.. successful because the urban people did not identify with horseback riding in the countryside. Several firms have tried to use old, reliable promotional methods in countries where they simply do not work. Billboard advertisements, for example, are perfectly legal in most parts of the Middle East, but it does not mean one should use them. In some cases companies have been know to advertise in the wrong language. Such mistakes can cause major problems.
It is often the promotional strategy that creates mistakes. The perception of the product characteristics plays an important role in the international marketing strategy. One must realize that the importances of a certain product traits vary from country to country. Multinational corporations, therefore, must consider varying promotional tactics. Adapting the product but using the same promotional mix is a strategy used when a product will not appeal to different local tastes. For example an American cheese company may need to use different ingredients when making cream cheese for the markets of different countries.
The most expensive strategy is adapting to both the product and its promotion. This strategy may be required when neither the existing product nor its promotion would appeal to foreign markets. In some cases, the international firm may develop a completely new product for a foreign market. It can be very costly to create a new product line for a foreign market. The distribution strategy used sometimes depends on the firms international organization. It does not matter if it is licensing, exporting, or manufacturing in the host country. International marketers use existing distribution channels for the most part.
Distribution channels link the producer of a product to the consumer or industrial user. This international marketing channel is sequence of marketing organizations from nation to nation that directs the flow of products. Most industrial products use shorter channels. One of the most basic levels of international marketing is licensing. A license is a contractual agreement in which one firm permits another to produce and market its product and use its brand name in return for a royalty or other compensation.
This grant may be in the form of a direct sale of rights or be limited to a certain period of time. International licensing can be tied to joint ventures between the parent and the subsidiary. For example, an American candy manufacturer might enter into a licensing arrangement with a British firm. The British producer would be entitled to use the American firms candy formula, and packaging to advertise the candy as though it were its own. The advantage of licensing is that it provides a simple method of expanding into a foreign market with no investment.
However, if the licensee does not maintain the licensors product standards, the products image may be damaged. Another disadvantage is that a licensing arrangement does not usually provide the original producer with any foreign marketing experience. Technology licensing is a conceivable alternative to the exportation of finished products through intermediaries or to the different types of capital involvement, which could be chosen as an international strategy. Many companies use intercompany licenses to protect the intellectual property of the parent company that is held by the subsidiary, and to allow for payments by the subsidiary to the parent of certain license fees. Licensing is also dependent upon product characteristics.
Products subject to rapid technological change are also good licensing candidates. For most large companies licensing is designed as a means to enter secondary markets. The potential licensor must look at legal and financial considerations. Many times the decision to license has been made since the company has no other alternative because the government restricts direct investment through controls on foreign ownership or because it restricts the development of marketing network by a number of tariff barriers. Licensing allows the licensor to enter into foreign markets with a low financial risk. The decision to license is a complex one. Many licensing relationships do not succeed because the parties fail to understand each others agenda.
The creation of joint ventures sometimes prevents all the problems encountered by a company when going overseas from occurring. With the combined expertise and efforts of local and foreign firms, many problems will be eliminated. A joint venture is a partnership that is formed to achieve a specific goal or to operate for a specific period of time. International corporations may enter into joint ventures. Most joint ventures were formed to share the extremely high cost of exploring for offshore products.
A company should create a joint venture only after giving it some consideration. Many problems occur when companys fail to thoroughly investigate potential partners. Licensing decisions are as difficult to analyze as those decisions involving the creation of a joint venture. Failure to make the correct decisions at the right time can result in the loss of substantial long-range business prospects and profits. A firm can also manufacture its products in its home country and export them for sale in foreign markets. Like licensing, exporting can be a relatively low-risk method of entering foreign markets. Unlike licensing, it is not an easy task. Exporting opens up several levels of involvement to the exporting firm.
On the basic level, the exporting firm may sill its products to an export/import merchant. This merchant assumes all the risks of product ownership, distribution, and sale. It may purchase the goods in the producers home country and assume responsibility for exporting the product. The exporting firm may also ship its products to an export/import agent. The export/import agent arranges the sale of the products of foreign intermediaries for a commission or fee.
The agent is an independent firm that sells and may perform other marketing functions for the exporter. The exporter retains title to the products during shipment and until they are sold. An exporting firm may also establish its own sales offices in foreign countries. These installations are international extensions of the firms distribution system. The exporting firm maintains control over sales, and it gains both experience and knowledge of foreign markets.
Eventually, the firm may develop its own sales force to operate in conjunction with foreign sales offices or branches. Pricing is a very important factor in international business. The pricing system more common in international marketing is cost-based pricing. Cost-based pricing is not as popular in domestic marketing as it is in international marketing. Using this simple method of pricing, the seller first determines the total cost of producing or purchasing one unit of the product.
The seller then adds the amount to cover additional cost and profit. The cost added is called the markup. The total cost of the markup is the selling price of the product. Many smaller firms calculate the markup as a percentage of their total cost. Markup pricing is easy to apply, and it is used by most businesses.
However, it has two major flaws. The first is the difficulty of determining an effective markup percentage. If this percentages too costly, the product may be overpriced for its market. On the other hand, if the markup percentage is too low, the seller is “giving away” profit that could have earned simply by assigning a higher price. In other words, the markup percentage needs to be set to account for the working of the market, and that is very difficult to do.
The second problem with markup pricing is that it separates pricing from other business functions. The product is priced after production quantities are decided upon, after cost are incurred, and almost without regard for the market or the marketing mix. To be effective, the various business functions should be integrated. The different types of pricing can vary in international marketing. Geographic pricing strategies deal with delivery cost.
The seller may assume all delivery cost, no matter where the buyer is located. The seller may share transportation cost with the buyer to pay the greatest part of delivery cost. When a foreign product enters a country, there is a tax added to the cost. Import duties are designed to protect specific domestic industries by raising the prices of competing imported products. The importer first pays most of the import duties.
After the importer pays the price it is then passed on to the customers through higher prices. These higher prices are usually less competitive. The cost of shipping and complying with other various regulations can also add to the pricing method. Prices are also effected by exchange rates, especially by changes in these rates. Financial limitations are normally imposed through exchange rates. It is required to convert local currency to foreign currency at government-imposed exchange rates.
Because of the added cost and uncertainties in the exchange rate, prices tend to be higher in foreign markets than in domestic markets. An important economic consideration is the distribution of income. The distribution of income, especially discretionary income, can widely vary from nation to nation. Discretionary income is of particular interest to marketers because consumers have more input in the spending of it. Income creates purchasing power. International marketers tend to concentrate on higher income countries as either personal, disposable, or discretionary.
For obvious reasons, marketers tend to concentrate on higher income countries. Some producers have found that their products are more likely to sell in countries with low income. As in domestic marketing, the determining factor is how well the product satisfies its target market. International marketing encompasses all business activities that involve exchanges across national boundaries. A firm may enter the international market for many reasons.
Whatever the reason international marketing can provide and efficient way of entering the market. A firms marketing program must be adapted to foreign markets to account for differences in the business environment and target markets form nation to nation. The marketing mix may require the modification of cultural, social, economic, and legal differences. Foreign marketing requires the understanding of various additional costs, which tend to increase the prices of exported goods. The marketing program of an international company must adapt to the necessities of a foreign market.
The strategies it uses to accomplish a firms marketing goal should be the main priority of the marketing program. False assumptions frequently cause expensive mistakes in the market. The importance of international marketing.