LECTURE 2: INTERNATIONAL MARKETING INVOLVEMENT.

A.Phases/Levels of International Marketing Involvement:

The levels of involvement are not same for all the firms. It varies from firms to firms depending
upon its internal and external factors. Internal factors are monetary and non monetary resources
and external factors are govt. policies and market potential.

After a company decides to enter into international market, it must decides the degree of
marketing involvement. A firm may get itself involve in foreign marketing in any of the five
following ways.

1. No foreign marketing: In this stage, a firm doesn’t involve itself in international marketing. It
focuses to operate in the domestic market. No serious effort are made by the firm to enter the
foreign market, however its products enter the international market indirectly. The indirect ways
are—

The firm sells the products to foreign buyers who actually come for tourism and purchase the
products according to their needs.
The firm sells its products to export house, or to some domestic manufacturers or to other
agencies who ultimately export those.
Dwellers in abroad send sometimes in their motherland.

2. Infrequent of temporary foreign marketing: in this stage, the firm gets involved in foreign
marketing just to dispose its temporary surplus or to utilize excess capacity. Because it finds
similar market as home in terms of domestic, geographic, cultural similarities. Temporary
surplus may be caused by fluctuations of in production levels or demand. As a result it
infrequently markets its products abroad. Export of aluminum in the last decade was only of
temporary nature because its export was allowed only when its domestic demand was much
lower than its production. Again, for example- Aromatic soaps are exported under this method
too. Here, no serious effort for international marketing is taken.

3. Regular foreign marketing: it’s the full process of internationalization. Here the firm is serious
to foreign market commitment. It produces a fixed amount especially for export. The firm makes
serious effort to develop the foreign markets. It appoints foreign or domestic middlemen or sets
up its own distribution channel and sales force in foreign markets to explore the marketing
potentials. It frequently visits to the foreign countries. Here, it’s considered some of the countries
as its target market.

4. International marketing: in this phase the firm gives full effort in marketing internationally.
Firm will now fully concentrated both in domestic and international market. Here it installs
different production unit in different countries and produces, set prices, advertises according to
those segments’ specifications. So, it’s also called multinational marketing. For example-
Uniliver, Nestle do their business according to this phase.

5. Global marketing: At this stage, companies treat the world, including their home market, as
one market. Market segmentation decisions are no longer focused on national borders instead;
market segments are defined by income levels, usage patterns or other factors that often span
countries and regions. All marketing strategies regarding pricing, advertising, policies etc. are
taken considering the whole population of the world. For example- Coca cola with red can.

In the first two stages of involvement, the firm relies more on other for marketing its products in
foreign markets while in the later stages, it may engage its own personnel in selling the products.
The marketing task in the earlier stages is simple, i.e. only selling, while in the later stages,
serious research is necessary and serious attempts are made to locate and satisfy the needs of the
customers. However before entering into the international market the firm should undertake a
thorough analysis of the markets and its resources to get a success.

B. Strategies of entering International Marketing:

There are a number ways businesses can sell their products in international markets.
The most appropriate method will depend on the business, its products, the outcome
of its Marketing Environment analysis and its Marketing Plan. This article takes you
through market entry options for international marketing.

Exporting/Importing:
 Direct Export

The organisation produces their product in their home market and then sells them to
customers overseas.

 Indirect Export

The organisations sells their product to a third party who then sells it on within the
foreign market.
Licensing

Another less risky market entry method is licensing. Here the Licensor will grant an
organisation in the foreign market a license to produce the product, use the brand
name etc. in return that they will receive a royalty payment.
Franchising

Franchising is another form of licensing. Here the organisation puts together a

package of the ‘successful’ ingredients that made them a success in their home market
and then franchise this package to overseas investors. The Franchise holder may help
out by providing training and marketing the services or product. McDonalds is a
popular example of a Franchising option for expanding in international markets.
Contracting

Another of form on market entry in an overseas market which involves the exchange of ideas is contracting. The
manufacturer of the product will contract out the production of the product to another organisation to produce the
product on their behalf. Clearly contracting out saves the organisation exporting to the foreign market.

Manufacturing Abroad/Contract Manufacturing

The ultimate decision to sell abroad is the decision to establish a manufacturing plant in the host country. The
government of the host country may give the organisation some form of tax advantage because they wish to attract
inward investment to help create employment for their economy.

Joint Venture

To share the risk of market entry into a foreign market, two organisations may come together to form a
company to operate in the host country. The two companies may share knowledge and expertise to assist
them in the development of company, of course profits will have to be shared between the two firms.

Strategic Alliances:
Strategic alliances are an agreement between two or more independent companies to cooperate in the
manufacturing, development, or sale of products and services or other business objectives.

For example, in a strategic alliance, Company A and Company B combine their respective resources,
capabilities, and core competencies to generate mutual interests in designing, manufacturing, or
distributing of goods or services.

Types of Strategic Alliances

There are three types of strategic alliances: Joint Venture, Equity Strategic Alliance, and Non-equity
Strategic Alliance.
#1 Joint Venture
A joint venture is established when the parent companies establish a new child company. For example, Company A and
Company B (parent companies) can form a joint venture by creating Company C (child company).

In addition, if Company A and Company B each own 50% of the child company, it is defined as a 50-50 Joint Venture. If
Company A owns 70% and Company B owns 30%, the joint venture is classified as a Majority-owned Venture.

#2 Equity Strategic Alliance

An equity strategic alliance is created when one company purchases a certain equity percentage of the other company. If
Company A purchases 40% of the equity in Company B, an equity strategic alliance would be formed.

#3 Non-equity Strategic Alliance

A non-equity strategic alliance is created when two or more companies sign a contractual relationship to pool their
resources and capabilities together.

Reasons for Strategic Alliances

To understand the reasoning for strategic alliances, let us consider three different product life cycles: Slow cycle, Standard
cycle, and Fast cycle. The product life cycle is determined by the need to innovate and continually create new products in an
industry. For example, the pharmaceutical industry operates a slow product lifecycle, while the software industry operates in
a fast product lifecycle. For companies whose product falls in a different product lifecycle, the reasoning for strategic
alliances are different:

Value Creation in Strategic Alliances

Strategic alliances create value by:

1. Improving current operations

2. Changing the competitive environment
3. Ease of entry and exit

Current operations are improved due to:

 Economies of scale from successful strategic alliances

 The ability to learn from the other partner(s)
 Risk and cost being shared between partner(s)

Changing the competitive environment through:

 Creating technology standards (for example, Sony and Panasonic announced to

work together to produce a new-generation TV). This would help set a new
standard in the competitive environment.
 Creating tacit collusion.
Easing entry and exit of companies through:

 A low-cost entry into new industries (A company can form a strategic partnership
to easily enter into a new industry).
 A Low-cost exit from industries (A new entrant can form a strategic alliance with
a company already in the industry and slowly take over that company, allowing
the company that is already in the industry to exit).

Challenges in a Strategic Alliance

Although strategic alliances create value, there are many challenges to consider:

 Partners may misrepresent what they bring to the table (lie about competencies
that they do not have).
 Partners may fail to commit resources and capabilities to the other partners.
 One partner may commit heavily to the alliance while the other partner does not.
 Partners may fail to use their complementary resources effectively.

Foreign Direct Investment - FDI

Foreign direct investment (FDI) is an investment made by a company or individual in one country in
business interests in another country, in the form of either establishing business operations or acquiring
business assets in the other country, such as ownership or controlling interest in a foreign company.
Foreign direct investments are distinguished from portfolio investments in which an investor merely
purchases equities of foreign-based companies. The key feature of foreign direct investment is that it is
an investment made that establishes either effective control of, or at least substantial influence over, the
decision making of a foreign business.

BREAKING DOWN 'Foreign Direct Investment - FDI'

Foreign direct investments are commonly made in open economies, as opposed to tightly regulated
economies, that offer a skilled workforce and above average growth prospects for the investor. Foreign
direct investment frequently involves more than just a capital investment. It may include provision of
management or technology as well.

Methods of Foreign Direct Investment

Foreign direct investments can be made in a variety of ways, including the opening of
a subsidiary or associate company in a foreign country, acquiring a controlling interest in an existing
foreign company, or by means of a merger or joint venture with a foreign company.

Multi-national Corporation:
A multinational corporation (MNC) or worldwide enterprise[5] is a corporate organization that owns or
controls production of goods or services in two or more countries other than their home country. [6]
A multinational corporation can also be referred to as a multinational enterprise (MNE), a transnational
enterprise (TNE), a transnational corporation (TNC), an international corporation, or a stateless
corporation.[7] There are subtle but real differences between these three labels, as well as multinational
corporation and worldwide enterprise.