The four basic management strategies to compete internationally - Essay Example

INTERNATIONAL TRADE AND COMPETITION The Paper is divided into the following three sections: I) International Marketing-General Concepts II) The Four International Marketing Strategies-a critical analysis III) Globalization-The Australian Experience I) International Marketing-General Concepts Marketers have to find ways and means to identify continuous demand and match the demands with the products and services which they are best at offering. If the demand has saturated then marketers need to identify unmet needs and demand and create demand. Infact marketing opportunity is being able to identify unmet needs or create new demand. The globe presents a plethora of new markets with a host of unmet needs and demands and hence implying a host of opportunities. Globalizing an organization’s operations can be generalized by saying that an organization seeks to enter new markets. Yet entering new markets means committing the limited resources required to produce a targeted return on the investment which could have been put to other marketing decisions each having their own return on investments, or we may also say that globalization has its opportunity cost. Thus organizations usually decide to globalize their operations when they foresee a sufficient profitability in assigning their limited resources to foreign market(s) higher than the expected rate of return from other marketing decisions. Ansoff’s grid clearly juxtaposes the decision to enter new markets with other marketing decisions. Current Products New Products Current Markets 1. Market Penetration Strategy 2.Product Development Strategy New Markets 3.Market Development Strategy 4.Diversification strategy (Source: Kotler, Philip.Marketing Management: Analysis Planning and Control) Hence an organization can seek new markets for its current products or produce new products for new markets. The organization can accordingly choose one or more of the following product and promotion options according to its objectives. Product Promotion Do not change product Adapt product Develop new product Do not change promotion 1.Straight Extension 2.Product Adaptation 5.Product Invention Adapt promotion 3.Communication Adaptation 4.Dual Adaptation (Source: Kotler,Philip.Marketing Management: Analysis Planning and Control) The strategies which an organization adopts to compete globally depends on many factors such as: i) Its objectives, competitiveness, resources, products and services. ii) The attractiveness of the foreign market. iii) The cost of entering the market. Cost may be monetary, time, energy or psychic costs and may arise due to differences in culture and value systems making the product and adaptation cost extremely high, due to the distance, due to high taxation levied by the foreign governments and imposition of tedious rules regulations and procedures by the government of a country thus creating high entry barriers. iv) The risk involved in operating in a particular country, which may arise due to political instability, devaluation etc. Countries may differ on their market attractiveness, entry barriers, proximity, culture, rules and regulations and risk factors hence the same organization may have to employ different entry and operation strategies for different countries, also the government policies in the same country may be different for different industries and some products and hence the strategies have to be varied accordingly . Organizations differ in their vision, mission, objectives, competitiveness (strengths and weaknesses), resources and hence the strategies they adopt to face a particular marketing situation. However studying a category of organizations and the international marketing strategies adopted by them helps arrive at few generalizations. The decision maker has to exercise caution in deciding where to generalize and where to discriminate while formulating strategies for the organization s/he is concerned with. The organization should analyze various data available on foreign markets like market attractiveness (demography, income etc) export, import statistics, entry and exit barriers, trade embargoes, trade promotion schemes, political situation, no. of distributors etc and try to analyze its competitive advantage in a particular foreign market. Porter’s Five Forces model of comparative advantage provides the roadmap for such an analysis. Barriers to entry Absolute cost advantage Access to inputs Economies of scale Government Policies Capital requirements Brand Value Proprietary products Learning curve Bargaining Power of Suppliers Supplier Concentration Differentiation of inputs Switching cost of firms Presence of substitute inputs Threat of forward integration Impact of inputs on total product costs. Firm Bargaining Power of Buyers Buyer volume Brand value Price sensitivity Threat of backward integration Product differentiation Buyer concentration. Threat of Substitutes Switching Costs Relative price performance of substitutes Buyer propensity to substitute Intensity of Rivalry Among Firms Exit barriers Concentration ratio Industry growth Switching costs Market share Diversity of rivals (Porter’s Five Forces Model of Competitive Advantage) It may be found many a times that organizations with not so good competitive advantage locally have identified places in the globe where they have immense competitive advantage as with the case of the born globals and the many successful global companies. II) The Four international Marketing Strategies: a critical analysis The four strategies (not necessarily in the same order as depicted in the diagram below) generally used by firms to compete globally are Exporting, Licensing, Joint ventures and Direct Investments. Indirect Exporting Direct Exporting Licensing Joint Ventures Direct Investments (Source: Kotler, Philip.Marketing Management: Analysis Planning and Control) (In increasing order of commitment, risk, control and profit potential) Exporting: Selling goods produced in home country to foreign countries through direct or indirect agents. Licensing: allowing a foreign company to use a manufacturing process, trademark, patent, trade secret or other item of value for a fee or loyalty. Joint Ventures: striking an agreement with foreign investors to share ownership, control and profits. Direct Investments: is the direct ownership of foreign assets. Indirect export involves minimum commitment and risk but also promises minimum profit and control whereas direct investments involve the maximum risk and commitment but promises maximum profit and control. Exporting requires the least adaptation whereas direct investment agreements generally require many an adaptations, often a change in the company policy in the foreign markets. It may be found that many a times organizations who have entered into agreements of direct investments with other nations have acquired immense proportions and control over a particular industry in the foreign market posing huge entry barriers to smaller firms which may want to enter the market through exports. On the other hand it may also be found that many large MNC’s who have invested directly in foreign markets passively in a without assessing their competitive advantage have been proved to be in competitive in comparison to smaller and flexible firms which have made immense profits mainly through exports but accompanied by extensive market analysis and in-depth assessment of their competitive advantage. III) Internationalization-The Australian Experience: The internationalization experience of Australia can be contrasted by analyzing and contrasting the experiences of Large Australian MNCs and small business firms which were able to establish themselves as born global firms. An organization is shaped by its business environment. The history, geography, society, culture educational and religious institutions shape the human minds and hence also the organizations they run. Australia is a small continent country isolated from the rest of the world and has a small domestic market Most of the industries in Australia like mining, paper and packaging and banking assumed monopolistic, duopolistic or oligopolistic structures with the exception of the wine industry which remained fragmented. The industries were protected from outside competition by the government and as such were not geared up to operate under competitive pressures of the global world. Most of the firms became large MNCs by first expanding in the domestic market accumulating resources and thereafter diversifying into new products and markets. With the deregulation of the economy after 1980 and increase in competition in the domestic market, most of the large MNCs started looking for alternative avenues for investing their money and ventured into unrelated diversification, this was partly because owing to the small size of the domestic market and pressures of increased competition and partly because they had gained confidence from their past investment decisions in their own countries. This was unlike their counterparts in US who had to resort to conglomerate diversification as the antitrust regulation limited vertical and horizontal integration. The large Australian MNCs ventured abroad mainly through foreign direct investments and their destinations were mainly the USA, UK and Japan. They failed to realize the difference in investing in domestic markets and foreign markets. The performance of a business are effected by various location specific factors like distribution network and channels, brand name, workforce, social capital, support of the government and people etc, all these factors can vary immensely in foreign markets and require a lot of planning and adaptation before venturing into foreign investments. The large Australian MNCs had undertaken no such analysis before venturing into the foreign markets but had just invested passively and when faced by sudden pitfalls were unable to bring about the timely and needed change in their huge and rigid structures to combat them. As a result many of the large firms which were highly successful in their domestic market destroyed economic value in foreign direct investments. As a sharp contrast to the large domestic firms who proved to be incompetent in the global market, Australia started witnessing from the beginning of the 1990s a breed of small and medium sized production firms which made a significant contribution to the nation’s export Capital. A number of these firms had run domestic operations for some years then observing the potential in foreign markets started exporting whereas there were a number of other firms mainly high tech firms which started global operations almost immediately(within two years) after their inception, such firms are also called the born global firms. These born global firms were characterized by a high commitment to internationalization and the ability to find out customers with a common need across the globe and hence were able to standardize their operations instead of having to customize and adapt each and every time, this can be related to as some very eminent scholar has pointed out by what is termed as glocalization. References Kotler Philip. (1994).Marketing Management: Analysis, Planning, Implementation and Control.New Delhi, India. Prentice Hall of India Pvt. Ltd. Zalan Tatiana. Lewis Geoffrey. (2006).Administrative Heritage: An Exploratory Study of large Australian Firms. Australian Journal of Management, Vol. 31, No. 2 December 2006, 293-312. Rasmusen.S.Erik. Madsen Koed Tage. (2002).The Born Global Concept. Paper for the EIBA Conference, December 2002. . Read More