Assignment 1
Sabrinzy
Week1LectureNotesI2.pptxTopic 1
The rationale for international marketing
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2017-06-15 15:56:44
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This topic provides an introduction and overview of the topics to be covered this semester. Some key terms are defined while exploring the reasons why we are studying international marketing. As an example, Australia’s trade position is described.
Learning objectives
identify underlying concepts of international marketing
explain the beneficial role of international marketing in firms’ overall marketing activity
assess the driving and restraining forces for international marketing
recognise the various approaches being adopted
explain the position and interests of individual countries such as Australia and New Zealand in international trade
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After completing this Topic, you should be able to:
Introduction
No “one size fits all” approach in international
marketing
Global versus local approach
Asia-Pacific region is dominated by exporters who are:
Indigenous small and medium-scale exporters (SMEs)
Local subsidiaries of transnational firms
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Most U.S. texts on this subject focus on the activities of the transnational firm and the merits of a global as opposed to a local approach to international marketing.
In the Asia-Pacific and particularly Australia, most organisations are local small- and medium-scale exporters (SMEs), or local subsidiaries of transnational firms. Thus, this course focuses on approaches relevant to local firms in the region, although the underlying theory is also appropriate for larger organisations.
What is globalisation?
Globalisation is the process by which firms operate on a global basis, organising their structure, capabilities, resources, and people in such a way as to address the world as one market
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Let’s first define the trend that underlies our study in this subject.
Globalisation
The world is becoming increasingly globally linked in terms of:
Production
Technology
Capital
People
Information
Business
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Some businesses have been operating globally for many years. Qantas, Kodak and Nestlé are examples. However, in recent times the pace of business globalisation has increased at an exponential rate. Now much smaller companies are achieving global reach in a shorter period of time. As markets and companies become global they face a variety of different competitive situations.
Global strategy
Company competes on the basis of its entire combination of competencies, infrastructure and products in all its markets rather than on a country-by-country basis
Requires integration of activities and communication between managers in different countries
Serve the world as one market
Maximise the capabilities and advantages of individual countries
Organise the firm’s operations, organisational structure, capabilities, people, and resources
Strategic decisions - technology, people and alliance partners - no nationality bias
Global competitive advantage
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Corporations that operate on a global level must think and act ‘globally’. Firms in a global industry must compete on a worldwide basis if they are to do well.
Stakeholders of the international firm
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Traditionally firms could hold a customer orientation, a shareholder orientation, focus on competitors, or on employees. In a stakeholder model, all of these groups must be included in planning to understand their impact on the performance of the firm. This is the generalised model of stakeholder orientation used across different economies which leads to the concept of holistic marketing
The new international marketing environment
What has been driving the change?
Communications revolution
Dynamic international trading scene
Increasing role of multi-stakeholders’ interests
Holistic marketing and corporate social responsibility
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There are many influences on the international marketplace. Some key developments that are increasing the need to understand and approach international markets are summarised on this slide.
Communications revolution
Power of information in decision making
Enhanced access to international data
Diminishing role of traditional communication forms
Diverse impact of technology on firms and consumers
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Today we are faced with shrinking communications in a situation where information is power. Technology allows satellite technology with wireless application protocol (WAP) and global communications technology (GSM) facilitates locating customers anywhere in the world.
Consumers around the world are increasingly internet savvy, researching and purchasing online. This makes it imperative that businesses also use digital tools to promote and distribute their offers, as well as taking advantage of productivity gains through outsourcing and digitally enhanced tools.
Holistic marketing
Relationship marketing
Integrated marketing Internal marketing
Social responsibility marketing
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When building marketing strategy for this stakeholder focus, an organisation must include the four elements on this slide, which together make up the holistic marketing perspective.
International corporate social responsibility
Product use: focus on the contribution of products to assisting in wellbeing and quality of life
Business practice: focus on good governance and environmental sensitivity
Distribution of profits: equitably and with a just return to the host community
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Corporate social responsibility marketing includes these 3 key elements:
What is international marketing?
International marketing is the process of planning and undertaking transactions across national boundaries that involve exchange of value
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What is the difference between global marketing and international marketing?
As mentioned earlier, global is about seeing the whole world as one market, and identifying market segments with common needs, regardless of geography.
International marketing is perhaps a smaller scale perspective, more appropriate to SMEs. It is about looking for trade opportunities in one foreign market, or a small collection of markets, with the potential to expand to a global perspective when resources permit. It is important that the concept is a well thought-out and articulated strategic process which requires planning and integration with the other business functions rather than being an ad hoc process.
Driving forces in international marketing
Market needs
Technology
Cost Government Communications
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What are the key forces that drive organisations to undertake international marketing?
Market needs – the customer demands broaden from a single market transcend national boundaries
often created by promotion (e.g. De Beers in Japan) Technology: Digital tools enable cross border trade universal, uniform and consistent factor
knows no cultural boundaries – only in application does culture impact Cost: The more we can product/sell, the lower our marginal costs economies of scale drive down cost
cost pressure becomes more intense when major investment and extended development periods are involved (e.g. the pharmaceutical industry) Government: through creation of:
policies and assistance measures
standards that are compatible with other countries Communication:
information technology means that new innovations become known throughout the world more rapidly, creating demand.
Standardisation vs. Adaptation: An introduction
Restraining forces in international marketing
Political systems
Legal requirements Cultural norms Economic development
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What elements hinder the growth of international marketing? Differences between national markets:
because of the differences there is a requirement for the adaptation of at least some elements of the marketing mix may be a function of the economic development, political systems, legal requirements and cultural norms
These different macro-environmental forces are embedded in national markets which requires international marketers to adapt strategies to conform with these forces.
Restraining forces in international marketing (cont.)
Controls over entry and access to markets
Actual or perceived risk
Commercial
Cross-cultural
Country
Financial
Myopia
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Control over entry and access to market:
either in the domestic or the international market to protect national values and local vested interests achieved through tariff and non-tariff barriers.
Actual or perceived risk:
commercial risks cross-cultural risks
country risks (political and legal) financial risks.
Myopia – inability to see past your own country or own ideas.
Refer to Figure Risks involved in international marketing - Next slide
Risks in international marketing
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As mentioned on the previous slide, there are 4 main categories of risk that can hinder the growth of international marketing and trade
The risk factor is a key dynamic factor in international marketing which requires marketers to constantly update their understanding of evolving forms of risk.
Drivers of growth in the international economy: Summary
Change in management orientation
International monetary framework
World trading system
Communications and transport
Technology
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Expansion in world trade over the last 50 years has been above 7% per annum. Thus there are inescapable global linkages that bind countries, institutions and individuals closer together. Underlying causes for growth in the international economy include:
Drivers of growth in the international economy (cont.)
Management orientations
Ethnocentric orientation: the approach in the home country should be applied in every country
Polycentric orientation: each country is different and should develop its own unique marketing approach
Regiocentric orientation: views the region as the market and develops region-based strategies
Geocentric orientation: views the world as the market with the flexibility to respond to local needs and wants
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An increasing number of companies that began with an ethnocentric orientation and then moved to a polycentric orientation have now adopted a regiocentric or geocentric orientation in response to changes in the international marketplace
Drivers of growth in the international economy (cont.)
International monetary framework
Increased liquidity to facilitate the trade of goods and services across economies
Cessation of fixed exchange rates from 1969
World trading system
Since 1945 there have been a succession of international trade agreements
Rise of regional trade groups
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Global institutions such as the World Bank and IMF, have increasingly played a key role in the management of the international monetary framework and jurisdiction of the world trading system International monetary framework
Greater liquidity required.
Exchange rates now floated not fixed.
International Monetary Fund (IMF) enables members to special drawing rights (SDRs) in settling transactions involving reserves. The world trading system
General Agreement on Tariffs and Trade (GATT) born to prevent the discriminatory trading practices of the 1920s and 1930s. Eventually replaced by the World Trade Organization (WTO), in 1995. Recent decades have been characterised by the emergence of an increasing number of regional trade groupings such as the ASEAN Free Trade Area and the North American Free Trade Area (NAFTA)
Drivers of growth in the international economy (cont.)
Communications and transport
Time and costs involved in transporting goods have fallen significantly over time
Improved communications and data exchange have increased efficiencies in international trade
Technology
Easier to gather, analyse and disseminate information
Rise of the ‘marketspace’
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Technology
The internet allows information to be gathered, analysed and disseminated faster and more easily than ever before. Production is faster and less costly.
Outsourcing is possible.
Need to consider the ‘marketspace’ versus ‘marketplace’.
Motivations for international marketing
Reasons for undertaking international marketing can be proactive or reactive, internal or external
Leads to four possible reason combinations:
Proactive internal
Reactive internal
Proactive external
Reactive external
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Proactive or reactive approaches to undertaking international marketing can be used. These are derived from either internal drivers or external opportunities and include:
Internal rationales
Proactive - internal
Management desire
Unique offering
Utilise excess capacity
Size of domestic market
Stagnant or declining domestic market
Reactive - internal
Diversification risk
Reduce problems of seasonality
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Proactive – internal Management desire:
dependent on international involvement in general view of specific markets by relevant decision makers
also responsible for targeting government with marketing awareness campaigns Unique features of the offering:
make the offering attractive to foreign buyers
provide opportunities to amortise investment in product line over larger volume of sales Utilise excess capacity:
firms can work three shifts but usually only work two. More shifts equate to lower costs enabling firm to compete in overseas markets allows firm to move from only exporting excess Australian stock
Small size of domestic market:
some products are unable to survive in the domestic market they are often designed with an overseas market in mind
cause may be the technology required to produce product or the nature of the end product Stagnant or declining domestic market:
tough times in domestic market may lead to branching out overseas
particularly during recession export promotion agencies find firms are more responsive to overseas involvement. Reactive – internal
Diversifying risk:
with overseas involvement, variations in countries’ business cycles means reduced risk
the depressed state of the US airline industry would have meant that Boeing would have had major problems if they were not exporting Reduce the disadvantage of seasonality:
southern and northern hemisphere variations means they can export during the off season, thus increasing volume and gaining higher prices this seasonality also applies to products such as clothing, sports equipment and tourism services.
External rationales
Proactive – external
Opportunities in foreign markets
Other sources of stimulus e.g., government grants
Reactive – external
Unsolicited order or approach
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Proactive – external Opportunities in foreign markets:
can be a decision to seek business overseas Other sources of stimulus:
international involvement by firms can be made more attractive by groups within the domestic market such as government, port authorities and banks and chambers of commerce other stimulus include:
provision of export incentives trade missions
support for overseas displays.
Reactive – external Unsolicited order:
incidental involvement through orders received which leads to further action from the firm going overseas in search of opportunities.
International marketing approaches: Summary
From domestic to transnational
From indirect exporting to foreign direct investment
From an export focus to a holistic focus
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There are three main approaches to international marketing based on the increasing levels of involvement and resource commitment of the firm. The following slides explore each in a little more detail
The different approaches to international marketing are based on increasing forms of involvement or commitment. They reflect the fact that since World War II the international trading environment has become more complex and the interdependencies between firms in different countries are much greater.
Approaches to international marketing (cont.)
From domestic to transnational
First stage in the firm exploring opportunities outside the home country
Domestic orientation - export to overseas agent
Move to international marketing - commit resources to overseas market
Take multinational stance - adapt for the market
Move to global marketing - provide competitive global offering leveraging global assets
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Firms are considered in terms of their orientation – domestic to exporting (indirect or direct) to transnational.
Approaches to international marketing (cont.)
From indirect exporting to FDI
Use Australian agent
Export to overseas intermediary
Set up a sales office overseas
Arrange for an overseas firm to manufacture under license
FDI in overseas market to avoid import restrictions, for example
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Firms are classified according to the nature of their involvement in export-led or outward-driven international activities outward-driven international activities.
Approaches to international marketing (cont.)
From export to holistic focus
Import through Australian agent
Import direct
Establish overseas buying office
Manufacture the foreign product in Australia under license
Overseas firm sets up factory in Australia
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Previous approaches assume that the international marketing activities are restricted to outward-driven international activities, but the firm’s activities can be inbound as well (e.g. importing). Similar stages for importing apply:
importing through an agent importing directly from overseas
establishing a buying office overseas (e.g. David Jones Ltd.) manufacturing a foreign product in Australia under license
eventually engaging in foreign direct investment in the supplying country to produce goods for sale in the Australian market.
Concepts underlying international marketing: Summary
Comparative advantage
Product lifecycle extension
Internalisation
Relationships and networks
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Some key concepts that underpin international marketing strategy – explored on the following slides
International marketing concepts: Comparative advantage
The theory of comparative advantage says that countries should focus on what they do well rather than trying to produce everything
By specialising in the production of the good in which the country has lower comparative disadvantage, and importing other goods, the total goods available will increase
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The theory of comparative advantage argues that a country can gain from international trade even if it has a disadvantage in the production of all goods, or even if it is better than other countries at the production of all goods. The theory is based on the notion that a country should focus on what it does best rather than trying to produce everything. For a good worked example of comparative advantage, see:
Micro 1.3 Comparative Advantage: Econ Concepts in 60 Seconds http://youtu.be/FpTBjRf8lGs
International marketing concepts: PLC extension
Different economies at different stages will provide new growth markets for mature products
Product trade cycle refers to the lifecycle of the market and assumes that a product will originate in an advanced country, trickle down to developing countries and then to less developed countries in a waterfall effect
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Products in a specific market proceed through four stages in their life from their inception to their abandonment:
introduction growth maturity decline.
As one market becomes mature, firms seek international markets in which the product is still at an earlier stage of the life cycle.
A related concept is the product trade cycle which incorporates the life cycle of markets and proposes that the relationship between the product and market proceeds through four stages: export of the product
production of the product in the overseas market that market then exports to nearby markets
the overseas market then begins to supply the Australian firm.
International trade cycle
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Underlying the model is the assumption that the product originates in an advanced country and then trickles down to developing countries and then less developed countries.
International marketing concepts: Internalisation
Internalisation refers to the extent to which firms retain control over their product in the international market by keeping activities in-house or relinquish control, for example, through the use of agents
The greater the internalisation the greater the cost
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Internalisation results when a firm decides to maintain control of its activities overseas and thus undertakes all of the relevant activities associated with operating in the international market. The benefits include: the reduction or removal of search and negotiating costs for distributors
protection of the firm’s reputation costs of contracts being broken
buyer uncertainty associated with quality and maintenance of quality.
Problems which may be reduced by internalisation
Management of the relationship with the overseas government
Control over purchases and conditions of sale
Consistency in the volume and content of promotional activities
Control over marketing outlets
Integration of activities in the overseas country with activities in third country markets as well as the home country
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The benefits include:
the reduction or removal of search and negotiating costs for distributions protection of the firm’s reputation
costs of contracts being broken
buyer uncertainty associated with quality and maintenance of quality.
Problems which may be reduced by internalisation (cont.)
Search and negotiating costs
Protection of the firm’s reputation
Costs of contracts being broken
Buyer uncertainty as to quality and maintenance of quality
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By internalising overseas activities within the firm, a number of problems frequently encountered in international marketing can be avoided.
International marketing concepts: Relationships and Networks
Relationships and networks have an equal, and often greater, impact on international marketing success than the product and financial aspects of the offering
Linking into local networks increases the effectiveness of international marketing
Influence of Asian firms on networking in international trade
Network membership can reduce risk
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The establishment of relationships becomes important in reducing the perceived risk of parties to a transaction who are unfamiliar with each other. Firms operate within networks and are as dependent on other partners in the network as they are on their own activities. Networks are important in terms of establishing agents or joint venture partners. Firms established in Asia often have an advantage here as they grow in a culture that is dominated by relationships, giving greater skill at this element of international marketing.
Membership in a network gives more avenues of support when problems occur, and can help reduce each of the different forms of risk mentioned earlier.
The wheel of international marketing model components
Hub consists of the marketing mix variables of product, price, place and promotion
Spokes are the interactions between the firm and foreign environment including political/legal, economic, financial, social/cultural, technological, geographical and infrastructure factors
Rim represents the modifications required to interact in foreign environment
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This model is designed to assist understanding of the important elements underlying development of a successful international marketing strategy. The hub is akin to the marketing mix variables – product, price, promotion and distribution. Factors are controllable within the firm’s environment.
The spokes connect the hub to the rim and impact on the relationship between the hub and the rim. The spokes are akin to regulations on exporting that are usually imposed by the domestic government for commercial, economic, technological, political and legal reasons.
The rim cushions the impact of the bicycle on the road, and is akin to cushioning the impact of domestic marketing approaches on the international marketplace – in other words, sensitivity. Consists of the foreign market uncontrollable variables such as cultural, economic, political, legal and competitive forces.
The wheel of international marketing
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The main areas requiring sensitivity are the economic, financial, legal, political, social, cultural, infrastructure and technology areas and the country’s international agreements and obligations. All the marketing mix variables at the hub of the wheel need to be substantially modified to take the above environmental factors into account if international business is to be successful.
Importance of World Trade
Global linkages and growth of international trade
Commercial relationships and diplomacy
position of international trad
e-
Changing com services growth
Global companies—produce for the world market and production occurs where it can be done cheapest
Transnational companies (multinationals)—produce goods and services or manage investments in more than one country and blend the market-specific approach with standardised production methods
Multi-domestic companies—aim for maximum local responsiveness, but are willing to customise both their product offering and market strategy to different local conditions
The dilemma of definition
