Chapter 03 - International Marketing

Organisation of Global Marketing: Conceptual framework

In order to perform international marketing operations smoothly, a firms need proper organizational setup equipped with skilled executives and subordinate staffs. Designing proper organizational framework may be important for firms engaged in direct export or multinational marketing.Obviously, the need for sound and enlarged organizational structures arises with the increasing involvement of a firm with international marketing.

In designing an international marketing organisation, it is desirable for a firm to consider the following factors:

a)      International Marketing Objectives of the firm.

b)      Decision about the procedures to be followed to set up marketing organizations.

c)      Decide about structural requirement of the organisation.

d)     Degree of Involvement with International Marketing.

e)      Financial ability and managerial skills of the firm.

f)       Nature of Complexities associated with international marketing operations.

g)      Degree of control to be exercised on the international market.

h)      Extent of Decentralization necessary for smooth operations.

i)        Nature of Specialization needed for marketing success.

j)        Need for staff and delineation of authority.

k)      Availability of service from the middleman.

Usually the organizational setup responsible for international marketing operations performs the following specific functions in cooperation with the other permanent responsibility centers of the enterprise:

a)      Contacting with the foreign buyers and inducing them to buy the firm’s products .

b)      Negotiating with the foreign buyers and bringing them to the point of signing contract.

c)      Assisting the top management in finalizing the terms of export contract and signing the export contract.

d)     Procuring Letter of Credit (L/C) from the buyer and verifying the L/C conditions.

e)      Making arrangement for the production or procurement of export cargo.

f)       Handling Export packing and arranging the shipment of export cargo.

g)      Assess the export risks and provide cushion to reduce export risks.

h)      Preparing the export documents carefully and sending those to the buyers.

i)        Maintain the regular contact with the foreign buyers regarding the progress in the execution of export order.

j)        Taking steps to get the payment of export bills through banks.

k)      Promoting the goods in international markets by participating in trade fairs and using other promotional tools.

l)        Provide after-sales services to the foreign buyers in case of technical goods.

m)    Maintaining proper relationship with foreign or local distributors or agents.

n)      Assisting the top management in formulating export policies and strategies by furnishing proper information and data.

Deciding which markets to enter/Decision regarding international market selection:

In deciding to go abroad, the company needs to define its international marketing objectives and policies. What proportion of foreign to total sales will it seek? Most companies start small when they venture abroad. Some plan to stay small, viewing foreign operations as a small part of their business. Other companies will have more-grandiose plans, seeing foreign business as ultimately equal to or even more important than their domestic business.

The company must decide whether to market in a few countries or many countries.A companies should enter fewer countries if the following factors are there:

a)      Market entry and market control costs are high.

b)      Product and communication adaptation costs are high.

c)      Population and income size and growth are high in the initial countries chosen.

d)     Dominant foreign firms can establish high barriers to entry.

The company must also decide on the types of countries to consider. Country attractiveness is influenced by the following factors: a) Product b) Geographical factors. c) Income and population d) Political climate.

In order to select suitable market for international operations, a firm should make a list of probable markets where it’s goods or services can be marketed. Desk or field study may be needed to prepare a list of available market for particular commodities. Then the firm is required to evaluate the worthiness of alternative markets by using certain criteria which are noted below:

a)      Homogeneity with domestic market

b)      Complexities in Market penetration.

c)      Rate of return on investment.

d)     Environmental aspects

e)      Opportunity for concentration.

f)       Risk and uncertainties involved.

In applying these criteria, all pertinent information and data must be procured from the appropriate sources. The decision maker should apply the qualitative and quantitative evaluations of alternative international markets to find out the most desirable one’s for a firm.

Experts advocate the use of ‘Rate of Return’ analysis in appraising the worthiness of international markets. In their opinion, a selected market should yield a rate of return that is high enough to cover company’s usual target rate of return on investment, premium for risks and uncertainty in that market. Following steps are involved in using the rate of return on investment framework:

a)      Estimate the current market potentials.

b)      Forecast of future market potentials.

c)      Forecast of Market share.

d)     Forecast of Costs and profits.

Deciding how to enter the market/Strategies to enter the market:

Once a company decides to target a particular country, it has to determine the best mode of entry.Following is the options available for an international marketer to penetrate into an international market:

a)      Indirect Exporting

b)      Direct Exporting.

c)      Licensing

d)     Joint Ventures &

e)      Direct Investment

Brief discussions are hereby given below:

A) Indirect Exporting:

The normal way to get involved in a foreign market is through export. Occasional exporting is a passive level of involvement where the company exports from time to time on it’s own or in response to unsolicited orders from abroad. Active Exporting takes place when the company makes a commitment to expand exports to a particular market. In either case, the company produces all of it’s goods in the home country. It might or might not adapt them to the foreign market. Exporting involves the little change in the company’s product lines, organisation, investments or mission.

Company’s typically start with indirect exporting, that is, they work through independent middleman. Indirect export has two advantages such as:

a) It involves less investment.

b) It involves less risk.

Four types of middleman are available to the company such as:

a)      Domestic based Export Middleman: This group buys the manufacturers product and sells it abroad on its own account.

b)      Domestic based Export Agent: This group seeks and negotiates foreign purchases and is paid a commission.

c)      Cooperative Organisation: This group carries on exporting activities on behalf of several producers and is partly under their administrative control.

d)     Export Management Company: This group agrees to manage a company’s export activities for a fee.

B) Direct Exporting:

Companies eventually undertake handling their own exports. The investment and risks are somewhat greater, but so is the potential return. The company can carry on direct exporting in several ways:

a)      Domestic based Export department or Division: An export sales manager carries on the actual selling and draws on market assistance as needed. It might evolve into a self contained export department performing all the activities involved in export and operating as a profit center.

b)      Overseas Sales branch/Subsidiary: Overseas sales branch allows the manufacturer to achieve greater presence and program control in the foreign market.The sales branch handles sales distribution and might handle warehousing and promotion as well. It often serves as a display center and customer service center.

c)      Traveling Export Sales Representatives: The Company can send home based sales representatives abroad to find business.

d)     Foreign based distributors or agents: Foreign based distributors would buy and own the goods; foreign based agents would sell the goods on behalf of the company. They might be given exclusive rights to represent the manufacturer in abroad.

C) Licensing:

Licensing represents a simple way for a manufacturer to become involved in international marketing. The Licensor enters into an agreement with a licensee in the foreign market, offering the right to use a manufacturing process, trademark, patent, trade secret or other item or value for a fee or royalty. The Licensor gains entry into the market at little risk, the licensee gains production expertise of a well known product or name without having to start from scratch.

Companies can enter foreign markets through selling of a ‘Management Contract’. By this, it offers to manage a hotel, an airport, a hospital or other organisation in return for a fee. Management contracting is a low risk method of getting into a foreign market and it yields income from the beginning.

Another entry method is ‘Contract Manufacturing’ where the firm engages local manufacturers to produce the product. It offers the company a chance to start faster, with less risk, and with the opportunity to form a partnership or buy out the local manufacturer later.

D) Joint Venture:

In joint ventures, foreign investors join with local investors to create a new company in which they share joint ownership and control. Forming a jointly owned venture might be necessary or desirable for economic or political reasons.

E) Direct Investment:

The ultimate form of foreign involvement is direct ownership of foreign based assembly or manufacturing facilities. The foreign company can buy part or full interest in a local company or build it’s own facilities.

As a company gains experience in export, and if the foreign market appears large enough, foreign production facilities offer distinct advantages such as The firm could secure cost economies in the form of cheaper labor or raw materials, foreign government incentives, freight savings etc.The firm could gain a better image in the country where he creates jobs and also be able to develop relations with government, customers, local suppliers and distributors.

The major disadvantage is that the firm exposes its large investment to risks such as blocked or devalued currencies, worsening markets, or expropriation. The firm will find it expensive to reduce or close down it’s operation, since the host country might require substantial severance pay to the employees.

Deciding on the Marketing Organisation:

Companies manage their international marketing activities in at least three ways:

a)      Export Department.

b)      International Division

c)      Global Organisation.

Brief discussions are given below:

a) Export Department:

A firm normally gets into international marketing by simply shipping out the goods. If its international sales expand, the company organizes an export department consisting of a sales manager and a few assistants. As sales increase further, the export department is expanded to include various marketing services so that the company can go after business more aggressively. If the firm moves into joint ventures or direct investment, the export department will no longer be adequate to manage international operations.

b) International Division:

Many companies become involved in several international markets and ventures. A company might export to one country, license another, have joint ventures in a third and own a subsidiary in fourth. Sooner or later, it will create an international division to handle all its international activity.

The international division is headed by a President, who sets goals and budgets and is responsible for the company’s growth to the international market.

International Division is organized in a variety of ways. The international division’s corporate staff consists of specialists in Marketing, manufacturing, research, finance, planning and personnel; they plan for, and provide services to, various operating units.

The operating units can be organized according to one or more of three principles:

a)      They can be Geographical Organizations- reporting to the international division president might be regional vice-presidents. Reporting to the regional vice presidents are country managers who are responsible for a salesforce, sales branches, distributors and licensees in the respective countries.

b)     They can be world product groups – Operating units may be world product groups, each with international vice-presidents responsible for worldwide sales of each product group. The vice-presidents may draw on corporate-staff area specialists for expertise on different geographical areas.

c)      Operating units may be international subsidiaries- each headed by a president. The various subsidiary presidents report to the president of the international division.

c) Global Organisation:

Several firms have passed beyond the international division stage and have become truly global organisations.They have now think themselves as global marketers. The top corporate management and staff plan worldwide manufacturing facilities, marketing policies, financial flows and logistical systems.

The Global operating units report directly to the CEO or Executive committee, not to the head of an international division. Executives are trained in worldwide, Management is recruited from many countries, components and supplies are purchased where they can be obtained at least cost, and investments are made where the anticipated returns are greatest.