Market Analysis: Implementing and Executing - Assignment Example

1. Compare and contrast the main theories of international expansion. By means of examples from global organisations present in your case studies or other sources, highlight the strengths and weaknesses of these theories. Modes of entry When a company decides to go global, the main objective is to increase the scope of the operations across different geographical regions, gaining increase in profitability by entering new markets across the globe. By deciding to go global and entering new markets, there are various considerations to be considered. When a market is decided to be ventured into after careful consideration and research, the most important first decision would be the mode of entry for internationalization and foreign expansion. There are four types—at least the most common classifications of ways in order to expand in international markets and go global. These include export expansion, licensing (which includes franchising), strategic alliances, and foreign direct investments in the form of wholly-owned manufacturing subsidiaries. Export expansion The choice of the mode of entry in a foreign market depends on a lot of factors, one of which is the amount of resources a company has. The more resources a company has, the more flexible its choice can be in order to maximize its presence in the international markets. The more resources it has, the more it can venture into more rapidly growing, but riskier markets. The level of resources a company has influences its decision on the choice of mode of entry, depending on its ability to handle a certain amount of risk, lest the venture does not succeed in the process. The choice of entry then has a number of impacts on the barriers that it will encounter in pursuit of entering a foreign market. One of these choices is export expansion. Export expansion the most common mode of entry for companies that are starting their internationalization, or are first-timers in entering a new market. Export expansion has been the most common mode as a first step of internationalization because of the advantages that it provides. Among the four modes of entering a new market, exporting, by far requires the lowest amount of resources. Whether though indirect export (hiring a trading company who does the exporting abroad), or direct exporting (export processes, efforts and negotiations are done by the company itself)—these provide the lowest amount of resources when entering a new company. Also, export expansion provides the quickest way to enter the market (it provides the first-mover advantages) in order to establish foothold faster than global rivals. When risk is greater, this mode of entry provides the minimum impact on the company lest the venture turns out to be a failure. While export expansion provides advantages such as fewer resources needed to enter the market—giving the company less impact that a risk can bring if ever the venture turns out to be a failure in the new market, and speed in gaining foothold in the new market ahead of its global rivals—it obviously has a fair amount of disadvantages too. These disadvantages include: loss of control in marketing efforts; higher barriers to entry which result in higher costs of doing operations in the new market; and not having a solid foothold in order to compete well locally by adapting to local tastes of the consumers. Whether in through direct or indirect export, it is very much clear that aside from the products that a company offers to the new market, it does not have a strong foothold which can give it the flexibility to adapt to the changing preferences of the local consumers. This situation results in the loss of market control—it does not have a bit of control at its marketing efforts at all. When the company aims to compete well locally, it needs to keep in touch with its consumers and make changes in the marketing mix in the new market in order to suit the changing needs of consumers. However, without a local arm to do all these—only distributors are maintaining a relationship with the company—it does not have the control in order to achieve all its desired results in its expansion objectives. Another disadvantage that is most apparent in this mode of entry is the economic implications of barriers to its entry in the new market. With quotas, tariffs and other export taxes imposed by governments for export products, a company is forced to absorb these costs through higher prices for its products. Because of the impact of these economic regulations of governments, the cost of doing operations should be offset only by higher prices, which gives the firm a disadvantage among the local competition. Licensing A company which invests in research and development once spotted an opportunity to innovate and has created a break-through product. This product, which is the result of technical know-how’s of the company produces a lot of intangible value for the company. This intangible value of the company comes from the exclusivity of the technology, or the concept and processes which give the company a competitive advantage. Because this concept or technology is exclusive, but generates a lot of demand and future potential earnings, it generates intangible value for the company. Such is the case of OneCafe. By being able to come up with an innovative packaging for brewed coffee, the company benefits from its technology and technical know-how’s by selling the whole idea and processes to potential licensees. Because of the future earning potential of the technology that creates the product, the licensees will pay for the investment, as well as the fee or a royalty to the licenser with the use of its technical know-how’s and processes in creating the product of OneCafe, and be sold in a new market. Licensing has obvious advantages that the export expansion offers. This includes speed—that a company can enter a new market through a local licensee in a faster time before any global rival can gain foothold. But in contrast to export expansion, licensing is able to avoid quotas, tariffs, and other taxes related to exporting and importing of products to other countries. Licensing also maintains greater control than export expansion in terms of its marketing efforts. OneCafe maintains control over the manufacture of its coffee products by carefully drafting the processes involved the manufacture within the contract, in order to ensure quality and control in the product. However, while the company can have control over the product and its manufacture through contracts, the other obvious setback is its lack of control over the other parts of the marketing mixes. A licensee may be granted a certain amount of freedom to market the product, but if it cannot go too far as specified in the contract. Therefore, unless the licenser trusts a licensee well enough to carry on strategic decisions in order to adapt the product to the tastes of local consumers—the company, being the licenser does not still have an adequate control to maximize the benefits it can get from the new market. The issues on whether to ‘localize’ or to ‘standardize’, if given to certain licensees can have serious negative impacts on the brand equity, which in effect can ruin the company, in this case OneCafe. This makes standardization of processes a main feature of licensing in order for the licenser to maintain adequate control at least over the product. Strategic alliances Strategic alliances can come in different forms: manufacturing alliances, r&d alliances, and joint ventures. Second Life utilizes strategic alliances as its mode of entry in foreign markets such as Brazil and South Korea. A strategic alliance is “a collaborative arrangement between firms, sometimes competitors, across borders” (Johansson 2000, 158). In order to enter a new market, a company can make arrangements with another company in a different country in order to gain advantage of the other partner’s knowledge—be it in manufacturing, R&D, or sales—in another country, with both working to further the causes of two parties. The major thing about strategic alliances is that by having a local arm, a company will be more able to respond better to the changing preferences of consumers—thus being able to compete well in the local industry through the knowledge of the strategic ally of the consumers in the new market. When a company is new to a market, it takes a certain amount of time and knowledge before it can operate well in a country or domestic region. This discrepancy is provided by the other partner, which has more experience in the local market and knows the consumer more. By being able to adapt to consumer’s preferences, it can gain a certain amount of market share within the territory. The major drawback in strategic alliances is that knowledge is shared among two parties. Although legal contracts are made to ensure the equality of both parties in terms of fulfilling their duties for each other’s causes, there are instances when strategic alliances result in conflicts of interest. For one, some strategic alliances are local competitors who are more experienced with the new market. This knowledge is utilized by the foreign entrance in order to gain foothold in the market, thus knowing the consumers. But by introducing new products in the market through the strategic ally, there are tendencies that these products can directly compete among partners. This is a major setback of strategic alliances. Because of this, if major market penetration is the objective of a foreign entrant, its growth can be limited and its objectives may not be met. While it can enter a new market, its growth can be limited because of its ties with its strategic partner. Also, for strategic alliances, a company must have a decent amount of resources in order to coordinate well with a major local company as its strategic ally. Because a potential ally will only tie itself to another foreign company if it knows it will benefit from the alliance, it is a bit of an imperative for a company to gain a certain amount of resources—be it technology, resources or knowledge that it can offer to the other partner to seal the tie. Otherwise, an alliance could not be staged if it does not provide both parties certain benefits. Foreign direct investments Ideally, foreign direct investment in the form of wholly-owned manufacturing subsidiaries is the best way to enter a new market in pursuit of certain objectives. However, in real life there seems to be a lot of considerations to make. When a firm enters a new market, obviously its objective is to expand its operations beyond its main market, or geographic region. By offering its products to more and more consumers, it will eventually reach certain economies of scale which will provide it with greater profitability, and efficiency in its operations. This is the obvious reason for a company who wants to go global. In pursuit of its objective, a firm wants to gain control over market situations. How else would it be able to compete if it is not ‘there’ and does not know exactly how the market is doing? When a strategic alliance can give a local arm, the ally is not ‘the company.’ The ally has different interests, as well as different objectives from the company. Obviously, this situation limits what a company can do within a new market, and hampers its own goals of expansion. Having a wholly-owned subsidiary within a new market definitely has a lot of advantage in terms of control. It gives the company the leeway in order to decide to more tactical decisions, as well as adapt its strategies to suit the changing needs of the market. It can compete well by weighing the decisions to ‘localize’ versus to ‘standardize’ in a given market. It can gain a significant market share, as its actions will not be limited. In the case of Lavazza, the company is old enough which has gained significant resources in the duration of its operations. With significant resources, and certain amount of mastery in its processes of manufacturing the products, as well as the technological advancements it gathered—it would be wise for a company like Lavazza to explore new grounds when the primary market is penetrated. Further growth will only be found across another shore, in some instances. However, wholly-owned subsidiaries do have certain setbacks too. By having a wholly-owned subsidiary in a new market, the resources should be huge enough to meet the requirements of operations. The resources to hire locals, to sponsor expatriates if no local is qualified enough for the position, the financing of the new company to sustain its operations—all these and more. Then there is the setback that if the subsidiary does not fare well in the new market, the risk that the company has to bear in terms of the loss is great. Obviously, a company which does not have enough experience on a new shore will take a bit of a time before it can create an advantage for itself. 2. You are a Marketing Manager for a manufacturer of bicycles. You have been given the task of marketing your company’s bicycles abroad. List and explain the main steps you will take to identify and enter 1 (ONE) suitable foreign market for your products. Any specific bicycles category may be used as example. Cover any known International Marketing models. Choice of model: Johny K. Johansson’s “Three hats of global marketing” Johny K. Johansson in his book “Global Marketing: Foreign expansion, local marketing and global management” proposes those three hats, or three roles a global marketing manager should face in the face of globalization. These three hats serve as a framework for a global marketing manager in order to sustain a competitive advantage on the global operations of a company. According to Johansson, the first role of a global marketing manager, different from a marketing manager, concerns the decision about foreign expansion. Here, the global marketing manager is tasked to look for viable markets across the globe as to where the company can best conduct another line of operation to gain better profitability and efficiency of operation. This role also entails the choice of mode of entry—how the firm will enter the new market, and negotiating terms in order to ensure that the entry to the new market runs smooth. The other hat that a global marketing manager should assume concerns local marketing—that is, up what extend will the firm be able to exercise its control over marketing efforts to push its sales and gain its objectives for a given mode of entry. The more flexible the mode of entry is, that is the wholly-owned subsidiary, the more the firm will be able to exercise more marketing efforts in order to adapt to local needs. The third hat of a global marketing manager is concerned about global management. When a firm’s international expansion is concerned about profitability and efficiency—these two will not come into reality without ensuring consistency of the marketing efforts across the globe. Aside from profitability, maintaining a global brand could be the objective. In order to build and increase brand equity, consistency is the main concern of global management. This will ensure that even messages are localized in order to suit the needs and preferences of local consumers, the essence of brands across the globe is maintained, which contributes to equity in the long run. The three hats of a global marketing manager is the chosen model for marketing the bicycles abroad. Below are the steps, as followed in the framework of what needs to be done concerning the decision to market bicycles abroad. FOREIGN ENTRY MARKET ANALYSIS Global market research In order to assess the risk, as well as the returns of a venture for foreign expansion, global market research is necessary. This entails an in-depth probing of the environment--global environment, global competitive analysis to see the rivalry in a larger context, and global cultural analysis. By carrying a global market research, a company looks for environmental forces, now on a global scale that will have an effect on its international expansion. With the traditional PESTLE framework, a company can assess the viability of the environment for expansion. When both global competitive and cultural analyses are conducted already, chances are that the firm is already able to narrow down the choices of locations of new markets to penetrate. By being able to narrow it down, the PESTLE framework covers the viability of each country/geographical region candidate in order to aid the screening process. Barriers to entry When certain markets are already chosen, barriers to enter these markets are needed to be assessed in order to make the choice of the mode of entry. The more the barriers to enter a market, the less attractive it becomes if the costs of operating within it are greater than the benefits to be achieved in conducting business within it. Knowing the barriers to entry can also give a firm certain knowledge as to how much risk is involved in its entry. By gauging the risk, the company can assess best the impact on its resources, thus being able to decide and come up with alternate actions for future scenarios. FORMULATING STRATEGY Mode of entry The mode of entry is affected by the results of the global marketing research. By looking at the environment, looking at the competition, gauging the company’s own strengths and weaknesses, the situation in new markets as well as the forces that have impact on the company’s future operations—will how the chosen mode of entry be determined. In this case, the company is new to international expansion. A company that is new to international expansion can either choose between licensing or export expansion—depending on the result of the global market research on a country’s barriers to entry. If the company has enough resources and technology, it can venture into strategic alliances, say a manufacturing one. So the choice of the mode of entry for a foreign market will depend on the market analysis and global market research carried on beforehand. Expansion paths Because expansion is new to the company, the most obvious criterion for evaluating choices is finding a country that is most similar to the target profile of the current consumers. By identifying the profile of the current consumers and looking for the same profile, or at least the variable on how the market is segmented to identify the target market—the company can gain economies of scale by offering products to this same profile of consumers in another country. This could be the start of the expansion path. The expansion path may continue by looking for consumers in different countries with the same profile as the lead or primary market. On the other hand, the profile may not be similar, but if the product will suit the needs of another market, then it is also viable for expansion. The demand for the products of the company is the main thing to look into in these matters, when considering the expansion paths. IMPLEMENTING AND EXECUTING Finding middlemen In any given choice of the mode of entry, there will be no start of any relationship between an entity and another without finding a middleman, or a party that could link another party in a certain country or geographical territory. This middleman will find a certain party within the country which can carry on the objective of the company. Negotiating with partners Once a partner has been located, whatever the mode of entry negotiations has to take place. If the company chooses to enter a new market through export expansion (direct export), then it should negotiate with a local distributor. If the choice of mode of entry is through licensing, there will be things that need to be included and settled in the contract in order to ensure good working relationship. For a strategic alliance, negotiations about certain terms on how each firm will benefit one another as well as the duties that are needed for both parties to fulfill, will be essential. And for wholly-owned subsidiaries, working with local executives and hires, as well as negotiation with the government for certain terms in the operation is crucial. LOCAL MARKETING MARKET ANALYSIS Local buyer behavior Depending on the company’s objectives and choice of mode of entry in a new market, the extent of market research to determine the local buyer behavior will be determined. If the company wants to gain a significant market share within a territory, the local buyer behavior in this case of bicycles will probe deeper into the consumers. What are the perceptions of bicycles? How are they used in the country? Do consumers have a certain preference toward bicycle over other forms of transport? How is the bicycle category viewed—for leisure, for practical transportation, etc? What are the other alternatives for bicycles that consumers have in mind? Is there a difference between marketing it to the primary market and marketing it to them, as regards culture which can influence behavior? Such are the questions about buyer behavior that needs to be answered. Local marketing research As mentioned earlier, the depth of marketing research depends on the chosen mode of entry of the company. The more flexible the choice is, the more it will be able to support the objective. Looking at local buyer behavior is one part of local marketing research—looking at the market as a whole is another. How huge is the market in that area? Is the demand sufficient enough? Is growth, both in the demand side as well as the supply side sustainable in the long-run? Are threats to entry low, which can attract more competition in the long-run? Who are the main competitors? What is the current level of distribution of market share among competitors? What are the trade channels? What are the threats to the competition? Is the competition very much fragmented that much differentiation is needed? Up to what extent will the company localize, versus to standardize? What is the current level of costs in the area? Such are the questions to be addressed by local marketing research. FORMULATING STRATEGY Localized marketing strategy With the information that is gathered through marketing research, the marketing strategy can be adapted to local consumers. First is segmenting the market. Given the overall market for the bicycles, how is the market segmented? Given the segmentation profiles, what products do we have can we offer to some of the segmentation profiles. Then by identifying similar target market profiles among the segments, target markets can further be identified. By focusing on the target markets and gaining significant insights from them, a solid and sustainable positioning can be derived. By looking at the attributes that are important for consumers in buying bicycles, a combination of functional, emotional, process and relationship benefits can be utilized in order to come up with a unique selling proposition to differentiate the brand and the products while reinforcing the essence of the brand. IMPLEMENTING AND EXECUTING Tactical marketing decisions Once the product and brand is finalized, tactical decisions will have to be taken into consideration. The pricing of the bicycle will have an effect on image the brand wants to portray—so in what price level will bicycles be sold? The places where it will be distributed will also be among the considerations. Then the marketing communications and how it will reach the targeted consumers will play a key role in the success of bicycles in a given geographic area; what message will be needed to convey in order to start a relationship with the consumers? What level of customer support should be given? What marketing efforts to retain current profitable consumers will be done? What is the optimum combination of marketing efforts to meet the objectives such as customer acquisition and retention? Such are the questions which answers are needed to be found in order to implement and execute the marketing strategy well. GLOBAL MANAGEMENT MARKET ANALYSIS Global segmentation and positioning Once the international expansion has been started, and expansion paths have been laid and starting to materialize—the brand of the company on a global scale has to be managed. This means that the brand has to be looked from a global perspective—what are its segments across the globe, and what does the brand stand for in these segments? By making sure that the positioning across categories can be identified into a global positioning, a global brand will be able to maintain a great equity. FORMULATING STRATEGY Formulating global marketing strategies Given these, a concrete brand framework can be formulated by the company—the mixture of functional benefits, emotional benefits, and process and relationship benefits around a core brand essence will ensure that what the brand stands for is consistent across the globe. When the benefits of the brand can be communicated in many ways, the brand will have an essence that most of the consumers around the world will remember and associate with it. IMPLEMENTING AND EXECUTING Implementing global strategies The implementation of global strategies has to be weighed with the implementation of local strategies. Companies usually monitor the promotional campaigns of brands across countries in order to see if the strategies have been carried on well. In this case, when the brand strategy has been defined—the decision of up to what extent to localize and standardize will be weighed upon. Not only will consistency be ensured, but also efficiency. Doing business globally is made possible by e-commerce. By utilizing e-commerce in the course of the company’s business, not only will efficiency be ensured, but the benefits of running a global operation will be maximized. Bibliography Bartol, K., Martin, D., Tein, M., & Matthews, G. 2001. Management: A Pacific Rim Focus. McGraw Hill Company, Australia. Burns, A. and Bush, R. 2004. Marketing Research: Online Research Applications. Philippines: Pearson Education South Asia Pte. Ltd. Duncan, T. 2005. Principles of Advertising & IMC. International ed. Philippines: McGraw-Hill. Ginsu Yoon. 2005 June 16. "Build Content for International SL - Second Life Forum Archive (account required)". Retrieved on 2008 August 13. Available from World Wide Web: . Johansson, J. 2000. Global Marketing: Foreign expansion, local marketing, & global management. International ed. Philippines: McGraw-Hill. Linden Lab. 2007 September 4. 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