21st century world is presented as a flat world. It is not flat because earth is changing shape but because way communication has evolved. Flow of information, goods and services is faster. Branded products like Gucci are available in developed countries like USA and in developing economies of India and China. Growth in number of multi-national companies has been exponential. Not every company is open to idea of globalization but it is prudent for companies to consider internationalizing their operation at some point. Companies can achieve globalization through analysis and research.
Is there a need to be global? The 1st question companies have to address. There are definite challenges in going international, right from product design and mix, to people with international marketing knowledge. A company may decide to become a global player, if international markets offer better profitability than the domestic market. A company may decide to become a global player to achieve economies of scale or if international company is giving competition in the domestic market. A company may decide to be a global player if there is customer movement from one country to another. However, becoming a global player has share of dreaded consequence if companies ignore culture, regulatory requirement, political environment, foreign exchange policy and competition in the identified international market.
Once the company has decided to become international, next step is to identify which market to enter. Companies can choose to explore one market initially and then build up from that or companies may decide to enter in several markets and diversify the risk. For example, European Union, it is one of the single largest market with access to 15 countries.
The next step is the evaluation of the potential markets. Companies generally prefer to go international by selling to the neighboring countries. For example, US companies prefer doing business in Canada. One of the reasons is better understanding of the market as there are similar in culture, language and laws. Companies choose to enter the market which has high rating in market attractiveness, low risk level and where they enjoy a competitive advantage.
There are various ways of entering the international market. Indirect and direct exporting is one way of becoming international. In indirect exporting involves selling goods to domestic export agents as a first step to become a global player. In direct exporting companies open sales branch or overseas subsidiary. Licensing is another way of entering global markets; here company (licensor) enters into an agreement to allow another company (licensee) to sell and manufacture the product in the chosen market. Investment and risk level associated with indirect/direct exporting and licensing is minimal.
Another way to enter the market is a joint venture. Company forms partnership with the local player facilitating direct entry into the market. The reason of the joint venture could be political as well as economical. The last form of entering is through direct investment. In direct investment, company enters the global market through direct ownership. This can be done by buying a local company or facility. Companies can also set up their own manufacturing facility.
Once the market and format of entering in the market are finalized, it is time for the company to work out the marketing strategy. Company has to work out the option between standardized marketing of one size fits all or come out with completely new strategy for the new market. Alternatively, companies can choose to mix and match in product, promotion, price and place. At product level, company may choose to enter the global market without changes in the original product, or company may choose to modify the product as per the local market taste and preference or company may decide to introduce completely new products. For promotion company may choose standard or may modify as per the local market needs. Pricing is a tricky issue. Therefore, companies can set uniform price across global market or introduce market based price in each market or use cost based approach to set the price. At distribution channel level company have to figure the best way to reach the market.
A company entering a global market also has to be aware of cultural, political, legal, and technological factors in respective markets.
Management Study Guide (MSG) is an educational portal launched with the vision of providing students and corporate workforces worldwide with access to rich, easy to understand, frequently updated instruction on many management related topics.
MSG team comprises experienced faculty and professionals who develop the content for the portal. We collectively refer to our team as - MSG Experts. To Know more, click on About Us.
A Smarter Way to Study....short presentations, real results