PASIG CATHOLIC COLEGE MKTG 26 International MarketingChapter 1 – Aspect of International Marketing College Instructor: Mr. A. T. Quiwa, MB
Learning Objectives Explain the growing importance of international business Describe how international marketing differs from domestic marketing Discuss the significant role of multinational corporation in the expansion of business on an international scale Compare alternative entry routes into foreign markets
International Business The term international business refers to a wide range of activities involved in conducting business transactions across national boundaries. International business suggest a comprehensive approach to operations of both large and small firms engaged in business overseas. Perspectives of U.S. Business Overseas U.S.A. greater impetus to overseas expansion came after World War 11. While the U.S. government helped to reconstruct war-torn economic through the Marshall Plan by providing financial assistance to Europe countries, the postwar American economy emerged as the strongest in the world. American’s economic assistance programs, in the absence of competition, stimulate extensive U.S. corporate interest overseas.
Foreign Investment of U.S.A. Essentially, there are two aspects of international business: direct investment and trade. At end of 1993, according to a U.S. Department of Commerce report, the U.S. direct investment abroad at $450 billion, up from $ 314.3 billion in 1987. Over 75% of U.S. investment overseas have traditionally been in developed countries. However, as many less- developed countries gained political freedom after the war, their government sought U.S. help to modernize their economies and improve their living standards. Almost $344 billion of the $408 billion in the book value of direct foreign investment in the U.S. at the end of 1993( Netherland, UK, Canada, Japan and Switzerland) Companies like Bic Pen Corporation( French company), BMW (Germany), Lever Brothers(English company), and Nestle ( Swiss company).
Why Go InternationalThere are several reasons for U.S. firms to seek business opportunities elsewhere in the world. Market Saturation United State Trade Deficit Foreign Competition Emergence of New Markets Opportunities via Foreign Aid Programs
Other Reasons Why Go International In industries where economies of scale are feasible, a large market is essential. International business provides a safety net during business downturns. In many industries, labor constitutes a major proportion of costs. Some nations offer tax incentives to attract foreign business to their countries. Many companies find it more desirable to develop and/or test new products outside the U.S. Many international markets are less competitive than the U.S. markets; several are still in an embryonic stage. Further, in some instances, government will give companies a monopoly or quasi-monopoly position if they assemble and produce their products there. Finally, international presence provides expanded access to advantages in technology, worldwide raw materials, and diverse international economic groups.
International Marketing and Its GrowingImportance Stage of International Involvement The term international marketing refers to exchange across national boundaries for the satisfaction of human needs and wants. A firm’s overseas involvement may fall into one of several categories:1. Domestic: Operate exclusively within a single country.2. Regional exporter: Operate within a geographic defined region that national boundaries.3. Exporter: Run operations from a central office in the home region, exporting finished goods to a variety of countries.4. International: regional operations are somewhat autonomous, but key decision are made and coordinated from the central office in the home region.5. International to Global: Run independent and mainly self- sufficient subsidiaries in a range of countries6. Global: Highly decentralized organization operation across a broad range of countries.
Why Study International Marketing? Marketing is more significant, both for doing business abroad and for analyzing the impact of international happenings on business in the U.S., than other functions of a business- such as manufacturing, finance, and research and development-because market responds to the local culture and business multiple interrelationships with the local environment.
Domestic Versus International Marketing The basic nature of marketing does not change from domestic to international marketing, but marketing outside national boundaries poses special problems. International marketing, unlike domestic marketing, requires operating simultaneously in more than one kind of environment, coordinating these operations , and using the experience gained in one country for making decisions in another country.
Domestic Versus International Marketing To successfully compete globally, rather than simply operate domestically, companies should emphasize:1. Global configuration of marketing activities(i.e. where activities such as new product development, advertising, sales promotion, channel section, marketing research, and other functions should be performed)2. global coordination of marketing activities ( i.e. how global marketing activities performed in different countries should be coordinated); and3. linkage of marketing activities (i.e. how marketing activities should be linked with other activities of the firm).
Domestic Versus International Marketing Further, marketing activities dispersed in different countries should be properly coordinated to gain competitive advantage. Such coordination can be achieved by;1. performing market activities using similar methods across countries2. transferring marketing know-how and skills from country to country;3. sequencing marketing programs across countries;4. integrating the efforts various marketing groups in different countries.
Domestic Versus International Marketing Finally, a global view of international marketing permits linking marketing upstream and support activities of the firm, which could lead to advantages in various ways. For example, marketing can unlock economies of scale and learning in production and/or R&D by;1. supporting the development of universal products by providing the information necessary to develop a physical product design that can be sold worldwide;2. creating demand for more universal products even if historical demand has been for more varied products in different countries;3. identifying and penetrating segments in many countries to allow the sale of universal products;4. providing services and/or local accessories that effectively tailor the standard physical product to the local needs.
Framework of International Marketing Typically, a firm should make domestic marketing decisions only after considering internal and external environment. International environment factors primarily refers to corporate objectives, corporate organization, and resource availability. External environment factors include competition, technological change, the economic climate, political influences, social and cultural changes, among marketing channels.
Decision and Environment of International Marketing Other types of Environment ( for example, competition, technological changes Perspective Economic of firm’s Environment Domestic Produ Price Business ct Internation al International Customer EconomicCultural InstitutionsEnvironment and Distribution Promotion Agreements Political Legal Environment Environment
Multinational Corporation The multinational corporation (MNC) is the principal instrument in the expansion of business on an international scale. The MNC plays a decisive role in the allocation and use of the world’s sources by conceiving new products and services, creating or stimulating demand for them, and by developing new modes of manufacturing and distribution.
Nondomestic Earnings, Sales, andAssets of Selected U.S. Firms(1993) Percent of Percent of Percent of net Sales Assets EarningsAmerican Std 64 50 18Avon 52 45 34Coca-cola 56 46 34Colgate- 55 62 34PalmoliveGillette 68 68 70Hewlett 52 58 27PackardIBM 65 58 27Johnson & 42 43 41JohnsonXerox 35 39 27
Multinationals from the ThirdWorld The strength of the Third World MNCs comes from their special experience with manufacturing for small home markets. Using low technology and local raw material, running job-shop kinds of plants, and making effective use of semiskilled labor, they are able to custom-design products best suited to host countries. While, small-scale manufacturing remains their unique strength, these companies also are moving in other areas that are particularly suited to local conditions. The rapid growth of Third World multinational provides both a threat and an opportunity to the multinationals from the advance countries.
Entry Strategies Four different modes of business offer a company entry into foreign markets:1. exporting2. contractual agreement3. joint venture4. manufacturing
Entry Strategies Exporting A company may minimize the risk of dealing internationally by exporting domestically manufactured products either by minimal response to inquiries or by systematic development of demand in foreign markets. Contractual Agreement There are several types of contractual agreements: patent licensing agreement – This is based on either a fixed- fee or a royalty and includes managerial training. Turnkey Operation – This is based on a fixed –fee or cost-plus arrangement and includes plant construction, personnel training , and initial production runs. Coproduction Agreement – This is most common in the socialist countries, where plants are built and then paid for with part of the output. Management Contract – Currently widely used in the Middle East, this requires that a multinational corporation provides key personnel to operate the foreign enterprise for a fee until local people acquire the ability to manage the business independently.
Entry Strategies Licensing This works as a viable alternatives in some contractualagreement situations where risk of expropriation and resistanceto foreign investments create uncertainty. Licensing encompasses a variety of contractual agreements whereby by a multinational marketer makes available intangible assets such as patents, trade secrets, know-how, trademarks, and company name to foreign companies in return for royalties or other forms of payment. Transfer of these assets usually is accompanied by technical services to ensure proper use.
Some of the advantages of licensingare as follows:1. Licensing requires little capital and serves as a quick and easy entry to foreign markets.2. In some countries licensing is the only way to tap the market.3. Licensing provides life extension for products in the maturity stage of their life cycles.4. Licensing is a good alternative to foreign production and marketing in an environment where there is worldwide inflation, skilled-labor shortages, increasing domestic and foreign governmental regulation and restriction, and tough international competition.5. Licensing royalties are guaranteed and periodic, whereas shared income from investment fluctuates is risky.
Some of the advantages of licensingare as follows:6. Domestically based firms can benefit from product development abroad without research expense through technical feedback arrangements.7. When exports no longer are profitable because of intense competition, licensing provide an alternative.8. Licensing can overcome high transportation costs, which make some exports noncompetitive in the target markets.9. Licensing is immune to expropriation10. In some countries, manufacturers of military equipment or any product deemed critical to the national interest( including communication equipment) may compelled to enter licensing
Some disadvantages of licensing areas follows:1. To attract licensees, a firm must possess distinctive technology, a trademark, and a company of brand name that is attractive to potential foreign users.2. The licensor has no control over production and marketing by the licensee.3. Licensing royalties are negligible compared with equity investment potential. Royalty rates seldom exceed 5 percent of gross sales because of host government restrictions.4. The licensee may lose interest in renewing the contract unless the licensor holds interest through innovation and new technology.5. There is a danger of creating competition in third, or even home, markets if the licensee violates territorial agreements. Going to court in these situations is expensive and time consuming and no
Joint Venture Joint venture provide a mutually beneficial opportunity for domestic and foreign business to join forces. For both parties, the ventures are a means to share both capital and risk and make use of each other’s technical strength. Joint venture, however, are not an unmixed blessing. The major problem in managing joint venture stems from one cause; there is more than one partner and one must play the key, dominant role to steer the business to success. Joint venture should be designed to supplement each partner’s shortcomings, and not to exploit each other’s strength and weaknesses.
Widespread interest in joint ventures is relatedto :1. Seeking market opportunities. Companies in mature industries in the U.S. find joint venture a desirable entry mode to attractive new markets overseas.2. Dealing with rising economic nationalism. Often host government are more receptive to or require joint ventures.3. Preempting raw materials. Countries with raw materials such as petroleum or extractable material usually do not allow foreign firms to be active there other than through joint venture.4. Sharing risk. Rather than taking the entire risk, a joint venture allows the risk to be shared with a partner, which can be especially sensitive areas.5. Developing an export base. In areas where economics blocs play a significant role, joint venture with a local firm smoothes the entry into the entire region, such entry into the EC market through a joint venture with an English company.6. Selling technology. Selling technology to developing
Manufacturing A manufacturing corporation may also establish itself in an overseas markets by direct investment in a manufacturing and/or assembly subsidiary. Because of the volatility of worldwide economic, social , and political conditions, this form of involvements is most risky. It is suggested that MNCs should not manufacture overseas where the risk of a mishap may jeopardize the survival of the whole company.