CHAPTER 11
DEVELOPING NEW
PRODUCTS FOR
GLOBAL MARKETS
CHAPTER OUTLINE
1.
2.
3.
4.
Introducing products into
foreign markets
Developing a global
product
New product development
processes for Global
markets
Introducing new products
to global markets
DEFINITIONS
PRODUCTS – Anything that can be offered to a
market for attention, acquisition, use or consumption
that might satisfy a want or need. It includes
physical objects, services, places, organizations,
ideas and people.
GLOBAL MARKETING - A total
commitment to international marketing, in
which a company applies its assets, experience
and products to develop and maintain
marketing strategies on a global scale.
What are new products?
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New product line
Addition to product line
Repositioning to new market segments
Improvements/revisions
Cost reductions
Source: Booz, Allen & Hamilton
1. INTRODUCING PRODUCTS INTO
FOREIGN MARKETS
STRATEGIC OPTIONS
1.
2.
3.
EXTENSION STRATEGY –
Same approach as home market
ADAPTATION STRATEGY Makes changes to fit new market requirements
INVENTION STRATEGY Entirely new approach is developed for
the new market
STRATEGIC OPTIONS
4.
5.
STANDARDIZATON –
Same product, all markets
GLOBAL PRODUCTS Only some aspects of the product is standardized
OPTION 1.
PRODUCT EXTENSION – COMMUNICATION EXTENSION
Product Strategy
Communications Strategy
Highlight
1.
Extension
Standardized product with same
Extension
communications strategy across the
globe.
- This strategy is Cost effective
- Allows for greater economies of
scale
- Rarely used for consumer type
products except soft drink and some
luxury type goods
-Used mainly for industrial type
products
OPTION 2.
PRODUCT EXTENSION – COMMUNICATION ADAPTATION
Product Strategy
Communications Strategy
Highlight
1.
Adaptation
Standardized product with different
Extension
communications strategies across the
globe.
- Cost effective because
communications adaptation is
less expensive than the tailoring
product to a local market.
- Can be used for consumer type
products eg. Bicycles
OPTION 3.
PRODUCT ADAPTATION - COMMUNICATION EXTENSION
Product Strategy
Communications Strategy
Highlight
1.
Extension
Changes made to the product, same
communications strategy across the
globe.
Adaptation
- Product formulations are changed
without consumers knowing it. E.g.
detergents
- Entails research, development
expenses and tooling costs.
- Do not allow for economies of scale
to the extent possible under an product
extension strategy
- savings can be realized from the
creation of a single communications
strategy
OPTION 4.
PRODUCT ADAPTATION - COMMUNICATION ADAPTATION
Product Strategy
Communications Strategy
Highlight
1.
Adaptation
Dual adaptation:
Changes made to the product, changes
made to communications strategy
Adaptation
- Recognizes the socio-cultural
differences from country to country
-To make this option profitable, the
foreign market or markets need to be
of sufficient volume
- Calls for extensive research and
development expenses and tooling
costs
OPTION 5.
PRODUCT INVENTION
Product Strategy
Communications Strategy
Highlight
1.
Develop new communications
Usually redesigning of an original
product at a lower level of
Invention
complexity.
- Recognizes the socio-cultural
and economic differences from
country to country
-Leads to more purchases as a result
of the reinvention of the product
Global Product Planning
Different
Product Extension,
Communications
Adaptation (2)
Dual Adaptation
(3)
Product Invention
(5)
Same
Dual Extension
(1)
Same
Product Adaptation,
Communication
Extension (3)
Adapt Product Develop New
Product
Product
STANDARDIZATION VS ADAPTATION
Factors encouraging product standardization:
Economies of Scale in:
 Production
 Marketing/communications
 Research & Development
 Stock Holding
STANDARDIZATION VS ADAPTATION CONTINUED
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Easier management and control i.e.
familiarity
Homogeneity of markets, in other words
markets available without adaptation e.g.
denim jeans
Cultural insensitivity (except industrial
and agricultural products)
Where “made in” image is important to a
product’s perceived value e.g. France for
perfumes, Sheffield for stainless steel
STANDARDIZATION VS ADAPTATION CONTINUED
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For a firm selling a small proportion of its
output overseas, the incremental costs may
exceed the incremental sales value
Consumer mobility for travellers/tourists for
example standardization is expected in
certain products:
Camera film
Hotel Chains
STANDARDIZATION VS ADAPTATION CONTINUED
Factors encouraging adaptation/modification
Mandatory Modification:
 Normally involves either adaptation to comply
with government requirements or
 Unavoidable technical changes
 Example: Car manufacturer
STANDARDIZATION VS ADAPTATION CONTINUED
Legal requirements can include:
 Specified exhaust emission levels (HSE Laws
& strict emission standards)
 Local components (economic law)
 Technical requirements such as:
 Modification of heating/cooling systems for
different climates
 Engine modification to use locally available
fuels
Discretionary Modifications:
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This is called for to make the product more appealing in different
markets. It is as a result of differing customer needs,
preferences and tastes that market research, customer
feedback among others may reveal.
Levels of customer purchasing power – low incomes makes
cheaper version of product more appealing in some less
developed countries
Levels of education and technical sophistication – ease of use
may be a crucial factor in decision-making
Standards of maintenance/repair facilities – simpler more robust
versions may be needed
2. DEVELOPING A GLOBAL PRODUCT

In order to remain competitive, firms often
have to reduce their costs. Usually the
production of standardize products provides
cost advantage, however this strategy is not
as common. Many firms now employ new
strategies:
1. Global Product Development strategy
2. Modularity
The Global Product Development Strategy
A portion of the final product is standardized.
However, the design retains some flexibility
so that the end product can be tailored to the
needs of individual markets.
- This represents a move to standardize as
much as possible those areas involving
common components or parts.
The Global Product Development Strategy

Modularity
This process involved the development of standard
modules that can easily be connected with other
standard modules to increase the variety of products.
E.g General Motors has established a modular product architecture for
all its global automobile products. Future GM cars will be designed
using combination of components from 70 different body modules and
about a hundred major mechanical components (e.g. Engines, power
trains, and suspension systems)
3. NEW PRODUCT DEVELOPMENT
PROCESSES FOR GLOBAL MARKETS
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Developing new products or services for global
markets poses unique challenges.
To combat these challenges, the international firm
can assign development responsibilities to any one of
its international subsidiaries. The success however
will depend on how well the firm marshals its
resources on a global scale to develop new products
for foreign markets.
Steps in New Product
Development process
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Idea Generation
Idea Screening
Concept Development & Testing
Marketing Strategy Development
Business Analysis
Small Batch Prototype Development
Product Development & Testing
Test Marketing
Commercialization / Launch
Sources of New Product Development
1. Head office
2. Lead markets
3. Subsidiaries
4. Purchasing research and development
5. Importing new product technology
6. Acquisitions
7. Joint ventures
8. Alliances
9. Consortia
Sources of New Product Development #1
The organization of Head Office-Sponsored
Research and Development
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Research and development for the introduction of
new products is originally conducted in centralized
facilities in the firm’s domestic market.
The largest portion of research and development
monies spent by international firms goes to support
efforts in domestically located facilities.
Initial introduction at home is followed by a phase-in
introduction to the company’s foreign markets.
The organization of Head Office-Sponsored
Research and Development
Reasons for Head Office-sponsored Approach:
1. R&D is centralized so there is an integrative
strategy with regards to product development. To
achieve this there must be frequent contacts and
interfacing between R&D facilities and the company’s
main office.
2. To minimize duplication
3. For the effective and efficient utilization of scarce
research funds
4. To capitalize on the firm’s experience in their
domestic market.
Sources of New Product Development #2
International Leads Markets and Research and
Development
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The lead market is a market whose level of
development exceeds that of the market in other
countries worldwide and whose developments tend
to set a pattern for other countries.
Lead markets are not restricted to technological
developments as embodied in product hardware.
Lead market advantage based on superior design,
advanced features, function and quality, production
processes, patterns in consumer demand, methods of
marketing. (Any phase of the operation is subject to
lead market influence)
Sources of New Product Development #3
The Role of Foreign Subsidiaries in Research
Development
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Subsidiaries
Subsidiaries may assume R&D function if products require
some adaptation to a local market
Foreign subsidiaries of international firms rarely play an active
role in the R&D unless they have manufacturing responsibilities
and capabilities
Sales subsidiaries provide central organization with feedback on
product adjustments or adaptation, but generally their
participation does not go beyond the generation of ideas.
A subsidiary located in a lead market is in a better position to
observe developments and to accommodate new demands and
can therefore act as an effective “listening post”
Roles of involvement for the subsidiary:
Strategic leader role:
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With responsibility for developing a new range of products to be
used by the entire company. This role will be handled by a
highly competent subsidiary in a market of strategic importance.
Contributor:
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This role would be assumed by a subsidiary in a distinct area
and the subsidiary will adapt some products in smaller though
important markets
Implementer:
These are smaller subsidiaries located in less strategic markets
that act as implementers of the overall strategy without making a
major contribution to either technology or strategy
Sources of New Product Development #4
Purchasing Research and Development from
Foreign Countries
A company may acquire material or information from
independent outside sources that have acquired lead
market status.
How?
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Literature published in lead markets
Regular visits to foreign countries
Trade fairs
Management contact with lead markets
These are admittedly ad hoc measure though.
Sources of New Product Development #5
Importing as a Source of New Products
Some companies import finished products directly
from a foreign firm to supplement their product lines.
This is usually done in areas that do not represent
the core of the firm’s business and technology, and is
used to extend the product offering.
Sources of New Product Development #6
Acquisition as a Route to New Products
Advantages:
 Efficient, cost-effective way to create a new product
instead of trying to conceptualize, R&D and launch
new products from the ground up.
 Overcomes the process of acquiring technological
experience
 Establish supplier relationships
 Circumvents need for large Advertising & Promotional
Budgets to gain visibility & brand recognition
Sources of New Product Development #7
Joint Ventures for New Product Development
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Usually pursued with technologically advanced
foreign company usually at lower costs
Good way to pursue an opportunity that is too
complex, uneconomical or risky for a single
organization to pursue alone
Provide entry into desirable foreign markets when
access is restricted by government
Used when opportunities in new industry require
broader range of competencies that any one
company can marshal
Sources of New Product Development #8
Alliances for New Product Development
Companies are using alliances or the Consortium
Approach to share technology and R&D to gain
competitive advantage
Consortium Approach – member firms join in working
relationship without forming a new entity. On
completion of assigned task, member firms are free
to seek other relationships with different firms.
4. INTRODUCING NEW PRODUCTS TO GLOBAL
MARKETS
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Once a product has been developed for commercial
introduction, the following decisions need to be
made:
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Test Marketing procedure
The target country
The timing or sequence of introduction into foreign market
These decisions are influenced by sales potential. Following
careful analysis, a list of target countries is developed, then the
company will choose from among several paths to the actual
introduction in the target country/countries.
Determining Introduction in target countries
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Concept Test
This involves presenting the product concept to appropriate
target consumers and getting their reactions. The concepts can
be presented symbolically or physically. However the more the
tested concepts resembles the final product or experience, the
more dependable concept testing is.
In recent times, companies are also using virtual reality to test
product concepts. This entails the use of sensory devices to
stimulate reality.
Test Marketing
Test Market
The ultimate way to test a new consumer product is to put it
into full-blown test markets. The company chooses a few
representative cities, and the sales force tries to sell the trade
on carrying the product and giving it good shelf exposure, full
advertising and promotional strategy, similar to the one use in
the home market.
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Simulated Test Marketing
This entails finding 30 to 40 qualified shoppers and questioning
them about brand familiarity and preference in a specific
product category.
Test Marketing
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Controlled Test Marketing
In this method, the number of geographic locations
are tested. The product is delivered to the
participating stores and the product is placed in a
strategic position. Sales results will be measured
electronically through scanners at the checkout.
Timing of New Product Introduction
Market-entry timing is critical. A company may be
faced with the challenge of trying to enter a market
with a new product and learns that a competitor is
nearing the end of its development work. The
company faces three choices:
First entry
Parallel entry
Late entry
Timing of New Product Introduction continued
First Entry
The first firm entering a market usually enjoys first
mover advantages of locking up key distributors and
customers while gaining the reputation of product
leader. If the product is rushed before to market
before it is thoroughly debugged, the product can
acquire a flawed image.
Timing of New Product Introduction Continued
Parallel Entry
The firm might time its entry to coincide with the competitor’s
entry. The market may pay more attention when two
companies are advertising the new product.
Late Entry
The firm might delay its launch until after the competitor has
entered. The competitor will have borne the cost of educating
the market. The competitor’s product may review faults the
late entrant can avoid.
Timing of New Product Introduction continued
Timing decisions involves additional
considerations
If the new product replaces an older product, the
company might delay the introduction until the old
product’s stock is drawn down.
If the product is highly seasonal, it might be
delayed until the right season arrives.