Market Entry for International Marketing - Essay Example

Market entry for international marketing International marketing involves a process where a business or a country distributes its products and services to consumers in other countries. The marketing concept is the same throughout the world but the marketing plan environment may be completely different. Common concerns in marketing for instance advertising, input costs, price and distribution usually differs greatly in the country where the business is set up. The secret to an internal marketing that will prove success is the ability to manage, coordinate and adapt a marketing plan in an unstable and unfamiliar foreign environment (Onkvisit & Shaw 2008). There are various reasons that make businesses to make a decision to explore foreign markets. The main one is to respond to orders that are unsolicited from customers within these markets. Due to lack of these orders, companies find their way of exporting in order to look for alternative market in times when domestic markets seems saturated and to make bigger in a quicker way. Although companies or states that decide to market internationally do not have a profile that is uniform, they share some common characteristics. Their exports have high potential earnings in foreign markets and are usually patented. These products have an advantage in cost or price compared to similar products or they may contain some attributes that make them more desirable to foreign consumers. Secondly, the international marketing companies must be willing to make these market commitments. That is, they have to familiarize themselves thoroughly will their country of selection and understand the prospective risks or benefits of making a decision for foreign marketing (Keegan 2003). There are various factors considered before entering into an overseas market such as speed, flexibility, costs, risk factor, payback period and long-term objectives. Speed considers how fast a company may wish to enter into a market, cost refers to what is involved in entering the market, and flexibility refers to how easy it will be to the preferred market. Payback period considers the time you prefer to have obtained returns after entering into the market, long term objectives determines what the company wants to achieve in its foreign market long term operations (Kotler 2008). This essay explains the factors that have resulted to organizations internalization. It also evaluates the market entry strategies employed in moving products from home to host country with consideration of marketing mix. The factors that have led to internalization can be explained in theoretical approach by using the theories of trade cycle, orientation of the management and the comparative advantage. The trade cycle of the product explains how an international market is created for the products through a process where the higher exporter countries that were initial exporters lose their market to the importers from developing countries. The process of loosing exports and opening markets for imports from other countries involves four phases. First phase is when the product in such high-income country is strong and in surplus. Second phase involves beginning in production of foreign products; third phase is when the competition in the foreign country becomes high and in final phase, there is a beginning in the import competition. This means that products initially come from the high income generating countries then over a period of time, the lower income countries orders begin to be solicited. This leads to development of a thriving market in exports. When these high-income entrepreneurs realize that there is a low production costs in the markets which they are selling goods, they initiate production for their new products abroad. At this stage, foreign producers start to gain more experience and begin to expand. This leads to displacement of high-income production source for high-income export. The final cycle is experienced when the foreign producers stabilizes and begin exporting their products at low cost of production as compared to high-income producers. This brings competition to the home of the high-income producers as they cease to enjoy their own market monopoly. This cycle progresses as the capability of production extends to the home of developing countries from high income countries (Vernon, 1996). This factor of internalization can be explained using a case in UK textile industry. Initially, UK was the main producer of materials from cotton textile. This was contributed by availability of cheap labor and raw materials from commonwealth countries. With time, its former colonies such as African countries, Pakistan and India that supplied the raw materials realized they had raw materials and cheap labor at their doorstep to enhance domestic production. These countries began production began supplying huge markets of their own with drastic reduction of production costs. This made them to support finished goods and cloth to the UK that in turn was experiencing high costs of production that was attributed by failure in market share and increased labor. This cycle led to internalization as the organizations in developing countries began exporting their products to UK. However, the product trade cycle may be impacted by factors such as being short of skills and access capital for development of facilities that will respond to import. The production cost may be too low to level the imported product costs. This is common in developing countries as in the case of Sunplash Company in Zimbabwe a firm that was producing variety of fruit juices. In this case, Zimbabwe was sponsored by World Bank to restructure this firm where it changed to a market economy that attracted foreign importers. Within a short period, the firm’s market share dropped drastically to more than half the capacity it was producing. The reduced volume was attributed to high transportation costs and reduced income and rates of interests. This led to the closure of the firm thus affecting internalization (FAO 2010). The management orientation is another factor that leads to internalization. This follows a process that begins with orientation in the home country, in the host country then in the region and finally, globally. Management orientation is achieved by development and market forces. Marketing opportunities has been a major input for internationalization. This can be explained by global marketing of products such as cotton as fashionable and natural. This has led to more demand on products made of cotton such as suits, shirts and curtains. This can be seen as youths in different streets around the world wearing the same brand of basketball shirts or football shorts. This has increased the demand of the product thus encouraging internalization. Drinks have been advertised worldwide such as Coca Cola or Pepsi making everyone to feel the urge of having a taste of it. The marketing mix of these products has also made them to be unbounded in cultural grounds thus encouraging internalization. Global marketing have also led to utilization of products such as the Nestle products. This company operation in many countries has led to demand in raw its raw materials. This means that the countries producing cocoa secures a chance to export their products to this company (Cavusgil, 2004). Market forces have also been driven by seasons that lead to demand of certain product during a certain period. This has been common in most agricultural products that find their way into other countries on demand (Firat, Dholakia & Venkatesh 1995). An example of internalization that has been driven by season is a case of off seasonal vegetables in Kenya. Seasonal vegetables have made Kenya to establish itself in America and Europe. This has been driven by global segments that have emerged, improved technology and lesser gaps in communication. The Kenya’s export of specialty and seasonal vegetables took an advantage of rise of foreign travel of consumers of West Europe, increased consciousness in health, improved distribution and technologies in fresh products arrangements in Western Europe, diversification programs by countries exporting agricultural products, increased cold store facilities and technologies in Kenya and Europe. Kenya’s demand for agricultural products has also been increased by its location, low labor costs and diverse conditions of agro-ecology. This led to facilitated product range diversification developments throughout the year and improved qualities attributed by intensity in labor at the time of harvesting. This created internalization by supplying of these better quality products to Europe that was also accelerated by tourism trade. This makes Kenya a classic case of export that has been accelerated by advantages of forces in global market (FAO 2010). Comparative advantage is another theory where a certain country achieves internalization if it has an absolute advantage or disadvantage in all goods production. Calculation is done on the countries products in order to come up with production ratios where the bigger the ratio, the more the product for the country to specialize in. This means that the country will specialize in the area where competitive advantage is higher than exchange or trade with others organizations within the market place. This will encourage internalization as higher advantages imply more secure market and high generation of income. For instance if a country is producing two products where one has an advantage of 1.5 and the other a value of 1.8, then the country needs to concentrate on the product with a value of 1.8. This means that the higher the value of the comparable advantage, the more the preferable the production of that product. If the country can specialize in the goods and services which displays an advantage, then the economic welfare and also the total output will be at higher levels. This will increase the products export leading to promotion in internalization. However, foreign consumers are not only interested on the low cost of production but they also put emphasis on the quality, image, delivery reliability and other factors that come into play. For instance, a country producing locally produced wine from pawpaw may incur more expenses for wine imported from other countries based on quality and image. This means that there will be creation of foreign markets for products based on quality and image (Tutor2U 2011). The most common market entry strategies for moving products from home country to host country are exporting which involve direct and indirect exports and licensing. Making decision in international marketing requires more attention on marketing mix. This is because if the target market is met, there will be more on sales hence increased profit. International markets has to put into consideration the buying habits, international markets and also the personal income levels with a purpose of delivering a marketing mix program that is tailored to satisfy everyone’s needs. Some of the elements to be considered in marketing mix of exports include the product support, selling or promotion support, price support, distribution support, inventory support, service support and financial support (Khoromana, 2001). Exporting involve marketing products of one country to another country. Exporting advantages include home based manufacturing that make it less risky as compared to the organizations based in overseas, makes the risks of overseas operation to be minimal and the exporters have an opportunity to learn about the markets before venturing into the business. A disadvantage associated with export is where the exporter can be at the mercy of the agents. This can be experienced in developing countries such as agents dictating the exporting of your products (Cunningham, 1996). In direct export an exporter can use an agent, overseas subsidiary, distributor or government agency. This can be evidenced in most African countries exporting their agricultural products. Ethiopia has also been new commercial producers of horticultural products using the direct exporting. They have been major exporters of bobby beans and also fresh strawberries, herbs, tomatoes, peas and more. Their main destinations of the market are the UK, Europe and Netherlands. They are also producers of temperate, tropical and sub- tropical vegetables to Middle East. The country is doing tests with a variety of crops in order to come up with an optimal product of the marketing mix. The process of exporting involves agents within the country who connect their markets to the importers. The country also uses external agencies that operate the process of exporting from other countries. The organizations involved in production of these goods are in the process of identifying the standards and procedures for their product exportation (EHDA, 2011). Another example of a direct exportation is Zimbabwe. Its marketing board is said to be commercialized but there is a government control on exports. Hence, the government acts as agent in maize exports. This can also applied in Kenyan horticultural industry where there is a agent responsible for promotion which deals information inflow and advertising. It may also be more active in the process by approving any document meant for export. The challenge with direct method is obtaining the marketing information. The work of the exporter will be to indentify and choose the market, find an agent, prepare documentation, set up the physical distribution procedure and pricing as well as promoting the product (Collett 1991). The process of exportation requires a committed partnership between the importer, government, exporter and transportation. Lack of coordination of these activities will lead to failure of the process of exporting. An example of a condition in a direct exportation is horticultural products exportation from Kenya. The producer connects to the middlemen, the middlemen coordinate with the exporters, the exporter is connected to the importer through processors and finally the importer becomes the wholesale distributor in the host country. However, direct markets are reducing due to presence of trading blocs such as the European Union (Korey 2006). Indirect exports involve use of companies for export management, trading companies and countertrade. Options in indirect exportation include Foreign Buying Offices, International Trading Company, multinational companies, tourist purchases, export agencies, Export Management Companies and piggyback. Advantages associated with indirect method include contracts I worldwide operation of market, high motivation from the commission, the exporter or the manufacturer requires little expertise and the burden from the manufacturer is taken by credit acceptance. Piggybacking enhances the organizations with little skills in exporting to use services of other exporters with adequate skills. It also encourages the organizations within the same region to buy products in bulk as a single organization. For instance, organizations importing the same raw material may coordinate to import them in bulk (Khoury 1984). Examples of foreign buying offices include international organizations for large retailing such as Sears and Wal-Mart. These offices are established in various foreign countries where they buy products from locals in local currency then they distribute the products to the home country. Example of an International Trading Company is Mitsui and Itochu Japanese international traders. They buy and sell products and services from various countries worldwide and resell these products through their identified branches to different foreign markets. Examples of multinational purchases include the Toyota, BMW and Ford. These companies buy components and raw materials from the local suppliers then they use them in processes of manufacturing. The companies later export their finished products worldwide. Export Management Companies mange control exports belonging to other companies but they have minimal involvement in the manufacturer’s processes. Tourist purchases involve foreign travelers who act as consumers by buying certain products such as clothing and curios then tacking them back to their home (Exporthelp.com 2011). Licensing involves a process where an organization in a certain country comes to an agreement with another country where the country is allowed to use a trade mark, processing, manufacturing, knowledge or any other skill which is given by the licensor. The licensing will comprise some involvement and expenses to be incurred by the licensee. This method’s advantages include a simpler and a good way for an organization to begin operations in foreign countries and also open door to reduced risks relationships in manufacturing, the interests of connection between the receiving partners and parent partners is that the two evade the efforts of marketing. Foreign operations will not tie the capital of any partner. Licensing is also accompanied by some disadvantages which include loss of potential returns from manufacturing and marketing, the partners ends up developing knowledge about the product and terminates the license in a very short time, the licensee become the major competitors, it requires a significant investigation, finding, planning and interpretation and finally, it requires less participation (FAO 2010). An example of a licensing method is the Coca Cola Company. The company has adopted its own market mix strategy and product in order to achieve its goals of meeting all the customers’ needs. In order to maintain the taste of its products the company has standardized its market mix in such a way that it tastes the same in every part of the world. Other products with the standardized approach include Nike, MTV and Levis. These brands have been successful globally as their standardized marketing mix is targeted globally. This process maintains the production costs and increases the brand in global scale. Another company that is a global player is Mcdonald which is a food company producing burger. This food company has adopted a different strategy of marketing mix in order to meet the local needs. For instance in India, they treat a cow as sacred hence the burgers produced by this company for Indians is either served with fish or chicken. The company also supplies burgers with chili sauce in Mexico. This makes the organization to be accepted globally leading to successful establishments of the company in the foreign markets (Learning marketing.com 2011). Finally, factors that can influence the mode of entry can be described into three categories which are firm specific, country specific and market specific factors. Factors that are firm specific refer to the skills and assets that consist of ownership advantages. Firm specific factors can be classified into firm size, the international experience and asset specificity. Firm size is based on the idea that those firms which are larger posse greater capability as compared to the smaller ones to absorb risks and expend resources. The international experience refers to the local knowledge of the market which is gained in order to avoid the hazards on the transactions of the international markets while asset specificity regards to the technologies and products that tend develop risks of dissemination due to a threat of opportunism (Arregle, Hébert & Beamish 2006). Factors that are country specific include legal, political, cultural, institutional and country specific factors. These can further be classified into two variables that are risk of the country and the government restrictions. Country risk is described as a possible risk of variations in the operation mode that lead to environmental changes that are unpredictable. High risks in the country will lower the entry modes involvement. The government restrictions consist of the regulations that have an impact on foreign firm operations. Increased restriction in the government will lead low entry modes involvement (Quer, Claver & Rienda 1997). The third category of factors influencing entry mode is market specific factors. These can be further be categorized into the following variables; competitive intensity, market potential and demand uncertainty. Market potential is the size and growth potential of foreign market. When the market potential growth is high, there is more control of entry mode. The uncertainty in demand is usually difficult to predict, they refer to future products, and serves demand in foreign markets. If this demand is high, firms adopt higher entry mode control. Competitive intensity is that degree in which a firm is viewed by other competitors in its entry to a foreign market (Brouthers 2002). Conclusion International marketing involves a process where a business or a country distributes its products and services to consumers in another or in more countries. The marketing concept is the same throughout the world but the marketing plan environment may be completely different. A company that is willing to enter into a foreign market must decide on the appropriate mode of entry for the specific market. This decision is very essential for the purpose of market expansion. This shows that strategies of the entry mode are very important and can influence company’s performance in the long run. The factors that influence the decision on the entry mode vary on each case. Each factor’s degree of influence also varies between countries. References Arregle, JC, Hébert, L & Beamish, PW 2006. Mode of International Entry: The Advantages of Multilevel Methods, Management International Review, vol. 46, issue 5, p. 597 Brouthers, KD 2002. Institutional, cultural and transaction cost influences on entry mode choice and performance, Journal of International Business Studies, vol. 33, pp. 203 Cavusgil, S. T. 2004, Differences among Exporting Firms based on Degree of Internationalisation, Journal of Business Research, Vol. 12, no. 3, pp. 123-142 Collett, W.E. 1991. 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