1 IMM - Introduction 1-89

27/09/2017
Unit-1. Introduction to International

Marketing
1. Basic Terminology
2. Reasons for Going International
3. Major Decisions in Going International
4. Management Orientations
Prof. Nitin Kumar, 2017 1 Prof. Nitin Kumar, 2017
Terminology Terminology
Needs Types or Levels of Needs (Maslows Need-
A state of felt deprivation, including basic Hierarchy Theory):
physiological needs like hunger, thirst, sleep, etc. o Physiological
that can be expressed in a physical or abstract o Security
form like food, clothing, warmth, safety, etc.
o Social belongings and affection;
o Individual (self actualization) - self-expression,
knowledge, etc.
Prof. Nitin Kumar, 2017 3 Prof. Nitin Kumar, 2017 4
Wants Wants
Desires for specific satisfiers of Wants are the form taken by a human need as
physiological needs. shaped by culture and individual personality.
E.g. Juice, Cola, tea, coffee, water, etc. all E.g. An American or British might want Hamburger,
good for quenching the thirst, but what
fries and coffee for lunch, while an Indian may want
exactly one desires at a point in time,
Dosa/Biryani/Dal-Subzi-Roti, lassi, etc.
becomes the want.
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Demands Demands
Demands are wants for specific products that Demands are wants for specific products that
are backed by an ABILITY to buy are backed by an ABILITY and WILLINGNESS
TO BUY them.
Exercise 1 Focus of promotion: Need /

Terminology
Want / Demand?
(Group of 2-4) Download any advertisement that you like.
Demands 1. What is the type of product industrial/FMCG/consumer
durable/service/idea/any other?
Demands are wants for specific products that 2. Identify the following elements:
a) Which need does the product/service satisfy?
are backed by an ABILITY and WILLINGNESS b) What is the level (as per Maslows hierarchy theory) of that need?
c) What is the current want of the targeted customer?
TO BUY them. d) Which aspect of demand does the ad focus on?
3. As per the marketer, which factor is predominant
need/want/demand?
4. Compare your findings with other groups. Upon aggregation, can you
identify a correspondence between the type of product and focus of
the ad?
Definition of Marketing Social Definition of Marketing

Social and Managerial definitions
Marketing is a societal process by which
individuals and groups obtain what they
need and want through creating,
offering, and exchanging products and
services of value, freely with others.
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The aim of marketing is to know and

Managerial Definition of Marketing understand the customer so well that the
product or service fits him and sells itself.
The aim of marketing is to make selling
superfluous.
- Peter Drucker
Managerial Definition of Marketing International Marketing Concept

The American Marketing Association offers International Marketing refers to the
this managerial definition: process of:
o Marketing (management) is the process of identifying the goods and services that
planning and executing the conception, pricing, customers outside the home country want
and then
promotion, and distribution of ideas, goods, and
providing them at the right price and place.
services to create exchanges that satisfy
individual and organizational goals.
Reasons for
going
International Profitability Economies of Scale
Achieving
Growth Economies of
Scale
E.g. A company buys a new machine priced Rs
10,00,000 to produce white-board markers. The
production capacity of the new machine is 10,000
Why should
a firm enter
units p.a. It has a lifetime of 10 years. VC (incl. O/H) =
Spreading
R&D costs International
Risk Spread Rs 10/unit.
markets? Assuming a simple and uniform rate of annual
depreciation of the machinery, calculate the total
Marketing
opportunities
Access to cost of a marker if the annual sales are
Imported
due to
Inputs
A. 5,000 units
Life cycle Uniqueness of
Product or
B. 10,000 units
services
Prof. Nitin Kumar, 2017 Prof. Nitin Kumar, 2017 20
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Economies of Scale Economies of Scale

Case A (No Economies of Scale) Case B (Higher Profits due to Economies of Scale)
VC = 10/unit VC = 10
FC = Cost of Machinery/Units produced = FC = 1,00,000/10,000 = 10;
1,00,000/5,000 = 20/unit TC = 10 + 10 = 20/unit
TC = 10 + 20 = 30/unit SP = 40/unit
SP = 40/unit Profit = 40 20 = 20/unit, i.e. 50%
A 100% increase in profitability compared to Case A!
Profit = 40 30 = 10/unit, i.e. 33%
Total Profit = 10,000 x 20 = Rs 2,00,000 p.a.
Total Profit = 5,000 x 10 = Rs 50,000 p.a.
A 100% increase in total annual profit compared to
Case A!
Economies of Scale Major Decisions in Going International

Case C (Higher Sales due to Economies of Scale)
VC = 10
FC = 1,00,000/10,000 = 10;
TC = 10 + 10 = 20/unit
Desired Profit = 33%
SP = 26.60/unit.
A 33.5% decrease in selling price!
Lower selling price generally means higher sales!
Total Profit = 10,000 x 6.6 = Rs 66,000
A 32% increase in total annual profit compared to Case A
even at a lower selling price!
Classify these Reasons as Push or Pull factors for Internationalization

Whether to
Go Abroad?
Profitability
Achieving
Growth Economies of
Scale
Why should
Spreading a firm enter
Risk Spread
WHY? R&D costs International
markets?
Marketing
Access to
opportunities
Imported
due to
Uniqueness Inputs
Life cycle of
Product or
25 services
Prof. Nitin Kumar, 2017 Prof. Nitin Kumar, 2017
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Deciding Whether to Go Abroad Reasons for Staying Domestic
Managers would not need to:

Most companies would prefer to remain 1. Learn other languages and laws,
domestic if they had a choice! 2. Deal with volatile currencies,
3. Face political and legal uncertainties, or
4. Redesign their products to suit different
customer needs and expectations.
27 28
Whether to
Deciding Whether to Go Abroad Go Abroad?
External
Environmental
Some companies dont act until EVENTS Analysis
SWOT (PEST)
thrust them into the international arena! ANALYSIS
Proactive (pull) factors Assessment of

TO BE Product lines
and Market
Reactive (push) factors OR Potential
NOT TO BE?
29 30
Whether to
Go Abroad? How Many Markets to Enter?
WHERE?
Where to Enter? Typical Approaches to International Market

Entry are:
HOW
MANY WHICH 1. WATERFALL Approach
MARKETS? MARKETS?
2. SPRINKLER Approach
Market Entry Market Analysis &

Approach Selection
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WATERFALL APPROACH SPRINKLER APPROACH
Source: http://business-fundas.com/wp-content/uploads/2011/04/Market-Entry-Strategy.gif Source: http://business-fundas.com/wp-content/uploads/2011/04/Market-Entry-Strategy.gif
Waterfall Model of World Trade &

Waterfall Approach Investment (by Kenichi Ohmae)
Waterfall Approach gradually entering High Income

Countries
New Product Introduction
markets in sequence.
Middle Income
Countries
Also known as trickle-down model or

Low Income
International PLC model. Countries
35 36
Prof. Nitin Kumar, 2017 Time
Prof. Nitin Kumar, 2017
Reasons for Adopting Waterfall Approach
Initially a product may be so expensive that

only the wealthy can afford it (INNOVATIVE
PRODUCT).
Over time, however, the price will fall until it is
inexpensive enough for the general public to
purchase (MATURE or STANDARDIZED
PRODUCT).
37
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Examples of Waterfall Approach

Premium or Luxury goods companies follow
the waterfall approach.
Link: BMW to launch X1 in India

39
Benefits of Waterfall Approach Sprinkler Strategy
Characteristics:
It allows firms to:
More suitable for products with a short PLC
1. carefully plan expansion and
Very risky
2. is less likely to strain
Human and
Financial resources.
41
Samsung Galaxy Note7 Recall
Source: https://www.thestar.com/business/2016/10/14/samsung-says-galaxy-note-7-recall-to-cost-at-least-53-
billion.html Accessed 31.8.17
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Sprinkler Strategy Sprinkler Strategy

Characteristics: Benefits:
Requires a lot more financial and managerial
resources as compared to the waterfall strategy Provides FIRST (OR EARLY) MOVER Advantage
Usually deployed with Market Skimming pricing Very useful where a HIGH DEGREE OF
strategy
Experiences from market responses are limited COMPETITIVE INTENSITY prevails.
to individual markets and cannot be replicated in
other markets.
Which Markets to Enter?

Reasons for Adopting Sprinkler Approach
Choosing a Market - Decision Criterion
1. Market Potential
Large, TECHNOLOGY-INTENSIVE firms are
2. Political Risks
born Global and market to the entire world 3. Market Access
from the outset. 4. Factor Costs and Conditions
5. Shipping Considerations
6. Country Infrastructure
7. Foreign Exchange
8. Competitive Advantage
47
Whether to
Go Abroad? First Mover Advantage
When to Capture learning-effects important for
Where to Enter?
Enter? expanding market share
Achieve economies of scale accrued from
How to Enter? higher market share
HOW? Develop of strategic alliances with the most
attractive (many times the only) local partner
Timing of Entry Operate in a virtually no competitor scenario
-First/Early/Late mover Modes of Entry
(Cost-benefit analysis) Build customer loyalty (being the only seller).
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First Mover Advantage First Mover Advantage

In emerging economies that are opening up In emerging economies that are opening up (via
(via privatisation and/or liberalisation), the privatisation and/or liberalisation), the window of
window of opportunity for a new entrant may opportunity for a new entrant may be very
be very narrow or far-between. narrow or far-between.
In such conditions, first movers can: In such conditions, first movers can:
pre-empt competition,
pre-empt competition,
establish beach-head positions first movers usually
establish beach-head positions, get priority access to natural/scarce resources,
Influence the evolving competitive environment. Influence the evolving competitive environment.
First Mover: Problems First Mover: Problems

Greater environmental uncertainties which Greater operational risks which stem from:
stem from: i. Shortage of qualified supply sources and other
production inputs such as talented managers, R&D
i. Non-existent or poorly defined laws relating to scientists, etc.
FDI ii. Under-developed support services such as local
ii. Host govt.s lack of experience in dealing with financing, foreign exchange, arbitration, consulting,
MNCs marketing, etc.
iii. Poor infrastructure
iii. Infant or embryonic stages of the industry or
iv. Unstable market structure in which demand-supply
market are misaligned or host govt. interferes with MNC
operations.
Modes of Entry
First Mover: Problems

Non-Equity FDI-related
Modes (Equity Modes)
Higher cost of learning and adapting to local
environment Trade-related
Transfer-related
(Contractual
Joint
Wholly
Owned
Ventures
Often required to build from scratch huge Agreements) Subsidiaries
investment on industrial infrastructure

Indirect/Direct Exports Leasing Minority JV Greenfield
Required to fend-off followers - me-too and
imitators who imitate strategies or innovations,
Licensing,
counterfeit products or infringe on intellectual Turnkey Franchising 50-50% JV Acquisition
property, etc.
This problem is exacerbated by absence of adequate Subcontracting R&D Contracts Majority JV Others
intellectual property laws or mechanisms.
Counter-trade (Barter,
Built, Operate,
Counter-purchase, Offset,
Buyback) Transfer (BOT) 57
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Modes of Entry into Foreign Markets Whether to

Go Abroad?
Commitment, Risk, Control, & Profit Potential
Subsidiary (FDI-related)
Where to Enter? Standardization
Joint Ventures v.
Adaptation?
How to Enter?
Contractual Agreements (Transfer-related)
Deciding on the
MARKETING PROGRAM
Exports (Trade-related)
59 60
Whether to
Keegans Matrix - International Go Abroad?
Product & Promotion Strategies
Where to Enter?
How to Enter? Export dept. or

Functional or
Product International
Structures? Divisions?
Deciding on the
MARKETING PROGRAM
Deciding on the 62
Prof. Nitin Kumar, 2017 61
MARKETING ORGANIZATION
International Marketing.
Case of Fedders, USA
Largest manufacturer of air conditioners

in the USA
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The firm faced constraints in domestic
market:
Whether to go Sales are seasonal
International? Mature market replacement sales only
Formidable rivals Whirlpool, Matsushita, etc.
WHERE TO Fedders found opportunity in Asia:

ENTER? Steamy climate (Hot & humid)
Expanding middle class
Best Prospects: China, India and Indonesia
WHICH China was selected:

MARKETS TO Sales of room AC had grown from 50,000
ENTER? units to more than 4 million units in 05
years!
Still, it accounted for only 12% of the homes
in major cities like Beijing, Shanghai, and
Guangzhou.
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HOW TO Mode of Entry: JV with a small Chinese

ENTER?
manufacturer, XINLE.
Product Adaptation:
STANDARDIZATION
Had to redesign the product for Chinese market.
or
ADAPTATION? Light weight
Energy efficient
Auto air sweeping mechanism
Product Invention:
Chinese preferred split ACs. Fedders had none in
MARKETING
its stable for US market!
PROGRAM
Positioning:
Utility or Luxury?
A status symbol (a major purchase) in China in
contrast to utility in the US!
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Case Study: RSPL
Now exporting ACs made in China to the US!
Because of its tremendous successes in Asia,

Fedders was acquired by Airwell (France) in
2008
Case Study: RSPL Guidelines for Case Analysis

Most of RSPLs sales come from within India. The CEO is First, define clearly and concisely, the basic decision problem. This should
drawing up plans for its expansion in international markets. focus on the action to be taken, e.g. how to enter international markets,
developing a long-run strategy for international growth, rather identifying
Issues to be considered are: symptoms such as declining sales, increased competition. The problem
a) which areas of the world should they target? statement should be summarized in 4-5 lines.
b) on which product lines should they focus their efforts? Next, identify a number of alternative courses of action to deal with the
c) What should be their modes of entry? problem identified in #1, i.e. alternative entry modes might include direct
d) how should they leverage the strengths in international markets? exporting, joint ventures, franchising, etc. For each alternative, list the
Draw up two or three alternative strategies for international pros and cons using bullet heads. This should be the major part of your
write-up. Materials such as tables, quantitative analysis, may be placed in
market expansion, indicating the area of the world and appendices, not in the text. Do not repeat tables and material contained in
product lines on which they might focus as well their global the case.
branding strategy. Write a brief summary, recommending a course of action, selecting one of
your suggested alternatives. Give a brief rationale for your choice.
13

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27/09/2017

Unit-1. Introduction to International

2. Reasons for Going International

3. Major Decisions in Going International

Prof. Nitin Kumar, 2017 1 Prof. Nitin Kumar, 2017

Prof. Nitin Kumar, 2017 3 Prof. Nitin Kumar, 2017 4

Prof. Nitin Kumar, 2017 5 Prof. Nitin Kumar, 2017 6

Prof. Nitin Kumar, 2017 7 Prof. Nitin Kumar, 2017 8

Exercise 1 Focus of promotion: Need /

Definition of Marketing Social Definition of Marketing

Prof. Nitin Kumar, 2017 11 Prof. Nitin Kumar, 2017 12

The aim of marketing is to know and

Prof. Nitin Kumar, 2017 13 Prof. Nitin Kumar, 2017

Managerial Definition of Marketing International Marketing Concept

Prof. Nitin Kumar, 2017 15 Prof. Nitin Kumar, 2017 16

Economies of Scale Economies of Scale

Prof. Nitin Kumar, 2017 21 Prof. Nitin Kumar, 2017 22

Economies of Scale Major Decisions in Going International

Prof. Nitin Kumar, 2017 23 Prof. Nitin Kumar, 2017 24

Classify these Reasons as Push or Pull factors for Internationalization

Deciding Whether to Go Abroad Reasons for Staying Domestic

Managers would not need to:

Proactive (pull) factors Assessment of

Where to Enter? Typical Approaches to International Market

Market Entry Market Analysis &

WATERFALL APPROACH SPRINKLER APPROACH

Source: http://business-fundas.com/wp-content/uploads/2011/04/Market-Entry-Strategy.gif Source: http://business-fundas.com/wp-content/uploads/2011/04/Market-Entry-Strategy.gif

Prof. Nitin Kumar, 2017 33 Prof. Nitin Kumar, 2017 34

Waterfall Model of World Trade &

Waterfall Approach gradually entering High Income

Also known as trickle-down model or

Reasons for Adopting Waterfall Approach

Initially a product may be so expensive that

Examples of Waterfall Approach

Link: BMW to launch X1 in India

Benefits of Waterfall Approach Sprinkler Strategy

Samsung Galaxy Note7 Recall

Sprinkler Strategy Sprinkler Strategy

Prof. Nitin Kumar, 2017 45 Prof. Nitin Kumar, 2017 46

Which Markets to Enter?

First Mover Advantage First Mover Advantage

Prof. Nitin Kumar, 2017 Prof. Nitin Kumar, 2017

First Mover: Problems First Mover: Problems

Prof. Nitin Kumar, 2017 Prof. Nitin Kumar, 2017

First Mover: Problems

investment on industrial infrastructure

Modes of Entry into Foreign Markets Whether to

Where to Enter? Standardization

How to Enter? Export dept. or

Largest manufacturer of air conditioners

Prof. Nitin Kumar, 2017 Prof. Nitin Kumar, 2017 71

Prof. Nitin Kumar, 2017 Prof. Nitin Kumar, 2017 73

WHERE TO Fedders found opportunity in Asia:

Expanding middle class

Best Prospects: China, India and Indonesia

Prof. Nitin Kumar, 2017 Prof. Nitin Kumar, 2017 75

WHICH China was selected:

HOW TO Mode of Entry: JV with a small Chinese

Prof. Nitin Kumar, 2017 Prof. Nitin Kumar, 2017 79

Auto air sweeping mechanism

Prof. Nitin Kumar, 2017 Prof. Nitin Kumar, 2017 81

Prof. Nitin Kumar, 2017 Prof. Nitin Kumar, 2017 83

Now exporting ACs made in China to the US!