Strabiz.me Management Consultants
Get it all in one site
International Marketing Strategies
When an organization has made a decision to enter an overseas market, there are a variety of options open to it. These options vary with cost, risk and the degree of control which can be exercised over them. The simplest form of entry strategy is exporting using either a direct or indirect method such as an agent, in the case of the former, or countertrade, in the case of the latter. More complex forms include truly global operations which may involve joint ventures, or export processing zones. Having decided on the form of export strategy, decisions have to be made on the specific channels. Many agricultural products of a raw or commodity nature use agents, distributors or involve Government, whereas processed materials, whilst not excluding these, rely more heavily on more sophisticated forms of access.
This article at describes the concept of market entry strategies within the control of a chosen marketing mix. It then goes on to describe the different forms of entry strategy, both direct and indirect exporting and foreign production, and the advantages and disadvantages connected with each method.
An organization wishing to "go international" faces three major issues:
i) Marketing - which countries, which segments, how to manage and implement marketing effort, how to enter - with intermediaries or directly, with what information?
ii) Sourcing - whether to obtain products, make or buy?
iii) Investment and control - joint venture, global partner, acquisition?
Decisions in the marketing area should focus on the value chain. The strategy or entry alternatives must ensure that the necessary value chain activities are performed and integrated. In making international marketing decisions on the marketing mix more attention to detail is required than in domestic marketing. Elements included in the export marketing mix include:
· Product sourcing
· Match existing products to markets - air, sea, rail, road, freight
· New products
· Product management
· Product testing
· Manufacturing specifications
· Labeling eg using different labels for different countries
· Production control
· Market information
· Establishment of prices eg pricing depending on income levels
· Distribution and maintenance of pricelists
· Competitive information
· Training of agents/customers
· Direct mail
· Exhibitions, trade shows
· Selling (direct)
· Sales force
· Agents’ commissions
· Inventory management-
· Parts supply
· Credit authorization
· Funds provision
· Raising of capital
· Order processing
· Export preparation and documentation
· Freight forwarding
· Market information/intelligence
· Quotes processing
· Technical aid assistance
· After sales
· Sales reports, catalogues literature
· Customer care
· Data processing systems
· Tax services
· Legal services
· Billing, collecting invoices
· Hire, rentals
· Planning, scheduling budget data
The degree of risk involved, attitudes and the ability to achieve objectives in the target markets are important facets in the decision on whether to license, joint venture or get involved in direct investment. Cunningham (1986) identified five strategies used by firms for entry into new foreign markets:
1. Technical innovation strategy - perceived and demonstrable superior products
2. Product adaptation strategy - modifications to existing products
3. Availability and security strategy - overcome transport risks by countering perceived risks
4. Low price strategy - penetration price and,
5. Total adaptation and conformity strategy - foreign producer gives a straight copy.
In marketing products from less developed countries to developed countries the transport risks pose major problems. Buyers in the interested foreign country are usually very careful as they perceive transport, currency, quality and quantity problems. This is true, say, in the export of cotton and other commodities.
Because, in most agricultural commodities, production and marketing are interlinked, the infrastructure, information and other resources required for building market entry can be enormous. Sometimes this is way beyond the scope of private organizations, so Government may get involved. It may get involved not just to support a specific commodity, but also to help the "public good". Whilst the building of a new road may assist the speedy and expeditious transport of vegetables, or fish from lake Victoria, for example, and thus aid in their marketing, the road can be put to other uses, in the drive for public good utilities. Moreover, entry strategies are often marked by "lumpy investments". Huge investments may have to be undertaken, with the investor paying a high risk price, long before the full utilization of the investment comes. Good examples of this include the building of port facilities like the ones owned by the government at the port of Mombasa, or food processing or freezing facilities.
In building a market entry strategy, time is a crucial factor. The building of an intelligence system and creating an image through promotion takes time, effort and money. Brand names do not appear overnight. Large investments in promotion campaigns are needed. Transaction costs also are a critical factor in building up a market entry strategy and can become a high barrier to international trade. Costs include search and bargaining costs. Physical distance, language barriers, logistics costs and risk limit the direct monitoring of trade partners. Enforcement of contracts may be costly and weak legal integration between countries makes things difficult. Also, these factors are important when considering a market entry strategy. In fact these factors may be so costly and risky that Governments, rather than private individuals, often get involved in commodity systems. This can be seen in the case of the Agriculture export system in Kenya which is overseen by various boards. ( Coffee Board of Kenya, Pyrethrum Board and many others)
With a monopoly export marketing board, the entire system can behave like a single firm, regulating the mix and quality of products going to different markets and negotiating with transporters and buyers. Whilst these Boards can experience economies of scale and absorb many of the risks listed above, they can shield producers from information about, and from buyers. They can also become the a gray area of vested interests and become political in nature. They then result in giving reduced production incentives and cease to be demand or market orientated, which is detrimental to producers. An example is Central Kenya where most farmers have uprooted coffee and tea due to lack of payment.
Normal ways of expanding the
markets are by expansion of product line, geographical development or both. It
is important to note that the more the product line and/or the geographic area
is expanded the greater will be the managerial complexity. New market
opportunities may be made available by expansion but the risks may outweigh the
advantages, in fact it may be better to concentrate on a few geographic areas
and do things well. This is typical of the horticultural industry of
Traditionally these have concentrated on European markets where the markets are well known. Concentrating on geographic areas reduces operational variety (more standard products) or making the organizational form more appropriate. If this works an attempt is made to "globalise" the offering and the organization to match it. This is true of organizations like Coca Cola and MacDonald's. Global strategies include "country centered" strategies (highly decentralized and limited international coordination), "local market approaches" (the marketing mix developed with the specific local (foreign) market in mind) or the "lead market approach" (develop a market which will be a best predictor of other markets). Global approaches give economies of scale and the sharing of costs and risks between markets.
2.0 THE PROCESS INVOLVED IN INTERNATIONAL MARKETING ENTRY STRATEGIES
A market entry strategy is the planned method of delivering goods or services to a target market and distributing them there. When importing or exporting of services, it refers to establishing and managing contracts in a foreign country.
Many companies successfully operate in a niche market without ever expanding into new markets. Some businesses achieve increased sales, brand awareness and business stability by entering a new market. Developing a market entry strategy involves a thorough analysis of potential competitors and possible customers. Some of the relevant factors that are important in deciding the viability of entry into a particular market include Trade barriers, localized knowledge, price localization, Competition, and export subsidies.
Timing of the market entry
"What countries to enter
and when mainly depends on the financial resources of a company, the product
lifecycle and the product itself."
The different strategies available are:
Some of the most common market entry strategies are:
· Directly exporting products,
· Indirect exporting using a middleman
· Producing products in the target market.
Market entry and trade risks
Some of the risks incurred and considerations when entering a new mark include:
While some companies prefer to develop by their own their market entry plans, other outsource to specialized companies. The knowledge of the local or target market by those specialized companies can mitigate trade risk. Keegan (2008)
3.0 THE PROCESS OF ENTERING A FOREIGN MARKET.
The way in which an organization should select which foreign to enter can be described by the International Marketing Entry Evaluation Process. This is a five stage process, and its purpose is to gauge which international market or markets offer the best opportunities for our products or services to succeed. The five steps are
· Country Identification
· Preliminary Screening
· In-Depth Screening
· Final Selection and
· Direct Experience
Step One - Country Identification
A marketer knows that the world is a “global village”. One can choose any country to go into. So you conduct country identification - which means that you undertake a general overview of potential new markets. There might be a simple match - for example two countries might share a similar heritage e.g. the United Kingdom and Australia, a similar language e.g. the United States and Australia, or even a similar culture, political ideology or religion e.g. China and Cuba. Often selection at this stage is more straightforward. For example a country is nearby e.g. Dubai. Alternatively your export market is in the same trading zone e.g. the East Africa Community (EAC) . Again at this point it is very early days and potential export markets could be included or discarded for any number of reasons.
Step Two - Preliminary Screening
At this second stage one takes a more serious look at those countries remaining after undergoing preliminary screening. Now you begin to score, weight and rank nations based upon macro-economic factors such as currency stability, exchange rates, level of domestic consumption and so on. Now you have the basis to start calculating the nature of market entry costs. Some countries such as China require that some fraction of the company entering the market is owned domestically - this would need to be taken into account. There are some nations that are experiencing political instability for example Sudan and what Kenya experienced at he beginning of the year 2008. Any company entering such a market would need to be rewarded for the risk that they would take. At this point the marketing manager could decide upon a shorter list of countries that he or she would wish to enter. Now in-depth screening can begin.
Step Three - In-Depth Screening
The countries that make it to stage three would all be considered feasible for market entry. So it is vital that detailed information on the target market is obtained so that marketing decision-making can be accurate. Now one can deal with not only micro-economic factors but also local conditions such as marketing research in relation to the marketing mix i.e. what prices can be charged in the nation? How does one distribute a product or service such as ours in the nation? How should we communicate with are target segments in the nation? For example in China, one must be able to speak their language. How does our product or service need to be adapted for the nation? All of this will information will for the basis of segmentation, targeting and positioning. One could also take into account the value of the nation's market, any tariffs or quotas in operation, and similar opportunities or threats to new entrants.
Step Four - Final Selection
Now a final shortlist of potential nations is decided upon. Managers would reflect upon strategic goals and look for a match in the nations at hand. The company could look at close competitors or similar domestic companies that have already entered the market to get firmer costs in relation to market entry. Managers could also look at other nations that it has entered to see if there are any similarities, or learning that can be used to assist with decision-making in this instance. A final scoring, ranking and weighting can be undertaken based upon more focused criteria. After this exercise the marketing manager should probably try to visit the final handful of nations remaining on the short, shortlist.
Step Five - Direct Experience
Personal experience is important. Marketing manager or their representatives should travel to a particular nation to experience firsthand the nation's culture and business practices. On a first impressions basis at least one can ascertain in what ways the nation is similar or dissimilar to your own domestic market or the others in which your company already trades. One needs to be careful in respect of self-referencing. One must remembers hat the experience to date is based upon the home country and expectations will be based upon what one already knows. One should try to be flexible and experimental in new nations, and should not be judgmental - it's about what's best for the company.
4.0 ENTRY STRATEGIES
There are a variety of ways in which organizations can enter foreign markets. The main ways are by direct or indirect export and production in a foreign country
Exporting is the most traditional and well established form of operating in foreign markets. Exporting can be defined as the marketing of goods produced in one country into another. Whilst no direct manufacturing is required in an overseas country, significant investments in marketing are required. The tendency may be not to obtain as much detailed marketing information as compared to manufacturing in marketing country; however, this does not negate the need for a detailed marketing strategy.
The advantages of exporting are manufacturing is home based thus, it is less risky than overseas based. It also gives an opportunity to "learn" overseas markets before investing in bricks and mortar. In addition, it reduces the potential risks of operating overseas.
The disadvantage is mainly that one can be at the "mercy" of overseas agents and so the lack of control has to be weighed against the advantages. For example, in the exporting of African horticultural products, the agents and Dutch flower auctions are in a position to dictate to producers.
A distinction has to be drawn between passive and aggressive exporting. A passive exporter awaits orders or comes across them by chance; an aggressive exporter develops marketing strategies which provide a broad and clear picture of what the firm intends to do in the foreign market. Pavord and Bogart (1975) found significant differences with regard to the severity of exporting problems in motivating pressures between seekers and non-seekers of export opportunities. They distinguished between firms whose marketing efforts were characterized by no activity, minor activity and aggressive activity. Exporting methods include direct or indirect export.
In direct exporting the organization
may use an agent, distributor, or overseas subsidiary, or act via a Government
agency. Bodies like the Horticultural Crops Development Authority (HCDA) in
Kenya may be merely a promotional body, dealing with advertising, information
flows and so on, or it may be active in exporting itself, particularly giving
approval (like HCDA does) to all export documents. In direct exporting the
major problem is that of market information. The exporter's task is to choose a
market, find a representative or agent, set up the physical distribution and
documentation, promote and price the product. Control, or the lack of it, is a
major problem which often results in decisions on pricing, certification and
promotion being in the hands of others. Certainly, the phytosanitary
requirements in Europe for horticultural produce sourced in
According to Collett (1991)) exporting requires a partnership between exporter, importer, government and transport. Without these four coordinating activities the risk of failure is increased. Contracts between buyer and seller are a must. Forwarders and agents can play a vital role in the logistics procedures such as booking air space and arranging documentation. A typical coordinated marketing channel for the export of Kenyan horticultural produce is shown below:
The export marketing channel for Kenyan horticultural products.
Exporting can be very lucrative,
especially 'if it is of high value added produce. For example in 1992/93
Zimbabwe exported 5 338,38 tonnes of flowers, 4 678,18 tonnes of horticultural
produce and 12 000 tonnes of citrus at a total value of about US$ 22 016,56
million. In some cases a mixture of direct and indirect exporting may be
achieved with mixed results. For example, the Grain Marketing Board of Zimbabwe
may export grain directly to
In this case the exporters can also be growers and in the low season both these and other
exporters may send produce to food processors which is also exported. According to Korey (1986), direct modes of market entry may be less and less available in the future. Growing trading blocks like the EU or EFTA means that the establishment of subsidiaries may be one of the only ways forward in future.
Indirect methods of exporting include the use of trading companies (very much used for commodities like cotton, soya, cocoa), export management companies, piggybacking and countertrade. Indirect methods offer a number of advantages such as contracts - in the operating market or worldwide, commission sales that give high motivation, manufacturer/exporter needs little expertise and credit acceptance takes burden from manufacturer.
is an interesting development. The method means that organizations with little
exporting skill may use the services of one that has. Another form is the
consolidation of orders by a number of companies in order to take advantage of
bulk buying. Normally these would be geographically adjacent or able to be
served, say, on an air route. The fertilizer manufacturers of
By far the largest indirect method of exporting is countertrade. Competitive intensity means more and more investment in marketing. In this situation the organisation may expand operations by operating in markets where competition is less intense but currency based exchange is not possible. Also, countries may wish to trade in spite of the degree of competition, but currency again is a problem. Countertrade can also be used to stimulate home industries or where raw materials are in short supply. It can, also, give a basis for reciprocal trade.
Estimates vary, but countertrade accounts for about 20-30% of world trade, involving some 90 nations and between US $100-150 billion in value. The UN defines countertrade as "commercial transactions in which provisions are made, in one of a series of related contracts, for payment by deliveries of goods and/or services in addition to, or in place of, financial settlement".
Countertrade is the modem form of barter, except contracts are not legal and it is not covered by GATT. It can be used to circumvent import quotas.
Countertrade can take many
forms. Basically two separate contracts are involved, one for the delivery of
and payment for the goods supplied and the other for the purchase of and
payment for the goods imported. The performance of one contract is not
contingent on the other although the seller is in effect accepting products and
services from the importing country in partial or total settlement for his
exports. There is a broad agreement that countertrade can take various forms of
exchange like barter, counter purchase, switch trading and compensation
(buyback). For example, in 1986
a) Method of obtaining sales by seller and getting a slice of the order
b) Method of breaking into a "closed" market.
Disadvantages of countertrade
a) Not covered by GATT so "dumping" may occur
b) Quality is not of international standard so costly to the customer and trader
c) Difficult to set prices and service quality
d) Inconsistency of delivery and specification,
e) Difficult to revert to currency trading - so quality may decline further and therefore product is harder to market.
Shipley and Neale (1988) therefore suggest that before using countertrade the following considerations should be made:
· Ensure the benefits outweigh the disadvantages
· Try to minimise the ratio of compensation goods to cash - if possible inspect the goods for specifications
· Include all transactions and other costs involved in countertrade in the nominal value specified for the goods being sold
· Avoid the possibility of error of exploitation by first gaining a thorough understanding of the customer's buying systems, regulations and politics,
· Ensure that any compensation goods received as payment are not subject to import controls.
Despite these problems countertrade is likely "to grow as a major indirect entry method, especially in developing countries.
Besides exporting, other market entry strategies include licensing, joint ventures, contract manufacture, ownership and participation in export processing zones or free trade zones.
Licensing is defined as "the method of foreign operation whereby a firm in one country agrees to permit a company in another country to use the manufacturing, processing, trademark, know-how or some other skill provided by the licensor".
It is quite similar to the
"franchise" operation. Coca Cola is an excellent example of
Entry point with risk reduction,
Benefits to both parties,
Capital not tied up,
Opportunities to buy into partner or royalties on the stock.
Limited form or participation,
Potential returns from marketing and manufacturing may be lost,
Partner develops knowhow and so license is short,
Partner becomes competitor,
Requires a lot of planning beforehand.
Those who decide to license ought to keep the options open for extending market participation. This can be done through joint ventures with the licensee.
2.2 Joint ventures
Joint ventures can be defined as
"an enterprise in which two or more investors share ownership and control
over property rights and operation”. Joint ventures are a more extensive form
of participation than either exporting or licensing. In
· Sharing of risk and ability to combine the local in-depth knowledge with a foreign partner with know-how in technology or process
· Joint financial strength
· May be only means of entry and
· May be the source of supply for a third country.
· Partners do not have full control of management
· May be impossible to recover capital if need be
· Disagreement on third party markets to serve and
· Partners may have different views on expected benefits.
If the partners carefully map out in advance what they expect to achieve and how, then many problems can be overcome.
A joint venture (often abbreviated JV) is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise. The venture can be for one specific project only, or a continuing business relationship such as the Fuji Xerox joint venture. This is in contrast to a strategic alliance, which involves no equity stake by the participants, and is a much less rigid arrangement.
The phrase generally refers to the purpose of the entity and not to a type of entity. Therefore, a joint venture may be a corporation, limited liability company, partnership or other legal structure, depending on a number of considerations such as tax and tort liability.
When are joint ventures used?
Joint ventures are not uncommon in the oil and gas industry, and are often cooperations between a local and foreign company (about 3/4 are international). A joint venture is often seen as a very viable business alternative in this sector, as the companies can complement their skill sets while it offers the foreign company a geographic presence. Studies show a failure rate of 30-61%, and that 60% failed to start or faded away within 5 years. (Osborn, 2003) It is also known that joint ventures in low-developed countries show a greater instability, and that JVs involving government partners have higher incidence of failure (private firms seem to be better equipped to supply key skills, marketing networks etc.) Furthermore, JVs have shown to fail miserably under highly volatile demand and rapid changes in product technology.
Some countries, such as the People's Republic of China and to some extent India, require foreign companies to form joint ventures with domestic firms in order to enter a market. This requirement often forces technology transfers and managerial control to the domestic partner.
Another form joint ventures may take are the Joint Ventures (JV's) in the U.S., Canada, and Mexico dedicated to the conservation of priority bird species and their associated habitats. Each of these JV's is different in how they go about their respective missions but all try to follow the principles of Strategic Habitat Conservation (SHC). SHC combines biological planning, conservation design, conservation delivery, and evaluation and monitoring. Gulf Coast Joint Venture, Lower Mississippi Valley Joint Venture, and Prairie Pothole Joint Venture are just three of the 20+ JV's found in North America.
In addition, joint ventures areMushasha by a joint venture broker, who are people that often put together the two parties that participate in a joint venture. A joint venture broker then often make a percentage of the profit that is made from the deal between the two parties.
A Strategic Alliance is a formal relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations.
Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property. The alliance is a cooperation or collaboration which aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. The alliance often involves technology transfer (access to knowledge and expertise), economic specialization , shared expenses and shared risk.
Various terms have been used to describe forms of strategic partnering. These include ‘international coalitions’ (Porter and Fuller, 1986), ‘strategic networks’ (Jarillo, 1988) and, most commonly, ‘strategic alliances’. Definitions are equally varied. An alliance may be seen as the ‘joining of forces and resources, for a specified or indefinite period, to achieve a common objective’.
A typical strategic alliance formation process involves these steps:
The advantages of strategic alliance includes 1) allowing each partner to concentrate on activities that best match their capabilities, 2) learning from partners & developing competences that may be more widely exploited elsewhere, 3) adequency a suitability of the resources & competencies of an organization for it to survive.
There are four types of strategic alliances: joint venture, equity strategic alliance, non-equity strategic alliance, and global strategic alliances.
Joint venture is a strategic alliance in which two or more firms create a legally independent company to share some of their resources and capabilities to develop a competitive advantage. Equity strategic alliance is an alliance in which two or more firms own different percentages of the company they have formed by combining some of their resources and capabilities to create a competitive advantage. Nonequity strategic alliance is an alliance in which two or more firms develop a contractual-relationship to share some of their unique resources and capabilities to create a competitive advantage. Global Strategic Alliances working partnerships between companies (often more than 2) across national boundaries and increasingly across industries. Sometimes formed between company and a foreign government, or among companies and governments
Whole Planet Foundation
Whole Planet Foundation's mission is to create economic partnerships with the poor in those developing-world communities that supply Whole Foods Market stores with product. The mission is achieved through innovative assistance for entrepreneurship, including direct microcredit loans and tangible support for other community partnership projects.
The most extensive form of participation is 100% ownership and this involves the greatest commitment in capital and managerial effort. The ability to communicate and control 100% may outweigh any of the disadvantages of joint ventures and licensing. However, as mentioned earlier, repatriation of earnings and capital has to be carefully monitored. The more unstable the environment the less likely is the ownership pathway an option.
2.4 Export processing zones (EPZ)
This can be defined as a zone within a country, exempt from tax and duties, for the processing or reprocessing of goods for export. Whilst not strictly speaking an entry-strategy, EPZs serve as an "entry" into a market. They are primarily an investment incentive for would be investors but can also provide employment for the host country and the transfer of skills as well as provide a base for the flow of goods in and out of the country. An example is the Athi River EPZ (Bheenich et al, 1989), founded in the 1990s.
These forms of participation: exporting, licensing, joint ventures or ownership, are on a continuum rather than discrete and can take many formats. Anderson and Coughlan (1987) summarise the entry mode as a choice between company owned or controlled methods - "integrated" channels - or "independent" channels. Integrated channels offer the advantages of planning and control of resources, flow of information, and faster market penetration, and are a visible sign of commitment. The disadvantages are that they incur many costs (especially marketing), the risks are high, some may be more effective than others (due to culture) and in some cases their credibility amongst locals may be lower than that of controlled independents. Independent channels offer lower performance costs, risks, less capital, high local knowledge and credibility. Disadvantages include less market information flow, greater coordinating and control difficulties and motivational difficulties. In addition they may not be willing to spend money on market development and selection of good intermediaries may be difficult as good ones are usually taken up anyway.
Once in a market, companies have
to decide on a strategy for expansion. One may be to concentrate on a few
segments in a few countries - typical are cashewnuts from
Organizations are faced with a number of strategy alternatives when deciding to enter foreign markets. Each one has to be carefully weighed in order to make the most appropriate choice. Every approach requires careful attention to marketing, risk, matters of control and management.
Jr. (1971). Export Marketing Services
Bheenich, R. and Shapiro, M.O. Mauritius. (1989). A Case Study of the Export Processing Zone. in Successful African Development", EDI Development Policy Case Series, No. 1, pp 97-127.
W.E. (1991). International Transport and
Handling of Horticultural Produce in S. Carter (ed.) "Horticultural
Marketing". Network and Centre for Agricultural Marketing Training in
Eastern and Southern
Cunningham, M.T. (1986). Strategies for International Industrial Marketing. In D.W. Turnbull and J.P. Valla (eds.) Croom Helm, p 9.
Jaffee S. (1993). Exporting High Value Food Commodities. "World Bank Discussion Paper" pp 198.
Keegan, W.J. (1989). Global Marketing Management. 4th ed. Prentice Hall International Editions.
A.P. (1991). The Experience and Problems
in Exporting Spices. in S. Carter (ed.) Export Procedures Network and
Centre for Agricultural Marketing Training in Eastern and Southern
Khoury, S.J (1984). Countertrade: Forms, Motives, Pitfalls and Negotiation Requisites. Journal of Business Research, Vol. 12, pp 257-270.
Korey, G. (1986). Multilateral Perspectives in International Marketing Dynamics. European Journal of Marketing, Vol. 20, No. 7, pp 34-42.
Bogart. (1991). "Quoted in The Export Marketing Decision"
Piercy, N. (1982). Company Internationalization: Active and Reactive Exporting. European Journal of Marketing, Vol. 15, No. 3, pp 26-40.
Shipley, D.D. and Neale, C.W. Successful Countertrading. Management Decision, Vol. 26, No. 1, pp 49-52.