Globalization and international marketing

Globalization and international marketing

Q1. What is the reason for an increase in international trade?

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  Political agreements have opened up markets by removing or reducing protectionist measures such as tariffs (taxes on foreign imports), quotas (limits on the numbers of imported goods) and administrative restrictions, making it difficult for foreign businesses to sell or operate in your country. These still exist – for example, it is difficult for the big Western retailers to get permission to open in India – but they have been failing in recent years due to the work of governments and organizations such as the World Trade Organization. Governments realize that trade enables their businesses and citizens to access new markets and thus stimulates economic growth.
  
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  Better transport and communications technology has made it easier and cheaper to find markets, to move products around the world and to manage businesses in other countries.
  

Q2. What are the implications for marketing of increased globalization?

Globalization from a marketing perspective opens up enormous opportunities and threats. For example, there are enormous numbers of people moving out of poverty and eager to buy consumer products in the emerging BRIC economies of Brazil, Russia, India and China. Other economies to watch because of their potential for fast growth have been identified as CIVETS by some commentators (Cambodia, Indonesia, Vietnam, Egypt, Turkey and South Africa) or the MINT economies by others (Malaysia, Indonesia, Nigeria and Turkey). However, it also creates the possibility of new competitors from abroad entering your markets. This means you have to be even better at what you do in your own market.

Q3. What are the advantages of overseas expansion?

Overseas expansion may be appealing because

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  The domestic market is saturated: Many markets in the UK for example, are mature (e.g. the demand for microwaves, fridges and televisions). Companies can only generate replacement sales rather than many first-time buyers. In emerging economies such as BRIC, the economies are growing much faster, creating opportunities for a rapid growth in sales. If investors are pushing for fast growth it may be that this is more likely to come from abroad.
  
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  The domestic market is subject to increasing competition or regulation: Tesco, for example, cannot expand much more in the UK for fear of being blocked by the Competition Commission for having too big a market share. It has expanded overseas in countries such as South Korea, Thailand, the USA and India to enable faster growth.
  
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  The benefits of particular market opportunities overseas: For example, China has a population of more than 1 billion that could be targeted.
  

However entering foreign market does bring various problems. Most importantly the firm is unlikely to know the market as well as its domestic market. It will need to ensure it fully understands market conditions, including consumer buying behavior, legal and economic factors and the possible response of the competition. Understanding overseas market can be difficult because of differences in language, climate, culture and buying patterns. There is therefore potentially a high amount of risk involved so managers must consider the likely rewards and how much time and effort to spend on market research.

Q4. What are a business’s methods and processes of entering an international market?

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  Typically, firms will begin to export abroad. This means they will continue to focus on the domestic market but accept orders from abroad. This is a low-risk strategy – it simply involves a firm sending its products to other countries. It may at this stage do some marketing abroad, for example advertising its products or attending promotional events.
  
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  If sales from abroad continue to grow the firm might look for an agent or representative overseas. This means it has someone based abroad who knows its firm well and understands local conditions. They will try and generate business for the firm and may be paid on commission. Again, the risk of this approach is relatively low.
  
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  A bigger commitment would be made when the firm finds a partner and forms a joint venture or alliance. For example, it might collaborate on projects and share the profits. At this stage it is not just someone representing the firm, but someone who the firm is working with locally to generate more sales.
  
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  For example, a drinks company might have an alliance with a local drinks company to share distribution costs or to gain access to some outlets. It might also franchise if that was appropriate. This would mean it was working with local partners who would understand the political, economic, social and technological issues better. (PEST)
  
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  If the market overseas looks as if it will prosper long term, a firm might take over a foreign partner or invest itself to set up its own operations there. These show real commitment and are major strategic decisions; this involves a high degree of risk and expenditure.
  

Q5. Globalization or localization? Explain.

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