Source: Berndt/Altobelli/Sander: Internationales Marketing Management, 1999, S.44ff 2. Deciding which Markets to Enter Information Needs Measure equivalence Calibration 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 equivalence Individual 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) 5
  • Market Selection Techniques Segmentation approach heuristical Analytical approach step International Rough sequential - Checklist- segmentation Selection: evaluation approach 1 Analysis of approach - Point- general evaluation consumption approach requirements 2. Analysis of Risk-Point- Port-folio- political risks evaluation Analysis approach Fine Selection: Classic - Investment 1. Analysis of decision theoretical country- rules approaches specific - decision-tree chances for approach success Intranational 2. Analysis of segmentation segment- specific chances for successSource: Meffert/Bolz: Internationales Marketing Management, 2. Auf., 1994, S. 113 3. Deciding how to Enter the Market • Indirect Export Risk • Direct Export Dir Inv • Licensing • Joint Ventures JV • Direct Investment Licen- sing Dir Export Ind Export Return Prof. Dr. Michael Dowling - Universität Regensburg 6
  • 3. Deciding how to Enter the Market Capital Institutional Control Dependency emplyoment settlement Indirect Export Very low Low Low Home Direct Export Low High Low Home Licensing Low Low Middle Home Joint Foreign Ventures Middle – high Middle High Country Direct Foreign investment High High Low CountrySource: Meffert/Bolz: Internationales Marketing Management, 2. Aufl., 1994, S. 119 3. Deciding how to Enter the Market Licensing 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 7
  • 3. Deciding how to Enter the Market Licensing Pro’s: Con’s.: A way of getting a foothold in a foreign Danger of establishing a future market without a large capital competitor investment less control over licensees most attractive to firms that are new to operations, which could result in the international business area damage to the licensor‘s reputation fewer exchange rate risk limited licensing returns circumvent trade barriers (e.g. no duties) circumvent production restriction in the domestic market test foreign marketsSource: Phatak, A.: International Management, 1996, S.250 3. Deciding how to Enter the Market Franchising Another form of licensing Usually: 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 country Examples: McDonald‘s, Holiday Inn, Bang & Olufsen 8
  • 3. Deciding how to Enter the Market Joint VenturesForeign 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. Deciding how to Enter the Market Direct InvestmentDirect 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) 9
  • 3. Deciding how to Enter the Market Direct Investment Pro’s for direct investment by Pro’s for direct Investment by acquiring another company building a own factory rapid market entry and start of implementation of modern technology production better image within the host country acquisition of contacts, a performing due to new job creation organization, local knowledge and a qualified labor force gain of time saves money no creation of additional production capacities 3. Deciding how to Enter the Market Factors influencing market entry choice Company related Product Market related factors factors related factors Strategy Cost Legal Economic Competitive Trade Consumer situation situation situation situation situation situation• International • Technology • Product • Export/imp • Market • Amount and • Amount • Income ization • Location • Life cycle ort barriers growth strength of and • Price strategy factor cost level • Dumping • Market competition power of elasticity• Chosen • Productivity • Degree of regulation volume • substitution agents • Sonsumer market • EOS product • Tax • Market • Terms of behavior segments differentia • Price structure trade • Market • Sales cost structure• Competitive tion control • Exchange trancparency strategy • Capacity utilization • Local rate• Market content • inflation position 10
  • 3. Deciding how to Enter the Market Timing of Market Entry After deciding HOW to enter the market: WHEN should the selected markets be entered? Two strategies: sprinkler approach waterfall approach 3. Deciding how to Enter the Market Timing of Market Entry Sprinkler-Approach a company enters several markets within a very short period of time. Entry Country A Country B Country C Country D Country E Country F Time line 0 0 1 1 Year Years 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 followerSource: Backhaus et al: Internationales Marketing, 3 Aufl., 2000 S.137 11
  • 3. Deciding how to Enter the Market Timing of Market Entry Waterfall-Approach companies expand there abroad business step by step in a sucessive manner Entry Country A Country B Country C Country D Country E Country F 0 1 2 3 4 5 6 Years Reasons for choosing the waterfall approach: -- the expected product life cycle is very long -- low competition on the selected country marketsSource: Backhaus et al: Internationales Marketing, 3 Aufl., 2000 S.127 3. Deciding how to Enter the Market Timing of Market Entry Advantages of the Waterfall-approach possibility to grow with its foreign business in terms of organization and resources less resources required than with the sprinkler approach less risky than the sprinkler approach extention of the product life cycle 12
  • 4. Deciding on the Marketing Program Companies must decide how much to adapt their marketing to local conditions Two Extremes – Standardized marketing worldwide – Differentiated marketing (adjustment to each target market) Prof. Dr. Michael Dowling - Universität Regensburg 4. Deciding on the Marketing Program Scope of Standardization Strategic level Instrumental level - physical product - brand policy - Marketing Contents strategy - communication policy - distribution policy - pricing policy - Information systems - advertisement planning Processes - Segmentation models - distribution planning - Controlling systemsSource: Meffert/Bolz: Internationales Marketing-Management, 1994, S 148 13
  • 4. Deciding on the Marketing Program Product Policy …refers to decisions about product, program, branding and service in an international setting: Extended Installation Product Branding Tangible Styling Basic After Product Quality Function Sales Features Service Product Packaging Core GuaranteeAccording to Bernd/Fantapié Altobelli/Sander: Internationale Marketing-Politik, S. 58, 1997 4. Deciding on the Marketing Program Product Policy Dependency on culture Rank Products/Industry Potential to Standardize of different Product Categories 1 Computer hardware culture-free ⎢ high-tech ⎢ high-touch ⎢ high-interest ⎢ 2 Airlines 3 Photographic devices 4 Heavy equipment 5 Machine tools 6 Consumer electronics 7 Computer software 8 Long-lasting household-appliances 9 Wine and spirituous beverages 10 Soft drinks 11 Tobaccos 12 Stationeries 13 Cosmetics 14 Beer 15 Detergents 16 Toiletries 17 Publishing products 18 Foodstuff 19 Sweets 20 TextilesSource: Meffert/Bolz: Internationales Marketing , 2. Aufl., 1994, S. 174 14
  • 4. Deciding on the Marketing Program Product Policy Solution Examples Standardized products high-tech or luxury products (e.g. films, luxury watches etc.) Intermediary Solution Modular approach cars: standardized core product; adaptation to national markets by e.g. using different exhaust gas filter in accordance to specific country standards. Built-in flexibility Shaver switching from 110 to 220V Differentiation Traditional or culturally sensible products (e.g. food)According to Kreutzer: Global Marketing, 1989,S. 281, 4. Deciding on the Marketing Program Product Policy Branding using... Standardization pitfalls... ...with respect to pronouncability, ...Product names associations, meaning, protectability of a product name ...Products signs ...when the product sign is equal with the brand name (e.g. Coca Cola) 15
  • 4. Deciding on the Marketing Program Product Policy Barriers to Standardization Legal barriers: quality standards and norms, Technological barriers: e.g. different standards in power supply, Linguistic barriers: pronouncability of the products name Image barriers: e.g. linkage between package and perceived quality Physiological barriers: e.g. different body sizes Consumption patterns: function of a product 4. Deciding on the Marketing Program Communication Policy Path of Standardization Corporate C. C. Public Identity C. -- - I Relations Public Message - S N Relations Tonality T T S Commercial A R Pictures T Design R A R Advertising G Media Color T U E E M Selection Music T G E S N Sales Text Y T Promotion SSource: Backhaus/Büschgen/Voeth, 1996, S. 191 16
  • 4. Deciding on the Marketing Program Communication Policy Example: Advertising/ Language GER ITA UK FRA SPA NETH BEL POR GRE DEN SWE AUS SWI NOR FINE 44 16 100 31 12 72 34 25 28 61 73 42 40 58 48F 16 16 21 100 10 31 71 30 8 9 9 11 63 2 5D 100 4 9 9 1 67 19 3 5 45 35 100 88 17 14I 3 100 2 6 1 2 5 3 2 1 1 5 24 0 1 Language knowledge in Europe (%)Source: Mooij, Advertising Worldwide, 2nd Edition, New York, 1994, S. 288 4. Deciding on the Marketing Program Communication Policy Example: Advertising / Media Selection TV Radio North America 2017 789 Latin America 292 150 Western Europe 817 444 Eastern Europe 592 308 Middle East 318 250 Africa 150 23 South Corea 1006 210 Sri Lanka 197 35 Communication Infrastructure in selected Countries and Regions (per 1000 citizen) Source: Sookdeo: The New Global Consumer, in: Fortune, Autumn-Winter 1993, pp. 68-77 17
  • 4. Deciding on the Marketing Program Communication Policy Element Country/Culture Interpretation stewardess serves Europe/USA demonstration of good service champagne to passengers Islamic countries attempt to influence religious values (Violation of standards concerning food and behavior) perfume, background Central- and Southern rain as a symbol for freshness of raindrops Europe parts of Africa rain as a symbol for fertility Marlboro-Cowboy USA symbol for freedom and manliness Hong Kong cowboy looks like a coolie Argentina cowboy has a low social standing; useless trampSource: Cateora, International Marketing, 1993, pp. 524; Ricks, Big Business Blunders, 1983, pp. 63 4. Deciding on the Marketing Program Communication Policy Barriers to Standardization Legal barriers: prohibition of comparative advertising, prohibition of advertising for certain products, prohibition of foreign languages in advertising Technological barriers: media diffusion Linguistic barriers: knowledge of foreign languages, understanding and interpretation of words, symbols, color and music Image barriers: link between media characteristics and product quality Consumption patterns: media usage Competitive situation: e.g. average advertising budget, cost for media, typical forms of communication 18
  • 4. Deciding on the Marketing Program Pricing Policy Determinants of international pricing Internal determinants international organizational structure cost structure way of transfer pricing decisions on other parts of the marketing mix External determinants political, legal and economical framework behaviour and preferences of customers competitive structure and behaviour exchange rate volatility occurance of gray markets 4. Deciding on the Marketing Program Pricing Policy Country VAT DK 25 % S 25 % FIN 22 % IRL 21 % B 21 % F 20,6 % A 20 % I 20 % GR 18 % GB 17,5 % NL 17,5 % P 17 % E 16 % D 16 % L 15 %Source: 19
  • 4. Deciding on the Marketing Program Pricing Policy Example: Sales Promotion Discounts Extras Sales Opening hour regulations Belgium permitted prohibited only winter and until 8 p.m., Fridays: summer sales 9 p.m. and closing- down sale France permitted prohibited always no regulations permitted Greek prohibited but prohibited prohibited but no regulations still usual still usual Luxemburg max. 3% prohibited always until 8 p.m.; in permitted Winter: 7 p.m. U.K. permitted permitted always until 8.p.m.; once a permitted week until 9 p.m. Source: ZAW-service Nr. 181, Mai 1994, S. 13 4. Deciding on the Marketing Program Pricing Policy Sale of a product by exporting Sale of a product by a foreign subsidiary Devaluation of the Billing in domestic Billing in foreign Billing in foreign foreign currency currency currency currency Profit (in domestic Profit (in domestic Profit in foreign currency) is currency) is currency remains constant; price is decreasing; price constant, Profit in increasing from a remain constant domestic currency is foreign customers’ from a foreign decreasing, price view customers’ view remain constant from a foreign customers’ view Appreciation of the Profit (in domestic Profit (in domestic Profit in foreign foreign currency currency) is currency) is currency remains constant; price is increasing; price constant, Profit in decreasing from a remain constant domestic currency is foreign customers’ from a foreign increasing, price view customers’ view remain constant from a foreign customers’ viewSource: Sanders, Internationales Preismanagement, 1997, p. 52 20
  • 4. Deciding on the Marketing Program Pricing Policy Terms of payment and customer behaviour Country Term of payment Mean delay Belgium 45-90 18 France 60-90 15 Germany 30-60 11 Italy 60-120 17 Netherlands 25-40 17 United Kingdom 30-60 16 Spain 60-90 n.n. Portugal 60-90 n.n. PSource: LP international 12/00, p.9. 4. Deciding on the Marketing Program Pricing Policy Gray markets Country A Authorized Production site Authorized Export Cost per unit k = 2, Export price pA = 8 Reimport Paral- -el imtort Country B Country C price pB = 6 Lateral grey import price pC = 10 Transport cost per unit - between A and B: 0,50 - between A and C: 1,00 - between B and C: 1,50Source: Simon, Wiese: Internationale Preispolitik, p.245 in: Hermanns, Wissmeier: internationales Marketing-Management, 1994 21
  • 4. Deciding on the Marketing Program Pricing PolicyBasic Strategies in International Pricing Standardization Dual pricing strategy Differentiation Price – corridor 4. Deciding on the Marketing Program Pricing PolicyBarriers 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 22
  • 4. Deciding on the Marketing Program Distribution PolicyIssues of an international distribution policy distribution structure: structure of distribution channel through which goods pass from producer to user key 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 4. Deciding on the Marketing Program Distribution PolicyBasic decisions with strategic character outsourcing degree of distribution tasks length of distribution channel variety of distribution systems exclusivity arrangements with channel members 23
  • 4. Deciding on the Marketing Program Distribution Policy Barriers to Standardization Legal barriers: regulations on store design and size, Technological barriers: existence of infrastructure Geographical barriers: climate, natural barriers Image barriers: customers association between outlet type and product quality Consumption patterns: typical outlets for certain products Competitive situation: channel blockage, channel cost Effects of Standardization & Differentiation Cost and turnover effects of Standardization Differentiation Decreasing costs for research and development of Possible downward adaptation of product quality in products technically less developed markets More effective co-ordination and control Limited service problems in technically lessCost de- Scale and experience effects in production, developed markets with inexperienced users crease marketing, logistics Differentiation of prices may lead to higher sales Easy transferability of human resources (less volume (quantity) in different country markets and, training requirements) as a consequence, to sinking costs (economies of Reduction of losses incurred due to arbitrage scale + scope) Unified product and corporate image across country Adaptation to customer needs and expectations markets leads to increased brand equity leads to higher national price level Turn- Positive spill over effects between markets Differentiation of prices may lead to higher sales in over Possible homogenization of country markets different national markets and to increased overallincrease through standardized products turnover Elimination of parallel imports through price Possibility of serving niche markets in certain standardization countries with specialized productsCommon 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. 24
  • Deciding on the Marketing Organization Organizational Configuration multinational international global transnational Deciding on the Marketing Organization Basic Strategy – Structure Relationships in international Marketing high Global Trans- Integration advantage Product national organization Matrix organization Inter- Multi- national national Export division Country organization low low Differentiation advantage highSource: Meffert/Bolz, Internationales Marketing, 2. Aufl., 1994, S. 2470 25
  • Additional LiteratureBerndt/Fantapié Altobelli/Sander: Internationale Marketing-Politik,1997, Sig.: 40/QP 680 B524Hünerberg: Internationales Marketing, 1994, 40/QP 680 H887Meffert/Bolz: Internationales Marketing-Management, 2. Auflage, 1994,40/QP 680 M492 (2) P&G: Vizir Launch Would you authorize Wolfgang Berndt‘s third request to launch Vizir in Germany? 26
  • P&G: Vizir LaunchEurobrand Decision Formation of six teams Assignments Presentations: 01.06., 13:30-15:00 P&G: Vizir LaunchEurobrand Decision There will be six teams Each team representing whether a subsidiary in a certain country – UK - France – Germany - Italy – ETC – HQ Groups with only German students or only Erasmus-Students will not be accepted Each group has about seven members Group formation: announce the group members and a spokesmen to the instructor by completing the „List of Participants“ for one of the six teams 27
  • P&G: Vizir LaunchExampleLocal 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 pros and cons 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: Vizir Launch Presentation: 7-5 minutes Discussion: up to 5 minutes Evaluation of the case study: – Max. 5 points – Presentation criteria: Content ( questions answered; correctness; logic of argumentation…) Style ( draw audience attention; enthusiasm; eye contact with the audience; gesture; persuasiveness..) Timing Peer evaluation The groups participation in discussion Order of presentations will be randomly Not each group member has to present Everybody has to attend Handout has to be distributed to the instructor before presentation In case your Powerpoint-file is not working ensure a backup solution 28