Pros and Cons of Positioning and Expanding the Company's Strategy and Operational Direction - Essay Example

? Executive Development: Week 2 Assignment White Paper on Pros and Cons of Positioning and Expanding the Company's Strategy and Operational Directionin the Global Markets [Course] [Name] [University] In partial fulfillment of the requirements for [Course] [Name of Professor] [Date of Submission] Table of Contents Page Title Page 1 Table of Contents 2 Abstract 3 Introduction 4 Discussion 6 Conclusion 12 References 13 Abstract Global expansion is becoming more and more popular nowadays due to the nature and requirements of every company. This paper explores the strategies that can be used in attaining the company’s goal of expansion to a global market. Creating brand equity is the initial step for a company to develop acceptability from foreign markets. Brand positioning should also be done strategically to determine the target market for the products and services offered by the company. Finally, this paper provides different approaches and strategies that can serve as a reference for the planning of a company’s mode of entry. White Paper on Pros and Cons of Positioning and Expanding the Company's Strategy and Operational Direction in the Global Markets Introduction Most multinational companies have been operating in the global market for decades, with combined sales that accounts for a quarter of the entire global economy. According to Kotler, Keller and Burton (2009), Altria and its subsidiary Philip Morris operates to over 160 countries with a total size comparable to the economy of New Zealand, the company’s exports in 2006 took part in the GDP Growth of the US comprising a quarter of the entire market. The competition in the global market is becoming more and more tight and risky due to the increasing number of companies, whether small, medium or large scale, that is venturing out to the global market (Kotler, Keller, and Burton, 2009). China and Eastern Europe are emerging markets that are lucrative to companies that are aligning their plans towards global expansion. China offers low manufacturing costs, large market space, and thousands of workforces makes it a primary investment area. On the other hand, Eastern Europe provides a venue for companies to pursue a dynamic growth with access to highly skilled labor force and relatively low cost in a stable legal framework (BearingPoint, 2005). A company gets its initial exposure to the international business when they start to establish foreign trade to partner countries for purchasing or selling raw materials, goods, or services. The transactions are relatively simple in cases where the flow of cash is only in one direction, for instance, an importer paying a foreign supplier. For this case, the primary need is foreign exchange services and finance services without the need of having a bank account in the country where the trade partner is located. However, as the company expands its international business, the need to establish an operation in a foreign country becomes inevitable. This property acquisition may range from having a simple sales office to a highly complex operation such as putting up a manufacturing facility. In this line, where international operations handle making and receiving payments in a foreign currency, an effective international treasury management is important (Deroo, 2011). The drawback of such operations is that offshore trade activities are not visible to corporate treasury making it difficult to determine the company’s cash position, control over foreign exchange exposures, and manage its working capital globally. There is also a deficiency for safety and security associated with preventing fraudulent activities as well as the occurrence of some unwanted degree of bank risks (Deroo, 2011). In order to increase the chances of thriving in the global market several steps should be undergone by the company. A strategic brand management process is important for a good quality product or service. Its most important goal is to develop an intense customer loyalty. The process has four main steps, namely; identifying and establishing brand positioning, planning and implementing brand marketing, measuring and interpreting brand performance, and growing and sustaining brand value (Kotler, Keller, and Burton, 2009). Brand position is essential for a company to be able to be successful in the local as well as the international market. A product cannot secure a good market share if it will be just the same as the other brands out in the market, the goal of the brand positioning is to create an offering that is unique and can sustain the interest of the target market (Kotler, Keller, and Burton, 2009). To further increase the chances of a company to survive in an uncertain economic environment, a corporate relationship is needed. Relationships such as alliances, mergers, and acquisitions will determine the strategic growth of the business (Sharman, 2001). This paper will provide the pros and cons of the strategies for the expansion of a company to the global market. Discussion Several considerations should be examined before undergoing an expansion from a local and domestic market to an international and global market. The considerations include the following: Brand Equity, Brand Positioning, Corporate Relations, and determining the risks involved in competing on a global basis. The most important concept in a company is creating brand equity. This is a way to differentiate the company’s product among other products and services in the market. The differences of the products and services may be analyzed based on the product performance and based on what the product represents (Kotler, Keller, and Burton, 2009). Brands are used by companies to let the consumers associate a certain level of quality and responsibility to a manufacturer or distributor of the product. It also offers legal security to firm through the form of trademarks, patents, copyrights, and propriety designs. The process of developing a defined description of Brand and conveying it to the consumers is called Branding (Kotler, Keller, and Burton, 2009). Branding encompasses a wide range of decision making that requires the participation of the entire organization, including every employee. A financial institution in the Netherlands have applied this type of approach in developing their brand, the closeness of employees and customers both online and offline have provided the company with a continuous feedbacks and suggestions that allows the company have an evolving brand (Ind and Schultz, 2010). There is, however, a risk involved in this approach that is similar to what happened with the Danish Toy manufacturing company, Lego Group. The company has evolved their brand based on their interaction with customers and designing their products according to the interests of the customers. But when the Lego Group adapted to the popularity of computer games and created products that were leaning towards the subject of games and computer, the product started to become irrelevant to the consumers. The situation was a due to the confusion of costumers as well as the employees on what the brand really stood for (Ind and Schultz, 2010). The perception of consumers towards a product or service, associated with what they think, feel, and act about the brand, develops a certain added value to the brand, commonly known as the brand equity. In the perspective of firms, the prices, market share, and profitability of the brand is important to create a better brand equity. In line with this, brand knowledge is also developed through the customers’ personal perception and experiences that is associated with the brand (Kotler, Keller, and Burton, 2009). The next consideration is positioning. A brand should be positioned to a specific and distinct place in a certain target market. This is done to ensure that the brand has a place in the minds of consumers, resulting to a higher chance of success to a firm. Good brand positioning is an essential step in developing an effective marketing strategy, since the company and its employees clearly understand the essence of the brand. Also, a well defined brand position will aid the decision making within the company (Kotler, Keller, and Burton, 2009). In order to have a reference point for a brand position a competitive frame of reference is determined. This classifies the brand on what part of the market it will target, the brand that it competes and the brand that it substitutes. The nature of competition is then defined. The Point-of-Difference (PODs) are usually the attributes or benefits that consumers associate with a certain product that makes it unique or more dominant than the competing brand. On the other hand the Point-of-Parity (POPs) is associations made to a brand that can be similar to other competing brands (Kotler, Keller, and Burton, 2009). Brands should be established with a clear category membership to allow consumer to easily identify the brand that is in the market and associate it with existing brands within the category. However, establishing a category should parallel with the brand positioning because failure do so will result to distrust among consumers. For instance, Hewlett-Packard cameras are in the same category as Sony, Olympus, Kodak, and Nikon but consumers may not confident that it is really with the same class as the other brands (Kotler, Keller, and Burton, 2009). There are several risks involved in considering the category membership, it is important that the POP should be stated to the public first before stating the PODs so that the brand will not be confusing to the consumers. Another approach is the use of straddle positioning, wherein a company will attempt to claim to combine two references. A typical example is the claim of BMW to cater to its consumers luxury and performance have successfully made a point in the market and lead to the establishment of a new category called luxury performance cars (Kotler, Keller, and Burton, 2009). The differentiation strategy can be used to gain advantage over competitors by creating a condition that competitors cannot match. The most basic method is through the quality and performance of the products and services. Other methods includes Personnel differentiation where a company maintains its better-trained employees; Channel differentiation boasts the companies more effectively and efficiently designed distribution coverage, expertise, and performance; and Image differentiation which is done by adding powerful and compelling images (Kotler, Keller, and Burton, 2009). Companies that ventures out in the global market are faced with several risks during in the initial stage of its international operation. Due to the risks involved some companies are keeping their operations closely in a domestic setting, in this case the business would easier to manage and finances are much safer. However, the international market offers higher profit opportunities, larger economies of sales, reduction of dependencies on any market, and customers are going abroad which requires international service (Kotler, Keller, and Burton, 2009). Figure 1, presents several steps that can be followed for the planning period for global expansion. The market that a company would enter should be determined well, which involves creating policies and objectives for the expansion. Typically, companies would start with a smaller market and one country at a time, then slowly expanding and increasing the market share, usually called waterfall approach. Another strategy is the sprinkler approach where the company enters many countries simultaneously (Kotler, Keller, and Burton, 2009). Another consideration that can be taken is choosing between a developed market from a developing market. It is sometimes more profitable for a company to do expansion on countries that are emerging or developing since the needs of this type of market is high. Companies that offer food, clothing, shelter, consumer electronics, appliances, and other goods and service have high demand in emerging markets. The challenge of the company is focused in the effective marketing strategy to fulfill the needs of the consumers and provide a better standard of living to people (Kotler, Keller, and Burton, 2009). The mode of entering the market should be chosen well, and will determine the strategy of the company and its approach on how the market will be attacked. There are five modes of entry, indirect exporting, direct exporting, licensing, joint ventures, and direct investment. Indirect exporting is the mode which is usually chosen by companies since it requires less investment and the risks are less. Direct exporting can then be done when the market is already more stable. The company may decide to put up a domestic-based export department division, an overseas branch, hire a travelling sales representative, and tie up with a foreign-based distributors or agents. Licensing is a simple way of expansion, wherein the company issues a license to foreign company to use the manufacturing process of the company as well as the patents, trademarks, or patent at a negotiated fee or royalty. However, there is an advantage inherent to this mode of entry. There is a change that when the contract ends, the foreign company will make use of the manufacturing process and thus emerge as a competitor of the licensor. To prevent this, the licensor may opt to establish terms with the licensee and supply propriety raw materials and ingredients rather than letting the licensee manufacture everything. Another approach is by maintaining a continuous innovation to the products thus making the licensee dependent to the company and keeps the license agreement for a long time (Kotler, Keller, and Burton, 2009). In addition, Joint ventures are used by foreign investors to share ownership and control of a company in a foreign market. This mode is usually undertaken by firms if the foreign firm lacks the financial, physical or managerial resources to start the business and if the government of the desired market requires a joint ownership for a foreign company to operate in the country. However, the joint ownership might have some issues in the long run about the decision making for future investments and other policies. (Kotler, Keller, and Burton, 2009). According to Sharman (2001), strategic alliances between companies are beneficial for long-term relationships as long as the senior management share the same vision to achieve the goals of both companies. These alliances are the best option to increase the pace of business growth in today’s economy. The direct investment mode is the ultimate approach for global market entry. Large foreign investments in involved in this mode since the company will be developing its own processing and manufacturing plant in the chosen country. The advantages of the company can make use of lower labor costs and lower material costs, government incentives, and freight savings. The firm also strengthens the host country by creating jobs. However, the greatest disadvantage of this mode is that the company is exposed in a large investment and susceptible to losses due to currencies and worsening markets (Kotler, Keller, and Burton, 2009). Conclusion There are several considerations that should be analyzed before a company can enter the global market. Certain decisions should be made in order to create a clear plan and strategy in the expansion of the business. Creating brand equity is important to develop a reliable brand and will provide the company with a higher chance of success. A proactive approach in the branding process of a products and service may be employed and carefully monitored in order to sustain the interest of consumers. Brand positioning is essential for the company to gain a specific niche in a domestic market as well as for the international market. The brand positioning involves the process of developing the point-of-difference and point-of-parity that will set the company’s products and services apart from its competitors. The global market offers a lucrative opportunity to the emerging companies gaining to seek entry to foreign countries. Companies may opt to choose from several modes of entry which includes indirect exporting, direct exporting, licensing, joint ventures, and direct investments. References Bearing Point. (2009). Global Market Expansion: China and Eastern Europe Success Stories. Retrieved from http://www.bearingpoint.com Deroo, F. J. (2011). Expanding into Global Markets: Treasury Management Considerations for U.S. Business Establishing International Operations. Bank of America Merrill Lynch. Deutsche B?rse AG. (2008). The Global Derivatives Market: An introduction. Germany: Deutsche B?rse AG Ind, N., & Schultz, M. (2010, July 26). Brand Building, Beyond Marketing. Booz & Company, Inc.Retrieved from http://www.strategy-business.com/article/00041?gko=9efe7 Kotler, P., Keller, K. L., & Burton, S. (2009). Marketing Management. Frenchs Forest, N.S.W.: Pearson Prentice Hall. Nanda, J. K. (2007). Role of Strategic Management in Global Marketing. Retrieved from http://www.jkanda.com Sharman, H. (2001). Corporate Relationships: Pros and Cons. University of Ottawa. Appendix Figure 1. Globalizing Footprint (Bearing Point, 2005) Read More