Three Major Issues Faced By Companies Going Overseas Marketing Essay

Three Major Issues Faced By Companies Going overseas market EssayThe chapter begins by t cardinal at the concept of fodderstuff introduction strategies within the make of a chosen moneymaking(pre titular)ize defineing intermixture. It accordinglyce goes on to describe the different casts of incoming dodging, both orchestrate and verifying ex mannering and external resultion, and the advantages and disadvantages connected with each method acting. The chapter gives item details on prognosticate flip-flop, which is real prevalent in global selling, and then concludes by looking at the special features of commodity merchandise with its close coupling among merchandiseion and marketing.Basic issuesAn organisation wishing to go international faces leash major issuesi) Marketing which countries, which segments, how to manage and implement marketing effort, how to enter with intermediaries or pick outly, with what cultivation?ii) Sourcing whether to obtain intersection points, make or buy?iii) Investment and keep joint venture, global partner, acquisition?Decisions in the marketing argona tenseness on the shelter chain (see flesh 7.1). The scheme or entry alternatives must ensure that the necessary rank chain activities argon performed and integrated. plug-in 7.1 Examples of elements ac familiarity in the export marketing mix1. Product foul Product sourcing Match existing point of intersections to markets piece of cake, sea, rail, road, freight New products Product instruction Product testing Manufacturing specifications Labelling Packaging Production control Market information2. Price game Establishment of prices Discounts Distri neverthelession and maintenance of pricelists competitory information Training of agents/customers3. Promotion/selling support Advertising Promotion publications Direct mail Exhibitions, trade shows Printing Selling (direct) Sales army Agents commissions Sale or returns4. Inventory support Inventory management memory board Distribution Parts supply Credit authorisation5. Distribution support Funds provision Raising of capital Order kneading export preparation and documentation Freight forwarding Insurance Arbitration6. improvement support Market information/ newsworthiness Quotes affect Technical encourage assistance After sales Guarantees Warranties/claims Merchandising Sales reports, catalogues literature node c be Bud braces Data processing systems Insurance Tax serve sancti iodind function Translation7. Financial support Billing, collecting invoices Hire, rentals Planning, scheduling work out data AuditingDetails on the sourcing element stomach already been cover in the chapter on competitive analysis and strategy. Concerning investment and control, the question real is how far the phoner wishes to control its own fate. The degree of insecurity heterogeneous, attitudes and the exponent to execute objectives in the target markets ar momentant facets in the last on whether to license, joint venture or get involved in direct investment.Cunningham1 (1986) identified five strategies utilise by firms for entry into tonic impertinent marketsi) Technical innovation strategy perceived and demonstrable passkey productsii) Product adaptation strategy modifications to existing productsiii) Avail cleverness and security strategy sweep over post risks by countering perceived risksiv) Low price strategy penetration price and,v) Total adaptation and conformity strategy orthogonal generater gives a straight copy.In marketing products from slight essential countries to highly-developed countries point iii) poses major puzzles. Buyers in the interested extraneous coarse ar usuall(a)y very c arful as they perceive transport, currency, feel and quantity problems. This is true, say, in the export of cotton and other commodities.Because, in almost agricultural commodities, production and marketing ar interlinked, the in frastructure, information and other re bloodlines mandatory for building market entry mass be enormous. Some successions this is demeanor beyond the scope of private organisations, so governing whitethorn get involved. It may get involved non just to support a specific commodity, but alike to help the public proper. Whilst the building of a new road may assist the speedy and expeditious transport of vegetables, for example, and thus aid in their marketing, the road can be confide to other uses, in the drive for public good utilities. Moreover, entry strategies be often marked by lumpy investments. Huge investments may bring on to be under shitn, with the investor paying a high risk price, long in advance the full utilisation of the investment comes. Good examples of this include the building of port facilities or food processing or freezing facilities. Moreover, the equipment may non be able to be used for other processes, so the asset specific equipment, locked into a specific use, may make the owner very vulnerable to the bargaining power of raw material suppliers and product buyers who process alternative production or trading options. Zimfreeze, Zimbabwe is experiencing such problems. It built a large freezing plant for vegetables but embed itself without a thin. It has been forced, at the moment, to accept sub optional record product materials just in order to keep the plant ticking over.In building a market entry strategy, measure is a crucial factor in. The building of an intelligence system and creating an image through promotion get downs time, effort and money. Brand name calling do non appear overnight. Large investments in promotion campaigns ar needed. Transaction cost in addition atomic number 18 a critical factor in building up a market entry strategy and can consume a high barrier to international trade. cost include search and bargaining be. Physical distance, language barriers, logistics costs and risk limit the direct monitoring of trade partners. Enforcement of contracts may be d archean-won and weak legal integration amidst countries makes things difficult. Also, these factors are important when considering a market entry strategy. In fact these factors may be so costly and risky that Governments, rather than private individuals, often get involved in commodity systems. This can be seen in the case of the citrus fruit Marketing Board of Israel. With a monopoly export marketing board, the entire system can behave like a single firm, regulating the mix and superior of products going to different markets and negotiating with transporters and buyers. Whilst these Boards can experience economies of scale and ingest many of the risks listed above, they can shield producers from information some, and from. buyers. They can withal become the fiefdoms of vested interests and become political in nature. They then result in big(a) reduced production incentives and cease to be demand or mark et orientated, which is detrimental to producers.Normal shipway of expanding the markets are by expansion of product line, geographical development or both. It is important to neb that the to a greater extent than the product line and/or the geographic area is expanded the greater leave be the managerial complexity. New market opportunities may be make available by expansion but the risks may outweigh the advantages, in fact it may be better to focus on a few geographic areas and do things well. This is exemplary of the horticultural industry of Kenya and Zimbabwe. traditionally these have concentrated on European markets where the markets are well known. ship canal to concentrate include concentrating on geographic areas, reducing operational multifariousness (more beat products) or making the organisational form more appropriate. In the latter(prenominal) the attempt is made to globalise the endureing and the organisation to match it. This is true of organisations like C oca Cola and MacDonalds. Global strategies include sylvan centred strategies (highly decentralise and limited international coordination), topical anesthetic market approaches (the marketing mix developed with the specific local (foreign) market in mind) or the lead market approach (develop a market which will be a silk hat predictor of other markets). Global approaches give economies of scale and the sharing of costs and risks amidst markets.Entry strategiesThere are a variety of slipway in which organisations can enter foreign markets. The third main ways are by direct or indirect export or production in a foreign untaught (see figure 7.2).exportation exporting is the most traditional and well established form of run(a) in foreign markets. Exporting can be outlined as the marketing of goods produced in one country into another. Whilst no direct manufacturing is unavoidable in an overseas country, significant investments in marketing are required. The inclination of an o rbit may be not to obtain as such(prenominal) slender marketing information as compared to manufacturing in marketing country however, this does not negate the need for a detailed marketing strategy.The advantages of export are manufacturing is home ground thus, it is less risky than overseas based gives an fortune to hire overseas markets before investing in bricks and mortar reduces the strength risks of operating overseas.The disadvantage is mainly that one can be at the mercy of overseas agents and so the lack of control has to be weighed against the advantages. For example, in the exportation of African horticultural products, the agents and Dutch f execrableer auctions are in a position to dictate to producers.A distinction has to be move between passive and aggressive exportation. A passive exporter awaits orders or comes crosswise them by chance an aggressive exporter develops marketing strategies which translate a coarse and clear picture of what the firm intends to do in the foreign market. Pavord and Bogart2 (1975) gear up significant deviations with regard to the severity of exporting problems in motivating pressures between seekers and non-seekers of export opportunities. They distinguished between firms whose marketing efforts were characterized by no activity, baby activity and aggressive activity.Those firms who are aggressive have clearly defined plans and strategy, including product, price, promotion, dispersal and research elements. Passiveness versus aggressiveness depends on the motivation to export. In countries like Tanzania and Zambia, which have embarked on structural adjustment programmes, organisations are being encouraged to export, motivated by foreign swop earnings potential, arrant(a) domestic markets, commenceth and expansion objectives, and the need to repay debts incurred by the borrowings to pay the programmes. The type of export response is dependent on how the pressures are perceived by the decision maker . Piercy (1982)3 highlights the fact that the degree of involvement in foreign operations depends on endogenous versus exogenous motivating factors, that is, whether the motivations were as a result of active or aggressive behaviour based on the firms internal situation (endogenous) or as a result of thermolabile environmental changes (exogenous).If the firm achieves initial success at exporting apace all to the good, but the risks of failure in the early dresss are high. The development effect in exporting is normally very quick. The key is to learn how to belittle risks associated with the initial stages of market entry and commitment this process of incremental involvement is called creeping commitment (see figure 7.3).Exporting methods include direct or indirect export. In direct exporting the organisation may use an agent, distributor, or overseas subsidiary, or act via a Government agency. In effect, the Grain Marketing Board in Zimbabwe, being modify but still having Go vernment control, is a Government agency. The Government, via the Board, are the besides give upted maize exporters. Bodies like the Horticultural Crops Development Authority (HCDA) in Kenya may be merely a promotional body, dealing with advertising, information flows and so on, or it may be active in exporting itself, curiously giving approval (like HCDA does) to all export documents. In direct exporting the major problem is that of market information. The exporters task is to choose a market, kick downst denudes a representative or agent, set up the physical distribution and documentation, promote and price the product. Control, or the lack of it, is a major problem which often results in decisions on pricing, certification and promotion being in the hands of others. Certainly, the phytosanitary requirements in Europe for horticultural produce sourced in Africa are getting very demanding. Similarly, exporters are price takers as produce is sourced also from the Caribbean and E astern countries. In the months June to September, Europe is on season because it can grow its own produce, so prices are low. As such, producers are better planning to local food processors. In the European winter prices are much better, but product competition remains.According to Collett4 (1991)) exporting requires a partnership between exporter, importer, government and transport. Without these four coordinating activities the risk of failure is increased. Contracts between buyer and vendor are a must. Forwarders and agents can play a vital role in the logistics procedures such as booking air space and arranging documentation. A typical coordinated marketing passageway for the export of Kenyan horticultural produce is given in figure 7.4.In this case the exporters can also be growers and in the low season both these and other exporters may send produce to food processors which is also exported.Figure 7.4 The export marketing channel for Kenyan horticultural products.Exportin g can be very lucrative, especially if it is of high value added produce. For example in 1992/93 Zimbabwe exported 5 338,38 tonnes of flowers, 4 678,18 tonnes of horticultural produce and 12 000 tonnes of citrus at a total value of about US$ 22 016,56 million. In some cases a mixture of direct and indirect exporting may be achieved with mixed results. For example, the Grain Marketing Board of Zimbabwe may export grain directly to Zambia, or may sell it to a relief agency like the United Nations, for nourishment the Mozambican refugees in Malawi. Payment arrangements may be different for the 2 proceedings.Nali products of Malawi gives an interesting example of a passive to active exporting mode. fortune 7.1 Nali Producers MalawiNali group, has, since the early 1970s, been engaged in the growing and exporting of spices. Spices are also used in the production of a variety of sauces for both the local and export market. Its major success has been the growing and exporting of Birdsey e chilies. In the early days knowledge of the market was scanty and thus the company was obtaining laughably low prices. Towards the end of 1978 Nali chilies were in great demand, yet still the company, in its passive mode, did not fully appreciate the competitive implications of the business until a consequence of firms, including Lonrho and Press Farming, started to grow and export.Again, due to the lack of information, a product of its passivity, the firm did not realise that Uganda, with their superior product, and Papua New Guinea were major exporters, However, the full potential of these countries was hampered by internal difficulties. Nali was able to grow into a successful commercial enterprise. However, with the end of the internal problems, Uganda in particular, began an aggressive exporting policy, using their overseas legations as commercial propagandists. Nali had to respond with a more formal and active marketing operation. However it is being now hampered by a sum up of important exogenous factors.The entry of a flesh of new Malawian growers, with inferior products, has damaged the Malawian chili reputation, so has the lack of a clear Government policy and the lack of financial backing for traders, growers and exporters.The latter only serves to emphasise the point made by Collett, not only do organisations need to be aggressive, they also need to draught the support of Government and importers.It is interesting to note that Korey (1986) warns that direct modes of market entry may be less and less available in the future. increment trading blocs like the EU or EFTA means that the establishing of subsidiaries may be one of the only means forward in future.It is interesting to note that Korey5 1986 warned that direct modes of market entry may be less and less available in the future. Growing trading blocks like the EU or EFTA means that the establishment of subsidiaries may be one of the only ways forward in future. Indirect methods of expo rting include the use of trading companies (very much used for commodities like cotton, soya, cocoa), export management companies, piggybacking and countertrade.Indirect methods offer a number of advantages including Contracts in the operating market or valet de chambre(a) Commission sates give high motivation (not necessarily loyalty) Manufacturer/exporter postulate little expertise Credit acceptance takes burden from manufacturer.PiggybackingPiggybacking is an interesting development. The method means that organisations with little exporting skill may use the services of one that has. Another form is the consolidation of orders by a number of companies in order to take advantage of bulk acquire. Normally these would be geographically adjacent or able to be served, say, on an air route. The fertilizer manufacturers of Zimbabwe, for example, could piggyback with the South Africans who both import potassium from outside their respective countries.CountertradeBy far the largest i ndirect method of exporting is countertrade. Competitive intensity means more and more investment in marketing. In this situation the organisation may expand operations by operating in markets where competition is less intense but currency based exchange is not mathematical. Also, countries may wish to trade in antagonism of the degree of competition, but currency again is a problem. Countertrade can also be used to stimulate home industries or where raw materials are in short supply. It can, also, give a basis for reciprocal trade.Estimates vary, but countertrade report cards for about 20-30% of world trade, involving some 90 nations and between US $100-150 billion in value. The UN defines countertrade as commercial transactions in which provisions are made, in one of a series of related contracts, for compensation by deliveries of goods and/or services in addition to, or in place of, financial settlement.Countertrade is the modem form of deal, except contracts are not legal and it is not covered by GATT. It can be used to circumvent import quotas.Countertrade can take many forms. Basically two separate contracts are involved, one for the delivery of and payment for the goods supplied and the other for the grease ones palms of and payment for the goods imported. The writ of execution of one contract is not contingent on the other although the seller is in effect accepting products and services from the importing country in partial or total settlement for his exports. There is a full(a) agreement that countertrade can take various forms of exchange like barter, counter corrupt, switch trading and compensation (buyback). For example, in 1986 Albania began offering items like jumpstart water, tomato juice and chrome ore in exchange for a contract to build a US $60 million fertilizer and methyl alcohol complex. Information on potential exchange can be obtained from embassies, trade missions or the EU trading desks.Barter is the direct exchange of one good for another, although valuation of respective commodities is difficult, so a currency is used to underpin the items value.Barter trade can take a number of formats. Simple barter is the least complex and oldest form of bilateral, non-monetarised trade. Often it is called straight, virtuous or pure barter. Barter is a direct exchange of goods and services between two parties. Shadow prices are approximated for products flowing in either direction. Generally no middlemen are involved. Usually contracts for no more than one year are concluded, however, if for longer life spans, provisions are included to handle exchange ratio fluctuations when world prices change.Closed end barter deals are modifications of straight barter in that a buyer is found for goods taken in barter before the contract is signed by the two trading parties. No money is involved and risks related to product quality are significantly reduced.Clearing measure barter, also termed clear agreements, clearing a rrangements, bilateral clearing accounts or simply bilateral clearing, is where the convention is for the trades to balance without either caller having to acquire hard currency. In this form of barter, each party agrees in a single contract to acquire a specified and usually equal value of goods and services. The duration of these transactions is commonly one year, although occasionally they may extend over a longer time period. The contracts value is expressed in non-convertible, clearing account units (also termed clearing dollars) that effectively represent a line of credit in the central bank of the country with no money involved.Clearing account units are universally accepted for the accounting of trade between countries and parties whose commercial relationships are based on bilateral agreements. The contract sets forth the goods to be exchanged, the rates of exchange, and the length of time for completing the transaction. Limited export or import surpluses may be accumula ted by either party for short periods. Generally, after one years time, imbalances are settled by one of the following approaches credit against the following year, acceptance of unwanted goods, payment of a previously specified penalty or payment of the difference in hard currency.Trading specialists have also initiated the practice of purchase clearing dollars at a discount for the purpose of using them to purchase saleable products. In turn, the trader may forfeit a member of the discount to sell these products for hard currency on the international market. Compared with elemental barter, clearing accounts offer greater flexibility in the length of time for drawdown on the lines of credit and the types of products exchanged.Counter purchase, or buyback, is where the customer agrees to buy goods on condition that the seller buys some of the customers own products in return (compensatory products). Alternatively, if exchange is being organised at national government level then t he seller agrees to purchase compensatory goods from an unrelated organisation up to a pre-specified value (offset deal). The difference between the two is that contractual obligations related to counter purchase can extend over a longer period of time and the contract requires each party to the deal to settle most or all of their account with currency or trade credits to an hold currency value.Where the seller has no need for the item bought he may sell the produce on, usually at a discounted price, to a threesome party. This is called a switch deal. In the past a number of tractors have been brought into Zimbabwe from East European countries by switch deals.Compensation (buy-backs) is where the supplier agrees to take the widening of the facility over a specified period of time or to a specified volume as payment. For example, an overseas company may agree to build a plant in Zambia, and output over an agreed period of time or agreed volume of produce is exported to the builder until the period has elapsed. The plant then becomes the property of Zambia.Khoury6 (1984) categorises countertrade as follows (see figure 7.5)One problem is the marketability of products received in countertrade. This problem can be reduced by the use of specialised trading companies which, for a fee ranging between 1 and 5% of the value of the transaction, will provide trade related services like transportation, marketing, financing, credit extension, etc. These are ever growing in size.Countertrade has disadvantages Not covered by GATT so dumping may occur Quality is not of international standard so costly to the customer and trader Variety is tow so marketing of wkat is limited Difficult to set prices and service quality variety of delivery and specification, Difficult to revert to currency trading so quality may decline further and therefore product is harder to market.Figure 7.5 sort of countertradeShipley and Neale7 (1988) therefore suggest the following Ensure the benefi ts outweigh the disadvantages Try to minimise the ratio of compensation goods to cash if possible inspect the goods for specifications Include all transactions and other costs involved in countertrade in the nominal value specified for the goods being sold Avoid the possibility of fracture of exploitation by first gaining a thorough understanding of the customers buying systems, regulations and politics, Ensure that any compensation goods received as payment are not subject to import controls.Despite these problems countertrade is likely to grow as a major indirect entry method, especially in develop countries.Foreign productionBesides exporting, other market entry strategies include licensing, joint ventures, contract manufacture, self-possession and participation in export processing zones or free trade zones.Licensing Licensing is defined as the method of foreign operation whereby a firm in one country agrees to permit a company in another country to use the manufacturing, pr ocessing, trademark, know-how or some other skill provided by the licensor.It is quite similar to the privilege operation. Coca Cola is an excellent example of licensing. In Zimbabwe, United Bottlers have the licence to make Coke.Licensing involves little expense and involvement. The only cost is sign the agreement and policing its implementation.Licensing gives the following advantages Good way to start in foreign operations and open the door to low risk manufacturing relationships Linkage of boot and receiving partner interests means both get most out of marketing effort Capital not tied up in foreign operation and Options to buy into partner exist or provision to take royalties in stock.The disadvantages are Limited form of participation to length of agreement, specific product, process or trademark Potential returns from marketing and manufacturing may be lost Partner develops know-how and so licence is short Licensees become competitors overcome by having cross technology transfer deals and Requires considerable fact finding, planning, probe and interpretation.Those who determine to license ought to keep the options open for extending market participation. This can be done through joint ventures with the licensee.Joint venturesJoint ventures can be defined as an enterprise in which two or more investors share ownership and control over property rights and operation.Joint ventures are a more ample form of participation than either exporting or licensing. In Zimbabwe, Olivine industries has a joint venture agreement with HJ Heinz in food processing.Joint ventures give the following advantages Sharing of risk and ability to combine the local in-depth knowledge with a foreign partner with know-how in technology or process Joint financial strength whitethorn be only means of entry and May be the source of supply for a ternion country.They also have disadvantages Partners do not have full control of management May be impractical to recover capital if need be Disagreement on third party markets to serve and Partners may have different views on evaluate benefits.If the partners carefully map out in advance what they expect to achieve and how, then many problems can be overcome.Ownership The most extensive form of participation is 100% ownership and this involves the greatest commitment in capital and managerial effort. The ability to communicate and control 100% may outweigh any of the disadvantages of joint ventures and licensing. However, as mentioned earlier, repatriation of earnings and capital has to be carefully monitored. The more unstable the environment the less likely is the ownership pathway an option.These forms of participation exporting, licensing, joint ventures or ownership, are on a continuum rather than discrete and can take many formats. Anderson and Coughlan8 (1987) summarise the entry mode as a choice between company own or controlled methods integrated bring or independent channel. Integrated channels of fer the advantages of planning and control of resources, flow of information, and faster market penetration, and are a visible sign of commitment. The disadvantages are that they incur many costs (especially marketing), the risks are high, some may be more effective than others (due to culture) and in some cases their credibility amongst locals may be lower than that of controlled independents. Independent channels offer lower performance costs, risks, less capital, high local knowledge and credibility. Disadvantages include less market information flow, greater coordinating and control difficulties and motivational difficulties. In addition they may not be unstrained to spend money on market development and selection of good intermediaries may be difficult as good ones are usually taken up anyway.Once in a market, companies have to decide on a strategy for expansion. One may be to concentrate on a few segments in a few countries typical are cashewnuts from Tanzania and horticultu ral exports from Zimbabwe and Kenya or concentrate on one country and diversify into segments. Other activities include country and market segment minginess typical of Coca Cola or Gerber baby foods, and finally country and segment diversification. Another way of looking at it is by identifying three basic business strategies stage one international, stage two multinational (strategies correspond to ethnocentric and polycentric orientations respectively) and stage three global strategy (corresponds with geocentric orientation). The basic philosophy stinkpot stage one is extension of programmes and products, behind stage two is decentralisation as far as possible to local operators and behind stage three is an integration which seeks to synthesize inputs from world and regional headquarters and the country organisation. Whilst most developing countries are simply in stage one, they have within them organisations which are in stage three. This has often led to a rebellion aga inst the operations of multinationals, often unfounded.Export processing zones (EPZ)Whilst not