Introduction to International Market Entry Strategies
International Market Entry Strategies – In the past two decades, globalization has become the norm, and companies have realized that to grow big, it would be futile to look at an inward-looking policy but needs to explore international market definition.
Despite the rapid advances in technology, satellite communications, and faster transportation through air and sea, companies still need to do a great deal of background spadework before entering the international marketing concepts.Image source: pixabay.com
According to Lauren Maillian Bias, CEO of Luxury Market Branding, strategic marketing, and branding consultancy, it is very important to understand the specific country’s culture, customs, needs, and unspoken rules before entering into that international marketing concept.
Otherwise, the company could face setbacks, face even legal issues and subsequently lose all the investments and make an effort go to waste. The Vodafone tax issue in India, Amway’s troubles with regulatory issues related to network marketing, so also Coca-Cola’s environmental issues in India.
Lauren Maillian Bias pointed out that there are five things to be taken care of before exploring the international market definition and most of them have nothing to do with the market but understanding the society, conventions, traditions, manners, and customs.
Understand the customs & business etiquette
Each country has its own culture and tradition, and as a foreigner, you have to accept and give due respect to it. It extends from the way you greet someone, holding business meetings, eating etiquette, even shaking hands or greeting by bringing two hands together as in Indian Namaste. In Japan, you may have to slightly bow down to show respect. Understanding such cultural differences and appreciating them is very important to establish long-term relationships.
In the USA, the greeting is mostly by handshake, but in other cultures, it could be a warm hug, bow, kiss on the cheek and so on.
Care must be taken to use the appropriate salutation when meeting them as it can hurt their sentiments. Half of doing business in an international market entry strategy is about understanding their history, culture and getting familiar with them, marketing experts said.
Cultural sensitivity is driven by two factors- empathy and objectivity. Having empathy means your ability to recognize and accept differences that manifest in social situations. There is a popular saying when in Rome do as the Romans do. Not properly understanding the cultural, language differences, linguistic differences can result in your branding exercise backfiring totally.
One has to be careful with the language, and small mistakes can harm relationships. One must be careful of the masculine and feminine genders. ‘The’ in French is either ‘le’ (masculine) and ‘la’ feminine. If there is a slip-up and use la for le by mistake, it could be interpreted as ignorance or inexperience on your part and thus harm business negotiations.
In business negotiations, too, there are cultural differences. In Japan, it is offensive to say ‘no,’ but in the US, every negotiation is about reaching a conclusion- yes or no.
Understand currency fluctuations
In the domestic market, it is mainly demand, supply, and competition from other firms in the industry that matters most. However, when doing business in other countries, you must have a detailed analysis of currency movements, historical trends and be able to predict their behavior. Contracts are negotiated months in advance, and in between, currency exchange, values may have changed, which may be adverse in your deal. It is better to lock in currency rates and delivery dates and avoid speculation. There are now commodity exchanges where exporters and those doing overseas business can hedge their risk in various currencies. Software, pharma, manufacturing, agro-products are all susceptible to currency risk.
Understanding laws and conventions
It is very important to understand a country’s constitution, laws regarding the industry, business, and international relations. Laws could differ from country to country, province to province, and the law of contract, company laws, and industrial laws could have subtle differences and hence care should be taken from the inception stage when the company is incorporated. Tax laws have to be complied with, and failure to do so could have serious financial ramifications.
It is better to have local attorneys to provide legal counsel. It could help a new entrepreneur from overseas to navigate any unforeseen obstacles and explain all contract provisions and terminology. It I important to understand the laws and legalese of the jurisdiction that governs your contract before it becomes legally binding.
Learn about the activities of the competition
It is often a good exercise to understand what the competitors have done in terms of marketing strategy, distribution, and what target audience or demographics they have catered to. What are the obstacles they faced, how much market share have they got, how they go it?
Test the waters before entering the international market entry strategies
Understanding the cultural differences and tradition also means understanding the demographics of the nation- the age groups, jobs, religion, income, and social status of the target category, and tuning the strategies appropriately.
How to do international business?
For a company or entrepreneur wishing to do business abroad, there are international markets meaning several options- one is to manufacture in own country and export, sell to a third party and export, contract manufacturing, franchising, manufacturing abroad, and through joint ventures.
Each has its own advantage and disadvantages. Indirect export by production in the home country, the efficiency of production, inflation, cost of production, raw materials, quality of the product will have a bearing on the success of the product in international market entry strategies. The fluctuation in the currency will have an impact on the profitability of export operations. The product has to conform to safety standards and other quality parameters set in the exporting nation.
Some companies use third-party marketing agencies to export to other countries- where it is easier to get the thing done as the marketing and logistics part is handled by a company having expertise in the country and industry but margins would be affected as it has to be shared with the marketing agency.
Some companies provide a license in a foreign country to produce their product for which they get the royalty. Franchising is also another form of licensing whereby the brand name, logo and products are sold by the franchise upon a lump sum payment made to the brand owner. MacDonalds, KFC, Star Bucks and several food chains use the franchising route to gain international market definition access.
Some companies adopt contract manufacturing by tying up with a manufacturer in a foreign country, and it will be sold under the exporting company’s brand name. Bata shoe company gives the design to small units in target countries for making their shoes and accessories that are then sold under the Bata brand name. Now that China has become the manufacturing hub of the world, apart from Thailand, Taiwan, and South Korea, most manufacturing takes place in these countries either in the free trade zone or otherwise and subsequently shipped to other consuming countries.
Some companies take the risk of manufacturing abroad by setting up their own unit or taking over an existing one. Tata’s acquisition of Jaguar in the UK is a recent example. Or Apollo setting up the manufacturing unit in Germany or Ford setting up manufacturing in Chennai in Tamil Nadu State are all examples of manufacturing in overseas countries. Such operations entail huge investment, compliance with laws, and taxation issues. However, in some countries, state governments and federal governments invite foreign investment in manufacturing as it can boost employment, income, enable technological know-how, and rapid growth of the economy, especially if local savings and investment potential is low.
In international marketing concepts in some countries especially in the Gulf region, overseas investment is allowed only as joint ventures between a local industrialist and overseas companies. Share pattern could be in 50:50 55: 45 or any other proportion. Care must be taken in choosing the joint venture partner overseas- their expertise in the industry, knowledge, and awareness of the market, their previous track record, financial standing and among other factors have to be assessed before signing the JV. However, most countries have now set up free trade zones where it is tax-free and 100% foreign investment is allowed. Free Trade Zones are basically meant for export-oriented units and generate foreign exchange and local employment. India, China, Dubai, Malaysia, Vietnam have all set up free trade zones to attract new overseas investment.
Some branding mistakes that proved costly
In the earlier part of the article, the importance of understanding the customs and traditions of the host country was emphasized. Here are some most popular blunders in branding committed globally.
- Braniff International translated the slogan ‘Fly in Leather’ into Spanish, but it meant ‘Fly Naked’
- Coca Cola’s brand name marketed in China meant, ‘Bite The Wax Tadpole’
- Colgate launched its ‘Cue’ toothpaste in France not knowing it was the name of a pornographic magazine in that country.
- Electrolux marketed its vacuum cleaners in the United States with the tagline – ‘Nothing sucks like an Electrolux’
- Ford blundered in Brazil with its Pinto car as Pinto meant ‘tiny male genitals’.
- Mercedes Benz marketed their Benzi car in China. There Benzi means a rush to die.
- Vicks faced trouble with its brand in Germany as V is pronounced ‘f’ in Germany, making it slang for sexual intercourse.
- Pepsi’s campaign Pepsi Brings you back to Life was translated into Chinese which altered its meaning to ‘Pepsi brings you back from the grave’
- Chevrolet’s Nova, when translated in Spanish, meant ‘Won’t Go’.
Branding blunders can turn out to be costly in the long run.
Some marketing strategies to follow Localisation
Many companies approach the international market entry strategies with a one-size-fits-all approach which may be an obstacle to the growth of their overseas business. For food companies that sell processed meat products, they may have to change the product composition or ingredients to suit local taste. In the European region, people prefer less spicy food. In some places, pork may have to be substituted with beef or chicken. In some countries, people prefer strong coffee with aroma, and hence such companies may have to customize their offerings.
For car manufacturers, localization would be required to suit local road and infrastructure conditions apart from purchasing capacity of buyers in the region.
Geographic segmentation: If a company is planning to tap several markets on different continents then it should have an international market entry strategies that cover all major regions. Country managers should be involved in the preparation of GMS. It need not be for each country but each region- for eg. Asia, Africa. the Pacific, Europe, the middle east. The coordination of GMS will help in the uniformity of branding, packaging, and promotional appeal.
Typical product categories that require international market entry strategies are technology, products, consumer electronics, camera, computers, branded luxury products, apparel, personal care, entertainment among others. In these areas, there is global standardization. strategies for entering the Global market can be said to be successful if they change the preferences of local consumers.
IKEA, the Swedish furniture seller, has changed the market for furniture in many countries. It uses a very standardized and coordinated marketing strategy, focusing on simple and functional furniture, annual catalog, and warehouse stocks.
Branding and brand guidelines, strategic marketing planning and budgeting, social media strategy, research strategy and global public relations have to be tailored to the situation in the host country. Gaining access to international market entry strategies have their own costs and benefits associated with it. Sometimes, global brand managers and marketing experts may have to be consulted to get insight into the strategies needed to succeed in another country.
According to a marketing expert, the businesses with brilliant global strategies are Red Bull (Australia), Airbnb California, Dunkin Donuts, Domino’s, Rezdy, World Wildlife Foundation, Nike, Pearse Trust, MacDonalds, and Innocent Drinks. Some of the best companies have adopted the franchise route to gain international markets entry strategies access.
The success of these brands is due to adapting their social strategies to cater to multiple languages for adjusting their menus to the cravings of the diversity of people. With a little bit of homework, observation, and the right international market definition, international markets entry strategies are waiting to be tapped.
This has been a Guide to International Market Entry Strategies. Here we discussed the basic concept, activities of competition with some marketing strategies to follow Localisation. You can also go through our other suggested articles to learn more –
- International Business Issues
- International vs Global Marketing
- Marketing Strategies in business
- Domestic HRM vs International HRM