International marketing means selling and marketing a company’s products to markets other than the domestic market. It can take several methods. Exporting or shipping goods abroad is the simplest. Direct investment is the most complex and riskiest, either through greenfield investing or acquiring an existing company.
Globalization and rapid economic growth abroad lead to enormous marketing opportunities. In addition, the foreign market offers a more significant size than the domestic market. Thus, there is an opportunity to make more money by expanding into international markets.
Several domestic companies developed into multinational companies. They take it a step further than exports. They build businesses and operate in several countries, and make a country as headquarters. Some have also developed into transnational corporations by building global supply chain networks without considering a single country as their headquarters.
However, tapping the international market is potentially very expensive, with more significant risks than the domestic market. Companies require in-depth market research. They also have to prepare distribution systems and marketing plans in each country. Moreover, the proper organizational structure is necessary for effective management.
Reasons for entering the international market
International markets offer attractiveness and advantages, including:
- Tap into larger markets and increase customer base.
- Increase sales by serving more consumers
- Reduce costs, for example, through higher economies of scale
- Get cheaper inputs – labor and raw materials
- Maximize profits by increasing sales and reducing costs
- Reduce risk by diversifying the market
- Avoid competition in the domestic market
- Maximize differences in regulation, especially taxation
- Extend product life cycle by targeting new markets
Identify and select international markets
Before deciding to expand into international markets, companies must conduct research to identify potential markets. Then, they can develop a SWOT analysis to get clear market insights about their targeted market. For example, it might take the following result:
- Strong internal financial resources
- Good research and development
- Strong brand equity
- Reputation as an ethical company
- Low financial leverage
- Large business size and less flexible organization
- High advertising budget
- No experience with foreign market
Opportunities in foreign markets
- Close to raw materials or cheap labor
- Large middle-income class population
- Huge market growth potential
- Foreign government support, such as tax breaks
Threats in foreign markets
- Economic downside risks
- Competition from local companies
- Relatively unstable politics
- Poor regulatory system
- Consumer resistance
Factors to consider when choosing an international market
Internal factors related to the organization and its business:
- Resources such as finance, brand equity, physical facilities, and human resources
- Capabilities include the ability to maximize resources such as leadership style and corporate culture
- Product factors, including the competitive advantage built around the product
- Organizational factors such as vision, mission, and organizational objectives
External factors cover the environment in which the company will operate in the destination country, including:
- Market factors cover aspects such as market size, growth potential, and consumer profile
- Competitive factors such as the number of competitors, competitive strategies, and their competitive capacities
- Political factors such as political stability and governance
- Economic factors such as economic growth, inflation rates, exchange rates, and interest rates
- Socio-cultural factors such as people’s purchasing power, language, and lifestyle
- Legal factors such as regulations on taxation, business practices, consumer protection, and employment
Methods for entry into the international market
There are various options for entering international markets, each with different risks and potential rewards. After researching potential overseas markets and selecting targets, the company must decide how to go about it. The choice will be determined by business strategy, internal capacity, and risk tolerance.
Methods for entering the international market are generally divided into two, including:
- Internal method
- External method
Internal methods rely on internal resources and capabilities, which may include:
- Direct investment
Meanwhile, external methods combine internal and external resources and capabilities, including:
- Strategic alliance
- Joint ventures
Exporting means selling and sending goods to foreign buyers. It is relatively cheap and less risky than other methods. However, this method is vulnerable to trade policy changes such as tariffs and import quotas.
E-commerce makes it easier to access consumers abroad. The company sells through popular e-commerce sites or develops in-house to serve customers worldwide. They then work with logistics companies to deliver goods.
There are two export methods:
- Direct export
- Indirect export
Direct export involves a company handling any need to sell goods directly to foreign customers. Meanwhile, indirect exports involve intermediaries such as agents or trading companies.
Direct exporting offers advantages such as:
- Companies have full control over handling and shipping goods.
- Operations are more cost-effective because there is no need to pay commissions to intermediaries.
- Companies have direct contact with customers and, therefore, feedback from them.
However, direct exporting also has limitations, such as:
- Companies may not have adequate knowledge of foreign markets.
- Companies have more work and hustle to organize transportation and storage facilities.
- Companies have to employ salespeople to deal with foreign buyers.
Meanwhile, indirect exporting offer advantages such as:
- The process can be more effective and efficient because the agent has specialized.
- Agents understand the local market better, making sales more successful.
- Agents are responsible for handling transportation and administrative procedures.
- Companies do not need to recruit additional staff to handle overseas sales.
However, indirect exporting also has some limitations, including:
- Companies must pay a commission to the agent, which may be expensive relative to the volume sold.
- Agents may not be fully committed because they have to work with other companies, maybe even competitors.
- Companies are missing opportunities for direct contact with foreign customers.
Direct investment involves a company buying controlling interests abroad. That could be by acquiring an established foreign company. Alternatively, the company starts the business from scratch by setting up subsidiaries and production facilities (greenfield investment). Direct investment can also involve opening its own business operations in another country.
Several reasons explain why a company might adopt direct investment, including:
- Avoid trade barriers such as tariffs and quotas
- Get government support in the destination country (they invite foreign investors and provide incentives such as tax breaks)
- Captures all profits as no agents or joint venture partners are involved
- Achieve lower costs by targeting countries with low wages or close proximity to raw materials
However, direct investment involves high costs and risks. In addition, there are some limitations attached to direct investment, including:
- Must have a specific understanding of how businesses operate in the destination country
- More time-consuming than exporting goods
- Vulnerable to changes in government policies and political stability
Greenfield investment is a direct investment by setting up operations in a foreign country. For example, it is possible by building a sales office or production facility.
Greenfield investing offers more control. In addition, because it grows through internal resources and capabilities, it reduces the potential for failures – resulting from failed synergies and management conflicts – such as in acquisitions.
Companies can more quickly and effectively adapt to the local market. They can adjust the facilities built to local conditions. In addition, the company could also be better at ensuring product quality.
However, greenfield investment also contains some risks. Compared to acquisitions, this method is relatively slow. In addition, the company must build a customer base and distribution network from the start. Thus, achieving economies of scale and a break-even point can take a long time.
A quicker way to invest directly is to acquire an established business in the destination country. Thus, the company obtains brand names, experienced employees, and customer relations directly. Therefore, it does not need to build a customer base and distribution network from the start.
Investing directly through acquisitions offers several advantages:
- The company can grow faster
- Operation failures can be reduced because the company does not have to start from scratch
- The company has established markets and operations
However, as with any acquisition, there are some drawbacks to this method, including:
- The company may have to pay a high premium to get old shareholders to give up their holdings.
- The company failed to synergize resources (physical and non-physical) due to, for example, differences in management styles.
A joint venture involves companies working with other companies on their overseas projects. They share risks with each other while sharing profits, resources, and knowledge.
A joint venture involves forming an independent entity. Each party agrees to contribute products, services, or capital to the new entity.
Joint ventures offer the following advantages:
- The company can grow fast with competence support from foreign partners in destination countries.
- The company shares risks, knowledge, and resources to make new entities successful.
- Trade barriers are irrelevant because the company does not need to ship goods to the destination country.
However, joint ventures also come with some limitations, including:
- The company has to share profits; therefore, less money is made than relying on greenfield investments.
- Conflicts arise between the company and partners due to, for example, differences in management styles and organizational culture.
- The company loses control if the partner is too dominant because they know the local market better.
A strategic alliance is when two or more companies collaborate and share resources and expertise to achieve common business goals. This cooperation is similar to a joint venture. But, it does not involve setting up an independent entity. For example, strategic alliances may involve marketing alliances, co-production arrangements, and technology transfers.
Strategic alliances require relatively low capital investment. In addition, a company can access its partners’ complementary resources and knowledge as in a joint venture.
However, this method also has some limitations. Cooperation is less permanent. Thus, foreign partners can terminate cooperation contracts more quickly.
Another weakness stems from the potential for synergy failure due to differences in culture and management style. In addition, partners’ mistakes can damage the company’s reputation and goodwill.
Franchising relies on overseas partners to develop a company’s business format in their area. The company grants them the right to use its name, reputation, and business systems in return for royalties or fees.
In this case, the company is a franchisor. Meanwhile, foreign partners act as franchisees. Mcdonald’s is a good example.
Expanding into foreign markets through franchising offers several advantages for the company, such as:
- Small initial capital investment
- Without being involved in operating the business overseas
- Leverage foreign partners’ local knowledge for success.
In contrast, franchising carries several risks, including:
- Not all business profits belong to the company
- Potential legal disputes
- Damage to brand reputation due to mismanagement by partners
Under licensing, a company sells the rights to a foreign party to use a technology, process, or manufacturing design. Alternatively, it involves contractual agreements to distribute products or services in exchange for a fee.
Licensing offers benefits such as:
- Low initial investment
- Share the risk with the licensee
- Trade barriers avoided
- Utilize local market knowledge by licensees
However, licensing also carries risks such as:
- Losing control of the marketing process
- Less permanent contracts and can be terminated at any time.
- Risk due to unethical practices by licensees
Challenges when entering the international market
Differences in legal matters and enforcement. For example, different countries have different taxation systems. It also applies to regulations related to intellectual property rights, consumer protection, employment, and business practices. Changes in these regulations may expose risks. For example, a country increases the corporate income tax rate, reducing recorded profits.
Political problems. Political instability can make it difficult for businesses to operate normally. For example, changes in government can lead to instability and changes in regulations and policies. Apart from being related to the government, political problems can also originate from terrorism, civil violence, or war.
Economy problem. Economic growth and prospects vary between countries. For example, a country reports a recession, which makes it difficult for companies to survive. In addition, economic problems can be related to inflation, interest, and exchange rates.
Sociodemographic differences. For example, population structure may differ significantly between developed and developing countries. Some developed countries, such as Japan, are facing an aging population. Meanwhile, developing countries offer large productive age populations. However, compared to developing countries, consumers in developed countries have higher purchasing power. In addition, their education is relatively higher.
Sociodemographic challenges can be related to differences in:
- Age structure
- Gender structure
- Marital status
- Shared values
- Social behavior
Globalization is a trend where countries are connected to each other. Products, capital, labor, and information flow more freely between countries than ever before. Advances in information technology and cheaper cross-border transportation have also made the global economy more connected. In addition, the rapid expansion by multinational companies has also accelerated these connections.
Countries have agreed to reduce barriers to trade and capital. Several countries have also introduced regional cooperation by forming economic integration, ranging from free trade areas to monetary unions.
Globalization brings both opportunities and threats to domestic companies. On the one hand, for example, companies can access foreign markets, which are much more significant in size than the domestic market. In addition, they can also save costs by outsourcing or moving their production facilities to near raw materials or countries with low wages.
But on the other hand, now, companies are not only facing domestic but also foreign competitors, at least from imported products. Globalization makes the economy between countries more interconnected. Goods and services easily enter the domestic market because trade barriers are decreasing. In addition, investment has also flowed more freely than before due to lower restrictions, bringing in some foreign players operating within the country.
Several characterize globalization, including:
- Rapidly growing international trade
- Increasing capital flows, both direct and portfolio investment
- Greater opportunities to access global financial markets, for example, by issuing global bonds
- Increase in international travel, whether for leisure or business purposes
- Instant global communication, thanks to the internet and more advanced information technology
- A more homogenized culture and lifestyle, just like how K-pop influences the world community
- Workers who move more freely between countries in pursuit of better opportunities
- More international agreements were signed to address barriers to trade and investment.
- Increasing regional cooperation, such as through a free trade area to economic integration
- Increasingly global brands include, for example, Apple, Google, and Coca-Cola, which have been introduced in most countries.
Globalization benefits for business
Globalization presents opportunities and benefits for businesses, including:
- Greater opportunity to increase overseas sales revenue
- Higher opportunity to lower costs through higher economies of scale
- Stronger incentives to be competitive and innovative due to increased competition
- More choices for operating locations or outsourcing less essential business functions
- Savings on marketing costs, for example, by standardizing advertising for global brands
- Easier to get cheaper inputs (labor and raw materials)
- Drive more innovation through diversity
- More access to get cheaper capital, such as through global bonds
Globalization challenges for business
Globalization brings risks and threats to business, including below:
- More significant challenge to survive. Globalization introduces international brands around the world, creating highly competitive markets. Increased competition will force inefficient companies to close.
- Declining market profitability. Foreign direct investment or imports bring more supply, driving down market prices.
- Stronger consumer bargaining power. They have more information and options. They can more easily compare prices online and buy foreign products if domestic products are unsatisfactory.
- Contagion effect. A downturn in the economy or financial markets in other countries can quickly spread to the domestic market and undermine economic stability.
- Changes in tastes and preferences. Consumers are interconnected, allowing them to get acquainted with new lifestyles, foods, cultures, etc., encouraging them to change their views, tastes, and preferences.
Strategy in global marketing
Under the pan-global strategy, the company markets standard products worldwide. They assume all consumers have homogeneous needs and thus treat the worldwide market as a single market.
A strong global brand is among the keys to success for this strategy. The company builds a consistent brand image and advertising style to deliver the same message to customers worldwide.
- Global brand – a brand a company uses to sell its products worldwide. Strong global brands enjoy marketing economies of scale and competitive advantages, making it easier to enter overseas markets. Coca-Cola, Nike, and Nestle are examples.
A pan-global strategy allows companies to gain more significant economies of scale. In addition, this strategy offers several other benefits, such as:
- Save on marketing costs by being able to use the same ad worldwide, adapting languages
- More focus on improving quality because the company produces only a few products
- Brand image familiarity because the company relies on a single brand worldwide
However, the company faces a low acceptance risk because it does not adapt its offerings to local tastes and culture. Other limitations are:
- Legal restrictions in different countries, such as promoting alcoholic products or gambling, are prohibited in Muslim countries.
- Advertising messages are ineffective when translated into other languages.
- Setting the same price – due to standardized products – in different countries may not lead to profit maximization.
Glocalization strategy stands for global localization. The company markets its products worldwide by adopting different marketing mixes, adjusted to conditions in each country. Sometimes called a localization strategy.
Glocalization allows for more diversification. Other advantages are:
- Be more responsive to customer tastes and local government policies
- More acceptable to customers because it adapts to their tastes and preferences
- Maximize profits and sales by adapting to the local market
- More ideas for innovation because companies have to design different products for different markets
But, glocalization is more expensive and more complex. Other limitations are:
- Lower economies of scale than the pan-global strategy because it markets many products
- Requires more investment and substantial sourcing to build an advantage in each market
- Local market resistance, even though it has adapted due to, for example, nationalism, where consumers prefer local products
Explore More #MARKETING MANAGEMENT
- Introduction to Marketing
- Product vs. Market Orientation and Commercial vs. Social Marketing
- Marketing Objectives, Strategy, and Ethics
- Market and Its Features
- Consumer Behavior, Customer Service and Satisfaction
- Marketing Planning
- Market Targeting and Market Segmentation
- Market positioning, Target Marketing, and Product Strategy
- Sales Forecasting and Market Research
- Marketing Mix: Product
- Marketing Mix: Price
- Marketing Mix: Promotion
- Marketing Mix: Place
- Marketing Mix: People, Process, and Physical Evidence
- International Marketing
- Internet Marketing