International Marketing and Market Entry

Are you lucky enough to have conquered the domestic market? Thinking about going global, taking over the world? Before you embark on world domination, have a quick read of our beginners guide to international marketing and market entry.

Here at Marketing.com.au, we find that a good old pros and cons list can be very helpful when making these big life decisions. Sometimes, you just need to simplify the situation. So, we’ve put together our own pros and cons list for international expansion.

Pros:

• Some international markets present better profit opportunities than the domestic market
• A bigger customer base will enable us to achieve better economies of scale
• We will reduce our dependence on any one market
• We will be able to counterattack some of the big, global competitors in their home markets
• Our customers often travel abroad and require international service / presence

Cons:

• We may not understand foreign preference fully and could fail to offer a competitively attractive product.
• We may not fully understand the international business culture
• We might underestimate foreign regulations and incur unexpected costs
• We may lack managers with international experience
• The international markets that we enter might change their commercial laws or devalue their currency or implement any number of other economic changes

The main point is, if you decide to expand into international markets, you must ensure that your products and marketing activities are consistent with the local market and local sensibilities. The best way to do this is to undertake in-depth research and analysis before committing resources to international expansion. You should research foreign culture, regulations and costs. It is also a good idea to recruit managers with international experience or to train your existing managers. This market research, recruitment and training all needs to be considered in the budget and needs to be weighed against increased profit and improved opportunities economies of scale.

So, if you’ve decided to embark on international expansion, the next decision will be which mode of entry to go with. There are five modes. We’ll go through each one in detail for you now.

1. Indirect exporting: Usually, companies start off with indirect exporting. This involves working through an independent intermediary: domestic-based export agents buy your products and then sell them internationally, for a commission of course. Indirect exporting has two key advantages. Firstly, there is much less up-front investment required; you won’t have to develop an export department, an overseas sales force or international contacts. Secondly, there is much less risk; domestic-based export agents already have the local know-how and networks.
2. Direct exporting: Alternatively, you might decide to handle your own exporting. Obviously, the investment and the risks are greater, but so is the potential return. There are a number of direct exporting models: domestic-based export department; overseas sales branch or subsidiary; travelling export sales representatives; and foreign-based distributers or agents. Many companies use indirect or direct exporting (or a combination of both) to test the waters before building a plant and manufacturing their products overseas.
3. Licensing: This is the simplest way to establish a presence in an international market. If you go with this mode of entry, you would issue a licence to a foreign company to use your manufacturing process, or trademark, or trade secret for a royalty fee. You gain international market entry at little risk and the licensee gains the production expertise for a well-known product or brand. There are some obvious disadvantages though. You will have little control than over the production and sales facilities for your own product. Also, it means that you have surrendered the rights to profits and, if the licensing contract ends, you might find that you have created a competitor. To prevent this, you can supply some proprietary ingredients directly to the licensee (without giving up all your trade secrets). This is what Coke does. But the best strategy is to lead in innovation. That way, the licensee will always depend on you.
4. Joint Ventures: You could join a local investor in a joint venture company. In this case, you would share ownership and control with the local investor. This mode of entry is popular in emerging markets, like China and India. A joint venture might be desirable for economic or political reasons. You might not have the financial, physical or managerial resources to undertake the venture alone (but the local investor does), or the foreign government may require joint ownership as a condition of entry. There are some drawbacks to joint ventures though. Partners might not always see eye-to-eye.
5. Direct Investment: This is the ultimate form of foreign involvement. In this case you would buy part or full interest in a local company or build your own manufacturing (or service) facilities. If the market is large enough, direct investment has a wide range of advantages. First of all, you will secure cost economies, government incentives and freight savings. Secondly, your image in the host country will be strengthened because you are creating jobs. Third, you will strengthen relationships with government, customers, suppliers and distributors. This will enable you to better adapt your products to the local environment. Fourth, you retain full control over investment. With so many potential gains, you obviously open yourself up to an equal number of risks.

Thanks to Sally for sharing these great tips and insights with us on international marketing and market entry.