International Markets Essay
Once SAB Miller has decided to establish itself in the global market, it becomes necessary for the marketing manager to study and analyze the various options available to enter the international markets and select the most suitable one. The selection of the entry mode is one of the most significant decisions.SAB Miller takes in the process of internationalization, as it involves commitment of resources with long-term financial and structural implications. Mode of entry may be defined as an institutional mechanism by which a firm makes its products or services available to consumer in international markets. Root (1994) defines the market entry for international markets as a comprehensive plan which sets forth the objectives,goals,resources,and policies that guide a company’s international business operations over a future period long enough to achieve sustainable growth in world markets.
FACTORS AFFECTING THE SELECTION OF ENTRY MODE
MARKET SIZE:Market size is one of the key factors an international marketer has to develop to keep in mind when selecting an entry strategy.Countries with a large market size justify the modes of entry with investment,such as wholly owned subsiaries or equity participation. MARKET GROWTH:Most of the large,established markets,such US,Europe and Japan,have more or less reached a point of saturation for consumer goods such as automobiles,consumer electronics.Therefore,the growth of markets in these countries is showing a declining trend.For instance,the overall growth in most of the US and European market is about 7% while emerging markets like India and China is over 30% which indicates tremendous market potential in time to come.
Therefore,from the perspective of long-term growth potential such as China,India,Thailand,Indonesia etc.These markets are also termed emerging markets. GOVERNMENT REGULATIONS:The selection of market entry modes to a great extent affected by the legislative framework of the overseas market,the government of most of the Gulf countries have made it mandatory for foreign firms to have local partner.For instance,the UAE is a lucrative market for Indian firms but most firms operate there with a local partner.
Trade barriers such as ecological regulations and local content requirements also affect the mode of entry.It has been a major reason for increased foreign investment in Mexico,which is a part of the North American Free Agreement(NAFTA),in order to cater to the US market. LEVEL OF COMPETITION:Presence of competitors and their level of involvement in an overseas market is another crucial factor in deciding on an entry mode so as to effectively respond to competitive market force.This is one of the major reasons behind auto companies setting up their operations in India and other emerging markets so as to effectively respond to global competition. INTERNAL MODES
COMPANY OBJECTIVES:Companies operating in domestic markets with limited aspirations generally enter foreign markets as a result of a reactive approach to international marketing oppurtunities.In such cases,companies receive unsoliated orders from acquaintances,firms and relatives based abroad,and they attempt to fulfil these export orders.This casual approach to entering international markets by way of producing in the homemarket and exporting overseas translates into regular exporting if the firm has positive experience in its exports operation. AVAILABILTY OF COMPANY RESOURCES:Venturing into international markts needs substantial commitment of financial and human resources and therefore choice of an entry mode depends upon the financial strength of a firm.It may be observed that Indian firms with good financial strength have entered international markets by way of wholly owned subsidiaries or equity participation.
LEVEL OF COMMITMENT:In view of the market potential,the willingness of the company to commit resources in a particular market also determines the entry mode choice.Companies need to evaluate various investment alternatives in a particular market also depends upon the way the company is willing to perceive and respond to competitive forces. INTERNATIONAL EXPERIENCE:A company well exposed to the dynamics of the international marketing environment would be at ease when making a decision regarding entering into international markets with a highly intensive mode of entry such as joint venture and wholly owned subsidiaries. Below are different modes of market entry and they include:
Exporting is the simplest method of entering a foreign market.It is the process of sending goods or services from country to other countries for use or sale there. By exporting to a foreign country,a company is able to enter this country without actually establishing itself in the country.The company must simply manufacture products that can be shipped to the foreign country.Export activities may take several forms,including indirect exporting,direct exporting,and intracorporate transfers. Direct exports represent the most basic mode of exporting, capitalizing on economies of scale in production concentrated in the home country and affording better control over distribution. Direct export works the best if the volumes are small. Types of direct exporting are:
Sales representatives – that represent foreign suppliers/manufacturers in their local markets for an established commission on sales. Provide support services to a manufacturer regarding local advertising, local sales presentations, customs clearance formalities, legal requirements. Importing distributors – purchase product in their own right and resell it in their local markets to wholesalers, retailers, or both.
Indirect export is the process of exporting through domestically based export intermediaries. Indirect methods of exporting requires less marketing investment, but, as the exporter has no control over its products in the foreign market, the company lose substantial control over the marketing process. Types or methods of indirect exporting are:
Filling orders from domestic buyers who then export the product Seeking out domestic buyers who represent foreign customers
Exporting through an Export Management Company (EMC)
Exporting through an Export Trading Company (ETC)
A third form of export activity is the intracorporate transfer,which has become more important as the sizes of MNCs have increased.An intracorporate transfer is the sale of goods by a firm in one country to an affiliated firm in another. LICENCING
License is a contract to identify what is being licensed: trademarks, patents, designs, copyrights or software. Licensing allows rapidly entering into the chosen foreign market and reduces capital requirements to establish manufacturing facilities overseas. Your contract does not violation of the host country’s existing laws and regulations.a licensor in the home country makes limited rights or resources available to the licensee in the host country. The rights or resources may include patents, trademarks, managerial skills, technology, and others that can make it possible for the licensee to manufacture and sell in the host country a similar product to the one the licensor has already been producing and selling in the home country without requiring the licensor to open a new operation overseas.
The licensor earnings usually take forms of one time payments, technical fees and royalty payments usually calculated as a percentage of sales. As in this mode of entry the transference of knowledge between the parental company and the licensee is strongly present, the decision of making an international license agreement depend on the respect the host government show for intellectual property and on the ability of the licensor to choose the right partners and avoid them to compete in each other market. Licensing is a relatively flexible work agreement that can be customized to fit the needs and interests of both, licensor and licensee. Franchising
The franchising system can be defined as: “A system in which semi-independent business owners (franchisees) pay fees and royalties to a parent company (franchiser) in return for the right to become identified with its trademark, to sell its products or services, and often to use its business format and system. Compared to licensing, franchising agreements tends to be longer and the franchisor offers a broader package of rights and resources which usually includes: equipment, managerial systems, operation manual, initial trainings, site approval and all the support necessary for the franchisee to run its business in the same way it is done by the franchisor. In addition to that, while a licensing agreement involves things such as intellectual property, trade secrets and others while in franchising it is limited to trademarks and operating know-how of the business. TYPES OF FRANCHISES
There are three available types of franchises.The first type is the dealership,a form commonly found in the automobile industry.Here,the manufacturers use franchises to distribute their product lines.These dealership act as the retail stores for the manufacturer.In some distance,they are required to meet quotas established by the manufacturers,but as is the case for any franchise,they benefit from advertising and management support provided by the franchisor.The most common type of franchise is the type that offers a name,image and method of doing business,such as McDonald’s,KFC,Holiday Inn.
There are many of these types of franchises,and their listings,with pertinent information can be found in various sources. A third type of franchise offers services.These include personnel agencies,income tax preparation companies and real estate agencies.These franchises have established names and reputation and methods of doing business.In some distances,such as real estate,the franchisee has actually been operating a business and then applies to become a member of the franchise. CONTRACT MANUFACTURING
Contract manufacturing refers to a situation where a business will engage the services of an independent party to perform a specified duty for the business. In terms of manufacturing, contract manufacturing refers to a situation where a manufacturer will engage the services of an independent party to perform a specified job. There are various reasons for this type of engagement by manufacturers, all of which involve the maximization of profit. The process of contract manufacturing also has some negative considerations that include the risk of uncertainty and lack of control over the process. WHOLLY OWNED SUBSIDIRIES
Entering a foreign market with a wholly owned subsidiary involves creating a local firm without the aid of a local partner. There are two ways of doing this. The first is through what is called greenfield development. This involves creating a new organization in the foreign country from the ground up. The second method is what is referred to as brownfield development. This involves purchasing an existing company in a foreign country. Brownfield developments can be beneficial because they offer local expertise, but they can be difficult because there may be resistance from those in the company to new ownership. JOINT VENTURE
A market entry option which the exporter and a domestic company in the target country join together to form a new incorporated company. Both parties provide equity and resources to the JV and share in the management, profits and losses. The JV be limited to the life of a particular project. This option is popular in countries where there are restrictions on foreign ownership, eg. China and Vietnam PIGGYBACKING
Piggyback marketing – low cost market entry strategy in which two or more firms represent one another’s complementary (but non-competing) products in their respective market. Or, in other words, it is an arrangement, where two or more companies help each other to market their products, where the products have to be complementary and not competing against each other.
LEVEL OF INVOLVEMENT IN INTERNATIONAL MARKETS
No direct foreign marketing:
A company in this stage does not actively cultivate customers outside national boundaries; however this company’s products may reach foreign markets. Sales may be made to trading companies as well as foreign customers who come directly to the firm. Or products may reach foreign markets via domestic wholesalers or distributors who sell abroad without explicit encouragement or even knowledge of the producer. As companies develop web sites on the internet, many receive orders from international Web surfers. Often an unsolicited order from a foreign is what piques the interest of a company to seek additional international sales. Infrequent Foreign marketing:
Temporary surpluses caused by variations in production levels or demand may result in infrequent marketing overseas. The surpluses are characterized by their temporary nature; therefore sales to foreign markets are made as goods are available, with little or no intention of maintaining continuous market representation. As domestic demand increases and absorbs surpluses, foreign sales activity is withdrawn. In this stage, little or no change is seen in company organization or product lines. However, few companies today fit this model because customers around the world increasingly seek long term commercial relationships. Further, evidence exists that financial returns from initial international expansions are limited. Regular Foreign marketing:
At this level, the firm has permanent productive capacity devoted to the production of goods to be marketed in foreign markets. A firm may employ foreign or domestic overseas intermediaries or it may have its own sales force or sales subsidiaries in important markets. The primary focus of operations and production is to service domestic market needs. However, as overseas demand grows, production is allocated for foreign markets, and products may be adapted to meet the needs of individual foreign markets. Profit expectations from foreign markets move from being seen as a bonus to regular domestic profits to a position in which the company becomes dependent on foreign sales and profits to meet its goals.
International marketing is the export, franchising, joint venture or full direct entry of a marketing organization into another country. This can be achieved by exporting a company’s product into another location, entry through a joint venture with another firm in the target country, or foreign direct investment into the target country. The development of the marketing mix for that country is then required – international marketing. It can be as straightforward as using existing marketing strategies, mix and tools for export on the one side, to a highly complex relationship strategy including localization, local product offerings, pricing, production and distribution with customized promotions, offers, website, social media and leadership. Internationalization and international marketing meets the needs of selected foreign countries where a company’s value can be exported and there is inter-firm and firm learning, optimization and efficiency in economies of scale and scope. The firm does not need to export or enter all world markets to be considered an international marketer. Global Marketing
Global marketing is a firm’s ability to market to almost all countries on the planet. With extensive reach, the need for a firm’s product or services is established. The global firm retains the capability, reach, knowledge, staff, skills, insights, and expertise to deliver value to customers worldwide. The firm understands the requirement to service customers locally with global standard solutions or products, and localizes that product as required to maintain an optimal balance of cost, efficiency, customization and localization in a control-customization continuum to best meet local, national and global requirements to position itself against or with competitors, partners, alliances, substitutes and defend against new global and local market entrants per country, region or city. The firm will price its products appropriately worldwide, nationally and locally, and promote, deliver access and information to its customers in the most cost-effective way. The firm also needs to understand, research, measure and develop loyalty for its brand and global brand equity (stay on brand) for the long term.
b)OULINE ADVANTAGES AND DISAVANTAGES OF EACH STRATEGY.
Advantages of direct exporting:
-Control over selection of foreign markets and choice of foreign representative companies. -Good information feedback from target market.
-Better protection of trademarks, patents, goodwill, and other intangible property. – Potentially greater sales than with indirect exporting.
Disadvantages of direct exporting:
– Higher start-up costs and higher risks as opposed to indirect exporting; – Greater information requirements;
– Longer time-to-market as opposed to indirect exporting.
Advantages of the international franchising mode:
-Low political risk
-Allows simultaneous expansion into different regions of the world -Well selected partners bring financial investment as well as managerial capabilities to the operation. Advantages of indirect exporting
-It’s an almost risk-free way to begin.
-It demands minimal involvement in the export process.
-It allows you to continue to concentrate on your domestic business.
-You have limited liability for product marketing problems — there’s always someone else to point the finger at! -You learn as you go about international marketing.
-Depending on the type of intermediary with which you are dealing, you don’t have to concern yourself with shipment and other logistics. Disadvantages of indirect exporting:
-Your profits are lower.
-You lose control over your foreign sales.
-You very rarely know who your customers are, and thus lose the opportunity to tailor your offerings to their evolving needs. -When you visit, you are a step removed from the actual transaction. You feel out of the loop. -The intermediary might also be offering products similar to yours, including directly competitive products, to the same customers instead of providing exclusive representation. -Your long-term outlook and goals for your export program can change rapidly, and if you’ve put your product in someone else’s hands, it’s hard to redirect your efforts accordingly. Advantages of licensing
-Obtain extra income for technical know-how and services
-Reach new markets not accessible by export from existing facilities
-Quickly expand without much risk and large capital investment
-Pave the way for future investments in the market
-Retain established markets closed by trade restrictions
-Political risk is minimized as the licensee is usually 100% locally owned
-Is highly attractive for companies that are new in international business. Disadvantages of licensing
-Lower income than in other entry modes
-Loss of control of the licensee manufacture and marketing operations and practices leading to loss of quality
-Risk of having the trademark and reputation ruined by an incompetent partner
-The foreign partner can also become a competitor by selling its production in places where the parental company is already in. -investment to attract prospects and support and manage franchisees. Advanatges of Frachising
-Franchising provide knowledge of the local markets.
A franchise provides franchisees with a certain level of independence where they can operate their business.
A franchise provides an established product or service which may already enjoy widespread brand-name recognition. This gives the franchisee the benefits of a pre-sold customer base which would ordinarily takes years to establish.
A franchise increases your chances of business success because you are associating with proven products and methods.
Franchises may offer consumers the attraction of a certain level of quality and consistency because it is mandated by the franchise agreement. –
Disadvantages of franchising:
-Franchisees may turn into future competitors.
-Demand of franchisees may be scarce when starting to franchise a company, which can lead to making agreements with the wrong candidates -A wrong franchisee may ruin the company’s name and reputation in the market -Dependence on franchisee.
-Potential conflicts with franchisee.
Advantages of Joint Venture:
-Accessing additional financial resources – Asset sharing is one of the best advantages about joint venture. Since, you are able to use larger funds to facilitate the production and operation of projects and products, you facilitate growth. In other words, you increase profit margin and increase your revenue potential.
-Sharing the economic risk with co-venturer – It pays to have someone sharing the responsibility with you in case you end up in deep troubles. This is also true with joint venture. Since you are sharing assets, the risk of losing a great deal of money is divided to both parties.
-Widening economic scope fast – Building reputation is often difficult, not to mention time consuming and expansive. At a joint venture, you are able to widen your economic scope without spending too much money and waiting for a long time.
– Tapping newer methods, technology, and approach you do not have – In order to grow and expand, you need resources in the forms of methods, technology, and approach. For that matter, it would help a lot if you will be able to partner with an entity that presently has the things you don’t and the things you need. Joint venture opens up the venue for such need.
-Building relationship with vital contacts – Aside from economic territory, another advantage of joint venture is the ability to give you business relationships with vital contacts. This is just like automatically befriending your partner’s influential friend that can give you access to lots of things such as business opportunities and a pass to vital information.
Disadvantages of Joint Venture:
-Shared profit – Since you share assets, you also share the profit. The profit of both parties usually depends on the size of the share to the venture or may be defined on the agreement.
-Diminished control over some important matters – Operational control and decision making are sometimes compromised in joint ventures. Since there is an agreement that divides which one will take over a particular operation, the other may not be satisfied with how the things are worked out with another. This leads us to another disadvantage of a joint venture. -Undesired outcome of the quality of the product or project – Since one party may not have control on the supervision of the production or the execution of one part of the system, this can happen. This often leads to disputes and lawsuits. To avoid this, both parties agree on specific details about the whole operation process.
-Uncontrolled or unmonitored increase in the operating cost – Again, defined control over the operation may lead to this disadvantage. It is important therefore to make sure that all things are clarified on the paper before singing in the joint venture agreement. Advantages of contract manufacturing
-Low financial risks
– contract manufacturing allows companies to save costs by manufacturing a particular item at a cheaper rate than what it would cost them If they decided to undertake the manufacturing process themselves. – it allows the company doing the outsourcing to shave some time off the whole process, giving them quicker returns and turnovers. – Where a company is less effective than another in manufacturing an item, contract manufacturing will allow it to concentrate on that in which it is the most efficient. Disadvantages of contract manufacturing
-Reduced learning potential
-Potential public relations problems may need to monitor working conditions. -The company doing the outsourcing faces some degree of risk if it fails to do its research properly. This is because outsourcing the manufacturing to the wrong company could end up costing the company more, rather than less, if the outsourced company fails to deliver as expected. Advantages of wholly owned subsidiaries
On the positive side, a wholly-owned subsidiary that does its business in a location different from the parent company’s is able to remain in its locale. With the business world spanning so many countries, this can serve as a great advantage in international situations. Name recognition is another positive reason for maintaining a wholly-owned subsidiary. If a particular brand name is well known and popular, the parent company has no reason to absorb the subsidiary entirely. Wholly-owned status allows the subsidiary to retain its name brand, thus avoiding hindering its sales. Diversity for the parent company is another perk created by maintaining a wholly-owned subsidiary. This status allows the parent company to branch out into different products and markets, building strength in diversification. Disadvantages of wholly owned subsidiaries
a wholly-owned subsidiary are more business oriented. The holding company runs a definite risk in assuming control of another company while allowing its management to continue to operate independently of the parent company’s. The level of investment and allocation of funds and resources required is also very high. A parent company must spend a great deal of time and money to smoothly integrate the new subsidiary.All of these factors require commitment and dedication on the part of the holding company and willingness to form that partnership on the part of the subsidiary. Advantages of piggybacking
reduced financial costs
quick, easy access to the market. Generally, the supported company can make immediate profits on the new market. The SME can, thus save time (3-5 years), compared to the normal length of time necessary to establish itself ; reduced logistical and administrative operations ;
benefit of the brand image that the supporting company brings to its products ; immediate availability of a sales force structure ;
excellent market knowledge of the supporting company.
Disadvantages of piggybacking
weak motivation of large companies to become supporters ;
difficulty in finding partners offering a compatible product and distribution network ; risk of market loss, which can be reduced due to the complementarity of the product, and commercial follow-up between the partners ; occasional difficult relations because of differences in size or culture ; risk of lack of mutual confidence and of lack of involvement ; risk of conflict of interest (e.g. local agents could systematically put the interests of the supporting company before those of the supported company) ; occasional very rigid requirements and conditions of access to the commercial networks of large companies. These conditions can be qualitative (e.g.: product quality) and quantitative (minimum level of annual turnover, high commissions, etc.).
Macro Environmental Influences That Can Affect SAB Millers
SABMiller’s origins date back to the foundation of Castle Breweries in 1895 as to serve a growing market of miners and prospectors in and around Johannesburg, South Africa. Two years later, it became the first industrial company to list on the Johannesburg Stock Exchange and the year after (1898) it listed on the London Stock Exchange. From the early 1990s onwards, the company increasingly expanded internationally, making several acquisitions in both emerging and developed markets. In 1999, it formed a new UK-based holding company, SAB plc, and moved its primary listing to London.
In May 2002, SAB plc acquired Miller Brewing, forming SABMiller plc. It is very important that SAB Miller considers its environment before going into international the market. In fact, environmental analysis should be continuous and feed all aspects of their planning to go international The macro-environment refers to the major external and uncontrollable factors that influence an organization’s decision making, and affect its performance and strategies. These factors include the Political (and legal) forces, Economic forces, Sociocultural forces, and Technological forces. These are known as the PEST factors.
Political Factors: The political environment revolves around the current government in a particular country in which SAB Miller manufactures or trades, and also laws/legislation operate or within their home market as well as overseas. If their government is socialist then perhaps there is a policy to tax more and to invest in the public sector. On the other hand if SAB Millers have a more conservative or Republican government then the free-market is left to take control, taxation is less and there is often a smaller public sector. The political arena has a huge influence upon the regulation of the business, and the spending power of consumers and other businesses. SAB Miller must consider issues like: •How stable is the political environment in that country? •Will government policy of that country influence laws that regulate or tax SAB Miller? •What is the government’s position on marketing ethics?
•What is the government’s policy on the economy?
•Does the government have a view on culture and religion?
•Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others? Economic Factors
The economic environment is a direct influence on all businesses. Obviously if you are studying marketing there is a huge element of economics within the topic itself, and you should be no stranger to the principles of economics. As we saw from our lesson on the marketing environment there is a macro environment, and internal environment and the microenvironment. More specifically you’ll be at looking elements such as where a business is in terms of the current business cycle, and whether or not they are trading in a recession. SAB Millers marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for international marketing. You need to look at: 1. Interest rates.
2. The level of inflation Employment level per capita.
3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on. Sociocultural Factors
The Sociocultural environment embodies everything which is social and cultural within a nation or society. There are plenty of examples of society and culture on the marketing teacher website, so we recommend that you go to our lesson store and look through some of the consumer behaviour pages. Some notable examples would include the influence of learning, memory, emotion and perception, motivation, lifestyle and attitude and consumer culture.
Have a look at the six living generations in America, social environment and class, the impact of your birth order on how you behave as a consumer and take a look at the eight types of online shoppers. In a more general sense consider influences such as the increase in life expectation of Western consumers, and demographics which is the study of populations. The social and cultural influences on business vary from country to country. It is very important that such factors are considered. Factors include: 1. What is the dominant religion?
2. What are attitudes to foreign products and services?
3. Does language impact upon the diffusion of products onto markets?
4. How much time do consumers have for leisure?
5. What are the roles of men and women within society?
6. How long are the population living? Are the older generations wealthy?
7. Do the population have a strong/weak opinion on green issues? Technological Factors
Technological factors are a multifaceted influencer. Let’s just think about the sorts of technology that you come in touch with almost daily. Smart phones such as Android and iphone are now common – all – garden, and we are used to being able to access information and communication technology instantly no matter where we are. During studies or at work we have access to information on quick PCs and over the Internet, with faster broadband connections arriving in many parts of the world. Technology also surrounds business processes. As we saw from our lesson on the functions within an organisation all departments use information technology or technology in one form or another. Our manufacturing operations will use technology to produce goods and services.
Our logistics and warehousing functions use forklifts and Lorries as well as order tracking technology and software. The customer service department will use communication technology to talk to customers but will also have access to internal systems, such as technology to simplify credit control and stock control for example. There are many, many more examples of technology. Technology is vital for competitive advantage, and is a major driver of globalization. Consider the following points: 1. Does technology allow for products and services to be made more cheaply and to a better standard of quality? 2. Do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc? 3. How is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions, etc? 4. Does technology offer companies a new way to communicate with consumers e.g. banners, Customer Relationship Management (CRM), etc?