According to AMA (American Marketing Association), “International marketing is the multinational process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives”.
Entry Level Strategies for International Marketing
For international expansion, businesses adopt some fundamental entry strategies, which are categorized below:
1. Creating an Existence on the Internet
This strategy encompasses an online mode of internationalizing a business. It can be done by creating an existence on the Internet at the fastest and lowest cost. A business can easily sell its products in international markets through a website. Similarly, customers find it easy to purchase products from a well-managed website. The products offered on the Internet are available 24×7.
The customers can buy them anytime at their convenience. Hence, creating a business website is the ultimate tool, especially for small businesses seeking growth where it can gain similar significance as the fax machine and telephones. For example, a local bakery can gain access to international markets by creating its presence on the Internet.
2. Using Trade Intermediaries
Using trade intermediaries is another strategy which provides access to international markets at low risks and lesser costs. These intermediaries are local agencies which offer trade intermediation facilities for all local businesses, irrespective of their size. Various intermediaries use trade as the strategies for international marketing. They act as distributors who market the products of local businesses all over the world.
Trade intermediaries have an intense network of international contacts and knowledge of local markets. They also possess good experience in international trade and act as export departments for various small and local firms. Hence, the products of a local business can reach global markets through trade intermediaries at lower costs, and the firms can concentrate on other important functions.
3. Exporting
Exporting is another strategy for entering a foreign market. Domestic businesses can manufacture products in local production units and export them to various international markets. Exporting helps in expanding the network and works as strategies for international marketing. Thus, they can obtain economies of scale by locally manufacturing different products and selling them across the nation’s boundaries. Usually, there are two forms of exporting:
i) Indirect Exporting
It is known as indirect exporting when local businesses’ products are indirectly sold to potential foreign customers through local export intermediaries. In this exporting form, products are first sold to intermediaries who sell them directly to foreign wholesalers or customers. It offers convenience and low costs to local businesses as they do not incur any expense in overseas distribution and logistics, identification of potential foreign markets, etc.
ii) Direct Exporting
When products of domestic firms are directly exported and sold to potential foreign customers, it is known as direct exporting. In this form of exporting, business commitment is essential for being directly liable and accountable for managing market research, logistics, shipments, overseas distribution, and collection of payments.
4. Licensing
The licensing agreement is the most common mode an organization adopts as it reduces the risk of internationalizing. The deal is due for renewal after five to seven years on the parties’ consent attached. There are two parties in a licensing agreement. i.e., the licensor and the licensee. Licensee is the firm to which the licensor gives authority to use a few of its technology, trademarks, patents, etc., instead of a monetary consideration often called a royalty or fee.
As licensing is a contract, the licensee has to pay a fixed fee upon signing the contract and a royalty of 2-5 per cent based on the sales volume. Licensing proves best when the organization has a standardized product, and the licensee has no right to misuse the licensor’s technology and patents.
In other cases, such as exercising complete control over technology, patents, firm-specific advantages, etc.. licensing is not considered the best option. When an organization plans to go overseas, it is not worried about losing its firm-specific benefits.
5. Franchising
Local businesses can use international franchising to access global markets. When an owner (franchisor) of a brand name, patent, copyright, trademark, business operation, property, process, or system grants legal rights to other business (franchisee) to use that property, method, or design for the production of goods and services, in return for a fee, it is known as franchising.
The local business can act as a franchisor by distributing its franchises to small foreign companies and, thus, can sell its products in foreign markets. It is one of the important strategies for international marketing. It will also be beneficial in building foreign market coverage and brand name in international markets.
6. Contract Manufacturing
Under contract manufacturing, one organization (client) contracts with another organization to manufacture its products or parts. In this way, the organization (client) does not have to arrange for production infrastructure, workforce, raw materials, etc., and can focus entirely on the sales and marketing of products.
A local producer can be brought into an agreement with a firm looking to sell its products in an overseas market. Many of the world’s leading organizations carry on manufacturing processes through third-party manufacturers in countries with low labor costs. The advantages include less capital investment and ease of exit in case of product failure.
7. Turnkey Projects
A turnkey project is a form of project which is constructed and sold to anonymous purchasers as a finished product. As the name suggests, the turnkey project is when a licensor builds an entirely new plant or production infrastructure which is fully operational and hands over the key to the licensee.
As the licensee receives the keys to a fully functional plant, he can start its operations. Turnkey projects are mostly applicable in building plants, such as steel factories, oil refineries, cement and fertilizer plants, etc. These projects are common in international business.
8. Management Contracts
Local businesses lacking the technology and managerial skills can agree with a foreign company to seek managerial assistance, specialized guidance, and technical expertise for a specified time in return for a fee or a financial reward. This agreement is a management contract and is very useful for a local business to enter into foreign markets. It works as strategies for international marketingr. With the acquired management expertise and know-how, a local company thus can sell its products in international markets.
9. Joint Ventures
A local business can create a joint venture with foreign businesses and quickly enter new foreign markets. It is known as a joint venture when two or more independent businesses are cooperatively joined to form a new business identity.
Even if one organization has acquired a low stake in another organization, they are entitled to the right to have a say in the management activities of the newly formed venture. It will also be beneficial in cases where foreign government policies and laws do not allow foreign control but promote joint ventures and local companies.
10. Strategic Alliances
A strategic alliance occurs when two or more organizations enter into a contract or come together to perform a specific function and achieve mutually set objectives in the market. These organizations do not merge and remain anonymous and use this as strategies for international marketing.
Strategic alliances have recently become popular and are proven effective in tackling weaknesses and enhancing strengths. The main objectives behind establishing a strategic partnership are market expansion, capital enhancement, access to the latest technology, etc.
11. Wholly-Owned Subsidiaries
A wholly-owned subsidiary refers to a business entirely owned by another entity. In a wholly-owned subsidiary, all the current-issued common stocks of the company are owned by a single holding business. It is one of the strategies for international marketing.
With the permission of this holding organization, the subsidiary continues to operate, with or without the direct involvement of the controlling entity. Thus, a local business can choose foreign direct investment to gain control and ownership of international operations and business activities.
However, developing a foreign subsidiary requires a lot of time management and optimum resource utilization. It is the most costly and complex method of entering a new international market. Moreover, there must be an assured demand for the product in the target market for developing a wholly-owned subsidiary.