Lecture global marketing: contemporary theory, practice, and cases – chapter 7: selecting international markets

Chapter – Selecting International Markets “It was the best of times, it was the worst of times ” Charles Dickens, A Tale of Two Cities McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc All rights reserved Outline  Domestic vs International Expansion  Ansoff and Internationalization  Motives to Internationalize  Internationalization/Market Entry Theory • International Product Life Cycle  Uppsala Model  Born Global • Transaction Cost Analysis • OLI • Market Expansion Screening  Concentration v Diversification 7-2 Internationalization  Internationalization occurs when a firm makes a strategic decision to enter foreign markets and adapts its operations to international environments • Decision to expand abroad • Locate specific market opportunities • Expansion strategy determined  Concentrated  Diversified • Selection of entry mode 7-3 Ansoff Expansion Model Ansoff suggests four ways in which firms can expand their operations: Figure 7-1 7-4 Present Markets/Present Products  To gain higher market share in existing markets using existing products • Resources are dedicated to more aggressive advertising, sales promotion and customer service and relationship enhancements Example: Fuller’s London Pride  Of the four growth strategies, market penetration has the lowest risk 7-5 Present Markets/New Products  Offer new products to current markets • Requires developing or acquiring new products, or line expansion • Example: Mount Blanc 7-6 New Markets/Present Products  New markets may be solely domestic or both domestic and global • Example: Tesco 7-7 New Markets/New Products  Offering new products to new markets  Example: Apple Computers • Originally marketed to the graphic design market • Now marketed to the final consumer • Expanded product offering • Expanded globally 7-8 Ansoff and Internationalization  Internationalization has been defined as the process of adapting a firm’s operations to international environments  Technically only market development fits this definition  Successful global firms have expanded operations both domestically and internationally with Ansoff’s strategies 7-9 Classification of Internationalization Motives 7-10 The Born Global Firm  One exception to the concept of international product life cycles, and the theories’ most glaring weakness, is the existence of the ‘born global’ firm  This firm is initiated with the intent to immediately business in all accessible global markets • Infomedia is an ideal example 7-20 International Network Theory  Propones the occurrence and importance of having international networks • Network participants are governed by exchange relationships rather than through the market • Because many small companies not have infinite resources, network collaborations are seen as an important internationalization strategy 7-21 Illustration of a Multinational Firm’s Network Figure 7-7 7-22 Network versus Market Based Relationships 7-23 Transaction Cost Analysis  Definition: cost of making an economic exchange  Three types of costs … • Search and information costs • Bargaining costs • Monitoring (governance) costs  And three cost scenarios based on entry mode  Production at home for export  Licensing  Production abroad 7-24 Dunning’s Eclectic OLI Model  Entry mode decisions are based on three conditions  Ownership (who will produce abroad)  Location (where to produce)  Internalization (why produce rather than license)  Foreign direct investment will be the preferred mode when three conditions are fulfilled: • • • the firm must have net ownership advantages over competing firms it must be more profitable for the firm possessing these unique assets to use them itself rather than transfer the rights to others it must be advantageous for the firm to exploit its unique assets through production outside its home country rather than by exporting 7-25 Market Selection Market Expansion Screening  Purpose of screening is to select those markets that have the best potential for expansion in foreign markets • The first step is to define the criteria that are relevant to the firm's environment  Then, market selection narrows down a set of entry targets quantitatively • Multiple factor indices • Directional policy matrices • Decision matrices 7-26 Multiple Factor Indices 7-27 Political Risk Measure: A Plot of the Multiple Factor and Political Activity Indexes Figure 7-8 7-28 McKinsey/General Electric Matrix Figure 7-9 7-29 Concentration vs Diversification  Concentration Strategy • Involves focusing marketing effort and resources in one or a few key markets in the short run and gradual expansion into other markets in the long run  Diversification Strategy • Requires investing marketing effort and resources into a larger number of markets in the short run 7-30 Choosing a Strategy 7-31 The Sales Response Function • A calculation that relates the value of the investment in marketing to revenue or profit generation • An S shaped curve suggests a concentration strategy is required • A concave function recommends diversification Figure 7-10 7-32 Market/Product Factors 7-33 Summary  Firms can expand domestically or internationally • If a firm decides to internationalize, it must determine the best route to so through market search  Market screening involves choosing a method that can select those markets that have the best potential for the firm’s products and services  Two possible entry strategies are available: Concentration or diversification  Final stage in the internationalization involves choosing an initial entry mode 7-34 ... vs International Expansion  Ansoff and Internationalization  Motives to Internationalize  Internationalization/Market Entry Theory • International Product Life Cycle  Uppsala Model  Born Global. .. 7-2 Internationalization  Internationalization occurs when a firm makes a strategic decision to enter foreign markets and adapts its operations to international environments • Decision to expand... Expanded product offering • Expanded globally 7-8 Ansoff and Internationalization  Internationalization has been defined as the process of adapting a firm’s operations to international environments