Reasons Why Companies Engage In International Marketing

Reasons Why Companies Engage In International Marketing

Companies engage in international for a variety of reasons, but the goal is typically company growth or expansion. Whether a company hires international employees or searches for new markets abroad, an international strategy can help diversify and expand a business. 

Growth

• Many companies look to international markets for growth.
• Introducing new products internationally can expand a company's customer base, sales and revenue.
• For example, after Coca-Cola dominated the U.S. Market, it expanded their business globally starting in 1926 to increase sales and profits.

Resources

• Some companies go international to locate resources that are difficult to obtain in their home markets, or that can be obtained at a better price internationally. 

Employees

• Companies go international to find alternative sources of labor.
• Some companies look to international countries for lower-cost manufacturing, technology assistance and other services in order to maintain a competitive advantage.

Ideas

• Companies go international to broaden their work force and obtain new ideas.
• A work force comprised of different backgrounds and cultural differences can bring fresh ideas and concepts to help a company grow.
• For example, IBM actively recruits individuals from diverse backgrounds because it believes it's a competitive advantage that drives innovation and benefits customers.

Diversification

• Some companies go international to diversify.
• Selling products and services in multiple countries reduces the company's exposure to possible economic and political instability in a single country.

Strategies of product and promotion

to a foreign market

Straight extension

• Introducing the product in the foreign market without any change. Top management instructs its salespeople: “Find customer for product as it is". 
• It has been successful with cameras, consumer electronics, and many machine tools.

Product adaptation

• Involves altering the product to meet local conditions or preferences.
• There are several level of adaptation such as regional or country version basically suite the local tastes.
• E.g. in Japan coffee cup is smaller and lighter to fit the hand of the average Japanese if compared to the American.
• Other example, Kraft General Foods blends different coffees for the British (who drink coffee with milk), the French (who drink their coffee black), and Latin Americans (who want a chicory taste).

Product invention

• Consists of creating something new.
• It can take two forms:

Backward invention is reintroducing earlier product forms that are well adapted to a foreign country's needs.

Forward invention is creating a new product to meet a need in another country.

• It is a costly strategy but the payoffs can be great.

The mode of entry available for organization when expand their business internationally.

Before enter to international market, the organization must know the mode of entry available for them when expand their business internationally such as exporting, licensing, joint ventures, and direct ownership. 

Exporting

• Exporting is the marketing and direct sale of domestically-produced goods in another country.
• Exporting is a traditional and well-established method of reaching foreign markets.
• It has limited risk because it using export agents and merchants.
• Exporting does not require that the goods be produced in the target country; no direct investment in the foreign country.
• Advantages:

Minimizes risk and no direct investment.

Speed of entry 

Maximizes scale; 

uses existing facilities

• Disadvantages:

Trade barriers & tariffs add to costs.
Transport costs
Limits access to local information
Company viewed as an outsider

Licensing

• Licensing essentially permits a company in the target country to use the property of the licencor.
• Such property usually is intangible, such as trademarks, patents, and production techniques.
• The licensee pays commission and royalties on sales or supplier used in manufacturing.
• An initial down payment or free may be charges when the licensing agreement is signed.
• Advantages:    

Minimizes risk and investment.   
Good alternatives to enter foreign country
Able to avoid trade barriers

• Disadvantages:

Lack of control over use of assets. 
Licensee may become competitor.
Knowledge spillovers

License period is limited

Joint ventures

• Partnership between a domestic firm and a foreign firm.
• It popular in industries that required large investment such as automobile, oil, and gas.
• It was a political necessity because of nationalism and government restrictions on foreign ownership.
• There are five common objectives in a joint venture such as market entry, risk or reward sharing, technology sharing and joint product development, and conforming to government regulations.
• Advantages:

Overcomes ownership restrictions and cultural distance. 
Combines resources of 2 companies.    
Potential for learning.   
Viewed as insider. 
 Less investment required

•  Disadvantages:

Difficult to manage
Dilution of control
Greater risk than exporting a & licensing
Knowledge spillovers
Partner may become a competitor.

Direct ownership

• Direct investment is the direct ownership of facilities in the target country.
• It involves the transfer of resources including capital, technology, and personnel.
• Direct foreign investment may be made through the acquisition of an existing entity or the establishment of a new enterprise.
• Direct ownership provides a high degree of control in the operations and the ability to better know the consumers and competitive environment.
• However, it requires a high level of resources and a high degree of commitment.
• Advantages:  

Greater knowledge of local market
Can better apply specialized skills
Minimizes knowledge spillover
Can be viewed as an inside

• Disadvantages:

Higher risk than other modes
Requires more resources and commitment
May be difficult to manage the local resources.