MODULE TITLE : INTRODUCTION TO

INTERNATIONAL MARKETING
MANAGEMENT
MK 3016

ASSIGNMENT 2
Which marketing principles will a company need to
utilise prior to making the decision to do business in
overseas markets and why?

By ANAIS ARMENGAUD G 20496590

MODULE TUTOR : ROBIN CAREY

26th March 2011

Anaïs ARMENGAUD INTERNATIONAL MARKETING MANAGEMENT
MK 3016

What would happen to Chanel if its products were sold only in France? The
cereal you eat every day are they grown on your land? Oil producers in Russia, did
they not have enough oil to give other countries?

What would the world be today without the internationalization? In an international

environment more and more favourable, worldwide companies are exporting more
and more abroad. Companies are looking for more clients than their domestic market
offers them, maximization of their profits and reduction in risks in view of the
economy more and more shaky of countries. Benefits are clear, however, caution is
the order of the day in a world where risks, notably politic and environmental risks,
are increasing every day. So the decision is complex and companies must analyze at
length before to start doing business abroad. Many factors will determine whether or
not it's good for the company to internationalize and which market is the best. Thus
international marketing management becomes a key concept for many companies.

This essay will start by explaining the reasons that encourage companies to do
business overseas and what information the company needs beforehand. Then, the
risks and benefits associated with internationalization will be highlighted.

With regard to the reasons leading organizations to internationalise, the main

motivation should obviously be to make a profit. In addition to this basic objective,
several specific objectives, defined as proactive and reactive, can be highlighted.
According to Hollensen (2003, p42) a proactive motivation arises from the interest of
the company to exploit a unique competence or market opportunities, while a reactive
motivation arises from passive adaptation of a company to internal or external
pressures.

Starting with proactive motivations, the profit and growth goal seems the most
obvious. Selling its products into a new market means more potential customers and
thus increase sales and consequently increase profit and market share.

Another reason may be that the company has a unique product or a technology
competence that are not available yet overseas. On one hand the company receives

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requests from foreign markets and on the other hand the company knows that its
products will be successful overseas, because of their quality and scarcity. That’s
one of the reasons why Apple sells its products worldwide, such as the iPhone,
because they are unique in the market (at least at their launch).

Making economies of scale is another major incentive for companies, as explained

Albaum et al. (2002, p50). By producing more, the unit cost of each product
decreases and the costs of advertising, distribution and R&D are paid off. In addition,
to increase these effects the company can standardize the marketing mix
internationally. McDonald uses the same concept, same basic menu, same
advertising message (I’m Lovin it, Me encanta, C’est tout ce que j’aime, Amo muito
tudo isso,...).

Besides proactive motivations, there are those in response to changes and

market pressures. Risk diversification, for example. By being present on several
different geographic markets, the company can offset economic risk, if product sales
fail in one country but also the risks of strike, natural disaster or political which would
put a stop to production, like in Japan or Libya currently.

There are also reasons concerning the relation between domestic market and the
product. Perhaps the domestic market is saturated then it becomes vital for the
company to export. The product can also be at the last stage of its life cycle in this
market and the company can extend its life by exporting it into less developed
countries technologically behind. Also, the market size may be too small, not allowing
the company to cover its costs. Rolls Royce wouldn’t survive if it operates only in
Britain. Finally if it's a seasonal product, such as clothes or sports equipment, the
time will come when the season will end in the domestic market. To have a stable life
cycle and ensure profits and continued growth, it's vital for these companies to be
present in markets where the seasons are opposite. Rossignol company sells its ski
equipment in the northern hemisphere from November to March and in the southern
hemisphere from May to September.

Finally the last reason could be proximity. Firstly proximity to customers, which allows
a better understanding of the market and lower delivery costs, then the proximity of
resources. Resources are both human and material, by going overseas companies

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MK 3016

often seek a cheaper workforce, cheaper raw materials and abolition of transportation
costs.

There are many reasons in favour of internationalisation, but organizations still

have to search the right information before making their decision. According to Lewis
and Housden (1998, p16) there are three types of information to take into account,
namely information about countries, consumers and competitors. Various tools exist
in marketing to analyze and compare the situation in several markets, in particular
SWOT and PESTEL. SWOT analysis consist in listing the strengths and weaknesses,
then opportunities and threats of the market . Thus it becomes easier to compare the
potential benefits of some markets compared to others. However it's sometimes very
difficult to obtain all necessary information, all countries don't have a transparent
policy towards the information about them.

Through PESTLE analysis the company must wonder, at the legal and political levels,
what type of government is in place in the country and its stability (eg Egypt, Tunisia,
Libya), the extent of control the government has on business, if there are barriers to
entry (ie protectionism of the USA) and which license are required. As regards
economic level it's important to look at the wages of the population which determines
their purchasing power, also look for the existence of economic agreements such as
NAFTA and according to Doole et al. (1994 p106) the level of development of the
country is also a key element. From a socio-cultural perspective, language, religion
and the values of the population are key elements that the company must analyze
before starting. Additional secondary elements are the level of technological
development of the country and its sensitivity towards environmental concerns.

Subsequently it's also important to know the consumer, its influences and its
buying behavior before deciding to enter into the market. The consumer buying
behavior is influenced by personal factors such as its financial situation, its lifestyle or
its family context, and by socio-cultural factors. They are grouped into eight variables
by Terpstra (1997): language, religion, values and attitudes, education, social
organization, technology, laws and policies and aesthetics. For example, the

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MK 3016

company must be careful with translations, symbolic values around its products,
respect for religion and social practices.

Finally the company should pay attention to the current and latent level of
competition in the different markets. For that it can use the model of Porter's five
forces analyzing the threat of new entrants, threat of substitutes, buyer power,
supplier power and intensity of the rivalry. This model provides a solid basis for
understanding and analyzing competition. However, other questions must be raised
such as: what are the strengths and weaknesses of competitors? What price level
they practice? Do they have a competitive advantage? Does our product is likely to
succeed?

After answering all these questions, having obtained all necessary information
carefully and having analyzed the market environment and the customers' behaviour,
the company is ready to take its decision.

However the company must be aware of the risks it takes in doing business
abroad. These risks can be classified into two categories: those concerning the
environment and those concerning the marketing mix. Concerning the environment in
which the company operates four factors may change unexpectedly.

Firstly there is the political risk, including the threat of war or civil unrest, coming from
an extreme nationalist movement and sometimes leading to regime change, as in
Tunisia and Egypt. There is also the risk of change in government regulations or
intervention in business, that will make it more difficult to do business or will imply a
nationalization of foreign companies, as happened in Cuba or Iran. Finally there is
the threat of terrorism.

From an economic point of view, risks can include high inflation, currency risk, the
risk of nonpayment, even corruption. But risks may be more important, i.e financial
market instability that can lead the country in a financial crisis. This is the case of the
US banking crisis in the Sub-prime market in 2007 that turned into world financial

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crisis in 2008. That year the HSBC bank, reported a 70% fall in net income and had
to cut 6100 jobs in the US.

On the social level, companies must sometimes face large demographic changes
leading to changes in demand, but also to government regulations concerning
welfare benefits, pensions and minimum wages.

Finally, currently in the headlines, companies must deal with environmental risks
such as natural disasters, climate change and food and water shortages, as stressed
Harrison (2007, p18-19 ). So Japan had to face a tsunami and an earthquake
causing a nuclear 'disaster' now threatening worldwide.

On the other hand, there are risks relating the marketing mix. At the product
level, the risk may be not to meet local standards which might be more stringent
especially for food or medicines. The risk also is that the product has a different use
in foreign markets, then the mix must be adapted. For example, bicycle in China is
not a sports equipment but only a means of locomotion that can be used to transport
goods.

Concerning the price, the risk is that once passed the cost of taxes needed to enter
the country on the sell price, it becomes too high especially compared to the
purchasing power of households and the prices offered by competitors. The second
risk is that by reducing the price the company can’t cover its costs.

Regarding distribution, the company faces the risk of delay or damage in the export
or distribution process of its products. Once on the scene, the risk may be not to find
a good distributor, trustworthy and enjoying a good reputation among consumers.

Finally as regards communication there are many risks. First there is the risk of
misunderstanding, misperception and misinterpretation of the message. This risk is
due to the language barrier and cultural differences. Indeed, Honda launched a car
named "Fitta" in the Nordic countries where this word means "vagina". There is also
a risk on media, according to their availability, the audience they reach, the timing of
use, everybody don't watch TV at the same time, and government regulations which,
for instance, prohibit comparative advertising in South Korea.

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Obviously internalization also has many advantages, which are classified into
two categories: financial and nonfinancial benefits. On the side of financial benefits,
this analysis will join the first part of this essay, namely the reasons why companies
do business overseas. Of course they do it for the benefits that will bring.

So the first benefit is the increase in the company profit, now having access to a
larger market. It will make a bigger profit, which generally increases its market share
but also its growth. This is a significant advantage especially for companies that
makes little or no more profits on their domestic market. In addition to earning money,
there is also the advantage of saving money through economies of scale, as
previously explained. Finally last advantage is diversification of risks. This allows the
company to have a 'backup plan' if sales are falling or production ceases within a
country. For example, all projects undertaken by Chinese companies in the sectors of
public works and telecommunications in Libya are currently blocked. However, since
these firms are present in other countries these frozen contracts don't have an
influence too negative, for example, the company CSCEC (China State Construction
Engineering Corporation) whose its contracts in Libya represent only 3% of its
turnover. (french.china.org.cn, 2011)

There are also non-financial benefits in doing business abroad. In this case,
we generally speak of the benefits in terms of image and communication. Indeed it
provides the company an international reputation, the people worldwide will know the
brand and will be able to talk about it between themselves or on the internet, giving it
an even greater publicity.

By looking at the promotion internationally, it's possible to note that the company has
two solutions and both have advantages. The company may choose to apply a
standardization strategy of its products and its promotion. By applying this strategy
internationally, the company enjoys a consistent and coherent brand image across
markets, which is particularly important to maintain multinational consumer loyalty.
This new type of customer, highly mobile thanks to the development of transportation

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and information technologies and communication, requires standardized products

from one market to another, to find wherever he goes the products it likes.

The second option is the adaptation of products and communication. The advantage
of this strategy is that by taking into account consumer expectations and sociocultural
aspects of the foreign market, sales will increase and brand image will improve.
Indeed, adapting the product shows to consumers that the brand cares about them,
moreover adapting the communication will reduce misunderstanding or
misinterpretation, and the message will go more easily into the consumer's mind.
Thus, Pepsi uses supermodels in swimsuits in its advertising for Western audience
and Asian actresses in those for the Asian audience. It adapts its communication to
its audience, because in Western countries it's the pretty girls who boosts sales while
in Asian countries it's the celebrities, who are regarded as gods. Besides, L'Oreal for
its Elnett hairspray brand uses Cheryl Cole, Laetitia Casta and Kim Yun-jin (among
others), three English, French and Korean celebrities.

Prior to making the decision to do business in overseas markets, a company

must use a number of marketing principles. The objective is firstly to understand why
it should internationalise, thus it may make a list of proactive and reactive motives
which generally range from increase in profit, to the proximity of the final market,
going through economies of scale and risk diversification. Then it's by using the
SWOT analysis, PESTEL and Porter's Five Forces, that the company can clearly
analyze markets in which it could operate, its future competitors and the behavior of
its potential customers . Finally by analyzing the environment and the marketing mix,
the company will be able to identify potential risks and benefits associated with doing
business overseas. It will discover notably that the risks politic, economic and
environmental are very present nowadays and that although it chooses a
standardization or adaptation strategy, there are many benefits in communicate
internationally.

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REFERENCES

Albaum, G., Strandskov, J. et al (2002) Fourth Edition, International Marketing and

Export Management, PrenticeHall

Czinkota, M.R (2004) The Export Marketing Imperative, Thomson Learning

Doole, I., Lowe, R. and Phillips, C. (1994) International Marketing Strategy,

International Thomson Business Press.

French.china.org.cn (2011) ‘Les entreprises chinoises voient leurs projets bloqués en

Libye pour une valeur de 41 milliards de yuans’ 2011/03/24, available at :
<http://french.china.org.cn/business/txt/2011-03/24/content_22213632.htm>
[Accessed 24 March 2011]

Harrison, A. (2008) Internationalisation And Global Risk , a lecture programme

delivered at the Technical University of Košice.

Hollensen, S. (2003) Global Marketing, Prentice Hall.

Lewis, K. and Housden, M. (1998) An introduction to international marketing, Kogan

Page Ltd.

Terpstra, V. and Sarathy, R. (1997) 7th Edition, International Marketing, Fort Worth
TX

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