This chapter is from the book
This chapter is from the book
This chapter is from the book
Summary
Even more than in start-up situations, evolutionary thinking is vital when entering and developing international markets. The central trade-off to be managed is between the requirements at entry and the different needs of the business once revenues and market coverage begin to grow. At the time of entry, the stance adopted by most international entrants is one of risk minimization, almost market testing, and this results in great reliance on a local partner. Over the longer run, however, most companies will want greater control and involvement. Different forms of entry mode provide different levels of control early on, but greater control is almost always associated with greater investment and commitment—and therefore greater exposure and risk. In addition, different forms of participation result in exposure to different types of risk: for example, licensing tends to be associated with competitive risk related to erosion of product and technology advantage; franchising increases the market risk of offering an unadapted product; and contracting with an independent distributor offers higher control over product but is associated with the risk of loss of control in other areas of the marketing mix.
The difficulties of adapting marketing strategy to the phase of product-market evolution are amply illustrated by the experience of many western multinationals in emerging markets since the wave of market liberalization began around 1990. Many have essentially replicated the strategies prevailing in their developed home markets, with careful targeting to the most immediately attractive segments. Given the interdependencies among markets resulting from the globalization of many companies, and in particular the threat of parallel importing, such replication can be seen as a prudent approach. It has not, however, facilitated market development at the rate projected by many companies at the time of market entry. In effect, these companies need to replicate the strategies they themselves adopted several decades earlier in opening up the mass markets in their own domestic economies—the original foundations of their current size and expertise. The more sophisticated international marketing companies are now indeed finding ways of adapting to local market conditions, including new locally oriented brands, new distribution channels, and new thinking in areas such as pack size and pricing. The lesson from this wave of international market development is that marketing fundamentals, such as the importance of designing a marketing mix to meet local demand characteristics, remain a better guide to managerial decision making than the replication thinking that seems so logical in a globalized corporation.