Strategies for International Marketing

Strategies for International Marketing

The process of penetrating and then developing an international market is a difficult one, which many companies still identify as an Achilles' heel in their global capabilities. Two aspects of the typical approach are particularly striking. First, companies often pursue this new business opportunity with a focus on minimizing risk and investment--the complete opposite of the approach usually advocated for genuine start-up situations. Second, from a marketing perspective, many companies break the founding principle of marketing--that a firm should start by analyzing the market, and then, and only then, decide on its offer in terms of products, services, and marketing programs. In fact, it is far more common to see international markets as opportunities to increase sales of existing products and so to adopt a "sales push" rather than a market-driven approach. Given this overall approach, it is not surprising that performance is often disappointing. Profitability in international markets has lagged behind average firm profitability for much of the last two decades (the "foreign investment profitability gap"). This may well be because of what Ghemawat and Ghadar describe as "top-line obsession," a focus on revenue growth rather than profitability growth.1

This common mismatch between expectations and situational requirements stems, above all, from a failure to follow in international operations the marketing strategy process that is probably established in the core domestic business. This may be because participation in the market is indirect (i.e., via an independent local distributor or agent, rather than via a directly controlled marketing subsidiary). It also often reflects a lack of control over strategic marketing and a failure to think rigorously about how the business will develop over the course of several years. While it is true that certain distinctive characteristic of an international marketing situation demand a different approach to marketing.

1. Ghemawat & Gadar on Global Integration ≠ Global Concentration

This Paper will begin by examining these unique international marketing challenges and then discuss, in turn, several phases of the process of market entry and development, including the following:

* The objectives of market entry, which will have implications for the strategy and organization adopted.

* The choice of market entry mode (i.e., the form of marketing organization through which the company participates in the market). Particular attention will be paid to the low-intensity modes of entry most commonly favored in market entry situations.

* The marketing entry strategy, with a particular focus on the lessons learned from the strategies of western multinationals in emerging markets.

* A framework for the overall evolution of an international marketing strategy.

What Is Different about International Marketing?

Most executives are quite clear that international marketing is different from home-country marketing, and most multinational companies insist that their senior managers have international experience on their resumes. Despite this pragmatic recognition of the uniqueness of the international marketplace, there has been little agreement over the exact nature of this distinctiveness. Although the question has been long and inconclusively discussed by academics and business analysts, agreement has been limited to the valid but rather obvious observation that international marketing, as opposed to marketing in a single country, takes place in an environment of increased complexity and uncertainty, in areas as varied as consumer behavior and government regulation. This suggests that the differences between domestic and international marketing are differences of degree rather than underlying differences of kind. They are:

A Context of Rapid Business Growth and Organizational Learning

Penetration of a foreign market is a zero-base process. At the point of market entry, the foreign entrant has no existing business and little or no market knowledge, particularly with regard to the managerial competence necessary to operate in the new market environment. During the years after market entry, therefore, the rate of change in the country-specific marketing capability of the firm is likely to be greater than the rate of change in the market environment, and firm effects may dominate market effects in shaping strategy. This is particularly important given the business context, in which the generation of new business is of prime importance--rather than efficiency in managing a relatively stable business. This usually results in (a) entering the market via a partnership with a local distributor or other marketing agent rather than via a directly controlled marketing unit and (b) a relatively rapid sequence of changes to the marketing strategy (such as new product introductions or expansion of distribution) or to the marketing organization (e.g., taking over marketing responsibility from the local distributor).

Managing a Multimarket Network

From the time a company enters its second country-market, it will inevitably be influenced by its previous experience. The greater the number of national markets in which a company participates, the more likely it is to seek to manage them as an aggregated network rather than as independent units. Marketing strategy decisions in one country-market may in this case be made against extra-market criteria. For example, price levels may be set to minimize the difference among markets and to maintain a price corridor rather than purely to reflect local market conditions. Similarly, a multinational company may subsidize price levels in one market for strategic reasons while recouping that loss in another market. In practice, this frequently results in asymmetric competition in any single market, with different companies pursuing different objectives and setting different performance standards. It is possible that one company may be participating in the market simply to learn, and it may therefore tolerate low profitability, while others are pursuing more conventional profit maximization goals.

Co-location of Strategic Marketing and Distribution Functions

The distribution unit in the country-market, whether an independent organization or a wholly-owned subsidiary, has to manage a strategy for growth, and it will therefore be judged on organizational criteria including feasibility, level of desired risk, supportability, and control issues.