International Marketing - Essay Example

?International Marketing Table of Contents Introduction 4 Attraction of developed markets for successful brands of emerging markets: 4 Past Scenario,at a glance 5 Market Selection vs. Market Attractiveness 5 Current Market Scenario; emerging market brands targeting developed markets 7 Hyundai i20 production is shifting from India to Europe 7 Mining the developed market to analyse the current market scenario 8 Recent facts to support the reverse trend 9 The establishment of Godrej in overseas market is an example 9 $10.7 billion bid is confirmed by Bharti for Zain Africa assets 10 Challenges and Obstacles in the away to developed markets 10 Business challenges 10 People & Organizational challenges 11 Customer Knowledge 11 Environmental challenges 11 Manufacturing & selling challenges 12 IPR challenges 12 Evidence to support and measure the extent of challenges: 13 Conclusion 13 References 15 Introduction Successful saturated penetration of a brand in the domestic market always motivates the brand to look forward to the international market. Current picture of global market shows two types of international expansion of successful domestic brands of any country in the World. Marketers from developed countries are looking forward to the emerging markets like India, China, South Korea, South Africa etc and seeking opportunities to expand their business operation there. Brands from emerging markets are trying to step forward to the developed countries like USA, Japan etc to start their business operation there. If we take the example of well known brands such as Samsung and LG, they started business in emerging market and successfully penetrated on the domestic market of South Korea and after that diversified globally in to the developed market like USA and as well as emerging markets like India and China. Indian successful brands like Tata, Bharti Airtel, Lenevo, and Kohinur have achieved some level of success in the global market specially developed markets. Attraction of developed markets for successful brands of emerging markets: So there is a large extent of attraction of developed markets for such brands of emerging markets. Let’s start analyse the reasons behind the attraction of developed markets for the brands of emerging markets as well as emerging countries. Past Scenario, at a glance Globalisation of any country has opened the door for the domestic Players to diversify in the foreign market and welcome the foreign players to start operation in that country. Earlier, the production giants of developed countries started diversification in the emerging markets of developing countries for low-cost skilled labour, low operation cost, and enough resources i.e. raw materials. US companies like General Electric started operation in China and Coca-Cola started in India and they became successful in these emerging market. Similarly, the evidence of reverse case also there like Tata Steel diversified to Europe and acquired Corus, the so called leading steel giant (Breslin, 2003, p.13-18). Market Selection vs. Market Attractiveness There are plenty of theory and model to analyse the international market selection. Market attractiveness is a measurement scale which qualitatively measures a market for the demand of a particular product or brand. It always catalyses the market selection process towards a global market. Mostly applicable and effective theory of market selection is PESTLE analysis. It says that business environment of any country depends upon its six major components. These are Political: It represents how the government represents the economy and a certain business i.e. the way of representing and the extent. Political factor of a country represented by certain areas like taxation policy, labour law, trade restrictions, tariffs and govt. stability. So, market attractiveness towards foreign investors will be high if the entire areas of political environment are business-friendly. Economical: Economical factors are influenced and comprised by the economy of a country, and the World economy. These factors are interest rates, inflation, economic growth i.e. exchange rates and currency strength. These are the main key points to represent a country to the foreign investors and the kea reason for market attractiveness to them. Social: It represents the demographic factors like population growth rate, per capita income, cultural aspects, and health consciousness rate and age distribution. It will help a company to segment the overall market for a particular brand or a product. Not only the market segmentation, there has some area like product positioning, pricing, product life duration also depended on the social factor. Technological: It shows that how much a country technologically strong i.e. technological change and R&D factor and the acceptance rate of new technology and awareness of the people of that country. This factor influences the important areas of a new venture like the minimum efficient production level, outsourcing decisions of technology, cost and quality etc. Legal: This means the business laws and the areas of activity like customer law, employee law etc. If in a country the restrictions and prosecutions are almost similar both for the local players as well as the FIIs then it will help the foreign companies to compete with the local brands. Environmental: It refers to the factors which are influenced and related by the surrounding environment of a country like geographical positions, weather, climate etc. The business of seasonal product mostly depends on the environment. Because if any season delays or comes early then stocks may damage for foods and beverage or may be not enough production for fulfilling the initial market demand of starting of season. These are factors are crucial for the food and beverage industry and tourism industry (Kaplan & Norton, 2008, p.6). Current Market Scenario; emerging market brands targeting developed markets From history we have seen that the kings of developed kingdom used to look forward to the emerging or comparatively weak kingdom to start operation there and use and get the valuable resources there. Best example for this was British’s kingdom in India. After worldwide globalisation top brands from the different developed market diversified worldwide especially and into the emerging market like India, China, and South Korea. But, now a days, a reverse trend is going on i.e. the brands from emerging countries seeking opportunities in the developed market like United States, Australia, United Kingdom, and Japan etc. This trend of diversification of emerging market brand to developed market has been started earlier. A remarkable takeover of British Steel Company Corus by Tata group for ?6.7bn was for the international business operation of Tata Steel (Money Control, 2010). Hyundai i20 production is shifting from India to Europe The production of Hyundai i20 is going to shift from India to Europe. The can be manufactured in plants of any of the three countries like Slovakia, Czech Republic and Turkey where the company has strong business and potential market for the this model. This strategy will not affect the Indian operations because the domestic demand for the model has exceeded the company's original expectations in the Indian market. The core reason behind this planning to shift i20 production to Europe from India is due to 6.5 % import duty levied by European Union which increase the export cost to that region for exporting the car from India (Hyundai, 2012). Mining the developed market to analyse the current market scenario The core reasons for the attraction of developed market for the emerging market brands like Samsung, LG from South Korea, Tata, Bharti from India are good economic activity; adequate banking system i.e. inverse effect on savings and investment. Strong income level in the economy is also favorable. This is because income creates its own demand which benefits the emerging brands in the country. Uniformed or group purchasing behavior of people is important. Due to the high income level of people in developed market demand of new brands is high and group purchasing behavior catalyses the demand. Some of the other aspects include organized government; a market full of wealth; huge investment in physical capital; optimum allocation of resources; healthy work environment, infrastructure, transport; availability of highly expert and professionals; high access to technology; m-wallet; use of market-based transactions in the Western world; and encouragement of international communication and transportation. Another benefit is that if any brands have business operation in any developed market, its brand value automatically increases and it gets a worldwide potential market as people other countries except developed countries always try to follow the lifestyle, taste and preferences of the developed country’s people and give priority to their choice of brands (Kindra, 1984, p.105). The companies will be internally benefited in these below highlighted areas if they go oversees in the developed market like Australia, UK, United States. Reduce costs (Labor, Taxes, and Tariffs). Foreign locations with lower wage rates can lower direct and indirect cost (CKD), as example, Harley Davidson, Volkswagen and BMW have CKD assembly in India. Improved the supply chain activities, hiring of global talent which is very difficult to attract experienced global talent i.e. employees by domestic operation. So it will be beneficial for the company to hire and retain them if the companies start operation in developed market. Gaining access to markets, capital, raw materials, skills and expertise would be easy; ddiversification of risk would be easier as the developed markets always have potential buyers and stable than emerging market, risk will be diversified of the brands of emerging market diversified to the developed markets (Kindra, 1984, p.105). Recent facts to support the reverse trend The establishment of Godrej in overseas market is an example Happened in April, 2010, GCPL decided to acquire Indonesia’s PT Megasari Makmur Group—a household insecticides maker, air fresheners and wet tissues— made it the soap maker’s fifth overseas acquisition in last five years. The company acquired Tura, a Nigerian brand of personal care product, for an undeclared amount. In 2006, GCPL acquired Rapidol, a South African hair color brand and in 2008 Kinky which used to manufacture hair accessories in South Africa. Another important by the company was Keyline brands, a personal care manufacturer of U.K. (Yahoo Finance, 2010). $10.7 billion bid is confirmed by Bharti for Zain Africa assets Bharti has offered $10.7 billion for the acquisition of Zain telecom of Kuwait which is the African asset It is the first take over by Bharti Airtel to start foreign operation for international market penetration (Knowledge at Wharton, 2010).  Challenges and Obstacles in the away to developed markets Business challenges Business challenges include application for foreign govt. clearances (e.g. Export Code No. DGFT Code No.), exploring Industrial Policy & Import Policy of the target Country you plan to expand your business; exploring financial policies and banking channels; exploring incentives available for export as developed countries generally have export incentives; finding suitable export processing zones; taxes and local duties; developed countries have different types of business taxes and tariffs for FIIs. They also have some kind of subsidies for environment friendly product. Selecting Authorized Agent/ Partner/ Distributor: Big brands of developed market do business by TPD i.e. Third Party Distribution for better market penetration. So to compete with them in market presence they have to acquire agents, distributors etc which is not so easy because they generally prefer domestic brands for better profit sharing. Local Business Acquisition: To get an existing market i.e. client base the brands need to acquire local small companies of the same sector or can start as a joint venture. It is a huge initial capital investment because of the big difference of currency between emerging countries and the developed countries. Policies regarding Ownership of Property in the target country; policies for divestiture if things don’t work out also need to be considered (Ajami & Goddard, 2006, p.326). People & Organizational challenges It is seen that HR & recruitment policies are also different as the developed markets have generally non hierarchical organization structure; business units efficient experts to support new business challenges effectively; developing team of well-trained executives to transfer core skills & organizational structure; incentive & Compensation to such executives should according the local market standard; Selecting Manufacturing, Sales & R & D employees; and developing distinctive capabilities (Hodgetts, 2005, p.165). Customer Knowledge Customer knowledge includes knowledge of business culture which is very important for getting attractions of new customers and retaining them as the customers try to find the similar business culture as the domestic companies have; knowledge of local customer requirements is the key points for the FIIs as the local customers will expect more from the foreign companies; knowledge of local customer base is the man driver for a brand to start operation in foreign market; preparing customer relationship management plan is difficult task for the local customers of foreign markets because customer’s psyche, taste and preference are different from country to country (Lavin & Cohan, 2011, “Customer Knowledge Checklist”). Environmental challenges Tough challenges need to face in adopting of new business environment in developed countries. Because there businesses are operated in a very professional, hi-tech and strict in which areas the companies can face so many difficulties. They can face problems in such areas as Insurance: Facility/ People/ General; Labor Regulations, worker compensation rules and many other regulations for running an environment friendly business like pollution air and water, recycling of solid wastage, safe production or manufacture process, hygiene product etc. Following these rules and regulation helps a company to have effective CSR activities. Manufacturing & selling challenges To start manufacturing and then selling is the better way to start foreign operation of any brands than exporting the product in the targeted market. This is because it will help to cut down the price of the final product because of not having to impose the export taxes. But for these manufacturing processes, there are so many difficulties and challenges the company will have to face. Few tough challenges are like plant and machinery needs a certification of GMP, testing and registration of product, regulations of labeling, transportation and distribution licenses, Promotion and Advertising issues, handling customer service and post sales service issues etc (Stevenson, 2009, p.374). IPR challenges Some of the IPR challenges include identifying patents like methods or process of production, Inventor’s Royalty, trademark and copyright designing, some issues related to infringements and litigations (Stevenson, 2009, p.374). Evidence to support and measure the extent of challenges: Announcement of African Zain telecom acquisition by Bharti lower its stock price. Bharti Airtel’s stock has got down nearly 10 per cent just after the announcement of deal with Kuwait’s Zain telecom for its cellular assets in Africa (The Economic Times, 2010). The Smoot-Hawley Act In 1920, the United States introduces “Smoot-Hawley Act”. The main objective of this act was to increase import duties to minimise the amount of goods importing to U.S. because U.S. govt. thought that it could have hampered the balance of trade of the country and it can increase domestic production which helps for better employment rate. The ultimate result of this act was a global depression and a worldwide collapse of banking and financial system (Krasting, 2012). Conclusion International business diversifications are very important for any country’s micro and macroeconomic level. It will help to maintain the equilibrium state of balance of trade in macro level and to get achievement in economies of scale in micro level. That is why organizations have been increasingly trying to extend their operations into international markets. Their main focus are the developed economies which provides them with ample opportunities for flourish and a wide market base provides them with ample demand for their products and services. LG, Samsung and Tata are few of emerging companies which have successfully established international operations. Some of their main destinations are USA, UK, Australia, Korea etc. However, establishing overseas operations are not without challenges. Organizations are faced with a number of government-imposed as well as economic challenges which they have to overcome and use at their advantage. Changes in the business environment are some critical factors which they need to take into account and constantly adapt them to. References Hyundai. (2012). News. [Online]. Available at: http://worldwide.hyundai.com/WW/Corporate/News/News/index.html. [Accessed on March 10, 2012]. Breslin, S. (2003). Foreign Direct Investment in China: What the Figures Don’t Tell Us. Asia-Link Conference, University of Durham. [Pdf]. Available at: http://www.dur.ac.uk/resources/china.studies/Foreign%20Direct%20Investment%20in%20China.pdf. [Accessed on March 10, 2012]. Kaplan, R. S. & Norton, D. P. (2010). Developing the Strategy: Vision, Value Gaps, and Analysis. Harvard Business School Publishing. [Pdf]. Available at: http://www.exed.hbs.edu/assets/Documents/developing-strategy.pdf. [Accessed on March 10, 2012]. Money Control. (2010). Sesa Goa plans $6.7 bn steel plants in India: Report. [Online]. Available at: http://www.moneycontrol.com/news/business/sesa-goa-plans-3667-bn-steel-plantsindia-report_493632.html. [Accessed on March 10, 2012]. Kindra, G. S. (1984). Marketing in developing countries. Taylor & Francis. Yahoo Finace. (2012). Godrej Indus (godrejind.bo). [Online]. Available at: http://finance.yahoo.com/q?s=GODREJIND.BO&ql=1. [Accessed on March 10, 2012]. Knowledge at Wharton. (2010). African Venture: Promises and Pitfalls of Bharti's Deal with Zain. [Online]. Available at: http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4454. [Accessed on March 10, 2012]. Ajami, R. A. & Goddard, G. J. (2006). International business: theory and practice. M.E. Sharpe. The Economic Times. (2010). Zain deal to strain Bharti's finances; stock ends 9% lower. [Online]. Available at: http://articles.economictimes.indiatimes.com/2010-02-15/news/27621442_1_bharti-zain-deal-kuwaiti-telecom-zain-kharafi-group. [Accessed on March 10, 2012]. Krasting, B. (2012). The Return Of Smoot-Hawley May Generate $160 Billion, But It Would Cost Trillions. [Online]. Available at: http://articles.businessinsider.com/2012-03-07/markets/31130725_1_smoot-hawley-cost-trillions-history-books. [Accessed on March 10, 2012]. Hodgetts. (2005). International Management: Culture. Tata McGraw-Hill Education. Lavin, F. & Cohan, P. (2005). Export Now: Five Keys to Entering New Markets. John Wiley and Sons. Stevenson, W. J. (2005). Operations Mgmt With Std Dvd(Sie)9E. Tata McGr Read More