Components of market

COUNTRY SELECTION AND

economy:
ENTRY STRATEGIES • Profit:
MI NDMA P C HA P T E R 2 - Revenue exceeds costs.
- Personal and business.
Team 1
• Private Property Rights:
- Allow individuals to buy land,
machinery, and other goods
Economic System
• Competitive Marketplace:
Government does not interfere with

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prices or sales.

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• A central authority makes all key economic no • An economy in which most economic decisions
a my
decisions in a command economy. m are made in the marketplace is a market
m
- Socialism refers to economic systems where
Co economy.
the state owns at least some parts of industry. Mixed economy - The marketplace may be found anywhere,
• Strong command economy. money change hands in a capitalist economic
• The marketplace guides part of the economic
- Heavy governmental control will be present. system.
system and the government runs the other part.
- Communism is an extreme form of socialism • Supply chain and Demand
- Government may oversee defense, education,
that sell private ownership of property. - Supply is the amount or quantity of goods and
building and repairing roads, and/or fire
• Moderate command economies. services that producers will provide at various
protection.
- A degree of private enterprise operate. prices.
- Marketplace vends other items, including
- The state owns all of the major resources. - Demand is the amount or quantity of goods
necessities, sundries, and luxuries.
and services, the consumers are willing to buy at
• Most countries have mixed economies.
various prices.
- One force, marketplace or government, tends
- The market price, or equilibrium price,
to be more dominant.
represents the meeting place between supply
and demand.
 MIXED
D

M
AN
Total govt control Some Free enterprise

AR
gov control

COMM
Govt chooses your job to protect "Laissez Faire" approach

KET
consumers and
Everyone gets paid the and promote stability no govt intervention
promote stability same wages Competition keeps Monopolies can form where
prices low and
People are not motivated to encourages innovation one company has control of

work hard the market.

Entrepreneurship
promotes Supply and Demand
Govt sets prices
economic
growth. determine prices
Also called Communism
Also called Capitalism

Economic Development
• Degree of economic development in a region or country drives many international marketing
decisions.
• Development can be controversial and rooted in politics and conflicts between countries.
• Different levels of economic development.
 Time

Rostow's Model Stage 1 - Traditional Society

- Subsistence economy.

of development - Agricultural primary occupation and

means of production.
Initial
stages
- Limited technology and capital.
of
Stage 2 - Preconditions for Takeoff develop
- Technology begins to develop. -ment
- Rudimentary transportation to
encourage trade.

Stage 3 - Takeoff
- Manufacturing industries grow rapidly.

Development
- Airports, roads, and railways built.
- A few leading industries support high
levels of economic growth. Rapid
develop
Stage 4 - The Drive to Maturity
- Growth has spread to all parts of the economy -ment
and is self sustaining.
- Modern transportation systems embedded.
- Rapid urbanization.
- Traditional industries may start to decline.

Stage 5 - The Age of Mass Consumption Final

- Rapid rise of tertiary, third-wave support industries Stage
- Decline in manufacturing. and
- Citizens enjoy abundance, prosperity, and a variety of purchasing choices. Applica
- At each stage, the presence and growth of potential target markets changes. -tion
Emerging market Emerging markets are countries that are moving through
the transformation from developing to developed.
Ex: Mexico, South Africa, and several countries in Asia,...

Big Emerging Markets (BEMs)

- Emerging markets with a large population
- BRIC countries - Brazil, Russia, India, and China
- Large regional (and increasing global) economic and political footprint

Newly industrialized
countries (NICS)
For NICs, rapid economic development places them between less- and more-developed stages.
Ex: China, Taiwan, South Korea, Mexico, Brazil

NICS are always emerging markets, but emerging markets are not always NICS
Government plays a clear role in NICS and less so in some emerging markets

Occur in formerly communist countries with centrally Transition economies

planned economies as the country transitions to a free
market economy.
Ex: Eastern Europe, China,... -
Opportunity for growth
Increased standard of living -
Increased purchasing power -
Gaps in market may be filled by foreign companies -
 Split population
Struggle for - Younger consumers more comfortable with the change
- Older consumers may desire return to old system
transition economy
- Economic growth more beneficial for urban than for rural consumers

Corruption a large problem limiting growth

"The task may be difficult, but the resources are scarce."

Low-income, bottom-of-the-pyramid customers are most

BOTTOM-OF-THE- likely to reside in least developed economies in Rostow's

traditional societies.
PYRAMID The potential doos axit for products that are tailored to those
consumers
As an economy moves forward and infrastructure emerges.
the opportunities and to grow and expand impressively.

National competitive advantage

The basis of global economic leadership

Michael Porter's Diamond Model

Demand conditions -
Related and supporting industries Firm strategy, structure, and rivalry -
Factor conditions -
Government -
 Government, and how government
interacts with the free market, plays a
role in creating national competitive
advantage.
Industry innovation results from
competition and governmental
activities can assist this. Nations differ in terms of how the government allows companies to
- Support for education be formed, maintained, and structured, including control of
- Encouraging cooperation between domestic and potentially foreign competitors
related industries This results in differences in firm strategy, structure, and rivalry
- Assisting in the development of new - In Italy, companies tend to be smaller, family owned, privately held.
technologies and emerging industries - In Germany companies tend to be large and highly structured, and
Policies that increase competition employ managers with technical backgrounds.
while supporting.Innovation helps
create national competitive advantage.
Firm strategy, structure and rivalry
Government
The unique features of demand in
a nation make up that country's
demand conditions
Factor conditions include
Domestic consumers may be
components needed for
production of goods or services,
Factor Demand more or less representative of the
global consumers
such as labor and infrastructure. conditions conditions
Consumers who move the global
- Each industry has specific
taste in a category or industry
factors associated with success in
help a nation become global
that field.
leaders in that category.
Traditionally, these factors were
- France and fashion
natural endowments that nations
- South Korea and technology
possessed without effort. Related and supporting industries
- Labor or land or various natural
resources such as oil or minerals C Support from various other companies that provide inputs,
- Increasingly, resources are support production, or facilitate other aspects of an industry
created such as trained human together count as related and supporting industries.
resources. Nations with this type of support network exhibit one of the
Factor conditions most clearly conditions needed to have a national competitive
lead to national competitive advantage in that industry
advantage when specialization - Nokia in Finland is surrounded by needed related and
exists. supporting industries.
- The American film industry has
various directors factors producers,
and cinematographers needed.
 Rivalry determinants
Industry growth
Fixed (or storage) costs/value
Barriers to entry: added
Econ of Scale Intermittent overcapacity
Proprietaty product off Product differences
differences
Brand identity New entrants Brand indentity
Switching costs
Switching costs Concentration and balance
Capital requirements Threat of new entrants Information complexity
Access to distribution Diversity of competitors
Absolute cost advantages Corporate stakes
- Proprietary learning curve Exit barriers
- Access to necessary inputs
- Proprietary low - cost product
design
Government policy
Expected retailiation

Bargaining Power of Suppliers Industry Bargaining Power of Buyrs

Suppliers competitors Buyers

Determinants of buyer power
Determinants of supplier power
Differntiation of inputs
Bargaining leverage Price sensitivity:
Switching costs of suppliers and
Buyer concentration versus firm Price/total purchases
firms in the industry Product differences
concentration
Presence of subtitute inputs Buyer volume Brand identity impact on
Supplier concentration Threat of new substitute Buyer switching costs relative to quality/performance
firm switching costs Buyer profits
Importance of volume to supplier
Buyer information Decision makers incentives
Cost relative to total purchase in
Ability to backward integrate
the industry Substitute products
Impact of inputs on cost of Pull - through

Substitutes
differntiation
Threat of forward integration
relative ti threat of vackward Determinants of susbtitution threat:
integration by firms in the Relative price performance of
indystry substiture
Switching costs
Buyer propernsity to substitute
 The threat of new entrants affects the nature of local, national, and international competition.
The large size of the markets in Big Emerging Markets alone sparks interest and increases the
Threat of new chance of new entrants.

entrants Barriers to entry can be used by companies to prevent or limit new entrants.
- Potential barriers include brand equity, large initial cost requirements, regulations, monopolies
over distribution or needed resources, and/or lack of specific, hard-to-learn knowledge.

Economic forces and international marketing

Economic forces Economic forces Economic forces affect Economic forces
affect culture. affect language. political and legal systems affect infrastructure
Sons are highly valued for their ability New terms for new Laws governing property rights and Growth leads to more
to work, whereas daughters may be technologies commerce complex and developed
infrastructure.
viewed as an expense Laws can speed up or slow down
Development increases materialism. development.

Sustainability and international marketing

Economic development increases global
As countries develop consumption of resources.
economically, sustainability - Energy
becomes an increasing - Water
concern
 Types of Entry Mode
Exporting
Licensing
Modes of entry Franchising
Wholly Owned Subsidiary
Joint Venture
Strategic Alliance

- Some companies choose to partner with local

businesses when entering a country.

Join venture - When these legal partnerships involve an investment,

a division of ownership, and the creation of a new legal
entity, the newly created business is joint venture.
- The categories of joint ventures include:
Majority owned, where the foreign company owns
51% or more of the joint venture;
Minority owned, where the foreign company owns
49% or less of the joint venture;
50% / 50%, or an equal split of ownership.
Wholly owned subsidiary
A 100% ownership stake in a business in
- Advantages:
Local partners provide access to local connections that country
Local partners understand the local business environment. - Must comply with local regulations,
Sharing of risk lessens potential losses.
Costs may be lowered.
adjust to local cultural standards and mores,
operate in the native language, fit with local
economic conditions, and be supportable
Entry mode through the local infrastructure.

failure and exit

Put a plan in place regarding market exit pre-entry. Company is able to use its own brand, logo,
- Set clear, measurable goals regarding entry success with set and color scheme, and maintains control
deadlines. over both managerial operations and
Failure may result from many things. marketing decisions.
- Poor planning
- Primary advantage is complete control.
External, unpredictable forces
When leaving, focus on maintaining the relationships built.
- Primary disadvantage is lack of shared risk
Settle contracts fairly. and high cost. Also, fail to have a local contact
Focus on maintaining company reputation. to facilitate entry success.
 Theories of entry Explaining entry mode choices is a dominant area of international
business academic theory.
mode selection The three dominant theories:
- Internationalization Theory
- Internalization Theory
- Eclectic or OLI Theory

Internationalization theory
Companies go through four stages during the move to becoming a completely global company:
- no regular export activities,
- export via independent representatives,
- establishment of an overseas sales subsidiary, and
foreign production.
The model views global entry as an incremental process.
- A company's marketers begin by exporting to close, familiar markets.
Focuses on advantages to each entry mode type.
Exporting represents the default, "efficient" choice for market entry.
- Supply and demand guide the process
- The company exerts little control and less cost is involved
- The lack of control is acceptable if no unusual risks or uncertainties and trusted partners.
In many cases, uncertainty and risks exists making exporting too risky.
- Managers choose to internalize the entry - hence the name of the theory.

Assumes that exporting will be the most efficient and preferred form of entry but that
inefficiencies or problems in the market mean that in many cases the best decision is
Eclectic or OLI another form of entry. These best decisions are based on three factors:
- Ownership advantages
theory - Location advantages
- Internalization advantages.