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GL OB AL MA RKETING S TRA TEGY

L E C T UR E S E R I E S - N O- 7

Dr. Vibhas Amawate

2/17/2020
 Strategies adopted by companies to expand in
Rapidly Developing Economies (RDEs)
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 Market Access : Achieve sales growth by reaching

new markets and targeting new segments
 Resource Access : Leveraging valuable resources
(e.g. talent, assets, raw materials etc.) to gain
competitive advantage
 Local Adaptation: Developing and adapting
products and service to needs of RDE customers
 Network Coordination: Integrating operations to
capitalize on the strength of the company’s global
network
 International Collaborations and Controls
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 Organising international business can be achieved in many ways.

The company could own the production and yet it could be
either in the home country or in the host country. If the
production base is in the home country, then international
business is conducted by exporting goods to the host
country. At the next level, the company can buy equity
shares in a running company in the host country, which
could be a wholly-owned subsidiary or partially-owned
unit or a joint venture.
 There can be equity-based arrangements like giving
manufacturing license to the host country's company,
offering franchise operations or just having
management contracts or at times turnkey operations .
International Collaborations and Controls
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Basis of Selection of the International Collaboration
and Controls
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 Each company has its core competencies and at times

some products do not fit in the company's strategic plans.
Such products can be given out through licensing to
others, both in the home country and outside.
 Licensing would need a lower foreign resource
commitment than a joint venture.
 If the level of competition is low, Licensing would give
greater freedom for the choice of entry base in international
business. If the home country office of the company
handles the affairs, it would amount to a greater degree of
control and no profit allocation to the foreign unit.
 Basis of Selection of the International Collaboration
and Controls
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 Companies may find the demand in one country not
enough to justify its entry as other companies are also
trying to get in there. Siemens of Germany and GEC of
England joined hands to form GPT to operate in countries
like India. Vertical integration helps in cost savings, while it
needs to have resources and finances to manage the
complete value chain.
 However, these joint ventures may become difficult if the
host country's government has placed legal entry
barriers for the company. Some countries may have
problems with foreign operating companies'
repatriation of profits earned in the host country.
 Basis of Selection of the International Collaboration
and Controls
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 If legally permitted, the collaborations can gain

competitive advantage because of their size,
economies of scale, technology, brand equity
and better control of channels of
distribution.
 The collaboration types depend on the company's
outlay allotted to its foreign operations and
therefore there are trade-offs needed in some cases.
Involvement/Risk/Reward of Market Entry
Strategies
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 Collaboration Agreements-Licensing
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 Licensing is a contractual arrangement whereby
one company (the licensor) makes a legally
protected asset available to another company (the
licensee) in exchange for royalties, license fees, or
some other form of compensation. The licensed asset
may be a brand name, company name, patent,
trade secret, or product formulation. Besides the
licensee has the copyrights to intellectual property like
literary, musical or graphic designs. The licensee has access
to methods, procedures and systems of the licensor. This
helps the company to enter a market quickly at lower costs.
 Collaboration Agreements-Licensing
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 Licensing agreements can have provisions for restricting the
licensee on markets including exports, exclusivity of
license, production value limits and maintenance of
quality standards.
 Factors impacting Licensing
 There can be restrictions imposed by the governments of
the licensor's home country and the licensee's
home country.
 The level of competition can be the deciding factor too.

 Level of market maturity e.g. In high-technology

products, a company has to assess the possibility of the
host country's company's ability to absorb the technology.
 Collaboration Agreements-Licensing
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 Licensing is widely used in the fashion industry. For
example, the namesake companies associated with Bill Blass,
Hugo Boss, and other global design icons typically generate
more revenue from licensing deals for jeans, fragrances, and
watches than from their high-priced couture lines.
 Collaboration Agreements-Licensing - Advantages
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 There are two key advantages associated with licensing as a
market entry mode.
 First, because the licensee is typically a local business that
will produce and market the goods on a local or regional
basis, licensing enables companies to circumvent
tariffs, quotas, or similar export barriers
 Secondly, when licensees are granted considerable
autonomy and are free to adapt the licensed goods to
local tastes.
Collaboration Agreements-Licensing - Disadvantages
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 Licensing is associated with several disadvantages
and opportunity costs.
 First, licensing agreements offer limited market
control. Because the licensor typically does not become
involved in the licensee’s marketing program, potential
returns from marketing may be lost.
 The second disadvantage is that the agreement may
have a short life if the licensee develops its own
know-how and begins to innovate in the licensed
product or technology area.
 Collaboration Agreements-Special Licensing
Arrangements
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 Contract manufacturing requires a global company—

Nike, for example—to provide technical specifications to a
subcontractor or local manufacturer.
 The subcontractor then oversees production. Such
arrangements offer several advantages.
 The licensing firm can specialize in product design and
marketing, while transferring responsibility for
ownership of manufacturing facilities to contractors and
subcontractors
 Other advantages include limited commitment of
financial and managerial resources and quick entry into
target countries, especially when the target market is too
small to justify significant investment
 Collaboration Agreements-Special Licensing
Arrangements
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 One disadvantage, as already noted, is that companies may

open themselves to public scrutiny and criticism if workers
in contract factories are poorly paid or labor in
inhumane circumstances
 Collaboration Agreements- Franchising
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 Franchising is another variation of licensing
strategy. A franchise is a contract between a parent
company-franchiser and a franchisee that allows
the franchisee to operate a business developed by
the franchiser in return for a fee and adherence to
franchise-wide policies and practices.
 Typically, franchising exists in markets
 Where competition is high e.g. is used widely include
the food industry (e.g., Subway, McDonald's, Burger
King), convenience stores (e.g., 7-Eleven C Stores) and
tax preparation (Nangia Andersen LLP)
 Customer tastes change quickly and highly
localized market segments exist.
 Collaboration Agreements- Franchising
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 Franchises are less likely to appear in markets where
higher wages and higher market risks exist.
 The questions which need to be asked before expanding
abroad are as follows
 Will local consumers buy your product?
 How tough is the local competition?
 Does the government respect trademark and franchiser rights?
 Can your profits be easily repatriated?
 Can you buy all the supplies you need locally?
 Is commercial space available and are rents affordable?
 Are your local partners financially sound and do they understand the
basics of franchising
 Collaboration Agreements- Franchising
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 Franchise agreement differs as they provide for the
use of trademarks of the licensor and
continued update of technology and other
assets.
 The franchisers try to ensure standardized
products besides management systems.
However, at times, these do not get the right
reception in the host country. MacDonald's had to
eschew the beef product line in India and redesign
some of their products with a local flavor.
 Collaboration Agreements- Management Contracts
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 Management contracts are made when the host-
country company is not able to manage efficiently
and invites a foreign company to takeover its
management. Turnkey operations are usually
made by construction firms like the Japanese
company that took up building of the bridge on
River Yamuna in Delhi.
 Collaboration Agreements- Joint Ventures
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 Joint ventures need not be equal equity

partnerships. It could be formed with two
companies from the same country joining
hands to form a joint venture to operate in
another country. For instance, Daewoo joined
hands with the DCM Group to set up Daewoo
Motors. Before that DCM had a joint venture with
the Toyota Motor Company. Some companies just
take minority shareholding in the host-country
company to get a foothold in the host country for
testing the markets before embarking on full-
fledged operations.
 Collaboration Agreements- Joint Ventures
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 Joint ventures are not always successful; the reasons

are
 as the partners do not give equal importance to the
venture and have different objectives for it.
 At times they do not provide the venture with the
required resources or directions and try to extract
maximum benefits even when the finances do not
allow it.
 Cultural differences are hindrances in the smooth
running of joint ventures. Only with experience can joint
venture partners learn to evolve operating methods and
an organisational culture acceptable to both partners.
 Collaboration Agreements- Joint Ventures-
Advantages
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 First and foremost is the sharing of risk. By pursuing a

joint venture entry strategy, a company can limit its
financial risk as well as its exposure to political
uncertainty.
 Second, a company can use the joint venture experience to
learn about a new market environment. If it succeeds
in becoming an insider, it may later increase the level of
commitment and exposure.
 Collaboration Agreements- Joint Ventures-
Advantages
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 Third, joint ventures allow partners to achieve synergy by

combining different value chain strengths. One company
might have in-depth knowledge of a local market, an
extensive distribution system, or access to low-cost
labor or raw materials. Such a company might link up with a
foreign partner possessing well-known brands or cutting edge
technology, manufacturing know-how, or advanced process
applications. A company that lacks sufficient capital
resources might seek partners to jointly finance a project.
 Finally, a joint venture may be the only way to enter a country or
region if government bid award practices routinely
favor local companies, if import tariffs are high, or if
laws prohibit foreign control but permit joint ventures.
 Collaboration Agreements- Joint Ventures-
Disadvantages
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 The main disadvantage associated with joint ventures

is that a company incurs very significant costs
associated with control and coordination
issues that arise when working with a
partner.
 A second disadvantage is the potential for conflict
between partners. These often arise out of cultural
differences.
 A third issue, also noted in the discussion of licensing,
is that a dynamic joint venture partner can
evolve into a stronger competitor. Many
developing countries are very forthright in this regard.
 GLOBAL STRATEGIC PARTNERSHIPS
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 The range of options— exporting, licensing, joint ventures,
and ownership—traditionally used by companies wishing
either to enter global markets for the first time or to expand
their activities beyond present levels.
 However, recent changes in the political, economic,
sociocultural, and technological environments of
the global firm have combined to change the relative
importance of those strategies.
 Trade barriers have fallen, markets have globalized

 Consumer needs and wants have converged

 Product life cycles have shortened

 New communications technologies and trends

have emerged.
 GLOBAL STRATEGIC PARTNERSHIPS
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 Although these developments provide unprecedented
market opportunities, there are strong strategic
implications for the global organization and new
challenges for the global marketer.
 Such strategies will undoubtedly incorporate—or may
even be structured around—a variety of collaborations.
Once thought of only as joint ventures with the more
dominant party reaping most of the benefits
(or losses) of the partnership, cross-border
alliances are taking on surprising new configurations
and even more surprising players.
 THE NATURE OF GLOBAL STRATEGIC
PARTNERSHIPS
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 The terminology used to describe the new forms of cooperation

strategies varies widely. The phrases collaborative agreements,
strategic alliances, strategic international alliances, and
global strategic partnerships (GSPs) are frequently used to
refer to linkages between companies from different countries to jointly
pursue a common goal.
 However, the strategic alliances discussed here exhibit three
characteristics
 The participants remain independent subsequent to the
formation of the alliance.
 The participants share the benefits of the alliance as well as
control over the performance of assigned tasks.
 The participants make ongoing contributions in technology,
products, and other key strategic areas.
 GLOBAL STRATEGIC PARTNERSHIPS
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 A true global strategic partnership is different; it is

distinguished by five attributes
 Two or more companies develop a joint long-term
strategy aimed at achieving world leadership by
pursuing cost-leadership, differentiation, or a
combination of the two.
 The relationship is reciprocal. Each partner
possesses specific strengths that it shares with the other;
learning must take place on both sides.
 The partners’ vision and efforts are truly global,
extending beyond home countries and the home regions
to the rest of the world.
 GLOBAL STRATEGIC PARTNERSHIPS
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 A true global strategic partnership is different; it is

distinguished by five attributes
 Continual transfer of resources laterally between
partners is required, with technology sharing and
resource pooling representing norms.
 When competing in markets excluded from the
partnership, the participants retain their national
and ideological identities
GLOBAL STRATEGIC PARTNERSHIPS
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 Stages of Global Alliances
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 For example, the striking success of Japanese firms in the
automobile and consumer electronics industries can be traced
back to an export drive. Nissan, Toyota, and Honda initially
concentrated production in Japan, thereby achieving
economies of scale.
 Eventually, an export-driven strategy gives way to an
affiliate-based one. The various types of investment
strategies described previously—equity stake, investment to
establish new operations, acquisitions, and joint ventures—
create operational interdependence within the firm. By
operating in different markets, firms have the
opportunity to transfer production from place to
place, depending on exchange rates, resource costs,
or other considerations.
 Stages of Global Alliances
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 Although at some companies, foreign affiliates

operate as autonomous fiefdoms (the
prototypical multinational business with a
polycentric orientation), other companies realize
the benefits that operational flexibility can bring.
 The third and most complex stage in the evolution
of a global strategy comes with management’s
realization that full integration and a network of
shared knowledge from different country markets
can greatly enhance the firm’s overall competitive
position, this is network based
Stages of Global Alliances
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 SUCCESS FACTORS
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 Mission. Successful GSPs create win-win situations, where

participants pursue objectives on the basis of mutual need or
advantage.
 Strategy. A company may establish separate GSPs with
different partners; strategy must be thought out up front to
avoid conflicts.
 Governance. Discussion and consensus must be the norms.
Partners must be viewed as equals.
 Culture. Personal chemistry is important, as is the successful
development of a shared set of values. The failure of a
partnership between Great Britain’s General Electric Company
and Siemens AG was blamed in part on the fact that the former
was run by finance-oriented executives, the latter by engineers.
 SUCCESS FACTORS
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 Organization. Innovative structures and designs may be

needed to offset the complexity of multi-country management.
 Management. GSPs invariably involve a different type of
decision making. Potentially divisive issues must be identified in
advance and clear, unitary lines of authority established that will
result in commitment by all partners.
 MARKET EXPANSION STRATEGIES
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Strategy 1 : Narrow Focus : Country and market

concentration, involves targeting a limited number of
customer segments in a few countries. This is typically a
starting point for most companies. It matches company
resources and market investment needs. Unless a company is
large and endowed with ample resources, this strategy may
be the only realistic way to begin.
 MARKET EXPANSION STRATEGIES
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Strategy 2 : Country Focus : Country concentration and

market diversification, a company serves many markets in a
few countries.
Strategy 3 : Country diversification, is the classic
global strategy whereby a company seeks out the world
market for a product. The appeal of this strategy is that, by
serving the world customer, a company can achieve a greater
accumulated volume and lower costs than any competitor
and, therefore, have an unassailable competitive advantage.
 MARKET EXPANSION STRATEGIES
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Strategy 4 : Global Diversification :is the corporate

strategy of a global, multibusiness company