Page 117 - DMGT547_INTERNATIONAL_MARKETING

International Marketing

Notes Penetration of a foreign market is a zero-base process. At the point of market entry, the foreign
entrant has no existing business and little or no market knowledge, particularly with regard to
the managerial competence necessary to operate in the new market environment. During the
years after market entry, therefore, the rate of change in the country-specific marketing capability
of the firm is likely to be greater than the rate of change in the market environment, and firm
effects may dominate market effects in shaping strategy. This is particularly important given
the business context, in which the generation of new business is of prime importance-rather
than efficiency in managing a relatively stable business. This usually results in (a) entering the
market via a partnership with a local distributor or other marketing agent rather than via a
directly controlled marketing unit and (b) a relatively rapid sequence of changes to the marketing
strategy (such as new product introductions or expansion of distribution) or to the marketing
organization (e.g. taking over marketing responsibility from the local distributor).
From the time a company enters its second country-market, it will inevitably be influenced by
its previous experience. The greater the number of national markets in which a company
participates, the more likely it is to seek to manage them as an aggregated network rather than
as independent units. Marketing strategy decisions in one country-market may in this case be
made against extra-market criteria. For example, price levels may be set to minimize the difference
among markets and to maintain a price corridor rather than purely to reflect local market
conditions. Similarly, a multinational company may subsidize price levels in one market for
strategic reasons while recouping that loss in another market. This ability to leverage a global
network is sometimes described as "the global chess game, "and it is increasingly regarded as
one of the key advantages enjoyed by a global firm relative to local players, partly because of
the increasing globalization of firms and their consequent opportunities to integrate national
operations. In practice, this frequently results in asymmetric competition in any single market,
with different companies pursuing different objectives and setting different performance
standards. As discussed later in this unit, it is possible that one company may be participating in
the market simply to learn, and it may therefore tolerate low profitability, while others are
pursuing more conventional profit maximization goals.
Companies enter international markets for varying reasons, and these different objectives at the
time of entry should produce different strategies, performance goals, and even forms of market
participation. Yet, companies frequently follow a standard market entry and development
strategy. The most common, which will be described in the following section, is sometimes
referred to as the "increasing commitment" pattern of market penetration, in which market
entry is via an independent local distributor or partner with a later switch to a directly controlled
subsidiary. This approach results from an objective of building a business in the country-market
as quickly as possible but nevertheless with a degree of patience produced by the initial desire
to minimize risk and by the need to learn about the country and market from a low base of
knowledge. These might be described as straightforward financial objectives that are oriented
around long-run profit maximization in the country, so this internationalization strategy could
be described as the default option.
The fundamental reason for entering a new market has to be potential demand, of course, but
nevertheless it is common to observe other factors driving investment and performance
measurement decisions, such as:
1. Learning in Lead Markets: In some circumstances, a company might undertake a foreign
market entry not for solely financial reasons, but to learn. For example, the white goods
division of Koc, the Turkish conglomerate, entered Germany, regarded as the world's
leading market for dishwashers, refrigerators, freezers, and washing machines both in
terms of consumer sophistication and product specification. In doing so, it recognized that
its unknown brand would struggle to gain much market share in this fiercely competitive
market. However, Koc took the view that, as an aspiring global company, it would

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