International distribution
Category: Marketing
Exporting as an entry strategy
Indirect or direct.
Indirect = export markets contacted through a domestically located middleman (located in the exporter’s country of operation).
Of great utility when the prospective exporter has no knowledge of export markets.
Middlemen of various types can have intimate
Knowledge of a range of export markets.
Main types:-brokers
Combination export managersmanufacturer’s export agents
Direct exporting
— exporting done through intermediaries located in the
Overseas markets.
Requires a larger degree of expertise.
But, gives more control over distribution channels
Than when using indirect exporting.
Intermediaries overseas may be:foreign sales subsidiary of main companyan independent distributor
Both have pros and cons…
A. Foreign sales subsidiary
Side-steps independent middlemen.
Subsidiary performs:stock holdingassuming credit riskselling and promoting.
Offers full control of overseas marketing.
Important if a very specialised marketing programme is to be used (specialist selling techniques, advertising,
After sales service, etc.).
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Can export, in a controlled way, not only the product, but the total marketing support package.
Major consideration = cost. B. Independent distributor
Earns a margin on the selling price of the products.
Manufacturer must carefully assess the cost/benefit of choosing a distributor, as opposed to setting up a
Sales subsidiary.
Also as the breakeven calculations demonstrated with
Increasing volume the incentive to switch increases. E.g. guinness
Had used independent distributor in japan for many years.
Independent distributors were handling «grey»
Imports of johnny walker.guinness vertically integrated (forwards) and
Bought out its main distributors thus regaining
Control of its brand identity.became a world-wide trend:- guinness now markets
75% of its spirits volume through sales subsidiaries,
Compared to 25% in 1987.
E.g.: nissan
For years, used an independent distributor in the u.k.
(nissan u.k.:- actually owned by an individual).nissan u.k. had exclusivity and had built up sales of
About 15,000 per year.nissan u.k., however, in 1990, accused nissan of
Overpricing in the u.k. market.nissan used its right to terminate exclusivity, and now
Has its own wholly owned sales subsidiary to cover the
U.k. market.
Licensing as an entry strategy
A company assigns the right to a patent (which protects a product technology, or process) or to a trademark (which protects a product name) to another company for a fee or royalty.
Can gain entry without an equity investment.
Right may be exclusive (to a defined geographic region) or unrestricted.
E.g.: anheuser-buschlargest us brewer
First major u s brewer to internationalise
Strategy = to enter key foreign markets by licensing
To the country s leading brewer / beverage
Manufacturer.
«budweiser»
Licensed in canada to labatt.licensed in japan to suntory.also u.k., france, germany.
Reasons for licensing?
May not have knowledge or time to engage more actively in international marketing.
Target market/segment may not be substantial enough to support manufacturing.
Marketing/logistic resources may be limited.
Avoid over exposure of assets in politically or economically volatile markets.
Foreign governments may block all other entry methods
Problems with licensing!
Total dependence upon local licensee to produce revenues and thus royalties.
Eg johnson & johnson
Drug «hismanal» (antihistamine)licensed overseas in 1985 116 countriesjapanese licensee «mochida» performing extremely poorly
Elsewhere «hismanal» is j+j’s fastest growing drugin 1990. J+j removed this licensee and set up its own japanese sales subsidiary (300 sales reps)
Fate of technology tied up with fate of licensee.
E.g.: pepsi in france
Licensed through perrier
Supermarkets de-listed perrier water, in favour of
Evian and badoit.pepsi, as part of perrier’s portfolio, also suffered,
Losing half of its market share.licensing now disbanded
A special form of licensing:- franchising
Franchiser makes a total marketing programme available.
Brand name, logo, products, method of operation, etc.
More comprehensive than patent or trademark licensing:- total operation is contractually agreed.mcdonalds kentucky fried chickenburger kingholiday inns
Local manufacturing as an entry strategy
Many reasons
Local costs
Market size
Tariffs
Laws
Politics
3 main methods
— Contract manufacturing
— Assembly
— Fully integrated productioncontract manufacturing
Typically used for markets withlow volume market potentialhigh tariff protection
Local production advantageous to avoid restrictive import barriers, but market not sufficient to justify building a production plant
Local manufacturer’s responsibility restricted to production
Products turned over to international company for promotion, distribution, pricing, selling, etc
Well suited to the smaller countries of central america. Africa and asia
Assembly
Locating a portion of the manufacturing operation in the overseas market.
Involves heavy use of labour rather than extensive investment in capital or equipment.
Two driving forces:price driven (low labour costs of final assembly).political: local government forces the setting up of assembly operations by banning import of finished products or charging excess tariffs.
Some countries do not allow assembly-only operations
In serving their market.
E.g.: brazilian car industry: 70% of parts produced
Locally.
Fully integrated production
Greatest commitment a company can make to a foreign market.
Often done to get access to new business:- showing a high commitment is often the only way to convince clients to switch suppliers.
Particularly important in industrial markets, where service and reliability of supply are main factors in supplier choice.
E.g.: guardian industries
U s. Flat glass manufacturer.
Unable to win custom from major european buyers until it committed to establishing a fully-integrated operation in europe.
Built two plants in luxembourg.
Began to win business with distributors who were also fearful of saint-gobain (france) and pilkington (u.k.)
Integrating forwards.
Now also plants in spain, france, hungary.
Joint ventures in entering foreign markets
Need not only to consider entry strategy, but also the degree and form of ownership of the overseas operation.
Jv is an increasingly popular method.
The international company invites a partner from the host country to share stock ownership in the new overseas unit.
Why j.v.s?
Risk-sharing
J.v. partner may have market-specific
Knowledge/skills. may be well connected in local business and/or
Government.
Necessary to enter state controlled economies: foreign investors normally allowed by law only to have a minority holding.
J.v. partner may also represent a major buyer.
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Strategic alliances entering foreign markets
More recent development than j.v.s.
In a j.v. the partners share equity in a new joint entity.
In an alliance two entire firms pool resources directly in a collaboration that goes beyond the j.v.
Forming a new entity (j.v. company) not necessary.
Pool complementary corporate skills and resources for mutual benefit.
3types:
— Technology-based alliances
— Production-based alliances
— Distribution-based alliances
Technology-based alliances
E.g.: at&t (u.s.a.)
Olivetti (italy)
Formed alliance in 1984.
At & t needed to enter european computer market to obtain economies of scale for the u.s. operation.
Olivetti was keen to add larger computers to its existing mix.
At & t tapped into europe using olivetti’s marketing and distribution technologies.
Olivetti became key supplier of larger computers to at & t, allowing it security to invest in larger computer technology.
Production-based alliances
Common in automobile industry
Based on improved efficiency through component linkages which may include engines, gear boxes, etc
Eg renault/volvo
Both will own 45% of each other’s truck and bus
Divisions
Renault buys 25% of volvo’s car operation and 10% of Volvo corporation volvo buys 20% of renault and an option to buy a Further 5%.
Results to be greater synergy and international marketing competitiveness in trucks and buses first, then in cars
Global purchasing. Development. Design. And joint production to bring big savings
Distribution-based alliances
Eg: gener al mills/nestle
General mills long been number two u.s. breakfast
Cereal marketer (g.m. 27%; kelloggs 45%).g.m. had no effective position outside the u.s.a.formed a global alliance with nestle in 1989 called
«cereal partner worldwide».g.m. will utilise nestle’s distribution network and
Expertise in europe, far east, latin america.g.m. will provide technology and cereals marketing
Expertise.
Partnership needs to compete with kelloggs 200 million dollar advertising spend outside the u.s.a.:- neither company can do this alone!