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IB DP Business Management Study Notes

4.7.3 Strategies for International Marketing

Entering a global market can be an enticing prospect for many businesses. To navigate the intricacies of international markets, businesses need to employ effective strategies. Here's a detailed look into some of these strategies.

Standardisation vs. Adaptation

Standardisation:

  • Definition: Applying uniform strategies and practices across all international markets, without any change.
  • Advantages:
    • Economies of scale due to uniformity in production and marketing.
    • Consistent brand image across all markets.
    • Simplified marketing strategies.
  • Disadvantages:
    • May not cater to local preferences and cultural nuances.
    • Lack of flexibility to regional market changes.
    • Potential backlash if cultural values aren’t respected.

Adaptation:

  • Definition: Modifying and adjusting marketing strategies to cater to the unique demands and cultural practices of each local market.
  • Advantages:
    • Tailored approach enhances customer relevance.
    • Decreased risk of cultural misunderstandings.
    • Better reception from local consumers.
  • Disadvantages:
    • Increased costs due to varied strategies.
    • Complexity in managing multiple strategies.
    • Potential dilution of the core brand message.

Entry Modes

Deciding how to enter an international market is crucial. Various entry modes cater to different business needs.

Exporting:

  • Direct selling of products in foreign markets.
  • Least risk involved, but potentially lower control and margins.

Licensing and Franchising:

  • Allow foreign businesses to use intellectual property, brand, etc., in exchange for a fee.
  • Useful for businesses that don’t want to invest heavily abroad.

Joint Ventures:

  • Partnering with a local business to tap into the foreign market.
  • Shared costs, risks, and profits.

Direct Investment:

  • Setting up own manufacturing or service facilities in the foreign country.
  • High risk but offers complete control.

Turnkey Projects:

  • A company constructs and sets up production facilities and hands the "key" to the foreign entity to operate.
  • Limited long-term potential but initial profits can be high.

E-Commerce and Digital Platforms:

  • Using online platforms to enter foreign markets.
  • Reduced investment with wide reach. However, needs understanding of digital behaviours in the target market.

Mergers and Acquisitions:

  • Buying or merging with a company in the foreign market.
  • Immediate market access but comes with integration challenges.

Strategies Beyond Entry:

Once a business has entered a market, sustaining and growing within it demands further strategy.

Product Policies:

  • Deciding whether to introduce new products or modify existing ones to cater to local tastes.

Pricing Policies:

  • Considering factors like purchasing power, competition, and costs in the foreign market.

Promotional Activities:

  • Tailoring advertising and sales promotions to resonate with local cultural norms and values.

Distribution Channels:

  • Leveraging local expertise for efficient supply chain management.

In summary, international marketing isn't a one-size-fits-all approach. By carefully considering factors like cultural nuances, market demand, and local competition, businesses can craft strategies that ensure their global endeavours succeed.

FAQ

Regional trade agreements (RTAs), such as free trade agreements or customs unions, can significantly influence international marketing strategies. These agreements typically reduce or eliminate tariffs and trade barriers among member countries, making it more attractive for firms to market and sell their products in these regions. As a result, companies might prioritise entering or expanding in RTA member countries due to reduced operational costs. Additionally, understanding the nuances of these agreements can help businesses gain a competitive edge, as they can optimise their supply chains and sourcing strategies to benefit from preferential treatment.

The economic environment can greatly influence a company's strategy. In countries with higher purchasing power and a more affluent population, companies might lean towards selling premium, standardised products that have been successful in other developed markets. Conversely, in less affluent countries, there might be a need to adapt products to make them more affordable or align them with local consumption habits. For instance, portion sizes might be adjusted, or certain expensive ingredients could be substituted. Recognising and understanding the economic status and its implications helps businesses decide between standardisation and adaptation.

Yes, both franchising and licensing are popular entry modes into international markets. Franchising allows another party to operate a business using the franchisor's brand name, business model, and support, in exchange for a fee and ongoing royalties. It's a way to expand without the significant capital investment required for wholly-owned outlets. Licensing, on the other hand, is an agreement where firms grant rights to intangible property (like a brand or formula) for a specified period. This allows the licensee to produce and sell the licensor's products. While less involved than franchising, it lets firms tap into new markets without establishing a presence.

Cultural differences play a pivotal role in shaping consumer behaviours, preferences, and values in different regions. When implementing an adaptation strategy, businesses must understand and incorporate these nuances to make their products or services more appealing to local consumers. For instance, advertising messages may need to be altered to fit local sensibilities, or product formulations might need adjustments to cater to regional tastes. Cultural misunderstandings can lead to brand damage or missed opportunities. Hence, an in-depth cultural analysis is essential before implementing an adaptation strategy.

A wholly-owned subsidiary is a business entity in which a parent company owns 100% of its shares, ensuring full control over its operations, brand, and strategies. Companies might prefer this mode of entry for several reasons. Firstly, it provides complete control over decisions, strategies, and profits. This means there is no need to compromise or negotiate with partners. Secondly, intellectual property and proprietary processes can be more securely protected. Lastly, financial returns don't need to be shared with another entity. This option, however, often requires more significant investment and carries all the inherent risks of entering a new market without local support.

Practice Questions

Explain the key differences between standardisation and adaptation as strategies in international marketing.

Standardisation in international marketing refers to the approach where a company employs consistent strategies and practices across all global markets without any significant changes. This leads to economies of scale, a unified brand image, and simplified marketing plans. On the other hand, adaptation involves tailoring and adjusting marketing strategies to fit the unique demands, cultural nuances, and preferences of each local market. While this method may have higher costs due to varied strategies, it ensures the brand is received well by the local consumers, minimising cultural misunderstandings and respecting regional market changes.

Discuss two advantages and two potential challenges of using joint ventures as an entry mode into international markets.

Joint ventures, as an entry mode in international markets, involve partnering with a local business. One of the primary advantages is the sharing of both costs and risks, which can mitigate potential financial losses. Additionally, joint ventures provide access to the local partner's established distribution channels, consumer insights, and business networks. However, challenges can arise in a joint venture. There might be conflicts in decision-making and management styles between the two entities. Moreover, the profits have to be shared, which could result in disagreements if both parties don't perceive the distribution as equitable.

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