The International Marketing Environment

Published Date: 02 Nov 2017

After reviewing and analyzing various literatures available on market entry strategies, it is clear that there are many views and conclusions on both the success and opportunities on marketing specific services. In this section, the most important literature is reviewed to provide the foundation on which the research is built. The literature review is a critical part of the research. According to Cooper, H. M, "A literature review can have numerous different focuses, goals, perspectives, coverage strategies, organizations, and audiences. This report does not only provide a summary of what has been written on the research topic, but also seeks to evaluate, clarify or integrated the content extracted from relevant and significant reports. ". A critical literature review illustrates how general ideas fit into the report, and how it agrees or differs from them.

International Marketing Environment

The world economy has changed during the past two decades; the environment has become ever more dynamic. Innovation, production and distribution of products and services can be accomplished anywhere in the world. These accomplishments can include dramatic and far reaching changes, which can have positive or negative impact on an economy. According to an article titled "NEW REALITIES for Economic Development Organizations", Globalization has created a more diverse economy, but it has also created more risks and complexity, forcing economic developers to cope with new technologies, different business dynamics and a growing multiplicity of actors. Businesses large and small have struggled to survive and thrive in the midst of a tight credit market".

Many companies choose to expand its business in foreign countries to look for marketing opportunities beyond their national boundaries. Often many over enthusiastic entrepreneurs are entering foreign markets without proper preparation. Companies that target a specific market segment may run the risk of failing to meet the needs of customers that are not included in the chosen segment. Therefore, it is important that executives and marketers consider the following new realities in order to achieve success.

The increased volume of capital movements.

The relationship between productivity and employment.

The emergence of the world economy as a dominant economic unit.

The end of the Cold War. The demise of communism as an economic and political system.

The growth of e-commerce has in some ways diminished the importance of national barriers and forces companies reevaluate its business model.

Although there is a greater need for companies to go abroad, so are the risks. Managers need to anticipate the risks and obstacles when entering new markets. There are several complex problems that firm may confront when entering new markets. According to Kotler, "Global -marketing is risky because of variable exchange rates, unstable governments, protectionist tariffs and trade barriers, and several other factors". Given the difficulties associated with doing business in foreign markets, companies need to agree on systematic approach to making successful marketing decisions. Making the right entry decisions has a great impact on the performance of business in global markets, rather than reacting to obstacles or problems.

Building Cultural Empathy

According to Kotler, "Culture is defined simply as the learned distinctive way of life of a society. Before planning a marketing program, firms must examine the way consumers in foreign countries think about and use certain products and services. In the target country market the companies need to identify cultural barriers. People from other countries think, feel and act differently than we are used to in the Netherlands. Also fellow patriots from another region or a different social class often behave differently than we do. In an open society today everyone is much more in touch with those who think differently than before. What separates firms are the 'culture' in which they distribute their products and services. With culture we do not only regard to "civilization", but the deep-rooted and therefore often unconscious values that make what we find 'normal' others regarded as abnormal, as well as what others find bad and dirty with what others find clean. It is important to have a better understanding between cultures, when it comes to cooperation between political, non-profit and commercial organizations. Firms can identify these barriers by using the Geert Hofstede dimension. The Geert Hofstede’s diminsion gives us insight into other cultures and countries, especially the effectiveness of interactions between people. According to Geert Hofstede, these differences are essentially determined by five dimensions: the way of dealing with inequality, the extent to which people are integrated into groups, the difference in social roles between men and women, the degree of tolerance for the unknown, and the willingness to sacrifices in the short term, for the sake of a reward in the long. This model consisted of four dimensions, which was later extended to five. The dimension gives a score for each country performance on a scale of 1 to 100 for each dimension. The higher the score the more the dimension is reflected in the culture. The following describes each cultural dimension:

picture-14.png

Power distance- Power Distance Index (PDI)) refers to the degree of inequality that exists - and is accepted - in people with and without power. This represents inequality (small vs. large), but in the sense of acceptance.

Individualism (IDV)- Individualism (IDV) refers to the strength between individuals in a given community.

Masculinity - Masculinity refers to the extent to which a society values comply in the form of traditional male and female roles.

Uncertainty Avoidance- Uncertainty Avoidance refers to the degree of fear that members of a society feel when faced with unfamiliar and uncertain situations.

Short term focus versus Long term focus- Short term focus versus long term focuses on social values that are based on ancient traditions and values.

Many international companies alter their marketing materials out of respect for the host country’s particular norms and behavior. A good example of cultural differences is the case of the Swedish company IKEA. Many global critics blame IKEA for airbrushing out all women in the Saudi Arabian catalogue version. This was done to satisfy the Saudi monarchy’s gender segregation rules. The Swedish company has accepted the blame quoting a communications breakdown with its local franchise. A global business executive needs to be briefed on cultural differences when conducting business in another country. Mistakes and lack of understanding of the foreign country’s norms and behavior can affect business relations greatly. According to Geert Hofstede, "Decisions about international mergers and acquisitions more often than not seem to be based on cultural errors of judgment, and lead to destruction of capital. Decisions about expatriation of managers can destroy their family life, apart from any damage the expatriates may cause to their company and to its foreign employees. Decisions about handling employees from minority groups may cause misunderstandings, be seen as discrimination and lead to loss of productivity".

The key to success lays on continuously researching and adapting a country’s cultural differences with a view to establishing long term market position.

Cultural empathy can be achieved in the following ways:

Acquire in-company knowledge and experience. Knowledge is an important production factor. It helps to provide a lasting means for understanding a foreign country culture.

Continuous market research. Continuous research can provide valuable information and in combination with the right marketing strategy can thus sometimes make a big difference compared to competitors.

Visit foreign country and customers. Visiting the foreign country and customers provides goodwill. It clearly proves the firm's commitment to the market that is being served and yield valuable feedback to the company.

Local personnel. Hiring local personnel can help speed up information gathering. It also helps to develop marketing strategies that can better serve local requirements and conditions.

Local distributors/agents. Firms can use local distributors and agents familiar with the market place to gain inside information.

Joint-ventures and strategic alliances. Firms can accelerate in building cultural sensitivity through a joint venture or alliance with a foreign country company

Build language skills. According to Kotler, " A lack of cultural understanding of language leads to errors in translation which can be, at best, embarrassing to both parties and, at worst, offensive to the host client/customer"

Marketing Entry Mode

International marketing is growing at a fast pace. The internationalization of intangible products (services) is at the very core of economic globalization. According to an article titled "The Impact of the Internationalization of Services on Developing Countries", "Advances in information technology have vastly expanded the range of services that can be traded internationally. Developing countries stand to benefit on two fronts—they will be able to increase their exports of services and they will gain access to services not available domestically—provided they reform the regulatory environment and develop the necessary human and physical capital". To develop effective global marketing strategy, managers must evaluate the alternative ways that a firm can participate in international markets. [1] The entry strategy is an integral part for marketing products and services in a foreign country. The choice of an entry strategy is a fundamental choice that affects the probability of success in a foreign market. For instance, Appsformule intangible goods can be produced at one or two home plants, and sales can be made through distributors or importing agencies. This is one way to enter the international market and export intangible goods and services. Roughly speaking, there are three types of entry strategies (exporting, joint venturing and direct investment) that an organization can choose when entering international markets.The following figure shows the routes to servicing foreign markets, along with the options that each one offers.

Principles of Marketing Kotler

Indirect exporting and direct exporting

Exporting is the most popular global market entry option among small and medium-sized firms. [i] 2Exporting is a workable entry strategy when the firm lacks the resources to make a significant commitment to the market, wants to minimize political and economic risk, or is unfamiliar with the country’s market requirements and cultural norms [3] . Exporting involves Indirect and direct exporting. Indirect export is when the company uses third party domestically, such as trading companies or agents to perform exporting activities. The products are used by foreign buyers and this may have implications for operating instructions. Firms that use indirect exporting have less investment, because they do not need an overseas sales force or additional contacts. This involves less risk. The main disadvantage of the indirect method of exporting is that the development of the overseas market depends to a very large extent on middlemen and not on the firm producing the export goods" [4] . There are two alternative channels for indirect exporting, marketing middle man (merchants and agents) and cooperative organizations (combination of direct and indirect exporting). The cooperative exporting organizations export on behalf of the firm and are under the firm’s administrative control. The following figure shows the international marketing channel system:

In contrast Francis Cherunilam highlights that direct exporting refers to direct sale by the manufacturer to the foreign buyer [5] . Manufacturers do not use any independent middleman in distributing export goods between the home country and the overseas market. Usually firms that have a large export business resort to this type of exporting. Firms that use direct exporting have great investment and high risk, but the potential returns are also great. There are a number of arrangements available to a firm for carrying on direct exporting. Firms can use domestic based export department or division, overseas sales branches or subsidiaries, traveling salesman for overseas, and distributors and agents with foreign based contacts. The following figure shows the direct exporting channel system:

In addition, many global markets customer are unwilling to form long term relationships with companies through its agents. This is a problem, because they are unsure that the business will continue to service the market. This problem has bedeviled U.S. firms in many countries, and only now are they living down a reputation for opportunistically participating in many countries and then withdrawing abruptly to protect short run profits. [6] 

Joint Venturing

The next method for entering an overseas market is Joint Venturing. Joint venturing is when firms enter foreign markets by joining with a foreign firm to produce and market products or services. The joint venturing method differs from exporting, because the company joins with a foreign company to sell or market its products and services abroad. It also forms a relationship with others in a foreign country. There are four types of joint venture; licensing, contract manufacturing, management contracting and joint ownership. Features like accessing larger markets, longer marketing reach, and building credibility gives a firm an advantage for joint venture. In addition, disadvantages of joint venture, such as Investment risk, delayed return on investments, and difficulties and conflicts in management process should also be considered. For example: IKEA tried to establish itself in Japan between 1974 and 1986 in a joint venture with a local partner, but the project was not successful. In 2006, IKEA returned to Funabashi, Chiba with a distribution partnership with the Mitsubishi Corporation. Another example is Harley Davidson bikes being produced in Japan under license to the company Rikuo Internal Combustion, production started in 1929 under the name of Harley Davidson and later ended under the name Rikuo. According to Kotler and Amstrong, to enjoy the benefits of joint venture, collaborators must clarify their expectations and objectives and work hard to secure a win-win outcome for all parties concerned. [7] As per Svend Hollensen, "Companies must be sure that the goal of the alliance is compatible with their existing businesses, so that their expertise is transferable to the alliance. [8] 

Direct Investment

Kotler and Armstrong described direct investment as "Entering a foreign market by developing foreign-based assembly or manufacturing facilities". Direct investment involves large capital investment and resource allocation. On the other hand direct investment helps organizations to create additional customer value, to better understand the target market and to gain a competitive advantage. The main disadvantage of direct investment is that the firm faces many risks, such as restricted or devalued currencies, declining markets or government takeovers. [9] As a result, a firm needs to accept these risks if it want to operate in the host country. In most cases, a firm’s entry mode decisions are dependent on market conditions and product characteristics, objectives and capabilities. It is important that the entry strategy fits well on the international policy of the company and market requirements to enter foreign markets. For example: In September 2012, Amazon India faced a major bureaucratic barrier. Changes were made to the foreign direct investment policy in retail. Consequently, investments in e-commerce are blocked, while allowing up to 51 per cent FDI in multi-brand retail stores and 100 per cent FDI in single-brand retail.

To summarize, ICT companies do not have to stick to one entry mode but can combine several entry options. The choice of entry strategy depends entirely on the size and importance of the foreign market. It is often necessary to conduct market research to determine the market environment in which the firm wants to operate in. There might be large differences in culture; climate and contacts may often be difficult to understand. In some cases currencies are weak or inadequate in undeveloped markets. As a result, firms find in developed markets much more of the similar situation, structure and sophistication.

Marketing mix

Once the decision is made to pursue a particular country, an appropriate marketing strategy must be developed. According to W. J. Stanton, "Marketing mix is the term used to describe the combination of the four inputs which constitute the core of a company's marketing system: the product, the price structure, the promotional activities, and the distribution system." According to Philip Kotler, "A Marketing mix is the mixture of controllable marketing variables that the firm uses to pursue the sought level of sales in the target market."Standardized marketing mix involves creating the marketing mix for a mass market of potential buyers. For simple technologies like the production of toys, paint, tools and food and drinks, it makes sense to standardize the marketing mix as much as possible to keep costs down. On the other hand, adaptation strategy is totally opposite from standardized strategies. Kotler and Armstrong described adapted marketing mix as an international marketing strategy for adjusting the marketing mix elements to each international target market, bearing more costs but hoping for a larger market share and return [10] . It is very important for international marketers to decide whether the standardized approach or adaptive approach is suitable in conveying their product and services to the customers abroad. This should be taken on the basis of the target market conditions. Deciding on which elements should be adapted in the marketing mix is very complex.

We can notice the difference by comparing both strategies for the Product, Promotion, Price and Place.

http://www.learnmarketing.net/International%20Marketing%20Mix.jpg

Products

Product is anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a -want or need. It includes physical objects, services, persons, places, organizations and ideas [11] . A product consists of the core product and benefits, essentially this can be classified into quality, features, styling, brand name and packaging. A product can be categorized as tangible or intangible. Tangible products are the actual physical properties of a product, such as weight, smell, shape, performance, flavor or speed. These properties are visible and recognizable to everyone, but are also easy to imitate. Therefore, firms should offer more than just physical properties to achieve customer loyalty. Intangible products are non physical goods, such as brokers, research firms, law firms and construction companies. Product lines of industrial firms differ from those of consumer firms, therefore, classification is useful. Industrial product lines can be broadly classified into (1) proprietary or catalog items, (2) custom-built items, (3) custom-designed items, and (4) industrial services [12] . The products of Appsformule are custom-designed items in the form of mobile applications.

The product strategy relates to making decisions about the quality, features and the firm’s entire offerings. There are three international product strategies; Straight extension, product adaption and product invention.

Straight product extension means marketing a product in a foreign market without any change [13] . An example of straight product is Coca Cola, Pepsi, Dove and Heineken beer. These companies have developed no additional product cost, no manufacturing changes or no new promotion to satisfy foreign consumers. Product adaptation involves changing the product to meet local conditions or wants [14] . An example of product adaption is Mattel toys of USA, the company wanted to sell its Barbie dolls in Japan. The Japanese did not want to buy the USA Barbie. Later the firm decided to modify Barbie and sales accounted for 12.7 percent of international sales. This may especially be the case across countries of varying cultures. A country where inhabitants have strong values in religion may not respond as well to a marketing strategy that works in western countries. Therefore, it's important for a firm to be able to adapt its global marketing tactics to specific local markets when needed. There are many factors affecting product adaptation decisions, such as government regulations, infrastructure differences, market lag, competitive intensity, cultural differences, and end-user differences in preferences and tastes.

http://www.emeraldinsight.com/content_images/fig/0360120303001.png

The final strategy is product invention. Product invention consists of creating something new for the foreign market [15] . It is critical for managers to vigorously remove unprofitable or underperforming products. The company can choose to re- introduce an earlier product that are well adapted to customer needs or create a new product. For example; if a firm is willing to market household products to Japan they must design and manufacture smaller products, due to the fact that apartments are smaller than western apartments. This type of strategy can be costly, but the pay-offs are worthwhile.

Promotion

According to Jim Blythe and Alan Zimmerman, advertising aims to reach people with its message and change its target market in some way- changes attitudes or behavior and increasing level of knowledge [16] . The B2B marketing communication is more complex than consumer marketing communication. B2B marketing communications are not heavily dominated by television, press and radio due to the much smaller number of buyers. The major challenge for the business marketer is to establish an advertising and sales promotion strategy that successfully blends with personal selling. When entering international markets, companies can either adopt the same promotion strategy or change it for the local market in the host country. Most companies used standardized promotion strategy for the global market. An example of standardized promotion strategy is Apple computers; the companies use the same slogan and marketing campaign for its IPhone, IPods and computers all over the world. This indicates that there is a similar target market that can be targeted globally. The main advantage of standardized promotion strategy is the cost reduction. Since there are no changes, companies can benefit from the advantage associated with economies of scope and cost savings.

Other companies use adoptive promotion strategy for its global marketing when both the product and communication messages have to be modified to meet the needs and expectations of target market. According to Kotler and Armstrong, communication adaptation is a global communication strategy of fully adapting advertising messages to local markets [17] . .A good promotion is a mix of different instruments. There are many reasons for adoptive promotion strategy, such as written and spoken language differences, difference in humor, collectivism and individualism, government regulations and lack of cross cultural icons. The main disadvantage of using adoptive strategy is that companies will spend more time and more marketing dollars on the marketing campaign itself. Budgets are under pressure, the number of potential marketing channels has exploded and traditional marketing is becoming increasingly less effective.

There are 3 types’ main marketing communication strategies: Pull strategies, Push strategies and profile strategies. Push communication strategies direct messages through members of the marketing channel ,whereas, pull communication strategies target end users organizations, motivating them to seek out distributors, and profile communication strategies aim at a range of stakeholders and normally do not refer to specific products or services that the organization offers [18] . Promotional activities are diverse in nature and are helpful for developing reasonably good relationship with the consumers. The tools for b2b promotional mix include: Advertising, Direct marketing, Personal selling, Point of sale/point of purchase displays, Publicity, Public relations and Sales promotions. Personal selling is very useful for motivating buyers to purchase a specific product or service.

Price

Companies can face many problems in setting their international prices. Pricing is difficult and it must reflect the supply and demand of the firm’s product. According to Thomas Nagle, "If effective product development, promotion, and distribution sow the seeds of business success, effective pricing is the harvest. Although effective pricing can never compensate for poor execution of the first three elements, ineffective pricing can surely prevent these efforts from resulting in financial success [19] ."When setting prices the firm must consider the following: pricing objectives, demand determinants, cost determinants, and competition. There are many options to establish the price of a firm’s products or services. The pricing strategies are based much on what objectives the company has set itself to achieve. According to Kotler and Armstrong, a firm’s pricing objectives include survival, current profit maximization, market-share leadership and product-quality leadership [20] .The B2B pricing strategy matrix describes three characteristic for setting a firm’s prices, volume, value and price in a range for each attribute.

An organization can adopt a number of pricing strategies. According to Kotler and Armstrong, The company can select one or a combination of three general pricing approaches: the cost-based approach (cost-plus pricing, break-even analysis and target profit pricing); the value-based approach (value-based pricing); and the competition-based approach (going-rate or sealed-bid pricing) [21] . Rajdeep Grewal described cost based pricing as significant pricing mistakes and missed profit opportunities [22] . According to George Cressman, Often the key to successful pricing strategy lies in understanding the underlying organizational activities that preclude successful implementation. If the business unit has articulated a value based pricing strategy, failures are often not a strategy problem [23] .

Place

According to Charles W. Lamb, Joseph F. Hair, Jr. and, Carl D. McDaniel, Place or distribution, strategies are concerned with making products available when and where customers want them [24] . Place is less relevant, because of the rise of internet and hybrid models of purchasing. In regards to Appsformule, the distribution of mobile apps in Germany will probably involve goods being moved in a chain from the headquarters to channels within nations and onto the final users or buyers. According to Kotler and Armstrong, The firm must invest in acquiring knowledge about each foreign market's channel features and decide on how best to break into complex or entrenched distribution systems [25] . When business practices are different to the home market, there will be more parties involved because the goods need to be moved around the foreign market. The following figure shows a variety of ways to organize business marketing channels.

Direct channels are when the firm performs all the marketing activities needed to deliver the products. While other firms use indirect channels such as distributors or dealers to sell or handle the products. According to Salih Tamer Cavusgil and Pervez N Ghaur, Indirect channels are less expensive in the early stages of exporting because the cost if foreign market penetration is born directly by the intermediary. While start up cost for direct cost are higher, due to greater information requirements and higher risks [26] . The direct strategy offer greater challenges and potential profits. Companies can use both strategies to structure the channel so that the tasks are performed properly.