MAJOR TYPES OF INTERNATIONAL MARKETING
What is mean by International marketing ?
Definition: The International Marketing is the application of marketing principles to satisfy the varied needs and wants of different people residing across the national borders.Simply, the International Marketing is to undertake the marketing activities in more than one nation. It is often called as Global Marketing, i.e. designing the marketing mix (viz. Product, price, place, promotion) worldwide and customizing it according to the preferences of different nation people.
The foremost decision that any company has to make is whether to go international or not, the company may not want to globalize because of its huge market share in the domestic market and do not want to learn the new laws and rules of the international market.
The four types of international businesses one can start are as follows: 1. Exporting 2. Licensing 3. Franchising 4. Foreign Direct Investment (FDI).
- Exporting:
Exporting is often the first choice when manufacturers decide to expand abroad. Simply stating, exporting means selling abroad, either directly to target customers or indirectly by retaining foreign sales agents or/and distributors. Either case, going abroad through exporting has minimal impact on the firm’s human resource management because only a few, if at all, of its employees are expected to be posted abroad.
Businesses that sell their goods and services to customers in other countries are exporting them – they are producing them in one country and shipping them to another. Exporting is one way that businesses can rapidly expand their potential market.
To give you a sense of the size of the market outside the U.S., the Small Business Administration reports that 96% of consumers live outside the U.S. and 67% of the world’s purchasing power is outside the U.S.
Exports are big business. In 2014, the U.S. exported $2.35 trillion worth of goods and services, which was a new record. Demand for U.S. goods remains high.
The Top 10 exports in 2014 were:
- Machines, engines, pumps
- Electronic equipment
- Oil
- Vehicles
- Aircraft, spacecraft
- Medical equipment
- Gems, precious metals, coins
- Plastics
- Pharmaceuticals
- Organic chemicals
The Top 10 countries the U.S. exported to in 2014 were:
- Canada
- Mexico
- China
- Japan
- United Kingdom
- Germany
- Korea
- Netherlands
- Brazil
- Hong Kong
U.S. businesses interested in learning more about how to start exporting can get free support services from the government. U.S. Export Assistance Centers located in major metropolitan areas provide assistance in finding overseas buyers, shipping products, customs requirements, and collecting payment.
The first step in getting into exporting is to register at export.gov for expanding into new markets.
You can also take free online training courses in exporting to help decide if exporting makes sense for your business, and if your products and services are eligible to be exported. Some countries restrict certain products from entering their borders.
Understanding Exports
Exports are incredibly important to modern economies, because they offer people and firms many more markets for their goods. One of the core functions of diplomacy and foreign policy between governments is to foster economic trade, encouraging exports and imports for the benefit of all trading parties.
According to research firm Statista, in 2017, the world’s largest exporting countries (in terms of dollars) were China, the United States, Germany, Japan, and The Netherlands. China posted exports of approximately $2.3 trillion in goods, primarily electronic equipment, and machinery. The United States exported approximately $1.5 trillion, primarily capital goods. Germany's exports, which come to approximately $1.4 trillion, were dominated by motor vehicles—as were Japan's, which totaled approximately $698 billion. Finally, The Netherlands had exports of approximately $652 billion.
Exports are incredibly important to modern economies, because they offer people and firms many more markets for their goods. One of the core functions of diplomacy and foreign policy between governments is to foster economic trade, encouraging exports and imports for the benefit of all trading parties.
According to research firm Statista, in 2017, the world’s largest exporting countries (in terms of dollars) were China, the United States, Germany, Japan, and The Netherlands. China posted exports of approximately $2.3 trillion in goods, primarily electronic equipment, and machinery. The United States exported approximately $1.5 trillion, primarily capital goods. Germany's exports, which come to approximately $1.4 trillion, were dominated by motor vehicles—as were Japan's, which totaled approximately $698 billion. Finally, The Netherlands had exports of approximately $652 billion.
KEY TAKEAWAYS
- Exports are one of the oldest forms of economic transfer and occur on a large scale between nations.
- Exporting can increase sales and profits if they reach new markets, and they may even present an opportunity to capture significant global market share.
- Companies that export heavily are typically exposed to a higher degree of financial risk.
- Exports are one of the oldest forms of economic transfer and occur on a large scale between nations.
- Exporting can increase sales and profits if they reach new markets, and they may even present an opportunity to capture significant global market share.
- Companies that export heavily are typically exposed to a higher degree of financial risk.
Advantages of Exporting for Companies
Companies export products and services for a variety of reasons. Exports can increase sales and profits if the goods create new markets or expand existing ones, and they may even present an opportunity to capture significant global market share. Companies that export spread business risk by diversifying into multiple markets.
Exporting into foreign markets can often reduce per-unit costs by expanding operations to meet increased demand. Finally, companies that export into foreign markets gain new knowledge and experience that may allow the discovery of new technologies, marketing practices and insights into foreign competitors.
Companies export products and services for a variety of reasons. Exports can increase sales and profits if the goods create new markets or expand existing ones, and they may even present an opportunity to capture significant global market share. Companies that export spread business risk by diversifying into multiple markets.
Exporting into foreign markets can often reduce per-unit costs by expanding operations to meet increased demand. Finally, companies that export into foreign markets gain new knowledge and experience that may allow the discovery of new technologies, marketing practices and insights into foreign competitors.
Special Consideration: Trade Barriers and Other Limitations
A trade barrier is any government law, regulation, policy, or practice that is designed to protect domestic products from foreign competition or artificially stimulate exports of particular domestic products. The most common foreign trade barriers are government-imposed measures and policies that restrict, prevent, or impede the international exchange of goods and services.
Companies that export are presented with a unique set of challenges. Extra costs are likely to be realized because companies must allocate considerable resources to researching foreign markets and modifying products to meet local demand and regulations.
Exports facilitate international trade and stimulate domestic economic activity by creating employment, production, and revenues.
Companies that export are typically exposed to a higher degree of financial risk. Payment collection methods, such as open account, letter of credit, prepayment and consignment, are inherently more complex and take longer to process than payments from domestic customers.
A trade barrier is any government law, regulation, policy, or practice that is designed to protect domestic products from foreign competition or artificially stimulate exports of particular domestic products. The most common foreign trade barriers are government-imposed measures and policies that restrict, prevent, or impede the international exchange of goods and services.
Companies that export are presented with a unique set of challenges. Extra costs are likely to be realized because companies must allocate considerable resources to researching foreign markets and modifying products to meet local demand and regulations.
Exports facilitate international trade and stimulate domestic economic activity by creating employment, production, and revenues.
Companies that export are typically exposed to a higher degree of financial risk. Payment collection methods, such as open account, letter of credit, prepayment and consignment, are inherently more complex and take longer to process than payments from domestic customers.
Real-World Example of Exports
One example of an American export that makes its way all over the world is bourbon, a type of whiskey native to the U.S. (in fact, it is defined as a "distinctive product of the United States" by a U.S. Congressional resolution). Furthermore, if the liquor is labeled Kentucky bourbon, it must be produced in the state of Kentucky, similar to the way a sparkling wine must hail from the Champagne region of France to call itself "champagne."
The global market has developed quite a thirst for American bourbon in general and Kentucky bourbon, in particular, in the 21st century. However, in 2018, trade wars between the U.S. and the European Union and China led to 25% tariffs being slapped on the corn-based spirit, leaving a sour taste in the mouths of many distillers, exporters, and distributors.
One example of an American export that makes its way all over the world is bourbon, a type of whiskey native to the U.S. (in fact, it is defined as a "distinctive product of the United States" by a U.S. Congressional resolution). Furthermore, if the liquor is labeled Kentucky bourbon, it must be produced in the state of Kentucky, similar to the way a sparkling wine must hail from the Champagne region of France to call itself "champagne."
The global market has developed quite a thirst for American bourbon in general and Kentucky bourbon, in particular, in the 21st century. However, in 2018, trade wars between the U.S. and the European Union and China led to 25% tariffs being slapped on the corn-based spirit, leaving a sour taste in the mouths of many distillers, exporters, and distributors.
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- Licensing:
Definition: Licensing is defined as a business arrangement, wherein a company authorizes another company by issuing a license to temporarily access its intellectual property rights, i.e. manufacturing process, brand name, copyright, trademark, patent, technology, trade secret, etc. for adequate consideration and under specified conditions.
Licensing is another way to expand one’s operations internationally. In case of international licensing, there is an agreement whereby a firm, called licensor, grants a foreign firm the right to use intangible (intellectual) property for a specific period of time, usually in return for a royalty. Licensing of intellectual property such as patents, copyrights, manufacturing processes, or trade names abound across the nations. The Indian basmati (rice) is one such example.
There are few faster or more profitable ways to grow your business than by licensing patents, trademarks, copyrights, designs, and other intellectual property to others. Licensing lets you instantly tap the existing production, distribution and marketing systems that other companies may have spent decades building. In return, you get a percentage of the revenue from products or services sold under your license. Licensing fees typically amount to a small percentage of the sales price but can add up quickly.
For example, about 90 percent of the $160 million a year in sales at Calvin Klein Inc. comes from licensing the designer's name to makers of underwear, jeans and perfume. The only merchandise the New York-based company makes itself, in fact, are its women's apparel lines. Many large corporations, such as the Walt Disney Co., generate less significant proportions of their revenue from licenses. IBM, after energizing its efforts to license its thousands of technology patents a few years ago, now attributes $1 billion a year of its corporate sales to licensing. The downside of licensing is that you settle for a smaller piece of the pie. Calvin Klein-branded products, for example, generate $5 billion in sales a year, the vast majority of which goes to licensees and retailers. At the same time, licensing revenue tends to be high-margin, with almost all the fees from licensing flowing straight to the bottom line.
On the other side of the coin, you could be the one with the interest in licensing the high-recognition brand name of another company. To many, it might seem like the key to a gold mine: Putting a Notre Dame logo, a Lion King character or a Star Wars graphic on your product means guaranteed success, right?
For a sure thing, prepare for a frustrating search. But if you're willing to put some time and effort into making your product work, buying the licensing rights to a well-known product or name can substantially increase your chances for success.
Licensing is a billion-dollar retail market worldwide. But a license isn't a prescription for instant success. It gives you the borrowed interest of a name that is either unique or has some consumer acceptance, but it still takes good selling and marketing to succeed. A license is, in essence, a tool, and when used well, it's an extremely cost-effective marketing tool.
Licensing offers three major advantages. First, it may mean you have something unique your competitors don't. Second, it may mean getting a little better margin because it's unique. And third, it may mean that 10 percent of the retailers you call on that you've never been able to sell to will finally take a look because you have something different. And when that happens, you can sell the rest of your line.
Who can obtain a licensing agreement? The list runs the gamut from a multinational conglomerate to a one-person operation. But in general, a licensor looks for the strongest company in terms of finances, manufacturing and marketing. The good news for small business is that strength is not necessarily measured in dollars or longevity.
Before you tackle the licensing industry, you need to have your own house in order. Make sure you have or can get financing, ensure that your manufacturing capacity is up to snuff, and establish distribution channels. It's also a good idea to try to establish a sales history for your products. Once this is accomplished, then decide what licensing products you want to target.
Once you know who you want to target, the next step is talking to the company or its representative and convincing them of your product's potential. Large organizations will most likely have people who oversee licensing and marketing or will have turned those functions over to a licensing agent. You can determine the proper person to speak with by contacting the company directly to ask about licensing opportunities.
Deciding which licensor to approach means evaluating your strengths. The bigger and more popular the property is, the more it's going to cost to secure the licensing rights. Beginners should probably start out small to learn the ropes.
Once you begin approaching companies, many will ask you to fill out a licensing application, and all will ask for a business plan detailing how you propose to market the product, who your target audience is and what you estimate sales could be. Most licensors will also request product samples.
What happens after the licensor says yes? Most, if not all, companies will ask for a minimum guarantee of sales covering the life of the contract paid in advance or in installments, and will charge royalties as well. Royalties are a percentage of sales paid by the licensee to the owner of a property or a designated agent, usually based on the net wholesale selling price. Some licensors are willing to negotiate these fees; others are not.
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- Licensing:
Definition: Licensing is defined as a business arrangement, wherein a company authorizes another company by issuing a license to temporarily access its intellectual property rights, i.e. manufacturing process, brand name, copyright, trademark, patent, technology, trade secret, etc. for adequate consideration and under specified conditions.
Licensing is another way to expand one’s operations internationally. In case of international licensing, there is an agreement whereby a firm, called licensor, grants a foreign firm the right to use intangible (intellectual) property for a specific period of time, usually in return for a royalty. Licensing of intellectual property such as patents, copyrights, manufacturing processes, or trade names abound across the nations. The Indian basmati (rice) is one such example.
There are few faster or more profitable ways to grow your business than by licensing patents, trademarks, copyrights, designs, and other intellectual property to others. Licensing lets you instantly tap the existing production, distribution and marketing systems that other companies may have spent decades building. In return, you get a percentage of the revenue from products or services sold under your license. Licensing fees typically amount to a small percentage of the sales price but can add up quickly.
For example, about 90 percent of the $160 million a year in sales at Calvin Klein Inc. comes from licensing the designer's name to makers of underwear, jeans and perfume. The only merchandise the New York-based company makes itself, in fact, are its women's apparel lines. Many large corporations, such as the Walt Disney Co., generate less significant proportions of their revenue from licenses. IBM, after energizing its efforts to license its thousands of technology patents a few years ago, now attributes $1 billion a year of its corporate sales to licensing. The downside of licensing is that you settle for a smaller piece of the pie. Calvin Klein-branded products, for example, generate $5 billion in sales a year, the vast majority of which goes to licensees and retailers. At the same time, licensing revenue tends to be high-margin, with almost all the fees from licensing flowing straight to the bottom line.
On the other side of the coin, you could be the one with the interest in licensing the high-recognition brand name of another company. To many, it might seem like the key to a gold mine: Putting a Notre Dame logo, a Lion King character or a Star Wars graphic on your product means guaranteed success, right?
For a sure thing, prepare for a frustrating search. But if you're willing to put some time and effort into making your product work, buying the licensing rights to a well-known product or name can substantially increase your chances for success.
Licensing is a billion-dollar retail market worldwide. But a license isn't a prescription for instant success. It gives you the borrowed interest of a name that is either unique or has some consumer acceptance, but it still takes good selling and marketing to succeed. A license is, in essence, a tool, and when used well, it's an extremely cost-effective marketing tool.
Licensing offers three major advantages. First, it may mean you have something unique your competitors don't. Second, it may mean getting a little better margin because it's unique. And third, it may mean that 10 percent of the retailers you call on that you've never been able to sell to will finally take a look because you have something different. And when that happens, you can sell the rest of your line.
Who can obtain a licensing agreement? The list runs the gamut from a multinational conglomerate to a one-person operation. But in general, a licensor looks for the strongest company in terms of finances, manufacturing and marketing. The good news for small business is that strength is not necessarily measured in dollars or longevity.
Before you tackle the licensing industry, you need to have your own house in order. Make sure you have or can get financing, ensure that your manufacturing capacity is up to snuff, and establish distribution channels. It's also a good idea to try to establish a sales history for your products. Once this is accomplished, then decide what licensing products you want to target.
Once you know who you want to target, the next step is talking to the company or its representative and convincing them of your product's potential. Large organizations will most likely have people who oversee licensing and marketing or will have turned those functions over to a licensing agent. You can determine the proper person to speak with by contacting the company directly to ask about licensing opportunities.
Deciding which licensor to approach means evaluating your strengths. The bigger and more popular the property is, the more it's going to cost to secure the licensing rights. Beginners should probably start out small to learn the ropes.
Once you begin approaching companies, many will ask you to fill out a licensing application, and all will ask for a business plan detailing how you propose to market the product, who your target audience is and what you estimate sales could be. Most licensors will also request product samples.
What happens after the licensor says yes? Most, if not all, companies will ask for a minimum guarantee of sales covering the life of the contract paid in advance or in installments, and will charge royalties as well. Royalties are a percentage of sales paid by the licensee to the owner of a property or a designated agent, usually based on the net wholesale selling price. Some licensors are willing to negotiate these fees; others are not.
- Franchising:
Closely related to licensing is franchising. Franchising is an option in which a parent company grants another company/firm the right to do business in a prescribed manner. Franchising differs from licensing in the sense that it usually requires the franchisee to follow much stricter guidelines in running the business than does licensing. Further, licensing tends to be confined to manufacturers, whereas franchising is more popular with service firms such as restaurants, hotels, and rental services.
One does not have to look very far to see how important franchising business is to companies here and abroad. At present, the prominent examples of the franchise agreements in India are Pepsi Food Ltd., Coca-Cola, Wimpy’s Damino, McDonald, and Nirula. In USA, one in 12 business establishments is a franchise.
However, exporting, licensing and franchising make companies get them only so far in international business. Companies aspiring to take full advantage of opportunities offered by foreign markets decide to make a substantial direct investment of their own funds in another country. This is popularly known as Foreign Direct Investment (FDI). Here, by international business means foreign direct investment mainly. Let us discuss some more about foreign direct investment.
where one party (the franchiser) grants another party (the franchisee) the right to use its trademark or trade-name as well as certain business systems and processes, to produce and market a good or service according to certain specifications. The franchisee usually pays a one-time franchise fee plus a percentage of sales revenue as royalty, and gains (1) immediate name recognition, (2) tried and tested products, (3) standard building design and décor, (4) detailed techniques in running and promoting the business, (5) training of employees, and (6) ongoing help in promoting and upgrading of the products.
Franchising is based on a marketing concept which can be adopted by an organization as a strategy for business expansion. Where implemented, a franchisor licenses its know-how, procedures, intellectual property, use of its business model, brand, and rights to sell its branded products and services to a franchisee. In return the franchisee pays certain fees and agrees to comply with certain obligations, typically set out in a Franchise Agreement.
The word "franchise" is of Anglo-French derivation—from franc, meaning free—and is used both as a noun and as a (transitive) verb.[1] For the franchisor, use of a franchise system is an alternative business growth strategy, compared to expansion through corporate owned outlets or "chain stores". Adopting a franchise system business growth strategy for the sale and distribution of goods and services minimizes the franchisor's capital investment and liability risk.
Franchising is not an equal partnership, especially due to the preponderance of the franchisor over the franchisee. But under specific circumstances like transparency, favourable legal conditions, financial means and proper market research, franchising can be a vehicle of success for both franchisor and franchisee.
Thirty-six countries have laws that explicitly regulate franchising, with the majority of all other countries having laws which have a direct or indirect effect on franchising.
- Foreign Direct Investment (FDI):
A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country.[1] It is thus distinguished from a foreign portfolio investment by a notion of direct control.
The word "franchise" is of Anglo-French derivation—from franc, meaning free—and is used both as a noun and as a (transitive) verb.[1] For the franchisor, use of a franchise system is an alternative business growth strategy, compared to expansion through corporate owned outlets or "chain stores". Adopting a franchise system business growth strategy for the sale and distribution of goods and services minimizes the franchisor's capital investment and liability risk.
Franchising is not an equal partnership, especially due to the preponderance of the franchisor over the franchisee. But under specific circumstances like transparency, favourable legal conditions, financial means and proper market research, franchising can be a vehicle of success for both franchisor and franchisee.
Thirty-six countries have laws that explicitly regulate franchising, with the majority of all other countries having laws which have a direct or indirect effect on franchising.
- Foreign Direct Investment (FDI):
A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country.[1] It is thus distinguished from a foreign portfolio investment by a notion of direct control.
The origin of the investment does not impact the definition, as an FDI: the investment may be made either "inorganically" by buying a company in the target country or "organically" by expanding the operations of an existing business in that country
Foreign direct investment refers to operations in one country that ire controlled by entities in a foreign country. In a sense, this FDI means building new facilities in other country. In India, a foreign direct investment means acquiring control by more than 74% of the operation. This limit was 50% till the financial year 2001-2002.
There are two forms of direct foreign investment: joint ventures and wholly-owned subsidiaries. A joint venture is defined as “the participation of two or more companies jointly in an enterprise in which each party contributes assets, owns the entity to some degree, and shares risk”. In contrast, a wholly-owned subsidiary is owned 100% by the foreign firm.
An international business is any firm that engages in international trade or investment. International trade refers to export or import of goods or services to customers/consumers in another country. On the other hand, international investment refers to the investment of resources in business activities outside a firm’s home country.
According to Grazia Ietto-Gillies (2012),[4] prior to Stephen Hymer’s theory regarding direct investment in the 1960s, the reasons behind foreign direct investment and multinational corporations were explained by neoclassical economics based on macro economic principles. These theories were based on the classical theory of trade in which the motive behind trade was a result of the difference in the costs of production of goods between two countries, focusing on the low cost of production as a motive for a firm's foreign activity. For example, Joe S. Bain only explained the internationalization challenge through three main principles: absolute cost advantages, product differentiation advantages and economies of scale. Furthermore, the neoclassical theories were created under the assumption of the existence of perfect competition. Intrigued by the motivations behind large foreign investments made by corporations from the United States of America, Hymer developed a framework that went beyond the existing theories, explaining why this phenomenon occurred, since he considered that the previously mentioned theories could not explain foreign investment and its motivations.
Facing the challenges of his predecessors, Hymer focused his theory on filling the gaps regarding international investment. The theory proposed by the author approaches international investment from a different and more firm-specific point of view. As opposed to traditional macroeconomics-based theories of investment, Hymer states that there is a difference between mere capital investment, otherwise known as portfolio investment, and direct investment. The difference between the two, which will become the cornerstone of his whole theoretical framework, is the issue of control, meaning that with direct investment firms are able to obtain a greater level of control than with portfolio investment. Furthermore, Hymer proceeds to criticize the neoclassical theories, stating that the theory of capital movements cannot explain international production. Moreover, he clarifies that FDI is not necessarily a movement of funds from a home country to a host country, and that it is concentrated on particular industries within many countries. In contrast, if interest rates were the main motive for international investment, FDI would include many industries within fewer countries.
Another observation made by Hymer went against what was maintained by the neoclassical theories: foreign direct investment is not limited to investment of excess profits abroad. In fact, foreign direct investment can be financed through loans obtained in the host country, payments in exchange for equity (patents, technology, machinery etc.), and other methods. The main determinants of FDI is side as well as growth prospectus of the economy of the country when FDI is made. Hymer proposed some more determinants of FDI due to criticisms, along with assuming market and imperfections. These are as follows:
- Firm-specific advantages: Once domestic investment was exhausted, a firm could exploit its advantages linked to market imperfections, which could provide the firm with market power and competitive advantage. Further studies attempted to explain how firms could monetize these advantages in the form of licenses.
- Removal of conflicts: conflict arises if a firm is already operating in foreign market or looking to expand its operations within the same market. He proposes that the solution for this hurdle arose in the form of collusion, sharing the market with rivals or attempting to acquire a direct control of production. However, it must be taken into account that a reduction in conflict through acquisition of control of operations will increase the market imperfections.
- Propensity to formulate an internationalization strategy to mitigate risk: According to his position, firms are characterized with 3 levels of decision making: the day to day supervision, management decision coordination and long term strategy planning and decision making. The extent to which a company can mitigate risk depends on how well a firm can formulate an internationalization strategy taking these levels of decision into account.
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