STRATEGIC CONTROL

From time to time, companies need to undertake a critical review of overall marketing
goals and effectiveness. Each company should periodically reassess its strategic
approach to the marketplace with marketing-effectiveness reviews and marketing
audits.

The Marketing-Effectiveness Review

Here is an actual situation. The president of a major industrial-equipment company
reviewed the annual business plans of various divisions and found several lacking in
marketing substance. He called in the corporate vice president of marketing and said:

I am not happy with the quality of marketing in our divisions. It is very

uneven. I want you to find out which of our divisions are strong, average,
and weak in marketing. I want to know if they understand and are practicing
customer-oriented marketing. I want a marketing score for each division.
For each deficient division, I want a plan for improving marketing
effectiveness over the next several years. I want evidence next year that
each deficient division is improving its capabilities.

The corporate marketing vice president agreed. His first inclination was to base the
evaluation on each division’s performance in sales growth, market share, and
profitability. His thinking was that high-performing divisions had good marketing
leadership and poor-performing divisions had poor marketing leadership. But good
results could be due to a division’s being in the right place at the right time. Another
division might have poor results in spite of excellent marketing planning. A company’s
or divisions marketing effectiveness is reflected in the degree to which it exhibits the
five major attributes of a marketing orientation: customer philosophy, integrated
marketing organization, adequate marketing information, strategic orientation, and
operational efficiency. Most companies and divisions receive scores in the fair-to-good
range.

The Marketing Audit

Companies that discover weaknesses should undertake a thorough study known as a
marketing audit. A marketing audit is a comprehensive, systematic, independent,
and periodic examination of a company or business unit’s marketing environment,
objectives, strategies, and activities with a view to determining problem areas and
opportunities and recommending a plan of action to improve the company’s
marketing performance.

THE MARKETING AUDIT’S CHARACTERISTICS

1. Comprehensive: The marketing audit covers all the major marketing activities of a
business, not just a few trouble spots. It would be called a functional audit if it covered
only the sales force, pricing, or some other marketing activity. Although functional
audits are useful, they sometimes mislead management. Excessive sales force
turnover, for example, could be a symptom not of poor sales force training or
compensation but of weak company products and promotion. A comprehensive
marketing audit usually is more effective in locating the real source of marketing
problems.

2. Systematic: The marketing audit is an orderly examination of the organization’s

macro- and micromarketing environment, marketing objectives and strategies,
marketing systems, and specific activities. The audit indicates the most needed
improvements, which are then incorporated into a corrective action plan involving
both short-run and long-run steps to improve overall marketing effectiveness.

3. Independent: A marketing audit can be conducted in six ways: self-audit, audit

from across, audit from above, company auditing office, company task force audit,

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and outsider audit. Self-audits, in which managers use a checklist to rate their own
operations, lack objectivity and independence. The 3M Company has made good use
of a corporate auditing office, which provides marketing audit services to divisions on
request. Generally speaking, however, the best audits come from outside consultants
who have the necessary objectivity, broad experience in a number of industries, some
familiarity with the industry being audited, and the undivided time and attention to
give to the audit.

4. Periodic: Typically, marketing audits are initiated only after sales have turned
down, sales force morale has fallen, and other problems have occurred. Companies
are thrown into a crisis partly because they failed to review their marketing operations
during good times. A periodic marketing audit can benefit companies in good health
as well as those in trouble.

A marketing audit starts with a meeting between the company officer(s) and the
marketing auditor(s) to work out an agreement on the audit’s objectives, coverage,
depth, data sources, report format, and time frame. A detailed plan as to who is to be
interviewed, the questions to be asked, the time and place of contact, and so on is
prepared so that auditing time and cost are kept to a minimum. The cardinal rule in
marketing auditing is: Don’t rely solely on company managers for data and opinion.
Customers, dealers, and other outside groups must also be interviewed. Many
companies do not really know how their customers and dealers see them, nor do they
fully understand customer needs and value judgments. The marketing audit examines
six major components of the company’s marketing situation.

1. Marketing environment audit: this audit analyzes major micro-

environmental forces and trends in the key components of the company’s task
environment including marketing customers, competitors, distributors and
facilitators

2. Marketing strategy audit: this audit reviews the company’s marketing

objectives and marketing strategy to appraise how well these are adapted to
the current and forecasted marketing environment.

3. Marketing organization audit: this audit evaluates the capabilities of the

marketing organization for implementing the necessary strategy for the
forecasted environment.

4. Marketing systems audit: this audit assesses the quality of the company
systems for analysis, planning and control

5. Marketing productivity audit: this audit examines the profitability of

different marketing and the cost effectiveness of different marketing
expenditures.

6. Marketing functions audit: these audits make in depth evaluations of major

marketing mix components namely products, price, distribution, sales-force,
advertising, promotion and publicity.

Managers often describe the audit process as costly, complex, and upsetting to
organizations and individuals. This is because the audit emphasizes not only what is
being done but why it is being done; it evaluates both current tactics and past
strategies. Ideally, the audit should stress correcting procedures rather than assigning
blame to individuals. Organizations that conduct regularly scheduled marketing audits
can avoid problems by pointing out that the process is scheduled from time to time
and is not aimed at criticizing an individual or a part of the organization.

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SOME BENEFITS AND ADVANTAGES OF MARKETING AUDIT ARE AS FOLLOWS.
• The audit provides the marketers with an in depth view of the marketing
activities that are going around in the concern. It brings out a complete picture
of the entire operations of the concern. While revealing the various drawbacks
the audit process also leads to efficiency. This process can also be used to lay
down an improved marketing plan.
• A marketing audit can help a company refine its business practices and
improve its productivity and profitability.
• Marketing audit helps to marketing executives, top management and investors
to ensure that they are doing the right things to help drive growth for their
organizations.
• A marketing audit is a careful examination and evaluation of marketing
practices and results. It offers a baseline for performance measurements and a
framework for effective business planning to maximize positive external
perception and demand generation.
• An audit helps the company determine the value of a sale and a sales lead.
• There are no permanent "right" answers in marketing. Customers' needs and
wants are moving targets, and marketing programs require testing and
retesting to find the most profitable formula. A marketing audit is the way to
achieve success by providing an interim report card to help the company and
their staffs tap into inherent resource.
• Marketing audits often lead to strategic marketing change. Careful assessment
of the changing environment, customers, channels, and competitors may lead
to a reassessment of firm direction.

INTERNATIONAL MARKETING

“………….globalization must be taken for granted. There will be only one standard for
corporate success: international market share. The winning corporations will win by
finding markets all over the world.”
------- Jack Welch CEO GE

First a look at the historical development of international marketing as a field and gain
a better understanding of the phases through which it has passed.

INTRODUCTION TO INTERNATIONAL MARKETING

Domestic marketing
Marketing that is aimed at a single market, the firm’s domestic market, is referred to
as domestic marketing. In domestic marketing, the firm faces only one set of
competitive, economic, and market issues and, essentially, must deal with only one
set of customers, although the company may serve several segments in this one
market.

Export marketing
The field of export marketing covers all those marketing activities involved when a
firm markets its products outside its main (domestic) base of operation and when
products are physically shipped from one market or country to another. Although the
domestic marketing operation remains of primary importance, the major challenges of
export marketing are the selection of appropriate markets or countries through
marketing research, the determination of appropriate product modifications to meet
the demand requirements of export markets, and the development of export channels
through which the company can market its products abroad. In this phase, the firm
may concentrate mostly on the product modifications and run the export operations

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as a welcome and profitable by-product of its domestic strategy. Because the
movement of goods across national borders is a major part of an exporting strategy,
the required kills include knowledge of shipping and export documentation. Although
export marketing probably represents the most traditional and least involved form of
international marketing, it remains an important aspect for many firms.

International marketing
When practicising international marketing, a company goes beyond exporting and
becomes much more directly involved in the local marketing environment within a
given country or market. The international marketer is likely to have it’s own sales
subsidiaries and will participate in and develop entire marketing strategies for foreign
markets. At this point, the necessary adaptation to the firm’s domestic marketing
strategies becomes a main concern. Companies going international now will have to
find out how they must adjust an entire marketing strategy, including how they sell,
advertise, and distribute, in order to fit new market demands.

An important challenge for the international marketing phase of a firm becomes the
need to understand the different environments the company needs to operate in.
understanding different cultural, economic, and political environments becomes
necessary for success. This is generally described as part of a company’s
internationalization process, whereby a firm becomes more experienced to operate in
various foreign markets. It is typical to find a considerable emphasis on the
environmental component at this stage. Typically, much of the field of international
marketing has been devoted to making the environment understandable and to assist
managers in navigating through the differences. The development of the
cultural/environmental approach to international marketing is an expression of this
particular phase.

International Marketing management can therefore be defined as the performance of

marketing activities across two or more countries.

DRIVING AND RESTRAINING FORCES AFFECTING INTERNATIONAL MARKETING

The remarkable growth of global economy over the past 50 years has been shaped by the
dynamic interplay of various driving and restraining forces. During most of those decades,
companies from different parts of the world achieved great success by pursuing
international strategies. Today we find that the growing importance of international
marketing stems from the fact that driving forces have more momentum than the
restraining forces.

DRIVING FORCES

Converging market needs and wants, technology advances, pressure to cut costs,
pressure to improve quality, improvements in communication and transportation
technology, global growth, and opportunities for leverage all represent important driving
forces; any industry subject to these forces is a candidate for globalization.

♦ Technology
A powerful force drives the world toward a converging commonality, and that force
is technology. Technology is a universal, uniform, consistent factor across national
and cultural boundaries. There are no cultural boundaries limiting the application
of technology. Once a technology is developed, it immediately becomes available
everywhere in the world. If a company knows how to manage a technology in one
country, it has experience that is relevant for the rest of the world.

♦ Regional Economic Agreements

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A number of multilateral trade agreements have accelerated the pace of global
integration. NAFTA, WTO etc. are promoting free trade between the members of
the association.

♦ Market Needs & Wants

A person studying markets around the world will discover cultural universals as
well as cultural differences. The common elements in human nature provide an
underlying basis for the opportunity to create and serve global markets.

♦ Transportation and Communication Improvement

The time and cost barriers have fallen tremendously over the past 100 years.
Shipping has become faster and economical than what it used to be.
Communication technologies like email, fax have totally redefined the way
business is now conducted in the market place.

♦ Product Development Costs

The pressure for globalization is intense when new products require major
investments and long periods of development time.

e.g

According to Pharmaceutical Manufacturing Association (PMA)

Cost Of Developing New Drug 1976 $54 million

1987 $87 million
1993 $ 359 million

Such costs must be recovered in the global market place, as no single national
market is likely to be large enough to support investments of this size.

♦ Quality

Global marketing strategies can generate greater revenue and greater operating
margins which, in turn, support design and manufacturing quality. A global and
domestic company may spend 5% of sales on research and development, but the
global company may have many times the total revenue of the domestic because
it serves the world market.

♦ World Economic Trends

There are three reasons why economic growth has been a driving force in the
expansion of the international economy and the growth of global marketing.

First, growth has created market opportunities that provide a major incentive for
companies to expand globally. At the same time, slow growth in a company’s
domestic market can signal the need to look abroad for opportunities in nations or
regions with high rates of growth.

Second, economic growth has reduced resistance that might otherwise have
developed in response to the entry of foreign firms into domestic economies. A
growing country means growing markets; there is often plenty of opportunity for
everyone.

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 Third, the worldwide movement towards deregulation and privatization is another
driving force. The trend toward privatization is opening up formerly closed markets
significantly; tremendous opportunities are being created as a result.

♦ Leverage

A global company possesses the unique opportunity to develop leverage. Leverage

is simply some type of advantage that the company enjoys by virtue of the fact
that it conducts business in more than one country.

Five important types of leverage are:

-EXPERIENCE TRANSFER: A company can leverage its experience in many

markets in the world. It can draw on management practices, strategies,
products, advertising appeals, or sales or promotional ideas that have been
tested in actual markets and apply them in other comparable markets

-SCALE ECONOMIES: The global company can take advantage of its greater
manufacturing volume to obtain traditional scale advantages within a single
factory. Also finished products can be produced by combining components
manufactured in scale efficient plants in different countries.

-RESOURCE UTILIZATION: A major strength of the global company is its

ability to scan the entire world to identify people, money, and raw materials
that will enable to compete effectively in world markets.

-GLOBAL STRATEGY: The global company’s greatest advantage can be its

global strategy. A global strategy is built on an information system that scans
the world business environment to identify opportunities, trends, threats, and
resources.

-SYSTEMS TRANSFERS: A global company can refine its planning, analysis,

research control, and other system and apply the refinements worldwide. The
leveraging of systems improvements also makes it possible for company staff to
communicate with each other

RESTRAINING FORCES

Despite the impact of the driving forces identified earlier, several restraining forces
may slow a company’s efforts to engage in global marketing. Three important
restraining forces are:

♦ Management Myopia And Organizational Culture

In many cases, products and categories are candidates for globalization, but
management does not seize the opportunity. A good example of management myopia
is any company that does not maintain leadership in creating customer value in an
expanding geographical territory. A company that looks backward will not expand
geographically. In many cases, management simply ignores opportunities to pursue
global marketing. A company that is “nearsighted” and ethnocentric will not expand
geographically. Myopia is also recipe for market disaster if headquarter attempts to
dictate when it should listen.

♦ National controls and Barriers

Every country protects local enterprise and interests by maintaining control over
market access and entry. Today, tariff barriers have been largely removed in the high-
income countries. The significant barriers are the so-called non-tariff barriers that
make it difficult for foreign companies to gain access to a domestic market. The

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worldwide movement toward deregulation and privatization, by breaking the link
between government and enterprise, is an initiative that will lead to a significant
opening up of formerly closed markets.

♦ Market Differences
In every product category, differences are still great enough across national and
cultural boundaries to require adoption of at least some elements of the marketing
mix (product, price, advertising and promotion, and channels of distribution). Global
marketing does not work without a strong local team who can adapt the product to
local conditions.

DIFFERENT APPROACHES TO INTERNATIONAL MARKETING: MANAGEMENT

ORIENTATION

1 Ethnocentricity:
A person who assumes his or her home country is superior compared to the rest of the
world is said to have an ethnocentric orientation. The ethnocentric orientation means
company personnel see only similarities in markets and assume the products and
practices that succeed in the home country will, due to their demonstrated
superiority, be successful anywhere. At some companies, the ethnocentric orientation
means that opportunities outside the home country are ignored. Such companies
sometimes called domestic companies. Ethnocentric companies that do conduct
business outside the home country can be described as international companies; they
adhere to the notion that the products that succeed in the home country are superior
and, therefore, can be sold everywhere without adaptation.

In the ethnocentric, international company, foreign operations are viewed as being

secondary or subordinate to domestic ones. An ethnocentric company operates under
the assumption that “tried and true” headquarters knowledge and organizational
capabilities can be applied in other parts of the world.
Nissan’s ethnocentric orientation was quite apparent during its first few years of
exporting cars and trucks to the United States. Designed for mild Japanese winters,
the vehicles were difficult to start in many parts of the United States during the cold
winter months. In northern Japan, many car owners would put blankets over the hoods
of their cars. Tokyo’s assumption was that Americans would do the same thing. Until
the 1980s, Eli Lilly and Company operated as an ethnocentric company in which
activity outside the United States was tightly controlled by headquarters and focused
on selling products originally developed for the U.S. market. Fifty years ago, most
business enterprises could operate quite successfully with an ethnocentric orientation.
Today, however, ethnocentrism is one of the biggest internal threats a company
faces.

2. Polycentricity:
The polycentric orientation is the opposite. This is the unconscious belief that each
host country is unique and different and that the way to succeed in each country is to
adapt to each country’s unique differences. In the polycentric stage, subsidiaries are
established in overseas markets. Each subsidiary operates independently of the
others and establishes its own marketing objectives and plans. Marketing is organized
on a country-by-country basis, with each country having its own unique marketing
policy.

3. Regiocentric/Geocentricity:
In the regiocentric and geocentric phases, the company views the region or entire
world as a market and seeks to develop integrated regional or world market
strategies. The geocentric orientation is a synthesis of the ethnocentric and the
polycentric orientation. The regiocentric or regional orientation is a geocentric
orientation that is limited to a region; that is, management will have a world view

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toward its region, but will regard the rest of the world with either an ethonocentric or
a polycentric orientation, or a combination of the two. The ethnocentric company is
centralized in its marketing management, the polycentric company is decentralized,
and the regiocentric and geocentric companies are integrated.

To implement the geocentric orientations, experienced international management and

a great deal of commitment are required. For companies with limited experience, it
may be wiser to adopt a centralized or a decentralized strategy and wait until
experience accumulates before attempting to design and implement integrated
marketing programs.

MARKET ENTRY STRATEGIES

One of the most important strategic decisions in international business is the mode of
entering the foreign market. On the one extreme, a company may do the complete
manufacturing of the product domestically and export it to the foreign market. On the
other extreme, a company may do, by itself, the complete manufacturing of the
product to be marketed in the foreign market there itself. There are several
alternatives in between these two extremes. The choice of the most suitable
alternative is based on the relevant factors related to the company and the foreign
market. In some cases, the alternatives available may also be limited. For example,
the policy of some governments may not be very positive towards foreign
investments. Several governments have a definite preference for joint ventures over
complete foreign ownership. In some cases, the government may prefer foreign
investment leading to import substitution to perpetual import of a product. Thus, in
some cases, government policies may rule out the best alternative if the environment
were free.

Important foreign market entry strategies are the following:

1. Licensing / franchising
2. Exporting
3. Contract manufacturing
4. Management contract
5. Assembly operations
6. Fully owned manufacturing facilities
7. Joint venturing
8. Counter trade
9. Mergers and acquisitions
10.Strategic alliance
11. Third country location
Some of the most common being, exports, licenses, contracts and turnkey operations,
franchises, joint ventures, wholly owned subsidiaries, and strategic alliances.

LICENSING AND FRANCHISING

Licensing and Franchising, which involve minimal commitment of resources and effort
on the part of the international marketer, are easy ways of entering the foreign
markets. Under international licensing, a firm in one country (the licensor) permits a
firm in another country (the licensee) to use its intellectual property (such as patents,
trademarks, copyrights, technology, technical know-how, marketing skill or some
other specific skill). The monetary benefit to the licensor is the royalty or fees which
licensee pays. In many countries, such fees or royalties are regulated by the
government; it does not exceed five per cent of the sales in many developing
countries. A licensing agreement may also be one of cross licensing, wherein there is
a mutual exchange of knowledge and /or patents. In cross-licensing, a cash payment

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may or may not, be involved. The licensing agreement is important to both parties
and should ensure that both parties benefit equitably.

Franchising is “a form of licensing in which a parent company (the franchiser) grants

another independent entity (the franchisee) the right to do business in a prescribed
manner. This right can take the form of selling the franchisor’s products, ‘using its
name, production and marketing techniques, or general business approach. One of
the common forms of International franchising involves the franchisor supplying an
important ingredient (part, material etc.) for the finished product, like the Coca Cola
supplying the syrup to the bottlers.

Exporting
Exporting is often the first international choice for firms, and many firms rely
substantially on exports throughout their history. Exports are seen as relatively simple
because the firm is relying on domestic production, can use a variety of
intermediaries to assist in the process, and expects its foreign customers to deal with
the marketing and sales issues. Many firms begin by exporting reactively; then
become proactive when they realize the potential benefits of addressing a market that
is much larger than the domestic one.

Effective exporting requires attention to detail if the process is to be successful; for

example, the exporter needs to decide if and when to use different intermediaries,
select an appropriate transportation method, preparing export documentation,
prepare the product, arrange acceptable payment terms, and so on. Most importantly,
the exporter usually leaves marketing and sales to the foreign customers, and these
may not receive the same attention as if the firm itself undertook these activities.
Larger exporters often undertake their own marketing and establish sales subsidiaries
in important foreign markets.

Contracts
Contracts are used frequently by firms that provide specialized services, such as
management, technical knowledge, engineering, information technology, education,
and so on, in a foreign location for a specified time period and fee. Contracts are
attractive for firms that have talents not being fully utilized at home and in demand in
foreign locations. They are relatively short-term, allowing for flexibility, and the fee is
usually fixed so that revenues are known in advance. The major drawback is their
short-term nature, which means that the contracting firm needs to develop new
business constantly and negotiate new contracts. This negotiation is time consuming,
costly, and requires skill at cross-cultural negotiations. Revenues are likely to be
uneven and the firm must be able to weather periods when no new contracts
materialize.

Turnkey contracts are a specific kind of contract where a firm constructs a facility,
starts operations, trains local personnel, then transfers the facility (turns over the
keys) to the foreign owner. These contracts are usually for very large infrastructure
projects, such as dams, railways, and airports, and involve substantial financing; thus
they are often financed by international financial institutions such as the World Bank.
Companies that specialize in these projects can be very profitable, but they require
specialized expertise. Further, the investment in obtaining these projects is very high,
so only a relatively small number of large firms are involved in these projects, and
often they involve a syndicate or collaboration of firms.

Joint ventures
Joint ventures involve shared ownership in a subsidiary company. A joint venture
allows a firm to take an investment position in a foreign location without taking on the
complete responsibility for the foreign investment. Joint ventures can take many
forms. For example, there can be two partners or more, partners can share equally or

9
have varying stakes, partners can come from the private sector or the public, partners
can be silent or active, partners can be local or international. The decisions on what to
share, how much to share, with whom to share, and how long to share are all
important to the success of a joint venture. Joint ventures have been likened to
marriages, with the suggestion that the choice of partner is critically important. Many
joint ventures fail because partners have not agreed on their objectives and find it
difficult to work out conflicts. Joint ventures provide an effective international entry
when partners are complementary, but firms need to be thorough in their preparation
for a joint venture.

Wholly-owned subsidiaries involve the establishment of businesses in foreign locations

which are owned entirely by the investing firm. This entry choice puts the investor
parent in full control of operations but also requires the ability to provide the needed
capital and management, and to take on all of the risk.
Where control is important and the firm is capable of the investment, it is often the
preferred choice. Other firms feel the need for local input from local partners, or
specialized input from international partners, and opt for joint ventures or strategic
alliances, even where they are financially capable of 100 percent ownership.

Strategic alliances
Strategic alliances are arrangements among companies to cooperate for strategic
purposes. Licenses and joint ventures are forms of strategic alliances, but are often
differentiated from them. Strategic alliances can involve no joint ownership or specific
license agreement, but rather two companies working together to develop a synergy.
Joint advertising programs are a form of strategic alliance, as are joint research and
development programs. Strategic alliances seem to make some firms vulnerable to
loss of competitive advantage, especially where small firms ally with larger firms. In
spite of this, many smaller firms find strategic alliances allow them to enter the
international arena when they could not do so alone.

International Marketing Strategy

To develop a strategy, involves 4 sets of inter – related decisions.

The first decision defines the business. This includes product and market scope, as to
what type of products are to be served? Which needs are to be satisfied? and what
technologies are to be used to satisfy these needs? Evolving a strategy on the basis of
these questions are related to products, The strategy on market segmentation forms
the market scope.

The Second decision is to determine the mission and set specific performance
expectations for each business and progammes across the International markets in
which the firm functions. This involves fixing the market – share gains, project etc.,

The third decision is to formulate functional strategies for international Marketing,

manufacturing, Research and Development (R&D) Service and physical distribution.

The fourth decision includes the resource allocation and establishing the budget for
executing the plans.

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