Describe the Steps Involved in the International Marketing Process?
Steps Involved in the International Marketing Process.
A firm which plans to go international has to take a series of strategic decisions or steps. Following are the major steps in the process of international marketing:
- Deciding to Internationalize.
- Market Selection.
- Product Selection.
- Selection of Entry Mode.
- Selection of Marketing Strategy.
- Selection of Marketing Organization.
Deciding to Internationalize.
The first decision is whether the firm should take up international marketing or not. This decision is based on number of important factors:
- Present and future overseas opportunities.
- Present and future domestic opportunities.
- Resources of the company.
- Company objectives.
International marketing offers a number of advantages. At the same time, international marketing is subject to a number of risks. The decision to internationalize requires the evaluation of international strengths, weaknesses, opportunities and threats. This is done by SWOT analysis. If the SWOT analysis is favorable to the firm, the firm should decide to venture into the foreign market.
Once it has been decided to internationalize, the next important step is the selection of most appropriate market i.e., identifying the target customers. For this purpose, a thorough analysis of the potentials of the various overseas markets and their respective marketing environments is essential. A careful exercise to shortlist overseas markets becomes necessary since all products cannot be sold by the firm to all countries at all times. It is considered better to exert maximum pressure on a minimum area to achieve the best results.
Following are some important criteria which may be used in the market selection:
Geographical proximity: The first criterion of market selection is the geographical proximity. Geographical proximity facilitates a firm to reach the product fast to a nearby country and service the market quickly and more effectively. Besides, there will be low transportation cost leading to lesser price of the product.
Market potential of the country: A company may select its target markets on the basis of market potential of the country. Market potential of the country can be assessed by the prosperity of the country, the size and growth of its imports, etc.
Market Access: Another yardstick that a country may use in market selection relates to the market access. A country’s import policy is an important factor, because it may be biased in favor of some items and/or some countries. It is advisable for a company to select countries which do not discriminate against the country of the firm and whose import policy is not restrictive.
It would be highly beneficial for a company if it selects countries having good political and economic relationships with home country or having some preferential trading arrangement also or having least restrictions on imports.
Market characteristics: Another factor to be considered in the selection of the market is the market characteristics of the country. A company would like a market having similar cultural factors, trade practices and customs.
Once the market selection decision has been made, the next important task is to determine the products for export. Following are some important criterion which may be used in the product selection:
Elasticity of supply: A company would not face any supply constraint in exporting the products having elastic supply. Elastic supply is the result of natural resource endowment or acquired skills and assets. A company may also select a product because the product is unique i.e., it has developed it by research and development and it is likely to take some time before competitors come out with a suitable substitute. A company should not prefer exports of the products which are heavily dependent on imported inputs.
Demand of the Products: A company should identify the products that are in demand and likely to continue to be in demand in an overseas country. For this the company has to make the analysis of a country’s imports and production of various commodities including substitutes and the likely future policies and plans regarding such commodities.
Selection of Entry Mode.
After the selection of market and product, the next important decision is to determine the appropriate mode of entering the foreign market. At one extreme a company may decide to produce the product domestically and export it to the foreign market. In this case, the company need not make any investment overseas.
On the other extreme, the company may establish manufacturing facilities in, the foreign country to sell the product there. This policy requires direct foreign investment by the company. In between these two extremes, there are several options each of which demand different levels of foreign investment.
Following are various entry modes in the foreign markets:
Exporting: Exporting means sale of domestically produced goods in other country without any marketing or production or organization overseas. Exporting may be of two types: Direct exporting and Indirect exporting. Direct exporting means sale of goods abroad without involving middlemen. In case of indirect exporting, a firm sells its products abroad through middlemen.
Licensing: Under licensing an international business firm (licensor) allows a foreign company (licensee) to manufacture its product for sale in the licensee’s country and sometimes in other specified markets.
Franchising: Franchising is a special form of licensing in which an international business company (franchiser) grants another independent company (franchisee) right to do its (franchiser’s) business in a prescribed manner. Franchiser makes a total marketing programme available to the franchisee.
Contract Manufacturing: Under contract manufacturing, an international marketing company enters into contract with a local enterprise abroad to manufacture its product and undertakes the marketing responsibility on its own.
Joint Venture: An international joint venture is an enterprise formed abroad by the international business company sharing ownership and control with a local company in that foreign country.
Strategic Alliance: Under strategic alliance, two or more competing firms pool their resources in a collaboration to leverage their critical capabilities for common gain. Although a new entity may be formed, it is not an essential requirement.
Assembly: Under assembly an international business firm produces most of the components or ingredients in one or more countries and carries out the labor intensive assembling in the foreign country where labor is cheap and abundant.
Mergers and Acquisitions: Under merger an international business firm absorbs one or more enterprises abroad by purchasing the assets and taking over liabilities of those enterprises on payment of an agreed amount. Under acquisition, an international business enterprise takes over the management of an existing company abroad by taking the controlling stake in the equity of that company at a pdetermined pricce.
Each of these strategies has certain advantages and disadvantages. Each of these strategies require different levels of investment ranging from no additional investment to full investment in manufacturing facilities abroad, and the risks also increase with increase in the investment level Similarly, control over the market may be higher if the company involves itself directly in manufacturing by investments in production facilities.
Various entry strategies must be analyzed in following respects:
- Expected sales.
- Costs of operations in a foreign country.
- Risk factors.
The selection of a company’s best method of entry into foreign markets depends on following factors:
- Number of markets covered.
- Level of penetration within markets.
- Degree of feedback available.
- Possibility of sales volume over a period of time.
Selection of Marketing Strategy or Marketing Mix Decision.
The foreign market is characterized by a number of uncontrollable variable Marketing mix consists of internal factors which are controllable. The success of the international marketing therefore, depends to a large extent on the appropriateness of the marketing mix.
Following a the elements of the marketing mix:
Product strategy: In the present day competitive global market environment marketing begins with customer and ends with the customer. The importers will import only those items which are in demand from the customers.
The exporters have to, therefore, identify what the consumers in the overseas markets require. It is imperative that the product selected for exports should be unique, creative and innovative in comparison to the similar item being offered by the competitors. As the, consumer preferences, tastes and regulations governing product, quality, safety, health, environment protection, packaging and packing vary from one market to another, same item cannot be offered in all the markets.
An analysis should be made of any modifications required in the products, packaging changes needed, labeling requirements, brand name and after-sales services expected.
Many products must undergo significant modifications if they are to satisfy consumer and market requirements abroad. Other products require changes at the discretion of the producer only to enhance their appeal on export markets. Products may be modified in respect of quality, size, shape, color, material etc. Product strategy includes packaging, branding and product service.
Pricing strategy: Pricing decision is one of the basic marketing decisions. Most importers would decide to buy the product finally on the basis of comparison of price of competing products. Pricing, strategy is closely linked to the cost of the product and other factors influencing the cost. In setting the export price, the business firm should consider additional costs that do not enter into pricing for the domestic market.
These include such items as international freight, insurance charges, product adaptation costs, import duties, commissions for import agents and foreign exchange risk coverage. A company should decide whether it should charge the same net price for a particular product in all its markets or different prices in different markets.
Export pricing analysis should begin with these questions: What value does the target market segment place on the business firm’s product? How do differences in the product add to, or to detract from its market value? In practice, these are difficult questions to research but analyzing the prices and product characteristics of existing competitive products may reveal critical information.
In practice, it is not the cost that determines the product’s price but the customer’s perception of that value. A firm may not have much choice in export pricing beyond a point because it has to match competitor’s price. Extension of credit is part of the pricing strategy.
Distribution strategy: A company should work out its distribution strategy very carefully so that its product reaches the consumer at the right place and right time with reasonable cost. The potential exporter should consider the following distribution on options:
- Exporting through a domestic exporting firm that will take over full responsibility for finding sales outlets abroad.
- Setting up its own export organization.
- Selling through representatives abroad.
- Using warehouses abroad.
- Establishing a subsidiary.
The choice of distribution channel will depend on the firm’s export strategy and export market. A company should be very clear about the division of risks, responsibilities and privileges between it and the distributors and the cost of distribution. Part of the distribution strategy relates to agency arrangements in overseas countries.
When it is intended to create greater awareness of the product, it is better to appoint an agent who does not handle many products and can allocate the time needed to promote that product.
Promotion strategy: The company should decide on the optimum promotion mix i.e., advertisement, personal selling and sales promotion. The export marketing plan should provide details on the following aspects of the promotional strategy:
- Publicity methods.
- Advertising (who will be responsible for it and how much the firm can allocate to it).
- Trade missions.
- Buyer’s visits.
- Local export assistance.
Promotion strategy to be adopted by the exporter should be in tune with the environmental rules and regulations of the host country. Further, promotion strategy should take into account the culture of the target segment in terms of its practices, beliefs, likes and dislikes, religion etc.
International Organization Decision.
The last step involved in the international marketing process involves decision regarding the international organization. There are different organizational structures for doing international business.
The structure is determined by the following factors:
- Extent of commitment of the organization to the international business.
- Nature of international orientation.
- Size of international business and expansion plans.
- Number and consistency of product lines
- Characteristics of the foreign markets.
A firm may organize its international marketing operations in three ways:
- Creation of export department.
- Setting up an international division.
- Development of a global organization.
The export department is the simplest form of export organization and easiest to establish. A separate export department is established to take effective care of all the activities connected with the export business. The internal organizational structure of the export department may be based upon functions, territory, product or a combination of these. A separate export department may be located at the most suitable place which may not be the headquarters of the company.
When the activities of the firm further expand, it may create a full-fledged international division. The international division may be organized in following three ways:
- Geographical organization, where managers are responsible for the marketing activities of their respective countries.
- World product groups, where managers are responsible for sale of a particular product group.
- International subsidiaries where managers are responsible for its sales and profits like a subsidiary.
- Now-a-days firms have preferred to develop itself as global organization where manufacturing and marketing are planned globally.