International Marketing - Essay Example

?International Marketing Table of Contents Internationalization Process 3 A) Stages in Entry Process 3 5 B) Decision to Be Made In Each Stages 5 2.Analyzing Organizational Readiness 7 A) Reason for Taking Company to International Stage 7 B) Readiness of Company to Internationalize 7 C) Accessing Company’s Ability to Enter Foreign Markets 7 D) Proactive and Reactive Measures to Go Abroad 8 3. Product Suitability Assessment 9 A) Assessment of Auer Waffeln Product 9 B) Criteria for a Good Product in Foreign Market 9 5. Entry Mode Choice 11 A) Stage Theory of Internationalization 11 B) External and Internal Factor for Choice of Entry Mode 11 C) Advantages and Disadvantage of Entry Modes 12 References 13 Bibliography 13 1. Internationalization Process A) Stages in Entry Process Internationalization process allows new ventures to gain growth and positive returns through capitalizing on their unique resources as well as capabilities. Learning also becomes possible and internationalization facilitates the new ventures to create and exploit its knowledge. While entering into any markets of any country, it becomes essential to look for opportunities for the product in that particular country so that success can be achieved. There are five basic steps that can be taken into account while expanding operation in other countries. They are ‘country identification, preliminary screening, in-depth screening, final selection and direct experience’. Country Identification It becomes too essential to carry out a common overview of prospective new markets. It may happen at times that two countries share a similar culture, political ideology or religion such as China and Cuba, similar language like the United States and Australia, similar heritage such as the United Kingdom and Australia. In this stage, the selection becomes straight forward. Preliminary Screening This is the stage where it becomes essential to have a serious look at those countries remaining after undergoing preliminary screening. Here one begins to score weight or rank the nations according to macro-economic factors such as level of domestic consumption, exchange rate, currency stability and others. This is the stage where companies begin to start calculating the nature of the market entry cost. It is to be decided what portion of the company entering into the market is possessed domestically. A proper PESTEL analysis needs to be done before entering the market of other countries. In-depth Screening This is the stage where it would be considered feasible for market entry. Therefore, it becomes important to gain detailed information on the target market so that the strategies can be formulated accordingly. Final Selection At this stage it becomes essential to prepare the final shortlist of the potential nations. It would be viable to look at the close competitors or the domestic companies which have already entered into the market in order to get firm costs concerning market entry. In this stage, the managers often looks for nations that it has already entered in order to check the similarities or learning which can be used for decision making. Direct Experience This is the stage where the marketing managers may travel to those particular nations in order to experience the nation’s culture as well as business practices. However, based upon the case study, the following steps of foreign market entry have been identified. 1. Identification of company’s objective in the foreign market entry 2. Preliminary country screening 3. Opportunities and threats in the target country 4. Capabilities, resources and skills needed to succeed in foreign markets 5. Identification of company’s strength and weakness on key success factors 6. Decisions regarding entering the target market 7. Comparison and ranking of the target market B) Decision to Be Made In Each Stages In case of identifying the objective of the company in the foreign market entry, companies need to identify why it wants to enter into the foreign market. The motives may be to exploit large and virgin markets, secure essential raw materials, gain competitive advantage over the competitors or cut cost by employing the inexpensive skilled as well as semi-skilled workers. In country screening process, the decision needs to be taken as to which country can be selected in order to expand the operation. Countries selected in this process undergo detailed investigation. It becomes utmost important to identify opportunities and threats by conducting a PESTEL analysis of the target market. The PESTEL analysis would influence the type of opportunities and threats imposed on a foreign company. The identification of opportunities and threats leads to set of factors most popularly known as key success factors. This factor helps to determine the areas needed by companies to succeed in foreign markets. After that, strengths and weaknesses on the key success factors also need to be identified. This is the stage where companies compare the country’s key success factors with core capabilities and resources of the country. This decision helps to determine strengths and relative weaknesses of the company. Subsequently, at the next stage one needs to evaluate if it is feasible to enter the target markets, if yes, then how. In the analysis process if the answer is affirmative, then further evaluation needs to be done on most appropriate modes of entry. Finally, the decision is made as to which foreign market to enter and in which sequence after gaining the result of ranks of the targeted companies (Phatak, 2006). 2. Analyzing Organizational Readiness A) Reason for Taking Company to International Stage There were several motives behind taking a company to the international stage. The first reason was to eliminate the competitors so that the market share of Auer would increase and customers would switch to Auer’s products. The other reasons have been that internationalizing would bring to the company increased expertise, additional production capacity and modern and cost effective machinery and equipment. B) Readiness of Company to Internationalize After going through the case study, it can be pinpointed that the company was not well prepared to internationalize. This became evident from its various expansion strategies adopted in different countries. When expanding its operation in Middle East, the company faced several problems. Had the company prepared itself for Middle East, it would have not faced problem of product quality deterioration and poor management. Moreover, it was found that the company was not well equipped with resources that are required to internationalize. One of them has been the financial resources when thinking of expanding to the United States. It is important for the company to take into account strengths and weaknesses that it possesses; and opportunities and threats that the target country possesses while making a move to the foreign country. C) Accessing Company’s Ability to Enter Foreign Markets The company is ready to enter the foreign market when it has equipped itself with the required skills and abilities as well as resources. Internationalizing is perhaps one of the most difficult activities in which a company engages in. The reason is that certain companies may have the potential to expand its operation successfully abroad. However, on the other hand, certain companies may not have the ability as well as the resources to enter into foreign markets. Readiness of the company to internationalize can be accessed in two ways. Firstly, the company’s organizational readiness to internationalize and secondly the products readiness to internationalize can be accessed. There are various factors to be considered when expanding operation in other countries. Financial resource is the first factor that the company needs to consider since internationalizing is quite expensive. Therefore, the company’s financial position needs to be evaluated. Second factor is the technical know-how. If the company doesn’t have the required technical expertise as well as knowledge of the target market, then it is not worth expanding. Marketing know-how is the third and the most useful criteria. It is important for the company to access if it has marketing expertise in local market that it can transfer to the overseas market. The company must also have manufacturing capability and decide where the manufacturing activities would take place. The company has to evaluate itself objectively in all these aspects so that it can determine whether it is ready to move into international markets (Trade Secrets, n.d.). D) Proactive and Reactive Measures to Go Abroad It can be analyzed that proactive motivations are profit advantage, technological advantage, exclusive information, tax benefits, economies of scale, managerial urge and unique products. On the other hand, the reactive motivations are excess capacity, overproduction, declining domestic sales, saturated domestic market, competitive pressure and proximity to customers and ports. After analyzing the case study, it can be revealed that the company’s move towards Middle East was proactive since Guenter Auer gained exclusive information regarding the market and the strategies that he needs to adopt in this particular market. Its expansion into the European market can be considered as reactive measures. 3. Product Suitability Assessment A) Assessment of Auer Waffeln Product It can be analyzed that a few products of Auer had been quite appropriate for international markets while some had been a big failure. For instance, Guenter Auer’s decision to diversify into ice- cream retail business was seen as a big failure for the company since the ice-cream business was quite different to that of confectionery production and distribution. Moreover, it required a lot of attention and time. Its product was more appropriate for Middle East. It was sensed by Guenter Auer that in Middle East people had positive feeling about the product. The products were well received in Egypt. The products have been successful in Hungary as well. B) Criteria for a Good Product in Foreign Market In international markets, it would be feasible to introduce the existing product that has already been marketed by the company and has introduced it for the first time in the target market. The goods and services must have the capability to compete with those from other competitors even if they may be cheaper or unique. It must be able to satisfy the needs and wants of the people abroad. The product can be said as a good product if it has a growth prospect in the international market. There are quite a few products that enter into the market with a promise but ends up being a big failure which was evident from the case study itself. It must be such that there must be scope of further addition of features to the product as per the changing requirement of the customers. One of the important considerations while entering the international market is to have a situational analysis of the country. It will assist in understanding the scope of the product in that particular country. Design of the product also plays a vital role in internationalizing the product. With the advancement in the technology, there has been shift in the demands of the consumers as well. They are demanding innovative products with innovative designs. In addition to this the good product needs to satisfy certain criteria not only functional but also aesthetic and psychological. The product must be informative and persuasive while disregarding anything that could possibly detract from it. Good products are self explanatory. The aesthetic quality of the product can be considered as the integral to its usefulness since the products that are used reflects the persona and the well being of the users. However, in this regard it can be said that only well executed products can be beautiful. The design of the product needs to be both neutral and restrained that leaves room for the users’ self-expression. The products must not manipulate the consumers with the promises that cannot be adhered. Therefore, good product needs to be honest so that it attracts the foreign markets. Long lasting products are also preferred by many consumers especially by the middle income group who cannot afford to buy the product time and again. Therefore, this feature also needs to be taken into account. 5. Entry Mode Choice A) Stage Theory of Internationalization According to the stage theory, internationalization of a firm is gradual and incremental process. It has been noted by this theory that by taking gradual and incremental steps a firm can increase its knowledge as well as experiences in the international arena and can minimize the risk and uncertainties. According to this theory, firms target neighboring countries in its early stage of internationalization and then slowly enter in foreign markets with increasing ‘psychic distance’. Moreover, it also focuses that internationalization is a path along which companies take even more complex entry modes. Auer is a good example of this theory. The company has taken quite complex modes of entry into the foreign markets which could have been made easier (Spithoven & Teirlinck, 2005). B) External and Internal Factor for Choice of Entry Mode The Egyptian government’s suggestion to find a local partner in Egypt who would have detailed information about the local market is one of the external factors in Middle East. The consumers’ preference for Auer is the internal factor in the Middle East. It entered into Middle East through the mode of joint venture. Its expansion into the United States has been through indirect exporting. The external factor here in the United States has been another Austrian company who was already exporting to the United States. Auer started selling its product to this company. Indirect competition can be one of the internal factors. Moreover, hiring of personnel is also one of the internal factors for the company. C) Advantages and Disadvantage of Entry Modes It has been evident that the company has adopted various modes to enter into foreign markets such as acquisition, joint ventures, direct and indirect exporting. There were quite a few advantages and disadvantages of the entry modes. Direct exporting is a market entry mode where the manufacturing exporter carries out the entire export process and conducts the business without any intermediary. The major advantages of the direct exporting are that the firm gets complete control over the exporting process and the firm can increase its profit margin by saving its money on payments to the intermediary. The major disadvantage of direct exporting is that the exporter may be exposed to risk and uncertainties. Indirect exporting is another form of exporting where the firm which wishes to export without having sufficient personnel and the resources may export via commission agents, merchant exporters and local buying offices. The major advantage of indirect exporting is that the firm can benefit from the professional expertise that the exporting company tends to provide. The main disadvantage of the indirect exporting is that the firm may loose control over its products. Direct and indirect exporting is also known as export modes where there is high flexibility to companies. Joint venture is another mode of entry. Here, the foreign investors may join hands with the local investors in order to create a joint venture by sharing the ownership and control over the firm. Joint venture is also known as intermediate modes or contractual modes of foreign market entry. The prime advantage of the joint venture is that the foreign firms who do not have required resources can conduct business with the aid of local investors. The firms usually have shared control and risk over the operation of the firm. The drawback is that there may be conflicts among the partners regarding investment policies, marketing as well as other policies. Acquisition has been another mode of entry that the company adopted. It is a 100% internationalizing modes of entry. Here, the firm has high control if it adopts acquisition as a mode of entry, which is considered as one of the advantages. However, the key disadvantage is that there is high risk associated with such modes. Moreover, there is low flexibility. This was evident from the case study itself. This mode of acquisition is also referred as hierarchical modes or investment modes. It can be said that the advantages of each of the entry modes outweigh the disadvantages for any firms to get into the foreign markets. References Phatak, 2006. International Management. Tata McGraw-Hill Education. Spithoven, A. & Teirlinck, P. 2005. Beyond Borders: Internationalisation Of R&D And Policy Implications For Small Open Economies. Emerald Group Publishing. Trade Secrets, No Date. When Is A Company Ready To Export? Trade Manufacturing Capability. [Online] Available at: http://www.tradesecrets.co.za/pdf/sec1-4.pdf [Accessed March 20, 2011]. Bibliography Apfelthaler, G. & Et. Al. 2010. An Austrian Company’s Tale of Growth, Globalization and Decline. California Lutheran University. Read More