IB 3880 –International Marketing 2010-2011 1

IB 3880 –International Marketing 2010-2011

Dr. Madhumita Banerjee Warwick Business School

Warwick Business School

Session Agenda

 Decision drivers for international market selection and entry  SME market selection and internationalisation  Seminar Case: Wal-Mart’s German Misadventure

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Decision drivers for international market selection and entry

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1 IB 3880 –International Marketing 2010-2011

Internationalisation Stages – Establishment Chain Model Johansson and Vahlne 1977 1. No regular exporting activity • Domestic sales and sourcing, domestic cash flows 2. Exporting via agents/distributors • Internalization of cash flow, none to little endowment advantage • Resource: Customers 3. Exporting via agents/distributors • Initial scale benefits • Little perceived need for localization 4. Establishment of overseas subsidiaries and manufacturing plants • Taking advantage of resource endowments (labor cost, intangible capital) • Scale, reduction of risk (diversifying) • Local integration needs emerge

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Choosing Target Markets Criteria for assessing market attractiveness

Future attractiveness • Size and potential growth • Profitability • Competition Should we serve? • PESTLE analysis

Compliance with resources • Technological needs • Investments required Can we serve? • Labor pool

Compliance with strategy • Mission and vision • Managerial attitudes – higher management Want to serve? cognitions

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Opportunity evaluation and objectives

1. Market Seeking  Saturated home market  Strong product/brand to take to a new market 2. Efficiency Seeking  Looking to achieve efficiency  R&D, production and operation costs, low labor costs 3. Resource Seeking  Access to raw materials  Access to skilled labor force

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Entry decisions – Time of Entry

• Early foothold

Advantages • Build sales and brand name • Market knowledge • Early? Time • Late?

• Cost of market development Disadvantages • Gain from early movers’ mistakes

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Entry decisions – Scale of Entry & Commitment of Resources

• Develop market familiarity Small • Reduce risk Scale • Determine commitment to Entry market before investing resources

• Signal market importance Large • Identify competitor responses Scale • Shape competition Entry • Capture first mover advantage

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Entry choices International environment Firm’s overall strategy PESTLE Factors

Global market opportunity Assessment: • Country screening • Industry potential • Company sales potential

Entry strategy choices • Export • Licensing • Joint Ventures • Manufacturers

Market entry planning Ghauri & Cateora (2010:276)

Positioning/ Product Pricing Channel Promotion Branding Adaptation Selection

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Case: Wal-Mart’s German Misadventure 1. Wal-Mart started its global operations in the early 1990s when it opened its first international store in Mexico. Analyse the reasons for Wal-Mart’s decision to go global.

2. When Wal-Mart announced that it would be entering the German market, analysts were surprised. Usually the cultural affinity between the US and the UK led American companies to target the UK first, before launching on to the European continent. Do you think Wal- Mart’s decision to enter the German market was correct? Justify your opinion.

3. Even after five years of doing business in Germany, Wal-Mart had failed to make an impact on the German market and had been incurring losses year after year. Analyse the reasons for Wal-Mart’s problems in the German market. Do you think the company will be able to improve its performance in Germany?

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SME market selection and internationalisation

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SMEs in the Economy

 50-250 Employees , € 10-43 million as balance sheet total (EU, 2005)  <10 employees – Micro enterprise  99.8% of enterprises in the EU are SMEs (EU SME Annual Report, 2009)  China: > 10 million, 99% of total enterprises, 50% of tax revenue (People’s Daily, 2010)  Globally, key contributors to the domestic economy and job creation  EU - Impact of economic crisis - weak domestic market demand

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SME internationalisation Coviello & Munro 1997  Networks and incremental internationalization  Johansson &Vahlne 1990, Lindqvist 1988, Bell 1995  International growth patterns in stages (Coviello & Munro 1997) Stage 1: Domestic focus with international intentions Stage 2: First steps in foreign markets Stage 3: Commitment to multiple markets  Role of networks in the internationalization process (Coviello & Munro 1997)  Facilitate growth: foreign market access and entry modes selection  Constrain growth: limit opportunities outside the network

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Challenges for going international  International market selection  Low psychic distance  Low cultural distance  Low geographic distance

 Market and Company Factors  Target segment  Internal resources and structure

 Government support  Systems and Support Networks

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SMEs and international market barriers USA: HSBC Small Business Confidence Monitor survey (2010)  Local regulation and complexities (22%)  Complexities of certain international markets (15%)  Concern about dealing with foreign currencies (13%)  Availability of financing (13%)

EU: EU Report on Internationalization of SMEs (2009)  Internal barriers – lack of capabilities, resources (financial, qualified personnel)  External barriers – knowledge of foreign markets, regulations, cultural differences, tariffs and trade barriers

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Reasons for failure

 Lack of environmental scanning

 Over dependence on one product

 Failing to respond to customer needs

 Failing to manage and resource market and operations expansion

 High cost of enforcing patents and trademarks in foreign markets

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Challenges for the marketing mix

 Standardization vs. Adaptation  Resource constraints to understand market needs and operationalize  Tracking and monitoring markets  Product, Packaging and Branding  Pricing  Promotion  Distribution

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SME international marketing Merilees & Tiessen (1999)

Sales driven model Relationship driven model 1. Lack of niche market 1. Niche market power power 2. Control over the client 2. Lack of control over and agent selection client and agent selection 3. Importance of relationships with foreign 3. Low key relationships customers and agents with foreign customers and agents 4. Controlling the marketing 4. Adapting the marketing mix mix to need foreign customer needs

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Mini Case: Ajegroup and Kola Real

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The World of Colas

 Coca-Cola - 1886, US based, distributed in over 200 countries

 Mecca-Cola – 2002, from France to UAE, distributed in 64 countries

 Kola Real – 1988, Peru, distributed across Central and South America and recently introduced to Thailand

And there are others: Zam Zam Cola, Qibla Cola, Inca Cola...

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Kola Real (Ajegroup): From local SME to Multinational

http://www.ajegroup.com/web/ajegroup/home.jsp

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Ajegroup’s international expansion

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Peru: Domestic Market conditions and KSF Late 1980s: MARKET Internal strife with terrorism activities CONDITIONS Deficiency in soft-drink distribution - lack of highway access for trucks by guerrilla fighters

Depressed economic conditions MARKET AND Low earning consumer profile CUSTOMER Offer a ‘alternative low priced cola’ in big plastic bottles NEEDS Hired 3rd parties for distribution, Minimal advertising

Pepsi and Coca Cola targeting higher end customer with top cola brand, glass bottle, small size, difficulties in distribution, COMPETITION forced to cut price Kola Real created market position as the B-brand against Private Label brands sold by Wal Mart and other retailers

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Ajegroup Internationalisation

MARKET International CONDITIONS Expansion • Customer profile and marketing mix strategy similar to domestic market • Low soft drink consumption • Incremental Expansion of International product portfolio and Market Selection markets Markets with low • Lean operations Domestic Market psychic, cultural and Strategy geographic distance Customer with limited means COMPETITIONHigh Quality Low price Big package

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International markets and marketing mix

PRODUCT PROMOTION Basic, no frills, WOM and minimal no differentiation advertising like radio Making the concentrate and spots not buying Large pack size Kola Real –> Big Cola in Mexico PLACE (Distribution) Working with small third parties PRICE Renting bottling plants Low Mexico: Big Cola - 2.6 litre bottle for $0.90 Coke – 2.5 litre bottle for $1.30

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To summarise..  The decision of international market selection and entry is contingent upon a number of external and internal factors

 SMEs are key contributors in the domestic economy of a country, yet face internal and external hurdles in internationalization

 Success is possible as seen for Kola Real and Ajegroup that grew from a family owned small business with a single product to a multi-category and multi-brand international firm.

 In contrast, Wal-Mart, a large and internationally established retailer made mistakes in entering Germany.

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