2-1-3, Socio-Cultural influences
Socio-Cultural factors which companies may need to consider include language, habits and attitudes of social groups, religions attitudes, male and female roles.
In Boots case, William Spence said: “Japanese customers are extremely demanding, you have to get things more right in Japan than anywhere else”. Toyota asset management’s Terasaka said “Japan is a peculiar market; people here don’t buy cucumbers that aren’t straight”. Anther example: One of the world’s biggest manufacturers of “white goods” Whirlpool found that in busy families, women are not the only ones doing the laundry. Armed with this knowledge, company engineers came up with color-coded washer and dryer controls to make it easier for kids and men to pitch it.
2-2, Micro-environment Issues
Micro-environment analysis focuses on the characteristics of the particular market and intra-company’s factors.
2-2-1, Market characteristics
Market characteristics include market size and growth potential, competition, costs of serving the market, profit potential, market access.
2-2-1-1, Market size and growth potential
Just as with domestic product markets, market size and growth potential are key indicators of international market attractiveness. In Boots case, Boots estimates the Japanese health and beauty market to be worth ￡17bn, four times the size of the market in the UK, one-sixth of the world’s over-the counter (OTC) medicines are consumed in Japan. In addition, research support the opinion the market growth is a more important consideration than market size (Knickerbocker, 1973 op. cit.). For example, consumers in developing countries, who have not yet been able to acquire a fixed line, might choose instead to purchase a portable phone. It is estimated that, by 2005, one in four Latin Americans will have a portable phone. Particular for foreign direct investment, future demand is more important than existing demand. Such as China, the world’s largest country in terms of population, is the world’s largest potential market of mobile phone, thereupon, Motorola and Nokia, the world’s leading manufacturer of mobile phone, together with other major mobile phone manufacturers from the Japan, Korea, Germany, and Sweden, looked at China’s market potential and investment one after another.
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2-2-1-2, Competition
The condition of the competitive environment is another key factor impacting market choice decision. Traditionally, companies have to do some research into competition on a country-by-country basis. For example: if there are three or four foreign market to choice that are equally attractive, the company will often make a choice based on the competition degree of each foreign market. But in some cases company do not want to enter the market because there has strong competition. The reason is companies viewed it as a barrier to entry. In many cases, however, companies will decide to enter a competitive market because they believe that potential advantages far more than the disadvantages. By going face-to-face with the competition, the company can force itself to become more efficient and can improve its own competitiveness. Also, the company can do this by taking market share away from a competitor and the company can force the opposition to commit more resources to defending the market under attack and reduce its ability to retaliate effectively.
Add on more strategic view makes research of competition on a country-by-country basis into on a worldwide. In addition, should be considering the dynamics of competitor strategy and their implications for country choice decisions.
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2-2-2, Intra-Company characteristics
Once an organization decides to go international, it must begin to carry out the decision. By simply way, some companies directly exporting their goods to a foreign country. However, if the company’s international market continues to grow, the company will need to rethink this entry strategy and decide whether to fit the bill. As this happens, the organization should have some change to playing more active role in the foreign market.
2-2-2-1, Product factors
For some foreign market, local preferences and regulations may require the product to be modified, company must have the motivation and capability to redesign the product. Just like Boots case: It has had to change the packaging of its products to meet the Japanese preference for lavish presentation. In addition, Ford and General Motors manufactured vehicles in Europe that were fundamental different from the vehicle they manufactured at home.
2-2-2-2, Resource Commitment
Market entry decisions require commitment of various types of resources, like: management, capital, technology, production skill and marketing skill. Normally, the more plenty resources, the more entry strategy options. Conversely, a company with resource is forced to use entry strategy that call for only a small resource commitment. Therefore, the company size is frequently a critical factor in the choice of an entry strategy.
2-2-2-3, Competitive Advantage
A key consideration in any market is the ability to create a competitive advantage. Each foreign market needs to be studied in the light of company’s current and future ability to create and sustain a competitive advantage.
2-2-2-4, Goals and Objectives
The firm’s Goals and objectives are believed to influence the performance on international markets. Boots Company’s goal is “to be the place for health and beauty customers”, they want to secure market leadership in the UK and build on our brands’ growing success internationally.
3, CHOOSING A FOREIGN MARKET ENTRY MODE
Once a company decides to target a particular country, it must choose a best mode of entry. The choice of foreign market entry strategy is likely to have a major impact on a company’s performance overseas.
The major options are: Indirect Exporting, Direct Export, Licensing, Joint Ventures, and Direct Investment. Each of them involves more commitment, risk, control, and profit potential.
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3-1, Exporting
This is often the first step for a business wishing to enter an overseas market. It involves manufacturing products at home but selling them abroad. The great advantage of exporting is that it minimizes the risk of operating abroad.
Typically, most firms start with indirect exporting, that is, they work through export agents, or trade companies, or sales office of foreign organizations located in the firms domestic market. Indirect exporting has two advantages: first, the firm doesn’t have to develop an export department; second, it involves less risk.
As exporters grow more confident, they may decide to undertake their own exporting task. This will wishes to building up its own export sales organization. The export organization must to takes over responsibility for all exporting functions. There are some advantages of direct exporting: more effective promotional and sales effort, enable the firm to maintain control over the conditions under which its products are sold in international markets, also provides improved contact and feedback to identify new opportunities and market trends to monitor performance and competitor moves, and to adjust plans and strategy accordingly
After Boots company rolling out Japan, Boots’s International retail operation is moving towards profitability with its new low risk, capital light business model. Boots company CEO Steve Russell said: Overseas, Boots Retail International (BRI) is becoming a simpler business. Our original concept – a full drug store offering – proves too capital intensive to establish and too complex to support. We now have a low risk, low cost export model, based around Boots own brand and exclusives, which involves opening small implants in host retailers’ stores. Having refined this model, we can now greatly simplify the BRI business.
3-2, Licensing
Licensing is a simple way to become involved in international marketing. The licensor permits a foreign company to use a manufacturing process, trademark, patent, trade secret, or other item of value, the licensee will normally have exclusive right to produce and market the product within an agreed area for a certain period for a fee or royalty.
There have some advantages: Minimizes risk and investment, market entry quickly, and able to circumvent trade barriers. However, licensing has potential disadvantages; the licensor has less control over the use of assets. Furthermore, if the licensee is very successful, the firm has given up profit, and when the contract ends, licensee may because competitor. To avoid this, the best strategy is for the licensor to lead in innovation so that the licensee will continue to depend on the licensor.
Sun Microsystems (Sun), for example, has licensed its microprocessor technology to Toshiba and to other leading computer manufacturers in Japan in order to promote its Sparc/Unix technology as a standard for the entire computer industry. By sharing the basic aspects of the technology with these firms, Sun has been able to expand its own opportunities by preventing the adoption of standards that would have deterred sales growth.
3-3, Joint Ventures
Foreign investors joint with local investment to create a joint venture company and share ownership and control. Joint venture is a popular market entry method. In recent years many firms have recognized they need to diversify operations and to offer additional goods and services, thus expanding their base of operations. There have some benefits: sharing risk of failure with a partner, rapid market access, and easy to communicate with government and customer.
Creating a joint venture, the most important step is to research the partner and to learn about its resources and abilities. Particular attention needs to be focused on the partner’s: distribution channels and large customer associations, recognized technical leadership in the field, support and service capabilities, geographic coverage, market image and reputation, complementary/competitive product fit, industrial ranking, willingness to accept a non-exclusive arrangement, industrial or banking group associations, and long-term synergies.
In addition, joint venture includes potential problems: conflict over unequal new investment, mistrust over partners’ knowledge, lack of parent company support, cultural difference, and when and how to terminate the relationship.
Boots joint venture with Mitsubishi, because it “to give advice on localizing the business and to provide the logistics”; “ its international experience, local know how and the weight that its name carries in Japan have been crucial in recruiting staff and dealing with the bureaucracy.”
3-4, Direct Investment
Foreign direct investment is the direct ownership of facilities in the target country. It involves the transfer of resources including capital, technology and personnel. In the last ten years in particular, it’s an increasingly common way for firms to reach overseas markets. For example, many Japanese manufacturers such as Nissan and Toyota set up plans in the UK in the 1990s’. Because: first, cheaper labor or raw materials, foreign-government investment incentives and saving transportation. Second, the firm develops a deeper relationship with government customers, local suppliers, and distributors. Third, the firm holds total control over its investment; therefore, develop manufacturing and marketing policies that assist its long-term international objective. Forth, the firm enhances its image in the host country because it creates lots of job opportunities. But there have two disadvantages of direct investment, one is it has highest capital and management cost, other is the firm must face currency and exchange risk which is uncontrollable.
4, CONCLUSION
This assignment has given an account of marketing choice and entry models, the two sections, to explain that a company must consider an amount of factors and conditions. Neither company can enter into a new market with a few available conditions. A large number of examples confirmed that a failure will be made without thinking everything over. The failures will lead to loss not only on materials, but the company’s whole operation and achievement as well.
It is very important for a company to consider more different factors before it enter a new market. For example, Boots had to abandon the Japan’s market because of its operation method though it had entered before. And it had to search for another opportunity to re-enter the market. But it can not be concluded that Boots chose a mistake market and a mistake entry model. The main reason was Boots began its new marketing operation hurriedly without considering and analyzing any important factors such as social-culture.
Thanks for tutor provided so classical example for us to analyze. And all the helpful friends and classmates are appreciated.
5, REFERENCES
- Alan M. Rugman, Richard M. Hodgetts International Business, third edition, Prentice Hall, 2003.
