International Marketing - Essay Example

International Marketing creates new challenges and provides new oppurtunities in every sector. The market is affected by macro changes like government regulations and policies and demographics. Other complexities and uncertainties include the consumer behavior. There can be shifts within the industry itself like globalization and technological advances which alter the marketing strategies. In the last decade, service industry has taken a big jump. Marketing of a tangible product differs from marketing of services. There are varieties of options before a company when they decide to enter an overseas market. Three major issues require careful planning before venturing into another region, which include the right marketing mix, sourcing or the product and investment decisions (Qdi). Marketing mix itself involves decisions on whether to sell in the other country directly or through intermediaries and which market segment should be tapped first. Marketing mix for services is more difficult to ascertain than for products. Investment decisions and control are equally important - whether it should be a joint venture with a local partner, whether they should acquire an existing company in that country or have a global partner. Based on these factors, this report will discuss the marketing strategies of two different Companies in the service sector - DHLs entry in the China market and Vodafone of UKs entry in the US market. As per the international marketing theories, exports can be undertaken in several ways. Each marketing strategy has its own risks, advantages and disadvantages. While exports is the simplest form of entering an international market, other strategies that companies can consider are licensing, joint ventures and off-shore operations. Joint ventures have to be applied in countries where foreign ownership is restricted. In the service sector brand extension strategy is frequently followed by companies (Aaker & Keller, 1990 cited by Pina et al., 2006). This helps to keep the marketing costs low while the chances of success are high. The frequent use of a monolithic branding strategy helps build goodwill behind the widely employed corporate brand (Free, 1996 cited by Pina et al.,). Huge investments are required to enter an overseas market before the utilization of investment comes and therefore, brand extension to some extent helps control expenses. China is today world’s fourth largest economy and in purchasing it is second to the United States (Python). This implies that China commands to be included in the strategies that large and small companies adopt. When Chinas economy was growing there was increased domestic pressure for lower foreign inputs and improved access to foreign markets. China wanted to be admitted to WTO formerly (GATT), to be acknowledged as one of the worlds greatest powers. WTO is a global authority, which sets minimum standards on global trade and various other issues like issues child labor, worker safety, the right to form a union and environmental and animal welfare protection. Governmental and legal reforms took place in China at a very fast pace after its World Trade Organization (WTO) entry (China Daily, 2002). This gave Chinas economy a boost and its macroeconomic situation improved. This was precisely the time when the world economy was stagnant and China became the fourth largest trade body in the world. This brought in a lot of foreign direct investment as multinationals gained confidence after its accession to WTO. Different strategies can be adopted to enter the China market depending upon the product. Entry into an overseas market can be either direct or through an agent. The disadvantage of marketing through an overseas agent is that you are at the mercy of that agent. The exporter can have no control over the market, the marketing efforts and the expenses. In the services sector, service is the most important criteria of success. Leaving this in the hands of overseas agents can jeopardize the entire process. DHL, founded in 1969, as an international air express service, ensuring the rapid delivery of documents and shipments by airplane, expanded into the Far East and the Pacific in 1971. The global market leader of the international express and logistics industry, specializing in providing innovative and customized solutions from a single source, was the first to enter the Chinese market in 1980 (Business Wire, 2006). It entered into a joint venture and became the first express company active in China. Brands are one of the greatest assets of the firm and China being a transition economy, DHL had a made a strategic move to penetrate the market at the right time. As per Gao et al., (2006), brands that enter the market earlier have larger market shares, which is the competitive edge that DHL gained by early entry. Since it got barrier free environment, it could expand easily. Thus, DHL had the right strategy to first study the market on its own before going in for joint venture with SINOTRANS. Only after understanding the potential that China offered, did it join hands with China National Foreign Trade Transportation (Group) Corporation (SINOTRANS) in 1986. Joint ventures may perhaps be time-consuming and initially difficult, but yields optimum results both for the foreign firm and the local company offering partnership (Gross, 1995). Sinotrans had unrivalled local knowledge in the China foreign trade transport market while DHL was the leader in global air express industry. Uncertainties in business is most prominent in the telecommunications industry. Despite fluctuating fortunes and the volatility of the industry, Vodafone is the worlds biggest wireless operator and one of worlds largest company by market capitalization (Strategic, 2004) . Vodafone started as a small virtually unknown UK-based company but today is a multinational enterprise with presence in every continent in the world. Vodafone has established itself as the main wireless/mobile phone operator in the world and is highly competitive in its markets (Anwar, 2003). It started expanding abroad at breakneck speed in late 1990s. Other forms of entry into overseas market are mergers and acquisitions. A merger occurs when an exporter merges with a local company and creates a new unit, while under acquisition, the exporting company takes over a domestic company. Vodafone was an aggressive exporter and had clearly defined plans and the strategy. The exporters path is to choose the market and Vodafone had made the right choice because at that time Verizon Communications covered 90 percent of the population. Thus, Vodafones investment of £112bn for the acquisition of US firm AirTouch in 1999 (Stamp, 2006) was justified to enter the US market. As reported by BBC, Vodafone now has 170 million customers, spread across almost 30 countries, and continues to enter new markets. Acquisition is advantageous because it reduces the market penetration period and prevents in the number of competitors in the market. Entry barriers are also overcome but at the same time there may be increased risks. The large financial commitment may not justify the political and market risks. Vodafone, perhaps had been too hasty in heavy investments because government regulations posed certain barriers for growth. According to Collett (1991) exporting requires a partnership between exporter, importer, government and transport (cited by Qdi). To avoid the hassles of licensing, which would necessitate permit to launch its services in US, Vodafone strategically started by acquisition and then went into joint venture. It is necessary to obtain a permit to start a new venture in another country. Joint ventures can be defined as "an enterprise in which two or more investors share ownership and control over property rights and operation" (Qdi). This is a more extensive form of participation than either licensing or exporting. The major advantage in joint ventures is sharing of risks and the ability to combine local knowledge with a foreign partner with know-how in technology or process. DHL gained immensely by tying up with SINOTRANS because it could gain with their local knowledge of foreign trade transport market. Despite not having total control over the venture, it helps to have local support and knowledge. Vodafone normally goes in for acquisitions and joint ventures in foreign countries, like AirTouch and Verizon in USA and the hostile takeover of Germany’s Mannesmann. It has the fastest growing wireless technology, which helps consumers to download data and other information. It was ranked number one in market capitalization in the year 2000 and ranked eighth in market value among the Financial Times’ Global 500 Companies in 2001. In a very short time it became a global company. Mobile telephone is growing faster than the internet and Vodafone is well aware of the competitive position and the changing demand in the global markets. DHL-Sinotrans is a 50/50 joint venture established in 1986 and in 20 years, DHL-Sinotrans has developed the largest air express services network in China covering 318 cities, with 56 joint ventures and close to 150 locations and 6,000 highly qualified employees. DHL entered a developing economy with high potential while the US market had several players in the field of mobile technology. Besides, the government regulations and policies posed certain barriers to growth for Vodafone. While Vodafone’s strategy was acquisition in the first stage and then joint venture with Verizon Communications (resultant Verizon Wireless), DHL started on its own initially. After six years, it joined hands with SINOTRANS with 50/50 stake while Vodafone has minority stake (45%) in Verizon Wireless, USA. Vodafone started off with a huge investment in acquiring AirTouch while DHL took one step at a time as the market grew. Vodafone also teamed up with Bell Atlantic (now Verizon Communications) to achieve competitive scope. The resulting enterprise, known as Verizon Wireless, was the largest of its kind in the US and they covered more than 90 percent of the population. This partnership gave them more than brand dominance in USA. Bell Atlantic and Vodafone could now work together for development of new services, technologies, and applications. Today, Vodafone has 45% stake in joint venture firm Verizon Wireless, which has 24% share of the mobile phone market in the US (Stamp). Unfortunately, although Vodafone has earned a global brand image it has not been successful in USA. It lacks visibility and influence in North America. It was not able to acquire local telecommunication companies because of security laws and other regulatory barriers. It is listed in the London and New York Stock exchanges, but it is unable to attract mutual fund managers and institutional investors from North America. Through acquisition of AirTouch it expected to gain access to a wireless market in the US with low penetration levels and thought it would have huge potential for growth. Vodafone has a control-oriented strategy worldwide but in US it has a minority stake. Even in Japan they have been unsuccessful because their handsets did not match the local culture. They learnt the hard way that to survive in the market they would have to tailor-made the handsets and not use the global model. The service industry has to keep up with the regional culture and requirements to be successful. The transmission of data to mobile handsets or the 3G technology is a reality in both US and the Europe but certain government barriers have prevented US from implementing the scheme. In Europe, while all mobile licenses are national, in US national networks are not the norm. Initially, the Federal Communications Commission (FCC) would issue two cellular licenses in each designated area, one to the incumbent Regional Bell Operating Company (RBOC) and one to a competitor via a tender (Curwen, 2005). Hence, license ownership was fragmented and roaming arrangements complicated. People found it more rational to acquire companies that already possessed licenses. In Europe, mobile telephony is a premium priced product and has less regulatory control than US. In US, profit margins are eroded as people normally keep their mobile phones switched off since they are charged for incoming calls. Roaming charges are levied but these cannot be passed on to the subscribers, which further affect the profit margins of the operators in US. Local operators are not in a position to offer national roaming nor do they have any incentive to reduce interconnection charges. Vodafone has been unsuccessful in converting its existing users to 3G as it requires a change of mindset. It still thinks only in terms of voice rather than data services. Dennis (2006) of the Inquirer, reports that Vodafone has sunk its money in tying up with Verizon Wireless, which follows the CDMA technology. Investors have been shaky too, given Vodafones recent poor stock market performance (its shares have lost 14% of their value since the start of 2005). They are being pressurized to sell of its 45% stake in Verizon Wireless to the parent company and use the funds to concentrate on the European and the Asian markets (Computer Business, 2006). Vodafone is now planning to change its strategy after its failure in Japan and US. The CEO, Sarin is reported saying that Vodafone will now focus in countries in which it can deliver superior returns to investors, and in which it has a strong market hold. Its 3G technology has been a failure in both Japan and US. Another spokesperson of the company feels they should focus on English speaking markets where pre-pay subscriptions are popular (Stamp). Nevertheless, the CEO is determined not to withdraw from the world’s most valuable and toughest mobile phone market. He claims to have grown in value by approximately $20bn in the past two years (Computer Business). The chief cause of the setback is because Verizon uses the CDMA technology instead of the standard GSM. This means that every time a Vodafone user enters US, they are forced to roam on the GSM networks of T-Mobile USA or Cingular Wireless. Vodafone thus loses out on lucrative roaming income. Since Vodafone is a minority stakeholder, they cannot prevail upon Verizon Wireless to switch over to 3G. These are the risks in joint ventures, where despite huge investments the exporting company is restricted due to local regulations. Cingular Wireless outbid Vodafone when it wanted to take over AT&T Wireless, which uses the GSM technology. It has been losing ground to its competitors as its sale on 3G phones has been disappointing. A series of mergers have been taking place in the mobile market in the US, which means Vodafone has to invest more to defend its position. Despite its joint venture with Verizon Wireless, Vodafone had bid to take over AT& T Wireless, which it lost to Cingular. Vodafone wanted to capitalize on both types of customers. Vodafone tried to justify its stand that Verizon would have benefitted but it would be unethical had it taken over AT&T because Verizon uses the CDMA technology and AT&T Wireless are direct competitors as they use GSM technology. In 2004, Verizon Wireless, which has the majority stake, was trying to muscle in on the $35bn (£18bn) merger of rivals Sprint and Nextel. Investors and bankers were shaky at such a proposal. Vodafone claimed that it would be able to prevent Verizon from buying Sprint if it was detrimental to the interests of the shareholders but these are the disadvantages and risks of joint ventures especially if you are the minority stakeholder. The speculations and claims caused Vodafone shares to lose 1.25p to 138.5p in one day (Wray, 2004). DHL, on the other hand has had a steady growth. It takes the support of local companies to make its service effective. According to a DHL official, they cooperate with Dragon Airlines and Eastern Airlines to link their flights between Hong Kong and Shanghai with DHLs Asian Air Transport Network. This reduces the cargo delivery period by about two hours. Hence, the strategy to tie up with local support companies proves beneficial. DHLs strategy all through has been long-term commitment in China. This is amply proved when on the 20th Anniversary of joint venture with Sinotrans, DHL launched the First in China Strategy. DHL recognized the boom in Chinas express and logistics market and their strategy assures further expansion and investment in China. DHL has planned to invest about USD 24 million to build the DHL - Sinotrans Headquarters, which will be its flagship head office for its Express operations. Its 20 years of partnership has resulted in an average annual growth rate of more than 40 percent in the past few years. On the other hand, when Vodafone entered US, Verizon Communications covered 90 percent of the population but today Verizon Wireless has 24% of the market share. While DHL entered into joint venture in China in 1986, it greatly expanded its activities in 1995. In 2003, it increased it share in Sinotrans to five percent there by becoming Sinotrans largest strategic investor. To further expand its capabilities in China, DHL launched investments of USD 200 million in five years (DHL Timeline). Setting up joint ventures in China has several advantages as seen by Gross (1995). Joint ventures help the foreign companies gain access to the domestic market while still maintaining control over its activities. Under joint ventures, foreign investors gain from the reasonably well educated low cost labor available in China. The Chinese government benefits through joint ventures because it helps create new jobs, improve and import technology, and gaining access to foreign markets. Besides, the Chinese government extends support in all matters like foreign exchange and tax exemption, which is one of the reasons DHL launched its investment plans. Industry in China was developing and customer expectations becoming sophisticated. In such a growing market, foreign investors are willing to invest and expand specially when there is total cooperation from the local government. Vodafone had to face adverse climate as US because of the barrier to switch over to GSM technology from the CDMA. Like Vodafone, DHL too had competition in FedEx, TNT and UPS but it established itself as a leader in the industry by capitalizing on the growing trade and commerce in China and using the local knowledge of Sinotrans (IFCAI, n.d.). Over the years, DHL gradually diversified from transporting documents and packages into other services like e-commerce fulfillment and logistics solutions for industries like automotive and life sciences. It soon became a one-stop supply chain solutions provider, offering services in express, air & ocean freight and overland transport. DHL had total support of the Chinese government because it recognized the logistics industry as a key driver of economic progress. Competition brought in modern management practices, aggressive promotion strategies, advanced technological support and high quality services but since the Chinese market was expanding, there was room for all to grow. Consumers on the other hand, especially in a developed economy like US, dictate the mobile market and Vodafone lags behind, as it is unable to implement the 3G technology. China favors inward investment from foreign firms as the Chinese economy is progressively liberalized (Python). In fact, to come out of the recession developed economies like US would need the support of developing economies like China. China comprises one-fifth of the world’s population and is set to be one of the largest economy. China attracts the highest Foreign Direct Investment (FDI) in the world. It is the world’s sixth largest economy by GDP. China’s economic growth has exceeded 8.4% annually in the last five years and for fear of a over-heated economy, the government is taking control measures (Deutsche Post). According to Zhuang Jian, an Asian Development Bank economist, two factors determine if a country will attract FDI – commercial profitability of the investment projects and a politically stable environment (China Daily, 2006). Government measures are now slowing down the economic growth in China. Profit margins in overheating sectors are declining and consequently the average returns on the FDI will fall. Rules and regulations have to be more transparent to attract more FDI and this holds good for any economy. More opportunities have been created in the transport sector after WTO entry. Trade and economic initiatives by the government have stimulated growth in the logistics market. Rural areas are being developed and capital intensive, manufacturing and services industry coming up. In such a scenario full of economic reforms, DHL is all set to take advantage. DHL has in fact been supporting China’s economic growth since 1980 and today it has the largest network of dedicated infrastructure including 56 branches, 163 facilities, 3 customer call centers, and 1500 vehicles. DHL Express’ geographic footprint covers 95% of China’s major popular and business centers. Despite competition, DHL holds the major share of the market. US has experienced IT slump and corporate scandals but things are looking up including business investment and labor market. The US economy has decelerated with the GDP going down to lower than two percent in the last quarter of 2005 (Bernanke, 2006). Productivity growth, job creation, and capital spending have all picked up since then but the growth rate may vary. US still face long-term economic challenges. Due to internal business environment, the mobile penetration rate in US is only 70% compared to 90% in most European markets (Computer Business). Hence, stability and sustenance in overseas market is largely governed by local factors and government regulations. Even though US mobile market is still developing, and will continue to be highly competitive, Vodafone is on the way out. It has rejected Verizons offer of $38 billion for the 45 per cent stake in Verizon Wireless and is holding out for $50 billion (Times Online, 2006). Reports say that Vodafone needs to increase its exposure to emerging markets. Thus, it can be concluded that international marketing depends upon various factors. Marketing strategies would have to be changed depending on the product, the demographics, the geographical location, and its status in the world market. While China had a steady growth, due to over-heating, the government has imposed certain control measures but this would not in any way affect the growth and expansion of DHL in China. DHL has been a contributor and supporter of growth for more than twenty years. Vodafone, largely due to government rules in the US, is being forced to withdraw its stakes and concentrate on other emerging markets. Even though the entry strategy of Vodafone was favorable, it could not sustain competition and the customer expectations. Merely having a global partner is not enough; it is equally important to have at least an equal if not a majority stake. DHL promises growth and expansion while Vodafone is on the way out. One is a developing economy while the other is a developed economy and one of the world’s best mobile markets. Opportunities and risks are equal in entering a foreign market and both have to be weighed cautiously before venturing into a partnership. Competition in a growing economy is healthy but strategies have to be formulated accordingly. 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