Balance Between Domestic and Foreign Markets in Economy

Market entry decisions are some of a firm’s most important strategic choices. Today’s internationalizing firms need to know as much as possible to decide which foreign markets to enter and when to enter those markets. In the marketing literature, differences in culture have been found to affect brand image strategies (Roth 1995), consumer innovativeness (Steenkamp et al. 1999), negotiations (Campbell et al. 1988; Graham 1985), and marketing decision-making (Tse et al. 1988).

Foreign Direct Investment (FDI) theory argues that, firms face various disadvantages in foreign markets and invest only when expected benefits exceed those costs (Hymer 1976; Vernon 1966).

These benefits depend on the economic characteristics of each country (Dunning 1998; Davidson 1980; Scaperlanda and Mauer 1969). Therefore, as a marketer, I would advice a client to first of all understand the customer behavior and customer perspective in regard to his products before venturing into foreign markets. With this knowledge, he will be able to market his products in foreign countries since; similar economic and cultural characteristics of a country are likely to be associated with foreign market entry.

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Experience Curve Pricing

An experience curve analyzes the cost reduction of new technologies. The cost reduction refers to the total cost (labor, capital, administrative costs, research and marketing costs, etc.), and sources of cost reduction include cost reductions due to changes in production (process incremental innovations, learning effects and scaling effects), changes in the product (product incremental innovations, product redesign and product standardization), changes in input prices and, actually, changes in the entire socio-technical system. Due to this, experience curves ought to be used with care.

The advantage is that, it acts as a guidance of future cost development and insight into the capabilities and limitations of the further diffusion and adoption of new technologies.

The disadvantage is that, the historical trend in cost reductions expressed by experience curves has been extrapolated and used to analyze future cost reductions. Such an analysis must, however, take into account possible large variations in the progress ratio for a non-standardized product. The progress ratio should therefore be expressed as a range, rather than as a specific value.

Product Life Cycle Pricing

Product life cycle pricing aims at improving a product success during each of its phase of its life cycle (development - introduction – growth – maturity – decline), The main disadvantage is that, a company must be prepared to spend a lot of money and get only a small proportion of that back during the introduction part of product life cycle. A Product Manager exists for three basic reasons. For starters, he manages the revenue, profits, forecasting, marketing and developing activities related to a product during its life cycle.

Secondly, since to win a market requires deep understanding of the customer, he identifies unfulfilled customer needs and so he makes the decision for the development of certain products that match markets needs. This creates an advantage of competitive pricing. Conclusion When companies operate in countries with different cultures, they need to modify their operations in these areas as well as other elements of the marketing mix (Davidson 1983). These modifications increase costs and risks as the difference between cultures increases. Therefore, during decision making process, companies should enter into countries with cultures and level of development, trade and infrastructure similar to their domestic market before entering countries with less similar cultures.

References

1. Roth, M. S. (1995), “The Effects of Culture and Socioeconomics on Product Performance,” Journal of Marketing Research, 32 (May), 163-175.
2. Steenkamp, Jan-Benedict E. M. , Frenkel H, & Michel W. (1999), “A Cross-National Investigation into the Individual and National Cultural Antecedents of Consumer Innovativeness,” Journal of Marketing, 63 (April), 55-69.
3. Tse, David K. , Kam-hon L, Ilan V, & Donald A. W. (1988), “Does Culture Matter? A Cross-Cultural Study of Executives’ Choice, Decisiveness, and Risk Adjustment in International Marketing,” Journal of Marketing, 52 (March), 81-95.
4. Campbell, Nigel C. , John L. G. , Alain J, & Hans G. M. (1988), “Marketing Negotiations in France, Germany, United Kingdom and the United States,” Journal of Marketing, 52 (April), 49-62.
5. Graham, John L. (1985), “Cross-Cultural Marketing Negotiations: A Laboratory Experiment,” Marketing Science, 4 (2), 130-146.
6. Hymer, Stephen (1976), The International Operations of National Firms: A Study of Direct Investment, Boston MA: MIT Press. Vernon, Raymond (1966), “International Investment and International Trade in the Product Cycle,” Quarterly Journal of Economics, 80 (May), 190-207.
7. Dunning, (1998), “Location and the Multinational Enterprise: A Neglected Factor? ” Journal of International Business Studies, 29 (1), 45-66.
8. Davidson, William H. (1980), “The Location of Foreign Direct Investment Activity: Country Characteristics and Experience Effects,” Journal of International Business Studies, 11 (2), 9-22.
9. Scaperlanda, Anthony E. & Laurence J. M (1969), “The Determinants of U. S. Direct Investment in the E. E. C. ,” American Economic Review, September, 558-568.
10. Davidson (1983), “Market Similarity and Market Selection: Implications for International Marketing,” Journal of Business Research, 11 (4), 439-456.