Chp 7 Marketing Lecture Notes pt 2

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Once a company has decided to enter the global marketplace, it selects a means of market entry:

(1) exporting, (2) licensing, (3) joint venture, and (4) direct investment.

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What is exporting

Global market-entry strategy in which a company produces goods in one country and sells them in another country.

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Two forms of exporting

Indirect and Direct Exporting

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What is Indirect Exporting

When a firm sells its domestically produced goods in a foreign country through an intermediary. Least amount of commitment & risk but will probably return the least profit. Ideal for the company that has no overseas contacts but wants to market abroad.

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What is Direct Exporting

When a firm sells its domestically produced goods in a foreign country without intermediaries. Companies use when they believe sales will be sufficiently large & easy to obtain. Involves more risk but can provide increased profits.

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What is licensing

A company offers the right to a trademark, patent, trade secret, or other similarly valued items of intellectual property in return for a royalty or a fee.

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Advantages of licensing:

Low risk, allowing the licensee to gain information that allows it to start with a competitive advantage. Chance to enter a foreign market at little cost. Foreign country gains employment by having the product manufactured locally.

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Disadvantages of licensing:

Licensor gives up control of its product. Reduces potential profits gained. Create its own competition because some licensees are able to modify product. If licensee is a poor choice, the name or reputation of the company may be harmed.

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A variation of licensing is

Franchising

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What is franchising

Company contracts with an individual to set up an operation to provide products or services under the company’s established brand name

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What is a joint venture

global market-entry strategy in which a foreign company and a local firm invest together to create a local business in order to share ownership, control, and profits of the new company.

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Advantages of a joint venture:

One firm may not have the necessary financial, physical, or managerial resources to enter a foreign market alone. A government may require or encourage a joint venture before it allows a foreign company to enter its market.

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Disadvantages of a joint venture:

The two companies may disagree about policies or courses of action. Government bureaucracy may bog down the effort.

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What is direct investment

The biggest commitment a firm can make when entering the global market, it is a global market-entry strategy that entails a domestic firm actually investing in and owning a foreign subsidiary or division.

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Advantages of Direct Investment

cost savings, better understanding of local market conditions, and fewer local restrictions.

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Disadvantages of Direct Investment

financial commitments and risks involved (political, currency, etc.).

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What mode of entry could a company follow if it has no previous experience in global marketing?

indirect exporting through intermediaries

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How does licensing differ from a joint venture

In licensing, the firm offers the right to a trademark, patent, or trade secret in return for a fee or royalty. In a joint venture, a foreign and a local firm invest together to produce some product or service. The two companies share ownership

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A product may be sold globally in one of three ways:

Product Extension, Product Adaptation, Product Invention

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What is Product Extension

Selling virtually the same product in other countries. Works best when the target markets share the same desires, needs, and uses for the product.

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What is Product Adaptation

Changing a product to make it more appropriate for a country’s climate or consumer preferences

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What is Product Invention

Companies can invent totally new products designed to satisfy common needs across countries

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Companies use Identical Promotion for

product extension and product adaptation strategies.

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Companies use Communication Adaptation for

promotion messages, selling the same product but advertising it differently in different countries

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Companies use Dual Adapation Strategy for

modifying both their products and promotional message.

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Distribution Strategy

The sophistication of a country’s distribution channels increases as its economic infrastructure develops.

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Pricing Strategy

Individual countries, even those with free trade agreements, may impose considerable competitive, political, and legal constraints on a global company’s pricing strategy. • Pricing too low or too high can have dire consequences:

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What is dumping

which is when a firm sells a product in a foreign country below its domestic price or below its actual cost

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What is Gray Market

(or parallel importing), a situation where products are sold through unauthorized channels of distribution. Companies price products very high in some countries but competitively in others. Parallel importing is legal in the U.S. but illegal in the EU.

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Gray marketing occurs when individuals:

Buy products in a lower-priced country from a manufacturer’s authorized retailer. Ship them to higher-priced countries. Sell them below the manufacturer’s suggested retail price through unauthorized retailers.

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Products may be sold globally in three ways. What are they?

Products can be sold: (1) in the same form as in its home market (product extension); (2) with some adaptations (product adaptation); and (3) as a totally new product (product invention).

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What is meant by this statement: “Quotas are a hidden tax on consumers, whereas tariffs are a more obvious one.”?

Quotas represent a hidden tax on consumers because they limit supply of products, which in turn increases prices. Tariffs are literally a government tax imposed on imported goods.

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How successful would a television commercial in Japan be if it featured a husband surprising his wife in her dressing area on Valentine’s Day with a small box of chocolates containing four candies? Why?

: This commercial would be a failure. It violates a number of cultural norms in Japan

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As a novice in global marketing, which alternative global market-entry strategy would you be likely start with? Why? What other alternatives do you have for a global market entry?

The best alternative for a novice firm is indirect exporting—selling its domestically produced goods in a foreign country through an intermediary, such as a distributor, that has the marketing know-how and the resources necessary for the effort to succee

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Coca-Cola is sold worldwide. In some countries, Coca-Cola owns the bottling facilities; in others, it has signed contracts with licensees or relies on joint ventures. When selecting a licensee in each country, what factors should Coca-Cola consider?

Coca-Cola should perform a cross-cultural analysis of the target country, reviewing regulations and business customs in the country to be sure its patents will be respected.

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