Deciding which marketers to enter

Deciding which marketers to enter

The internationalization process has four stages:

1. No regular export activities.
2. Export via independent representatives.
3. Establishment of production facilities abroad.
4. The first task is to get companies to move from stage 1 to stage 2. This move is helped by studying how firms make their first export decisions. Most firms work with an independent agent and enter a decision. Most firms work with an independent agent and enter a nearby or similar country. A company then engages further agents to enter additional countries. Later, it establishes an export department to manage its agent relationships. Still later, the company replaces its agents with its own sales subsidiaries in its larger export markets. This increases the company’s investment and risk, but also its earning potential.

To manage these subsidiaries, the company replaces the export department with an international department. If certain markets continue to be large and stable, or if the host country insists on local production, the company takes the next step of locating production facilities in those markets. This means a still larger commitment and still large potential earnings. By this time, the company is operating as a multinational and is engaged in optimizing its global sourcing, financing, manufacturing and marketing. According to some researchers, top management begins to pay more attention to global opportunities when they find that over 15% of revenues come from foreign markets.

In deciding to go abroad, the company needs to define its marketing objectives and policies. What proportion of foreign to total sales will it seek? Most companies start small when they venture abroad. Some plan to stay small; others have bigger plans.

* Market entry and market control costs are high.
* Product and communication adaptation costs are high.
* Population and income size and growth are high in the initial countries chosen
* Dominant foreign firms can establish high barriers to entry.
* How many markets to enter
The company must decide how many countries to enter and how fast to expand.

Consider Amway’s experience:

Amway Corp., one of the world’s largest direct selling companies, markets its product and services through independent business owners worldwide. Amway expanded into Australia in 1971. In the 1980’s, it moved into 10 more countries. By 2004, Amway had evolved into multinational juggernaut with a sales force of more than 3.6 million independent distributors hauling in $4.5 billion in sales. Established in 1998, Amway India quickly grew to 200,000 active Amway distributors by 2004. Amway currently sells products in 80 countries and territories worldwide. The corporate goal is to have overseas markets account for 80 percent of its sales. This is not unrealistic or overly ambitious considering that Amway already gains 70 percent of its sales from markets outside North America.

A company’s entry strategy typically follows one of the two possible approaches: a waterfall approach, in which countries are entered sequentially; or a sprinkler approach, in which many countries are entered simultaneously within a limited period of time. Increasingly especially with technology intensive firms, they are born global and market to the entire world right from the outset.

Generally speaking, companies such as Matsushita, BMW, and General Electric, or even newer companies such as Dell, Benetton, and the body shop, follow the water full approach. Expansion can be carefully planned and is less likely to strain human and financial resources. When first- mover advantage is crucial and a high degree of a competitive intensity prevails, the sprinkler approach is preferred, as when Microsoft introduces a new forum of windows software. The main risk is the substantial resources involved and the difficulty of planning entry strategies in so many potentially diverse markets.

The company must also decide on the types of countries to consider. Attractiveness is influenced by the product, geography, income and population, political climate, and other factors. Marketing experts recommend that companies concentrate on selling in the “tried markets”- the United States, Western Europe, and the far east because these markets account for a large percentage of all international trade.