Marketing Management
Of International Trade
October - December 2011
Ing. Ilona Bergquist, MBA
LESSON 2: ENTRY MODES AND STRATEGIES FOR INT. BUSINESS
 Unit 1: Forms of market entry
– Forms of market entry, advantages and disadvantages
– Organizational structures
 Unit 2: International strategies
– Developing international strategies
– Preparing analysis of the market
Page 1
LESSON 1: INTRODUCTION TO INTERNATIONAL TRADE
DECISION FACTORS:
-Ownership advant.
-Location advant.
-Need for control
-Resources avail.
-Global strategy
Level of control over foreign activities
Approaches to Foreign Market Entry
Wholly owned
subsidiary
(Greenfield or
Acquisition
strategy)
FOREIGN DIRECT
INVESTMENT
Joint venture
with local
partner
Franchising
SPECIAL MODES:
Contract mfg
Turnkey projects
Licensing
Export through
agent or
distributor
Indirect
export
Amount of resources committed to foreign market
Three-pronged strategy for int’l markets:
1. company owned stores
2. JV
3. Licensees
1. Owned breweries
2. JV
3. in USA keeps importing
Page 2
LESSON 2: ENTRY MODES AND STRATEGIES FOR INT. BUSINESS
Unit 1: Forms of market entry

Exporting through trading companies
–
Link buyers and sellers in different countries but are not involved in manufacturing
(acts like a wholesaler)
–
TC buy products in one country (at the lowest price and consistent quality) and
sell them to buyer in another country
–
Important function of TC – it takes title to products and performs all activities
necessary to move products to the targeted foreign country
–
–
24 hour a day online world trade system that connects 20 million co.
in 245 countries, offering more than 60 mil products and services,
handling online payments, customs, tariffs, inspection of goods
Advantages
Disadvantages
Risk reduction / gradual market entry
Avoids restrictions on foreign investment,
TC provides producers with info on products that
meet quality & price expectations in int’l markets,
TC may offer other services (consulting, m. research,
advert., insurance, legal assistance, warehousing)
Vulnerability to tariffs
Potential conflicts with distributors
Logistical complexities
3MM firem z
66 zemí
Page 3
LESSON 2: ENTRY MODES AND STRATEGIES FOR INT. BUSINESS

Licensing
–
Leasing a legally protected property (such as a trademarked or copyrighted
name, logo, likeness, character, phrase or design) to another party in conjunction
with a product, service or promotion
–
Contractual agreement between licensor (owner of the property) and licensee
(manufacturer or retailer). The licensee pays commissions/ royalties on sales or
supplies used in manufacturing; licensee may also pay initial down payment when
licensing agreement is signed
–
Alternative to direct investment (lack of resources, strategic or political reasons,
or when the core competencies of the company are not related to the products
being sold (Int’l Olympic Committee)
Advantages
–
Disadvantages
Low financial risk (way of assessing mrkt potential)
Avoiding tariffs or restriction on foreign investment
Licensees provide knowledge of local markets
Steady stream of royalties
Limited profits
Dependence on licensee
Potential conflicts with licensee
Possibility of creating future competitor
ROOSEVELT CHINA
NVESTMENT CORP.
Excusive license to produce
and sell Pepsi Cola in NL
Page 4
LESSON 2: ENTRY MODES AND STRATEGIES FOR INT. BUSINESS

Franchising
–
Form of licensing in which a company (franchiser) grants a franchisee the right to
market its product, using its name/logo/methods of operations, advertising,
products and other elements associated with franchiser’s business in return for a
financial commitment (fee) and agreement to conduct business
–
Difference from licensing:
Franchiser has MORE CONTROL THAN WITH LICENSING (agreement ensures
certain standard of behavior from franchisees which protects the franchisers’ name
Franchisee gets MORE SUPPORT from franchiser
Advantages
Disadvantages
Low financial risk
Avoiding tariffs or restriction on foreign investment
Franchisees provide knowledge of local markets
Consistent revenue stream thru fixed fee &
royalties
Limited profits
Dependence on franchisee
Potential conflicts with franchisee
Possibility of creating future competitor
Page 5
LESSON 2: ENTRY MODES AND STRATEGIES FOR INT. BUSINESS

Franchising
McDonald
In CR:
Straight Franchise: 14mil CZK
Bus. Facilities Lease: 2mil CZK,
renting for 3Y
Page 6
LESSON 2: ENTRY MODES AND STRATEGIES FOR INT. BUSINESS
Page 7
LESSON 2: ENTRY MODES AND STRATEGIES FOR INT. BUSINESS

Contract Manufacturing
– “Hiring a foreign firm to produce a designated volume of the co’s products
(or a component of a product) to specification and the final product carries the
domestic’s firm name”
– Marketing can be handled by the contract manufacturer or the contracting
company
– Most popular forms of contract manufacturing:
outsourcing - contracting noncore operations with org. that specializes in that
operation (can be product or service)
offshoring - moving a process that was done domestically at the local factory to
a foreign country (can be done by its own subsidiary or third party)
offshore outsourcing - contracting with an organization to perform some or all
business functions in a country other than where the product/service will be sold
Advantages
Disadvantages
Lowering cost (resources to manufacturing)
Lowers financial risk
Reduced control (may effect quality, delivery
schedules…),
Reduced learning potential
Potential PR problems (need to monitor working
conditions)
Page 8
LESSON 2: ENTRY MODES AND STRATEGIES FOR INT. BUSINESS

Joint Venture (in Int’l Mktg)
– Partnership between domestic firm and a foreign firm or government; control
may be split or one party may have the decision making power
– Typical situations when JV formed:
• large capital investment required
• political necessity due to government restrictions on foreign ownership (eBay
closed its online auction site and entered into JV with Chinese firm Tom Online)
• acquisition is not feasible or the risks/constraints leave no other alternative
– JV are assuming greater global importance (cost advantages and the number of
inexperienced firms entering foreign markets)
Advantages
Disadvantages
Local partner has good knowledge of the
economic and socio-political situation, and
may have privileged access to local resources
Requires trust …unintentional transfer of knowhow
Page 9
LESSON 2: ENTRY MODES AND STRATEGIES FOR INT. BUSINESS

Joint Venture (in Int’l Mktg)
– Strategic Alliances: partnerships to create competitive advantage on a worldwide
basis (unlike JV, they typically mean working together – mean more involvement
than in JV)
– Typically large companies from developed countries, may be rivals in certain
markets while working together in other markets. Partners often keep their
identities, each bringing core competency.
– Predominant means of competing in automobile, computer and airline industries
(Sky Team Alliance).
– Strategic Alliances first created by Japanese automobile co. to overcome issues
with import quotas to US (Mitsubishi/Chrysler, Toyota/GM, Mazda/Ford)
Page 10
LESSON 2: ENTRY MODES AND STRATEGIES FOR INT. BUSINESS

Direct Ownership
– Company owns subsidiaries or other facilities overseas
Advantages
Disadvantages
High profit potential
Maintaining control
Acquiring knowledge of local market
Avoiding tariffs
High financial and managerial investment
Higher exposure to political risk
Vulnerability to restrictions on foreign investment
Greater managerial complexity
China’s largest oil producer and refiner
China’s top power company, provides
energy to 1 bil people in CH, founded in
2002
Page 11
LESSON 2: ENTRY MODES AND STRATEGIES FOR INT. BUSINESS
Organizational structure has to support the int’l marketing strategy
Three basis structures of int’l organization:
1. Export departments - exporting, using trading companies, licensing
2. International divisions - exporting, TC, licensing, franchising, contract mfg and JV
(typically organized on the basis of geography for int’ div.).
Should be used when the company a) intends to market only a small portion of
products internationally, and b) when foreign sales account for only a small portion
of total sales
3. Internationally integrated organizations
Most likely among org. with direct ownership in foreign operations
a)
Product division structures – used by most MNC, high degree of diversification (e.g. P&G).
Each division is a self-contained entity responsible for its operations, HQ are in charge of
strategic direction for the firm
b) Geographic areas structures – firms with low degree of diversification (Accenture). Ensures
local responsiveness, but NOT ideal for reducing global cost and transferring knowledge
across regions
c)
Global matrix structures – designed to achieve global integration and local responsiveness.
Means that employees belong to two divisions and often report to two managers (poorly
implemented can result in added bureaucracy)
Page 12
LESSON 2: ENTRY MODES AND STRATEGIES FOR INT. BUSINESS
 Unit 1: Forms of market entry
– Forms of market entry, advantages and disadvantages
– Organizational structures
 Unit 2: International strategies
– Developing international strategies
– Preparing analysis of the market
Page 13
LESSON 2: ENTRY MODES AND STRATEGIES FOR INT. BUSINESS
The Levels of Strategy
CORPORATE STRATEGY
Single Business
Related Diversification
Unrelated
Diversification
BUSINESS UNIT STRATEGY
Differentiation
Overall Cost Leadership
Focus strategy
Cadbury
Schweppes
Root Beer
Hyundai
LG electronics
FUNCTIONAL STRATEGY
Sales
Marketing
R&D
Finance
HR
Operations
Page 14
LESSON 2: ENTRY MODES AND STRATEGIES FOR INT. BUSINESS
Components of Int’l strategy (Corp. and BU Level)

Distinctive Competence:
What do we do exceptionally well compared to local competitors? (cutting edge
technology, well-know/respected brand names, efficient distribution network…)

Scope of Operations:
May be defined in geographical terms or market /product terms (ex. Disney theme
park in US, Japan, France, Hong Kong while movie distribution and merchandise in
200 countries)

Resource Deployment:
How will we allocate resources to these markets? (Production, R&D resources focused
to few countries)

Synergy:
How can different elements of our business benefit each other? (“The whole is
greater than the sum of the parts.”)
Page 15
LESSON 2: ENTRY MODES AND STRATEGIES FOR INT. BUSINESS
Developing International Strategies
Develop a mission
statement
Organization’s purpose, direction.
Wells Fargo: Satisfy all our customers’ financial
needs, help them succeed financially, be known as
one of America’s great companies and be the
number one financial service provider in each of our
markets”.
Perform a SWOT
analysis
External analysis of markets (PEST), competitors,
production costs, labor productivity etc.
Internal analysis of strengths and weaknesses.
Can be done by the value chain (Mktg, Sales,
Service, IT, HR, R&D, Sourcing/Logisitcs)
Set Strategic
Goals
Strategic goals for int’l markets: should be
Specific, Measurable, Acceptable, Realistic,
Time-limited (i.e. number of customers in Y1,
getting certain project/state commission, launching
new line of products, etc)
Develop tactical
goals and plans
Develop a control
framework
Tactics for markets and business units,
including product lines, marketing mix,
distribution channels, etc.
KPI - can be sales /profit goals, market share,
visitors attendance (# of customers), distribution
levels, etc.
Page 16
LESSON 2: ENTRY MODES AND STRATEGIES FOR INT. BUSINESS
External Analysis
STEEP (PEEST)
analysis
Info examples
Sources:
Socio-demographic /
ethical
Cultural values, education levels,
population growth/ structure (age,
ethnics), regional split….
CSU (www.czso.cz)
Technology
Science research expenditures,
communication technologies dev., internet
penetration….
CSU
Euromonitor
Economic
GDP, inflation, Avg. HH income, banking
structure, HH debt level, initiating
business, capital / financing sources
Euromonitor,
KPMG
http://europa.eu.int (EU portal)
http://mkaccdb.eu.int (Market
Access Database
www.mzv.cz
www.mpo.cz
www.businessinfo.cz
www.kompass.cz
Tel. line for export 800 133 331
Ecology
Environmental protection, using
renewable sources of energy, recycling
mat. legislation…
Ecology websites
Political
Tariffs, taxes, consumer protection laws,
hygienic conditions for food mnfg….
Governmental website
Page 17
LESSON 2: ENTRY MODES AND STRATEGIES FOR INT. BUSINESS
External Analysis
MARKET analysis
Category
Size, growth, seasonality, promo volumes,
prices, segment sizes… Trends…
Competition
Share, growth, innovation, strengths/weakness,
target segments, pricing strategy
Companies’
websites
Supplier / retailer
Stability of suppliers, retailer structure /
distribution channels, margins, pricing
Datamonitor, web
Customer
Customer/consumer needs, expectations
Ipsos, GFK, AISA, MB…
Page 18
LESSON 2: ENTRY MODES AND STRATEGIES FOR INT. BUSINESS
Marketing Planning (developing tactical plans)

Cooperation needed with other
functional dept. (production, finance, sales…)

Product categories needs to be
based on what customer needs/
wants are – key strategic brands vs. cash
cows; launch support vs. maintanance

Target groups can be defined
based on mktg research

Small firms 5-10 segments, while large
firms can have 50 (ie. CocaCola)

Pricing – based on fixed and variable costs,
competitive pricing, demand, effect
(pressure) of retailers (listing fees, etc)

Prices can vary – home country 100%,
country X at 80%, country Y at 120%
(i.e. medication US/CZ)

Distribution – convenient to customers,
mix of distr. channels (internet, retailers,
direct sales..) … For some distr. channels
the firm can have different products
Product categories
to be marketed
Target segments /
groups
Determining pricing
strategy
Determining
distribution strategy
Communication Mix
development
Page 19
LESSON 2: ENTRY MODES AND STRATEGIES FOR INT. BUSINESS
Marketing Planning
Communication
Mix development

Communication Development

Frequent Mistakes – no skilled marketing managers,
not using advertising or graphic design firms,
driven by own perceptions from home country and not getting local knowledge

Smaller firms better off with a full-service ad agency (PR, promo, web, in-store…)

Possibility to cooperate with distributors or local sales people on promo activities

Types of marketing communication:
 Advertising (TV, print, radio, billboards, digital signage)
 Direct Sales/Mktg (door-to-door selling, exhibitions, catalogs, telemarketing)
 Promo activities (sweepstakes, shows, coupons, sales, samples, grand
openings, loyalty programs….)
 PR (sponsorships, PR articles, events with celebrities/Brand advocates…)

Exhibitions – verify structure of customers from past years, secure good
placement of the booth, have relevant promo material/samples, secure quality
personal at the booth, leverage additional programs taking place there
Page 20
Next Session
Key topic areas:

International trade development, role in the economy, benefits for companies

Entry modes for international business and developing international strategies

International marketing

Marketing Research; Creating and leveraging knowledge

Managing business plans; Managing HR
Home work:
Readings
1. Connect and Develop: Inside P&G’s New Model for Innovation
2. Tap Your Subsidiaries for Global Reach
Case Studies
The Global Branding of Stella Artois
Hitting the Wall: Nike and International Labor Practices
Page 21