More and more businesses are realizing greater profit potential by selling their

Question

More and more businesses are realizing greater profit potential by selling their products and services in other countries on an international scale. However, there are challenges that businesses face when exposed to foreign exchange risk in addition to standard business and financial risk. Identify two United States companies that have entered the international arena and report their successes or failures in offering their products to the international market. What financial risks, if any, have they incurred throughout the process?

Explanation / Answer

Usually, selling focuses on the needs of the seller, marketing on the needs of the buyer

(customer). The purpose of business is to get and keep a customer. Or, to use Peter

Drucker`s more refined construction to create and keep a customer. (through product

differentiation and price competition)

International marketing involves the marketing of goods and services outside the

organization`s home country. Multinational marketing is a complex form of international

marketing that engages an organization in marketing operations in many countries.

Global marketing refers to marketing activities coordinated and integrated across multiple

markets.

A firm`s overseas involvement may fall into one of several categories:

1- Domestic: Operate exclusively within a single country.

2- Regional exporter: Operate within a geographically defined region that crosses

national boundaries. Markets served are economically and culturally homogenous.

If activity occurs outside the home region, it is opportunistic.

3- Exporter: Run operations from a central office in the home region, exporting

finished goods to a variety of countries; some marketing, sales and distribution

outside the home region.

4- International: Regional operations are somewhat autonomous, but key decisions

are made and coordinated from the central office in the home region.

Manufacturing and assembly, marketing and sales are decentralized beyond the

home region. Both finished goods and intermediate products are exported outside

the home region. 4

5- International to global: Run independent and mainly self-sufficient subsidiaries

in a range of countries. While some key functions (R&D, sourcing, financing) are

decentralized, the home region is still the primary base for many functions.

6- Global: Highly decentralized organization operating across a broad range of

countries. No geographic area (including the home region) is assumed a priori to

be the primary base for any functional area. Each function including R&D,

sourcing, manufacturing, marketing and sales is performed in the location(s)

around the world most suitable for that function.

Technology and globalization shape the world. The first helps determine human

preferences; the second, economic realities. Standardized consumer products, low price

and technology are key points for successful globalization.

The globalization of markets is at hand. With that, the multinational commercial world

nears its end, and so does the multinational corporation. The world`s needs and desires

have been irrevocably homogenized (market needs). This makes the multinational

corporation obsolete and the global corporation absolute. Nobody is safe from global

reach and the irresistable economies of scale (reduction of costs and prices) and scope.

The multinational and global corporation are not the same thing. The multinational

corporation operates in a number of countries and adjusts its products and practices in

each at high relative costs. The global corporation operates with resolute constancy at low

relative cost (price) as if the entire world (or major regions of it) were a single entity; it

sells markets the same high-quality things similarly everywhere. But, many global firms

produce the same products the same way for a global market but tailor their selling

approaches to local variations in the global market. (Standardization vs Localization) 5

The modern global corporation contrasts powerfully with the aging multinational

corporation. Instead of adapting to superficial and even entrenched differences within and

between nations, it will seek sensibly to force suitably (more or less) standardized

products and practices on the entire globe. (think globally, act locally)

2) Global Marketing Strategies:

Although some would stem the foreign invasion through protective legislation,

protectionism in the long run only raises living costs and protects inefficient domestic

firms (national controls). The right answer is that companies must learn how to enter

foreign markets and increase their global competitiveness. Firms that do venture abroad

find the international marketplace far different from the domestic one. Market sizes,

buyer behavior and marketing practices all vary, meaning that international marketers

must carefully evaluate all market segments in which they expect to compete.

Whether to compete globally is a strategic decision (strategic intent) that will

fundamentally affect the firm, including its operations and its management. For many

companies, the decision to globalize remains an important and difficult one (global

strategy and action). Typically, there are many issues behind a company`s decision to

begin to compete in foreign markets. For some firms, going abroad is the result of a

deliberate policy decision (exploiting market potential and growth); for others, it is a

reaction to a specific business opportunity (global financial turmoil, etc.) or a competitive

challenge (pressuring competitors). But, a decision of this magnitude is always a strategic

proactive decision rather than simply a reaction (learning how to business abroad).

Reasons for global expansion are mentioned below: 6

a) Opportunistic global market development (diversifying markets)

b) Following customers abroad (customer satisfaction)

c) Pursuing geographic diversification (climate, topography, space, etc.)

d) Exploiting different economic growth rates (gaining scale and scope)

e) Exploiting product life cycle differences (technology)

f) Pursuing potential abroad

g) Globalizing for defensive reasons

h) Pursuing a global logic or imperative (new markets and profits)

Moreover, there can be several reasons to be mentioned including comparative

advantage, economic trends, demographic conditions, competition at home, the stage in

the product life cycle, tax structures and peace. To succeed in global marketing

companies need to look carefully at their geographic expansion. To some extent, a firm

makes a conscious decision about its extent of globalization by choosing a posture that

may range from entirely domestic without any international involvement (domestic

focus) to a global reach where the company devotes its entire marketing strategy to global

competition. In the development of an international marketing strategy, the firm may

decide to be domestic-only, home-country, host-country or regional/global-oriented.

Each level of globalization will profoundly change the way a company competes and will

require different strategies with respect to marketing programs, planning, organization

and control of the international marketing effort. An industry in which firm competes is

also important in applying different strategies. For example, when a firm which competes

in the pharmaeutical industry which is heavily globalized, it has to set its own strategies

to deal with global competitors. (constant innovation) 7

Tracking the development of the large global corporations today reveals a recurring,

sequential pattern of expansion. The first step is to understand the international marketing

environment, particularly the international trade system. Second, the company must

consider what proportion of foreign to total sales to seek, whether to do business in a few

or many countries and what types of countries to enter. The third step is to decide on

which particular markets to enter and this calls for evaluating the probable rate of return

on investment against the level of risk (market differences). Then, the company has to

decide how to enter each attractive market. Many companies start as indirect or direct

export exporters and then move to licensing, joint-ventures and finally direct investment;

this company evolution has been called the internationalization process. Companies must

next decide on the extent to which their products, promotion, price and distribution

should be adapted to individual foreign markets. Finally, the company must develop an

effective organization for pursuing international marketing. Most firms start with an

export department and graduate to an international division. A few become global

companies which means that top management plans and organizes on a global basis

(organization history).

Typically, these companies began their business development phase by entrenching

themselves first in their domestic markets. Often, international development did not occur

until maturity was reached domestically. After that phase, these firms began to turn into

companies with some international business, usually on an export basis. But, this process

may vary dramatically with the size of the domestic market. For example, when we

contrast the Netherlands market for Philips vs the US market for GE, we see that

smallness of Netherlands`s market resulted in rapid globalization of Philips` activities 8

when compared with GE`s activities in US. As the international side of their sales grew,

the companies increasingly distributed their assets into many markets and achieved what

was once termed the status of a multinational corporation (MNC). Pursuing multidomestic strategies on a market-by-market basis, companies began to enlarge and build

considerable local presence. Regions are treated as single markets and products are

standardized by region or globally; promotion projects a uniform image. Although this

orientation improves coordination and control, it often discounts national differences. The

French automobile industry offers a good illustration of the evolution of an international

marketing strategy. In the 1980s, according to an industry analyst for Eurofinance:

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