What is Global Market?
The firms do not generally move out of domestic market especially if the local market is booming. The managers remain comfortable in opportunities and challenges in the domestic market. They feel safe.
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Moving out of the domestic boundaries, the business managers will have to learn different languages, deal with strangers, face the chaos in exchange rates of various currencies, newer political and legal arena, and adapt to products that are acceptable to the needs of people from different nationality. Products that are acceptable to the needs of people from different nationality.
In today’s business environment, the firms do not ignore international markets as :
- Each nation is dependent on the other for goods and services.
- There is more awareness about the goods available across the world due to extensive travel by people and media coverage.
- Many companies now look at the entire world as a global market place with abundance of opportunities.
- The local market is drying up.
- The large international companies and ease of trade have brought competition in their own backyard.
- The time and distance have shrunk due to inexpensive communication (internet), and easy availability of transportation.
- The liberalized economies have enabled flow of financial funds.
- The Products developed elsewhere are accepted everywhere. Doing business in.
What are the risks ?
The firms face the risks of doing business in countries that may not have stable governments and who do not believe in smooth transfer of power if so mandated.
All countries have different types of regulations for doing business. Such regulations may not be favourable if there are irregular changes or uncertainties. Google, Uber and Airbnb are current examples of entrepreneurial efforts that are struggling with government regulations in new markets.
There are bound to be differences in cultural, especially concerning customer preferences, tastes, values and beliefs. The local culture affects not only the decisions an entrepreneur must make, but also how a market views the company. The best strategy is to engage people in the local market to manage your business there.
The management practices are culture–bound, so the managers may not be suitable in culturally different working environment, especially in human resource aspects.
The exchange rate of one currency with another may be volatile and may not be in favour of one party. The potential for large currency swings may change the way you need to manage transactions, specify contract terms, and project futures.
The risk is serious if the buyer in another country goes bankrupt and the seller faces risk of loss due to non–payment.
The goods dispatched through sea, air and long road distances are exposed to many types of additional risks.
The competition in international business is from the local as well as from other global companies. The intense competition may also face change in market conditions. It is common mistake is overestimating a particular market’s potential, based on your domestic context. Foreign markets typically have less information available and more variability in sales estimates, which is a setup for failure.
Foreign Country’s Rules
Firms often face rules imposed by the foreign government concerning working practices, ownership, local nationals, local purchase, amount of profits that sent from the country.
Factor in basic infrastructure quality and services
The cost of doing business in any market is heavily dependent on local transportation, energy, technology, and financial services. These components can totally change your customer value proposition, or the business model that you have honed. Re–validate your business model in every market.
Assume large and frequent economic swings
The inability to accurately predict or prepare for sudden changes in the local economic environment creates risks for the markets you know, but can wreak havoc for global initiatives. Therefore, the companies eyeing to do business internationally must weigh their options impartially before committing to go–ahead. When the firms finally make up their mind to do business internationally, there are three questions that need to be thought through :
- Which markets to enter ? (Marketing objectives)
- How many markets to be entered ? (Approaches)
- How to enter the designated market ? (Mode)
A. Which markets to enter ? (Marketing objectives)
The firm has must systematically work out the market size, expected growth, cost of doing business, competitive advantage and risks. Inwardly, it must clear its international objectives and policies. Then, it must answer :
1. How much foreign sales it is targeting ?
Will it be equal or more than domestic business ?
2. Which types of country it wants to enter ? It will depend on the product attractiveness, geographical, demographical and economic factors including political climate.
3. It must forecast the potential of each such market and the ROI.
B.How many markets to be entered ? (Approaches)
1.The seller may prefer certain country or group of countries.
2.Mostly, the firm operate in fewer countries with deeper penetration in each.
There are two approaches in the entry methods :
Is gradual entry in to countries in sequence. The firm starts with developed countries and slowly move to the developing countries. E.g. Benetton, The Body Shop, BMW etc.
Is when a firm enters many countries at one go. This approach holds especially true for techno–firms like Apple, Microsoft etc.
How to enter the designated markets ? (Modes of entry)
Once a firm decides to enter into international business, it has to work out the appropriate mode of entry. The various modes range from indirect export to direct investment. Each mode of entry has to be evaluated in terms of money allocated, return on investment, product lines, risk and control.
As in any business, here too, the more the investment, the greater is the risk but with better control and more profit. On the other hand, less the money allocated, the risk is minimal but so is the control and profit.
Modes of Entry to Foreign Markets and Risks Involved
The easiest way to enter an overseas market is through export. A firm may change the products(s) home country to suit the foreign markets. In this mode, there is low–risk, but least market–control. The firm does not engage in international marketing as there are no sales personnel of the exporting firm.
Sellers then move to direct exports. The firm does its own distribution of goods or set up an overseas branch that handles sales, distribution and promotion. It can do distribution through a firm of the host (another) country on commission basis or fee charged. Direct exporting is selling the products to a country directly.
Company transfer is selling of product by a company to its affiliated company in host (another) country. It is treated as exports in home (own) country and imports in host country. This generally happens in large multi–national companies that have manufacturing units in several places around the world.
Intra–Company Transfers Intra–Company transfer is selling of product by a company to its affiliated company in host (another) country. It is treated as exports in home (own) country and imports in host country. This generally happens in large multi–national companies that have manufacturing units in several places around the world.
Joint Ventures (JVs)
Another method of entering a foreign market is through joint ventures. A firm joins hands with a foreign company to produce or market the products or services. There direct investment in the association formed between the two entities. The reasons for joint venture may be required for : finances, political obligation, managerial resources, or government regulations.
- Through joint ventures, foreign investors have access to distribution channels, financial resources, and contacts of the Indian partners.
- Corporate joint ventures are regulated by the Companies Act, 2013 and the Limited Liability Partnership Act, 2008.
There are four types of Joint Venture : Licensing, Contract Manufacturing, Management Contracting and Joint Ownership. Licensing :
The firm issues a license to another firm in foreign country to manufacture or use of trademark for an agreed payment or royalty. The licensee firm stands to advantage in getting product expertise of famous brands, while the licensor reduces its risk in entry in foreign market.
Another possibility is contract manufacturing. A firm hires a manufacturer in foreign country to produce its product or give service. The advantages are that it gets faster start, with less risk. The weakness is that the licensor reduces its control on actual manufacturing.
A firm enters into management contract with another firm in foreign country for sharing the management expertise for a fee. The licensee in the foreign country does capital investment. Management contracting is a low–risk method with income to the domestic firm from the very launch.
Joint–ownership Ventures is when a firm agrees with investors to generate a local business with joint ownership and control. The venture could be formed by a firm buying an interest in a local firm, or when the two firms get together to get into a new business venture.
The reasons for Joint ownership Venture are : economic needs, political compulsion or conveyances, foreign government condition. The drawbacks are that the associates may disagree over various aspects of the business. For long term partnership, both parties must have clarity on goals and the distribution of profits.
A firm has the choice of entering oversees market through franchising, which is another form of Licensing. The franchiser offers a complete brand concept that it has elsewhere in the world. It imparts training, standards of services to maintain quality and operating system.
Also, it gives the authority to the franchisee to use logo, trademark, brand name and symbols. The franchisee does the investment in the business and pays an agreed amount to the franchisor. The franchiser demands to maintain the same standard across the world, allowing the product or service to adapt to the local taste.
The firm has to study the existing economic, political and market conditions before committing itself into capital investment.
E.g. Apple investments of R&D work in China.
Direct Investment can be done through :
- Greenfield investment
- Strategic Alliance
- Merger and Acquisition
The investing firm makes full and direct investment in a production unit in a foreign market, thereby fully owning the company. The firm can do the construction of the new plant. This type of investment and commitment generally happens from a company in developed country into developing country.
E.g. Mercedes Benz putting a plant near Pune It is called wholly owned subsidiary or the Greenfield investment.
Strategic Alliances happen when there is a co–operativeapproach. Strategic Alliances are a strategy to explore a new market when one company is unable to penetrate the market objectives alone. E.g. ICICI Bank with Vodafone for m–pesa Many firms are entering into Strategic Alliances to achieve good results in short time.
Merger and Acquisition (M&A)
Mergers and Acquisitions have gained popularity due to Globalisation and Financial Reforms happening worldwide. The purpose of M&A is to get some strategic benefits in the markets of a particular country. With M&A, multinational companies can enjoy achieve economies of scale by speedy growth.
E.g. Vodafone with Idea (mobile service providers) M&A inspire Foreign Direct Investment (FDI). The laws regarding M&A need to be updated regularly by the investing firm.
Advantages of Direct Investment
- The firm can have healthy relation with the government and local customers that enables it to align the product and service to the local needs.
- It can procure material from local sources at a cost that may be more cost effective.
- It can take the benefit of government tax, subsidies and other incentives.
- It can provide employment to the local public.
- It has total control on all the aspects of manufacturing and service operations keeping its international norms intact.
Disadvantages of Direct Investment
- The risk of capital investment is totally borne by the investor.
- The volatility of currencies may bring unanticipated loss.
- The political situation may change and there may be public unrest.
- The shutting down of the entire business may be quite costly.
Product & Communication
Product & Communication – adapt or extend ?
Ford and Toyota selling their India that are designed for a low– cost cars, now wants to sell this versions globally. Nestle’s high–nutrient. nd low–cost variant of Maggi noodles, a product developed for India and Pakistan, is on its way to Australia and New Zealand Companies can have five different strategies to venture in foreign markets.
The focuses on changes are based mainly on product and communication strategy to be used internationally. The adaptation and / or extension on the two focal aspects are based on the needs and wants of its foreign customers. Another alternative is to adopt an invention strategy, where products are newly designed.
Product and Communications Extension
A firm may opt for marketing a standardized product using a uniform communications strategy. Small firms or firms that are new in international business generally go for this approach. This option is less costly for the firm, as the products do not have to be customized products and the packaging and advertising campaigns remain the same as in host country.
This strategy is product–driven rather than market–driven. However, there are likelihoods that’s the customers may not want to shift from the products in host country.
Product Extension – Communications Adaptation
Here, a firm keeps the same product as in–home country but changes to customized advertising campaigns for the host country. The reason is that the benefits sought differ for the same product in various parts of the world due to differences in the cultural environment.
Product Adaptation – Communications Extension
The firms might adapt their product as per the requirements of host country but use same communications strategy. The local confrontation is not there as the product is localized. In case there is acquisition of a local company, the firm adds the brands to the overall product portfolio. The buying behaviours among consumers using their familiar product suits communications strategy.
Product and Communications Adaptation
In this strategy, to suit the cultural and physical environments, the firm goes for dual adaptation – of the company’s product as well as its communication.
Here, a firm goes for innovative products which have a worldwide appeal which offers large market opportunities. There are global plans, resources, direction and support given by the highest authorities in the company to go in for this approach.
What are counterfeits ?
Counterfeits goods trick consumers by placing familiar brand names or logos on fake goods that are not produced by the brand owner. These goods are manufactured and sold illegally. Innocent customers seeking particular brands with certain product features and quality are not actually getting the product they wanted in the first place.
There are many counterfeit products that can actually harm consumers.
For E.g. – medicine, personal hygiene products may contain toxic materials endangering lives. Phone chargers and batteries can start fires or explode, and car parts can fail driving.
Such dubious businessmen have fake goods with familiar brand names and logos and certification marks. They even copy packaging design of the original goods.
Country of Origin Effect
The consumers associating brands with countries and making buying decisions is called as Country of Origin Effect. As the consumers form brand and country association and brand recall is made accordingly, it becomes hard to change the perceptions afterwards.
In other words, the products and brands from certain countries are purchased or discarded depending upon our perceptions of the value associated with these countries.
For E.g., Switzerland’s watches (Swatch). USA’s fast–foods (McDonalds & Donimos). Marketers have to take be cautious about the country’s name when used in communication.
Current business trends
Robots taking our jobs : Probably the biggest change that is affecting our businesses is how machines are taking over tasks ranging from window cleaning to inventory management. Anyone with a transaction based job or business will be having a forced career change before the end of the decade.
The Internet of machines
Those robots and computers are talking to each other which speeds up business decisions and will strip layers of management from organisations.
A consequence of those faster decisions is the need for less management. Organisations need to be flatter in order to process information faster unless they want to risk nimble competitors seizing business opportunities.
One of the most exciting, and business changing, technologies is 3D printing which allows you to print a coffee cup at your desk, help robots construct new buildings and a give a little boy a set of fingers.
The 3D printing is happening alongside biological engineering. By the end of the decade, we’ll be able to print our own skin. By 2030, we’ll be printing replacement body parts like heart valves.
Mobile apps redefining service industrie
The mobile phone app is currently booming but the real effects of these mobile services will be felt on industries as diverse as the taxi industry to the mining and agricultural sectors.
The fight for control of the mobile payments system
An upshot of the app economy is the question of who processes, and makes money, from online payments. The battle between banks, credit card companies, telcos and software companies is going to be a major business story of the decade.
Apps and connected machines are going to change consumer behaviour and nowhere is this more notable in the entertainment industries which are being revolutionised by tools like Google Glasses and social media.
Like many innovations social media was greatly hyped and now we’re seeing the backlash of it being oversold. Over the rest of the decade organisations are going to figure out how to use social media services effectively and profitably without hype.
Newspapers cease to exist
One of the effects of social media, mobile phone apps and the pervasive internet is the coming to the end of newspapers.