Chapter 14 - Marketing Strategy
Lesson Objective: To understand the different methods for entering international markets
As a part of Marketing Strategy businesses sometimes pursue International Markets. On this regard we need to understand:
Opportunities and problems of entering foreign markets;
Trade barriers;
The different ways to overcome the challenges of entering a foreign market.
Business' efforts to enter international markets are various: ecommerce, exporting, setting up offices and/or manufacturing in other countries.
Why do you think businesses enter foreign markets to start with?
There are many reasons for such efforts - most of which are related to the growth potential of this decision:
Companies seek sales growth so that:
They can increase their revenues;
Decrease their costs (economies of scale);
Increase their profits.
Entering a foreign market, however, has never been an easy task. Some 'recent' developments, however, have made this task less troublesome for businesses:
Technological developments, specially the ones related to communication;
Transportation developments: faster, more reliable, and cheaper transportation;
Agreements between countries to reduce the so called 'trading barriers'.
Trade Barriers are taxes (tariffs), quotas, or bans that one country poses on the goods of other countries to prevent or increase the cost of these products entering that country.
How does it work?
Import Tariffs / Taxes:
Tariffs are taxes that you have to pay when you are importing a good from one country to another.
Because of tariffs imported goods become more expensive when they are sold in the country they are imported to.
Quotas:
A physical or monetary limitation placed on the importing of certain goods and services;
Any amount above the limitation cannot be imported into the country.
Other than tariffs and quotas there are many more challenges businesses face when trying to enter a foreign market - these include:
Language, religious, and cultural differences which can impact translation, symbols, logos, colors, advertisements:
Economic differences which include income variations, costs of doing business (e.g. transportation, taxes, resources, etc.):
Social differences, including age structure of the population, the importance of family, the role of men and women within the society, etc.:
Difference in legal controls: different laws and regulations impact businesses' packaging, ads, or even the product itself - leading to an increase in business costs:
Lack of market knowledge from the business entering the foreign country market: market size, competition, medias for promotion, tastes/preferences of customers - the market might not be familiar with the business either:
To overcome all these many challenges of entering international markets businesses can follow various strategies:
Franchising
Licensing
Joint-Ventures
Franchising:
- When a business buys the rights to use an existing (usually well established) brand's:
Logo
Name
Products
Processes
- Franchising fees can either be a fixed yearly amount or a percentage of revenue;
- Franchising from popular brands is very costly;
- Franchising decreases a business risk of failing.
Licensing:
- When a business allows another business to produce its branded products (e.g. MCS and Coca-Cola);
- Avoids tariffs/quotas since goods are now being produced locally;
- Risk of damaged brand reputation (if the licensee makes a poor job)
Joint-Ventures:
- Two or more businesses working on a particular business opportunity (venture);
- Reduces risks and costs involved with launching a brand-new venture alone;
- Shared investment, market knowledge, expertise increase the odds of success;
Main problems with Joint-Ventures include:
Any mistakes made by one of the businesses involved will damage the entire joint-venture;
Decision making is usually slow and ineffective as different companies have different processes/methods and cultures.
To-Do List:
Exam Practice Questions (p. 199)
Chapter 14 - Marketing Strategy
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