Updated May 22, 2023
Introduction to International Market Entry Strategies
International Market Entry Strategies – Globalization has become the norm in the past two decades. Companies have realized that it would be futile to look inward-looking policies to grow big 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 international marketing concepts.Image source: pixabay.com
According to Lauren Maillian Bias, CEO of Luxury Market Branding, strategic marketing, and Branding consultancy, it is essential 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, even legal issues, lose all the investments, and make an effort to go to waste. The Vodafone tax issue in India, Amway’s troubles with regulatory issues related to network marketing, and Coca-Cola’s environmental issues in India.
Lauren Maillian Bias pointed out five things to be considered before exploring the international market definition. Most 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 greeting someone, holding business meetings, eating etiquette, and even shaking hands or greeting by bringing two hands together, as in Indian Namaste. In Japan, you may have to bow down to show respect slightly. Understanding and appreciating such cultural differences 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, etc.
Care must be taken to use the appropriate salutation when meeting them, as it can hurt their sentiments. Marketing experts said that half of doing business in an international market entry strategy is about understanding their history and culture and getting familiar with them.
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 famous saying when in Rome, do as the Romans do. Not correctly understanding the cultural, language, and linguistic differences can result in your branding exercise backfiring.
One must be careful with the language; small mistakes can harm relationships. One must be cautious of the masculine and feminine genders. ‘The’ in French is either ‘le’ (masculine) or ‘la’ feminine. If there is a slip-up and you 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 concluding- 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 and historical trends and be able to predict their behavior. Contracts are negotiated months in advance, and currency exchange values may change in between, adversely affecting 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, and agro-products are all susceptible to currency risk.
Understanding laws and conventions
Understanding a country’s constitution and laws regarding the industry, business, and international relations is very important. Laws could differ from country to country, province to province, and the law of contract, company laws, and industrial laws could have subtle differences hence should be taken from the inception stage when the company is incorporated. Tax laws must 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. Before your contract becomes legally binding, it is critical that you grasp the laws and legalese of the country that regulates it.
Learn about the activities of the competition.
It is often an excellent exercise to understand what the competitors have done regarding marketing strategy, distribution, and what target audience or demographics they have catered to. What obstacles do they face, how much market share do they have, and how do they go about it?
Test the waters before entering the international market entry strategies
Understanding the cultural differences and traditions 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, international markets mean 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 advantage and disadvantages. Indirect export by production in the home country, the efficiency of production, inflation, cost of production, raw materials, and product quality will have a bearing on the product’s success 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. Still, 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 a royalty. Franchising is another form of licensing whereby the franchise sells the brand name, logo, and products upon a lump sum payment 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 minor units in target countries for making their shoes and accessories sold under the Bata brand name. Now that China has become the world’s manufacturing hub, 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 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 investments, compliance with laws, and taxation issues. However, in some countries, state and federal governments invite foreign investment in manufacturing as it can boost employment and income, enable technological know-how, and rapid growth of the economy, especially if local savings and investment potential are low.
In international marketing concepts in some countries, especially in the Gulf region, overseas investment is allowed only as joint ventures between local industrialists and overseas companies. The sharing pattern could be 50:50 55: 45, or any other proportion. Choosing the right joint venture partner overseas is crucial, as it requires assessing various factors such as their expertise in the industry, knowledge and awareness of the market, previous track record, financial standing, and more. However, most countries have now set up free trade zones that are tax-free and allow 100% foreign investment. Free Trade Zones are designated for export-oriented units aimed at generating foreign exchange and local employment. India, China, Dubai, Malaysia, and Vietnam have set free trade zones to attract new overseas investment.
Some branding mistakes that proved costly
The article emphasized the importance of understanding the customs and traditions of the host country in its earlier part. 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.
- The translation of Pepsi’s campaign “Pepsi Brings you back to Life” into Chinese altered its meaning to “Pepsi brings you back from the grave,” which was not the intended meaning.’
- When translated into Spanish, Chevrolet’s Nova 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 international market entry strategies with a one-size-fits-all approach which may be an obstacle to the growth of their overseas business. Food companies that sell processed meat products may have to change the product composition or ingredients to suit local tastes. In the European region, people prefer less spicy food. In some cases, beef or chicken may need to be substituted for pork. People in certain nations want strong coffee with aroma; thus, companies may need to customize their products.
Car manufacturers need to localize their products to suit local road and infrastructure conditions in addition to the purchasing capacity of buyers in the region.
Geographic segmentation: If a company plans to tap several markets on different continents, then it should have an international market entry strategy covering all major regions. The involvement of country managers in the preparation of GMS is crucial. It need not be for each country but each region- for, e.g., Asia and Africa: the Pacific, Europe, and the middle east. The coordination of GMS will help in the uniformity of branding, packaging, and promotional appeal.
Product categories that often require international market entry strategies include technology, consumer electronics, cameras, computers, branded luxury products, apparel, personal care products, and entertainment. In these areas, there is global standardization. Strategies for entering the Global market can 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 standardized and coordinated marketing strategy, focusing on simple and functional furniture, annual catalogs, and warehouse stocks.
Tailoring branding and brand guidelines, strategic marketing planning and budgeting, social media strategy, research strategy, and global public relations to the situation in the host country is crucial for international market entry success. Gaining access to international market entry strategies have its costs and benefits associated with it. Consulting global brand managers and marketing experts can provide valuable insights 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 access to 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. By conducting thorough research, careful observation, and defining the international market accurately, companies can identify and utilize effective entry strategies for expanding their business globally.
This has been a Guide to International Market Entry Strategies. Here we discussed the basic concept and competition activities with some marketing strategies to follow Localisation. You can also go through our other suggested articles to learn more –