Jackie Selebi, Director-General, South African Department of Foreign Affairs once said that it is pointless to open markets when economies do not produce anything to trade. Globalization will, therefore, be meaningless if there are no companies which can sufficiently produce goods and services for global trade.
Consequently, it is imperative for companies to consider entering or expanding into global markets so as to fully enjoy the benefits of globalization. In this paper, we shall discuss the meaning of globalization of markets as well as examine the key drivers of globalization. Thereafter, we shall also explore some of the major marketing strategies being used by multinational companies to enter into global markets. To add, we will also look at some of the factors which multinational companies consider when choosing a good marketing strategy.
Some of the major challenges faced by companies intending to enter or expand into global markets
According to Charles W.L. Hill (2002), the term globalization of markets refers to many markets from different countries merging to form one huge market
James Gerber (1999) classifies these factors into four different groups. These include political factors, market access and economies of scale, technology, and finally, the economic crisis in developing countries.
Political factors are important for market integration across the world. After World War II, several institutions such as International Monetary Fund, World Bank and General Agreement on Tariffs and Trade were created to help build relative fairness in international business relations as well as formulate and implement mechanisms for handling a global economic crisis. Additionally, the United States is the world’s largest economy opened up its own market for foreign products. To add, Kenya has now begun opening up its territory to other East African Countries and the world at large.
Countries can only access foreign markets once trade barriers have been removed. This happened in Europe in the mid-1980s when several barriers were removed to allow free flow of goods and services across Europe. The same is now currently happening in the East African region. Rwanda and Kenya are leading in implementing the agreements among East African Countries to create a regional market. The removal of barriers also allows free flow of capital and labor. Many companies will, therefore, be able to access such markets as well as enjoy economies of scale that comes with it.
An increase in telecommunication and transportation technology has led to a subsequent increase in the globalization of markets. Many companies can locate themselves in different parts of the world as well as distribute their goods and services worldwide in a much safer and secure way. Improved technology has also helped companies to effectively control and coordinate their production processes internationally. It has also led to a greater reduction in production cost thus enabling firms to gain a competitive advantage in international markets.
Most developing countries are faced with the problem of huge debts which they cannot fully pay. Some of the causes of such debts are bad governance and corruption. As a result, some governments have turned to International Monetary fund, World Bank, East African Development Bank etc for financial assistance. Currently, developing countries and developed countries are partnering to solve the financial crisis.
Additionally, Donald A. Ball et al. (2008) have argued that cost and completion are major globalization forces around the world. Firstly, Donald A. Ball…et
I do concur with Stanley Paliwoda (1993) who suggests that most multinational companies formulate marketing strategies for entering and expanding in global markets because of a number of objectives. These corporate objectives include;-
a) To grow their business globally
b) To gain sufficient profits and economies of scale
c) To create new markets for their goods and services
d) To gain adequate foreign earnings from their products and services
e) To reduce vulnerability to domestic markets downtown
f) To access foreign production inputs
g) To increase the overall productivity of their companies due to spreading of costs
In order to achieve the above objectives, therefore, multinational companies must design good marketing strategies so as to expand and enter good market segments around the world. Besides, Stanley Paliwoda (1993) further states that a good marketing strategy should fulfil the following qualities i.e. a good market entry strategy ought to;-
a) Enable a company to gain desired market entry with speed
c) Consider risk factors such as political, social and economic risks
d) Have a short investment payback period
e) Have long-term profitability
f) Achieve its corporate objectives i.e. increased sales, revenue, profits
g) Flexibility i.e. it should be easy to apply the same strategy
Warren J. Keegan (1998) and Donald A. Ball et al. (2008) studied the following market entry strategies;
f) Contract manufacturing
g) Management contract
h) Wholly owned subsidiary
i) Joint Venture
j) Strategic Alliance
k) Merger and acquisition
More importantly, Donald A. Ball et al. (2008) groups these strategies under two categories i.e. Non-equity based, strategies which require low investments and is comparatively free of risks such exporting, subcontracting, countertrade, licensing, franchising, contract manufacturing and management contract. They have also categorized the following strategies under equity-based modes of entry i.e. strategies which require huge capital investment like
There are two types of exporting i.e. direct and indirect. Direct exporting is where companies send overseas goods and services which they produce to foreign markets. In Kenya, there are companies which export tea and flowers directly to Europe and other parts of the world. Such companies include Finlays, Sher Karuturi, and Homegrown among others.
The other form of exporting is indirect where goods and services are exported through home-based companies in target markets. It is simple and therefore does not require much expertise. Such companies use agents as their representatives, they mainly market goods and services.
Benefits of exporting include:-
° Requires no investment in manufacturing operations in foreign countries
° Requires low cost e.g. getting a forwarder
° Goods and services are adapted to customer needs and preferences
° Allows manufacturing to concentrated in a specific location leading to the scale of economies
This refers to a contractual agreement in which one firm grant right to use to its patents, trade secrets or technology to another for a fee. The other company will also have the right to access any expertise or manufacturing processes of the licensor. The benefit of licensing is a low investment of capital leading to increased profitability. Companies using this strategy include Coca-Cola- its trademarks are being used on clothing, toys and sportswear.
Refers to a form of licensing in which one company contracts with another to run a certain type of business under a recognized name in line with specific rules. This practice allows a franchise to operate under a well-established brand name as well as business operation procedures. Franchisees also benefit from the support of the franchiser in terms of technology, marketing and brand identity. Franchising at international level is more common in the hotel and restaurant sector. The McDonald’s, Kentucky Fried chicken and Hilton are the best examples, there are several outlets of these hotels world over running as franchisees. In Kenya, the Ken Chick runs well close to 30 outlets spread out in the country on the basis of franchising. Besides the hotel and restaurant industry, franchising as a strategy has also been adopted in the sectors of manufacturing, fitness, automotive and home maintenance.
This is a strategy used to bring small businesses on board by awarding them part contract based on their speciality skills and expertise. Subcontracting allows the primary contractor to concentrate on contract management while the subcontractor executes their part jobs. It also saves the primary contractors the cost of employing specialist experts for the project. Subcontractors are awarded parts of the contract after being evaluated on their ability to carry out the task to completion based on machinery, personnel and technology. At international levels, foreign firms subcontract local firms to promote their brands to the local clients. In this arrangement, the local firm is contracted either to carry out part or the whole project by using the foreign firm’s name. Small business can leverage on subcontracting strategy to gain recognition in the market especially if they offer the best services and conduct business the best way.
This strategy is used by many companies especially in developing nations to gain entry into international markets. It is a type of arrangement where the imports are paid for by exports rather than exchange currencies. Countertrade as a business practice between nations has been on a sharp decline since the 1980s. Examples of countertrade include; barter trade, bay back, compensation deal and counter purchase.
Barter trade is a practice where goods are exchanged directly for other goods of relatively similar value. Bay back is more prominent in the manufacturing sector; it is an arrangement where the suppliers of equipment, technology or plant enter an agreement to receive goods manufactured by their plant, equipment or technology as payment. Compensation deal is where the seller receives part of the payment in cash and the part in product form. Counter purchase practice is where the seller receives payment in cash but agrees to spend the payment within the country for a specified period of time.
Contract manufacturing cuts across licensing and investment participation. It is an agreement between two companies in which one utilizes the other company’s manufacturing process or makes similar products and distributes them locally or internationally depending on the agreement. This strategy allows faster entry into the market of the country of choice with little local tenure rights hurdles. The strategy is more attractive to companies seeking entry into small markets in which export costs are too high. The trick, in this case, is that a company may spend many resources developing a foreign company in terms of technology and process support and turn out as a potential competitor in the market.
Often referred to as international contract management, the practice allows foreign companies the right to manage the daily operations of an enterprise in a foreign market. The management offered is usually on a contract basis that is limited to a present operation. The practice is often used to substitute actual joint ventures between companies. This practice has been faulted on the basis of not allowing companies to establish their distinct positions in the market as well as wasting time on negotiations. Management contracts, however, offer a better substitute for foreign investment. Companies offering management contracts often do not establish political or economic interests like those in foreign investment.
This is an arrangement where the parent company owns all the stock in the ancillary company. There are two approaches
This is an entry strategy to overseas markets well referred to as "partnership at corporate levels.” Joint ventures can either be between local firms or international firms, either way; a joint venture is an enterprise that is formed when two or more investors pool resources to operate a particular investment. In joint ventures, the involved investors share in control, management and ownership of the venture. Countries with high legal structures for business entry are discouraging to joint venture companies seeking business opportunities in international markets. The joint venture practice helps firms set foot in unfamiliar overseas markets through a partnership with local firms that are more familiar with the local business situation.
International strategic alliance offers firms an opportunity to leverage on established firms in terms of technology, marketing and organizational knowledge. The practice describes a linkage or a form of cooperation between firms dealing in related products or whose products attract similar clients. The strategy enables firms to be more competitive especially in the global market. International strategic alliances are often praised for providing firms opportunities to form international networks that expose them to new technologies, wider customer base, wide products reach and supply channels. As a result, such firms become more immune to competition from other companies.
A merger is one of the most common strategies the firms use to gain entry into international markets. A merger is a business relationship between two or more corporations in which the only one survives. An acquiring firm acquires total stake control in the acquired firm more than it is with partnerships, where either partner has some control in the resultant venture. The main challenge in mergers is dealing with already established cultures and management structures
Acquisition refers to buying out the firms’ assets, employees, operations technology and brands. It is one of the fastest ways to gain entry into international markets. Just like mergers, acquisitions entail the risk of inheriting the acquired firms’ liabilities. Cultural and institutional differences between the firms also posses another complication
Implementation: refers to the phase when the approved project action plan is actualized. It involves analysis and synthesis of the long-term plans to executable project parts. The project parts are often organized into schedules broken down from a weekly basis, monthly and annual plans. Strategy implementation process is widely affected by both internal and external ecological factors. External ecological factors are the inputs used to develop finished products, they include; "raw materials, manpower and energy.” Internal ecological factors, on the other hand, include; machinery, organizational structures, employee talents, finances and marketing strategies.
Control: control refers to the process of setting plans, organizing, recruitment and providing leadership to the organization. It is a major function in the operation of any organization. Control program helps in checking possible errors in operations and develops appropriate correction mechanisms for the same. It also helps an organization to be focused
Evaluation: This is a process of measuring the performance of a given strategy in a firm. The main methods used in
Monitoring: Monitoring involves keeping a vigilant eye on the project progress to ensure the project is maintained on the path to its set goals and objectives. The process involves communicating the project progress both to the management and implementation team as well as the objectives of the project. Adjustments in the project must be clearly documented and justified to the team. Monitoring is important to ensure consistency in the project execution process and avoiding possible errors in the process.
Globalization of businesses has improved the way business is organized and managed in the contemporary business world. This has influenced the players and management to concentrate on strategic goals rather than ways of managing the actual business. Important factors such as Political factors, technology, an economic crisis in developing countries, strategies used by multinational companies as well as access to global markets has been instrumental for business globalization.
Multinational companies to enhance their competitiveness and penetrate more markets design strategies in areas of export, licensing, joint ventures and strategic alliance among other methods should be instituted and incorporated into its objectives and business needs to facilitate business growth.
Charles W L Hill (2002), International Business, Competing Global Market Place, 3rd Ed, McGraw Hill, New York
James, Gerber, (1999) International Economics, Addison- Wesley Longman, London
Donald A Ball, Wendell H McCuochf, J. Micheal Geringer, Micheal S Minor, Jean M Mcnett, (2008), The Challenge of Global Competition,11th Ed, McGraw Hill, London