International Marketing Management 3662667991, 9783662667996

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Ralph Berndt Claudia Fantapié Altobelli Matthias Sander

International Marketing Management

International Marketing Management

Ralph Berndt • Claudia Fantapié Altobelli • Matthias Sander

International Marketing Management

Ralph Berndt (Author deceased) Faculty of Economics and Social Sciences, Department of Marketing University of Tübingen Tübingen, Germany

Claudia Fantapié Altobelli Department of Economics and Social Sciences, Institute of Marketing Helmut-Schmidt-University/University of the Federal Armed Forces Hamburg Hamburg, Germany

Matthias Sander Department of Economics Chair of Marketing University of Konstanz Konstanz, Germany

ISBN 978-3-662-66799-6 ISBN 978-3-662-66800-9 https://doi.org/10.1007/978-3-662-66800-9

(eBook)

This book is a translation of the original German edition „Internationales Marketingmanagement“ by Berndt, Ralph, published by Springer-Verlag GmbH, DE in 2020. The translation was done with the help of artificial intelligence (machine translation by the service DeepL.com). A subsequent human revision was done primarily in terms of content, so that the book will read stylistically differently from a conventional translation. Springer Nature works continuously to further the development of tools for the production of books and on the related technologies to support the authors. # The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer-Verlag GmbH, DE, part of Springer Nature 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer Gabler imprint is published by the registered company Springer-Verlag GmbH, DE, part of Springer Nature. The registered company address is: Heidelberger Platz 3, 14197 Berlin, Germany

Preface

Companies are facing increasing market dynamics in many markets. Rapidly changing consumer behaviour, frequent governmental and legal changes as well as aggressive behaviour by competitors pose an increasing challenge for companies. For internationally operating companies, this is compounded by the heterogeneity of the country markets in which they operate. This heterogeneity must be reflected in appropriate measures of international management, especially marketing management. At the same time, the interdependence of the markets must be taken into account. The internationalisation of media (e.g. internet, satellite television), increasing consumer mobility as well as the internationalisation of competition mean that actions in one country market also have effects in one or more other country markets. This interdependence of markets makes transnational coordination of corporate activities imperative. International activities do not only play a role for large corporations (LSE - large-scale enterprises). Small and medium-sized enterprises (SME) also have to deal with internationalisation efforts due to the intense competition in many markets. In many cases, acting solely on the domestic market is no longer sufficient to ensure the sustainable survival of a company. These companies in particular face great challenges, as international know-how and knowledge of foreign markets are often only rudimentary. In addition to management know-how, financial resources are usually limited. For these companies in particular, internationalisation efforts therefore often represent a high risk. Therefore, professional action in the individual country markets is indispensable to secure the company’s success in the long term. In addition to strategic international marketing, this book deals with the successful use of operative international marketing instruments or the marketing mix, international marketing controlling, international marketing organisation and human resources management in international companies. This book is the English translation of the book “R. Berndt., C. Fantapié Altobelli, M. Sander, Internationales Marketingmanagement, sixth ed.” All contents of this book have been revised and updated. It will appeal to students and lecturers as well as decision-makers in business who are confronted with the mentioned fields of action in their daily work.

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Preface

The production of such an extensive work can only succeed with the active support of many hard-working helpers. We would therefore like to thank the staff at the chairs in Hamburg and Konstanz. We would also like to thank Ms. Angela Meffert, Springer Gabler, Wiesbaden, who conscientiously took care of the printing of the book. Hamburg, Germany Konstanz, Germany July 2022

Claudia Fantapié Altobelli Matthias Sander

Contents

Part I

International Management and Marketing

Internationalisation and International Marketing Management . . . . . . . . . . 1 Development of International Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 The Nature of International Marketing Management . . . . . . . . . . . . . . . . . . . 3 Motives for Internationalisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Sub-Areas of International Marketing Management . . . . . . . . . . . . . . . . . . . 5 Basic Orientations of International Marketing Management . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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3 3 8 10 11 13 16

The Steps of International Marketing Planning . . . . . . . . . . . . . . . . . . . . . . . 1 Situation Analysis and Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Strategic International Marketing Planning . . . . . . . . . . . . . . . . . . . . . . . . . 3 International Marketing Mix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Implementing International Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Control of International Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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17 17 19 20 21 22 22

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25 25 27 27 34 41 46 48 48 48 49

Part II

International Marketing Information

The International Marketing Environment . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Global Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Economic Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Political-Legal Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Socio-cultural Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 Geographical Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Industry and Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Industry Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Competitors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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3.4

Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4.1 End Users . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4.2 Distributors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Company-Specific Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Corporate Objectives and Corporate Culture . . . . . . . . . . . . . . . . . . . . 4.2 Financial Strength . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Product Features . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 Human Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 Production Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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49 49 51 53 53 54 54 55 55 56

International Market Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Challenges to International Market Research . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Nature of International Market Research . . . . . . . . . . . . . . . . . . . . . . . 1.2 Requirements to International Market Research . . . . . . . . . . . . . . . . . . 1.3 Equivalence in International Market Research . . . . . . . . . . . . . . . . . . . 1.3.1 Developing Equivalent Research Designs . . . . . . . . . . . . . . . . . 1.3.2 Equivalence of Research Subjects . . . . . . . . . . . . . . . . . . . . . . 1.3.3 Equivalence of Research Methods . . . . . . . . . . . . . . . . . . . . . . 1.3.4 Equivalence of the Units of Investigation . . . . . . . . . . . . . . . . . 1.3.5 Equivalence of the Research Situations . . . . . . . . . . . . . . . . . . 1.3.6 Equivalence of Data Preparation . . . . . . . . . . . . . . . . . . . . . . . 1.3.7 Equivalence of Data Analysis . . . . . . . . . . . . . . . . . . . . . . . . . 2 International Secondary Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 The Process of International Secondary Research . . . . . . . . . . . . . . . . . 2.2 Sources of International Secondary Research . . . . . . . . . . . . . . . . . . . . 2.3 Applications and Limitations of International Secondary Research . . . . 3 International Primary Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 The Process of International Primary Research . . . . . . . . . . . . . . . . . . 3.2 Definition of the Study Population . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Choosing the International Research Methods . . . . . . . . . . . . . . . . . . . 3.3.1 Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.2 Observation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.3 Experiment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 Measurement, Operationalisation and Scaling . . . . . . . . . . . . . . . . . . . 3.5 Sampling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 Data Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7 Data Preparation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8 Data Analysis and Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8.2 Data Reduction Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.8.3 Classification Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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59 59 59 61 63 63 65 66 68 69 70 70 71 71 74 79 84 84 87 87 87 93 94 97 98 100 101 101 101 102 103

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3.8.4 Methods for Measuring Relationships . . . . . . . . . . . . . . . . . . . 3.8.5 Methods for Measuring Preferences . . . . . . . . . . . . . . . . . . . . . 4 Organisation of International Market Research . . . . . . . . . . . . . . . . . . . . . . . 4.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Centralised International Market Research . . . . . . . . . . . . . . . . . . . . . . 4.3 Decentralised International Market Research . . . . . . . . . . . . . . . . . . . . 4.4 Coordinated International Market Research . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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104 105 106 106 107 108 108 110

Strategic International Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 The International Target System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 General Internationalisation Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Market Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Marketing Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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115 115 117 118 120 121

International Market Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Preliminary Screening . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Country Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Country Selection Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1.2 Country Attractiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1.3 Market Barriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1.4 Country Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Country Selection Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.1 Checklists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.2 Scoring Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.3 Portfolio Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Market Selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 International Market Segmentation . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1.1 Intramarket Segmentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1.2 Intermarket Segmentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Methods for International Market Selection . . . . . . . . . . . . . . . . . . . . . 3.2.1 Portfolio Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.2 Profitability Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Empirical Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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123 123 124 124 124 126 127 128 134 134 135 137 139 139 140 143 147 147 150 156 161

International Market Entry Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 International Market Entry Modes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Export . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Part III

International Marketing Strategy

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Contents

1.3 Licensing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 Foreign Direct Investment (FDI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5 Cooperations and Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6 Countertrade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Timing of Foreign Market Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Transnational Timing Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Country-Specific Timing Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 The Choice of Market Entry Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Theoretical Background of International Market Entry . . . . . . . . . . . . . 3.2 The Pre-Selection of Market Entry Strategy . . . . . . . . . . . . . . . . . . . . . 3.3 The Fine Selection of Market Entry Strategy . . . . . . . . . . . . . . . . . . . . 4 Empirical Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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169 172 174 176 179 179 183 183 183 186 187 192 197

International Market Development Strategies . . . . . . . . . . . . . . . . . . . . . . . . 1 Fundamental Strategic Orientation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 International Basic Marketing Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Standardisation Versus Adaptation of Marketing Programs . . . . . . . . . . 2.3 Standardisation Versus Adaptation of Marketing Processes . . . . . . . . . . 3 International Business Area Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Strategy Variation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Strategy Style . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 Strategy Substance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 Strategy Field . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The Choice of Market Development Strategy . . . . . . . . . . . . . . . . . . . . . . . . 5 Translating Strategic Plans into Tactical and Operational Actions . . . . . . . . . 6 Empirical Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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201 201 203 203 204 208 211 211 212 215 218 225 228 230 232 239

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245 245 246 247 248 249 249 249 251 251

Part IV

International Marketing Mix

International Product Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Objectives of International Product Management . . . . . . . . . . . . . . . . . . . . . 2 Factors Influencing International Product Management . . . . . . . . . . . . . . . . . 2.1 Market Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Product-Related Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Company-Related Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Action Fields of International Product Management . . . . . . . . . . . . . . . . . . . 3.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 International Product Development . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.1 Unmodified Transfer of the Existing Product . . . . . . . . . . . . . .

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3.2.2 Country-Specific Product Adaptation . . . . . . . . . . . . . . . . . . . . 3.2.3 Development of a New Product for Foreign Markets . . . . . . . . . 3.3 Planning the International Product Mix . . . . . . . . . . . . . . . . . . . . . . . . 3.4 International Branding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 Product-Related Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 R&D Management for Global Product Development . . . . . . . . . . . . . . 4 Empirical Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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252 255 269 271 277 281 284 291

International Price Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Objectives of International Price Management . . . . . . . . . . . . . . . . . . . . . . . 2 Factors Influencing International Price Management . . . . . . . . . . . . . . . . . . . 3 Action Fields of International Price Management . . . . . . . . . . . . . . . . . . . . . 3.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 International Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.1 Basic Strategies of International Pricing . . . . . . . . . . . . . . . . . . 3.2.2 Approaches to Pricing in International Markets . . . . . . . . . . . . . 3.3 International Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.1 International Delivery Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.2 International Payment Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.3 International Credit Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.4 International Discount Terms . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.5 General Terms and Conditions in International Business . . . . . . 4 Integration of Pricing into the International Price Management Process . . . . . 5 Empirical Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . .

299 299 301 307 307 309 309 314 333 333 335 338 341 342 344 346 351

International Communication Management . . . . . . . . . . . . . . . . . . . . . . . . . 1 Objectives of International Communication Management . . . . . . . . . . . . . . . 2 Factors Influencing International Communication Management . . . . . . . . . . . 3 Action Fields of International Communication Management . . . . . . . . . . . . . 3.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 International Corporate Identity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 International Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 International Sponsoring and International Product Placement . . . . . . . 3.5 International Sales Promotions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6 International Direct Communications . . . . . . . . . . . . . . . . . . . . . . . . . 3.7 Other Communication Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Implementation of International Marketing Communication . . . . . . . . . . . . . 4.1 Determining the Communication Content . . . . . . . . . . . . . . . . . . . . . . 4.2 Determining the Communication Processes . . . . . . . . . . . . . . . . . . . . . 4.3 Organisation of International Marketing Communication . . . . . . . . . . .

. . . . . . . . . . . . . . .

355 355 358 363 363 363 365 377 385 387 391 400 401 403 404

xii

Contents

5 Empirical Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

406 409

International Distribution Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Objectives of International Distribution Management . . . . . . . . . . . . . . . . . . 2 Factors Influencing International Distribution Management . . . . . . . . . . . . . . 3 Action Fields of International Distribution Management . . . . . . . . . . . . . . . . 3.1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 International Channel Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 International Sales Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 International Distribution Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Empirical Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . .

413 413 414 416 416 416 435 438 448 453

Controlling in International Marketing Management . . . . . . . . . . . . . . . . . . 1 The Planning and Control Process of International Marketing . . . . . . . . . . . . 2 Design of a Marketing Controlling System . . . . . . . . . . . . . . . . . . . . . . . . . 3 Organisational Integration of International Marketing Controlling . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . .

459 459 461 461 464

International Marketing Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Control of the International Marketing Planning System . . . . . . . . . . . . . . . . 2 International Marketing Strategy Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 International Tactical-Operational Marketing Audit . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . .

465 465 468 471 471

Result-Based International Marketing Control . . . . . . . . . . . . . . . . . . . . . . . 1 Economic Targets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Image as a Target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . .

473 473 485 487

. . . .

491 491 493 499

Organisational Integration of Foreign Activities in an International Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Non-specific Organisational Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Segregated Organisational Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

501 501 503

Part V

Part VI

International Marketing Controlling

International Marketing Organisation

Organisation in International Marketing Management . . . . . . . . . . . . . . . . . 1 Organisational Challenges of International Marketers . . . . . . . . . . . . . . . . . . 2 Determinants of the International Marketing Organisation . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Contents

3

xiii

Integrated Organisational Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 One-Dimensional Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Multidimensional Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Process-Organisational Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.1 Characterisation of Process-Organisational Approaches . . . . . . . . . . . . 4.2 Types of Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Assessment of Process-Organisational Approaches . . . . . . . . . . . . . . . . 4.4 Total Quality Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Empirical Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . .

507 507 512 515 516 516 518 518 520 523

Organisational Design of the Marketing Department of an International Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Function-Based Marketing Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Object-Based Marketing Department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Product-Based Marketing Department . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Region-Based Marketing Department . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Customer-Based Marketing Department . . . . . . . . . . . . . . . . . . . . . . . 3 Multidimensional Organisational Structures . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Marketing Department as a Matrix Organisation . . . . . . . . . . . . . . . . . 3.2 Marketing Department as a Tensor Organisation . . . . . . . . . . . . . . . . . 4 Secondary Organisational Forms in International Marketing . . . . . . . . . . . . . 4.1 Forms of Project Organisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Other Secondary Organisational Forms . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . .

525 525 527 527 529 530 532 533 534 537 537 541 542

Coordination of International Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Centralisation Versus Decentralisation of Decision-Making in International Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Coordination Concepts in International Companies . . . . . . . . . . . . . . . . . . . 2.1 Regular Conferences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Global Coordination Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Lead Country Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 Profit Centre Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 Network Concepts and Virtual Enterprises . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

.

543

. . . . . . . .

543 547 547 548 550 552 553 556

Organisational Development in International Companies . . . . . . . . . . . . . . . 1 The Need for Organisational Development . . . . . . . . . . . . . . . . . . . . . . . . . 2 Obstacles to Organisational Development and Solutions . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . .

559 559 563 568

xiv

Part VII

Contents

International Human Resources Management

Human Resources Management in International Marketing Management . . 1 Human Resources Management as a Part of International Strategic Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 International HRM Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

.

573

. . .

573 576 578

Human Resources Planning in International Companies . . . . . . . . . . . . . . . . 1 Headcount Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Staffing Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Design of Remuneration Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Personnel Deployment Abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . .

579 579 582 586 590 592

Leadership in International Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Leadership as a Management Task . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 The Alternative Leadership Styles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Identification of Optimal Leadership Styles . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . .

595 595 597 599 602

Human Resources Development in International Companies . . . . . . . . . . . . . 1 Human Resources Development in a European Comparison . . . . . . . . . . . . . 2 Multicultural HR Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . .

603 603 605 608

Part I International Management and Marketing

Internationalisation and International Marketing Management

Abstract

Cross-border activities are a necessity for many companies in order to be able to achieve specified growth targets on the one hand; on the other hand, the competitiveness of companies and thus their sustainable existence is often only secured by the expansion of corporate activities to international markets. Since the sales of products often represent the bottleneck, a professional marketing of products by an appropriate international marketing management is indispensable. The enormous growth on the world markets in the last years and decades offers an ideal opportunity to participate in this growth as an individual company.

1

Development of International Business

The association or networking of individual countries plays a special role in international business. This networking of national economies is promoted by the establishment of economic and monetary unions (e.g. EMU), falling trade tariffs and the creation of free trade zones (e.g. NAFTA, EFTA), greater mobility of market participants and new communication media such as satellite television and the Internet, which facilitate international communication. In addition, another important management task is the coordination of corporate activities on the individual markets or in the individual countries, since independent market development in the sense of country-specific optimisation of corporate activities is often no longer possible as a result of the interdependence of the country markets. Small and medium-sized enterprises are also increasingly affected by internationalisation knowledge with regard to the development of foreign markets is therefore also required of these companies. Against this background, it is not surprising

# The Author(s), under exclusive license to Springer-Verlag GmbH, DE, part of Springer Nature 2023 R. Berndt et al., International Marketing Management, https://doi.org/10.1007/978-3-662-66800-9_1

3

4

Internationalisation and International Marketing Management

-

5,000.0

1970

318.2

1980

2,050.1

1990

3,495.7

2000 2005 2010

10,000.0

15,000.0

20,000.0

6,452.6 10,502.7 15,300.2

2011

18,339.0

2012

18,510.5

2013

18,954.4

2014

19,011.1

2015 2016 2017 2018 2019

25,000.0

16,558.2 16,045.3 17,743.0 19,550.5 19,014.8

Fig. 1 Evolution of world exports 1970–2019 (in US $ billion). (Source: https://de.statista.com/ statistik/daten/studie/37143/umfrage/weltweites-exportvolumen-im-handel-seit-1970)

that global trade as an indicator of the importance of international business has increased almost 60-fold from 1970 to 2019 (see Fig. 1). Germany ranks third in global trade – measured by the sum of goods exports and imports – behind the USA and China. In 2018, Germany’s share of global trade was still 7.2%. China has now overtaken the USA, with Japan in fourth place. Figure 2 shows an international comparison of global trade shares by country. Figure 3 shows the development of German imports and exports from 1999 to 2020. Imports and exports more than doubled during this period. European countries, in particular the countries of the European Union (EU), have been particularly important foreign customers for German products for some time. In 2020, however, the USA was the frontrunner with € 103 billion, followed by China with € 95 billion and France with € 90 billion. The 4th and 5th places went to the Netherlands (€ 84 billion) and the United

1

Development of International Business

China USA Gemany Japan Netherlands France Hong Kong United Kingdom South Korea Italy Mexico Canada Belgium India Singapore Spain Russia Taiwan Switzerland Poland Australia Brazil Turkey Czechia Austria Sweden Ireland Hungary Denmark Norway Portugal Finland

5

11.8 10.9 7.2 3.8 3.5 3.2 3.0 3.0 2.9 2.7 2.4 2.3 2.3 2.1 2.0 1.9 1.8 1.6 1.5 1.3 1.3 1.0 1.0 1.0 1.0 0.9 0.7 0.6 0.5 0.5 0.4 0.4

Fig. 2 Shares of global trade in goods in international comparison in % (2018). (Source: Institut der deutschen Wirtschaft, 2020, p. 139)

Kingdom (€ 67 billion). In terms of imports, China is now the most important trading partner with € 117 billion, followed by the Netherlands (€ 87 billion) and the USA (€ 67 billion). Poland is in fourth place with € 58 billion followed by France (€ 56 billion) (Statistisches Bundesamt, 2021).

6

Internationalisation and International Marketing Management

1999

 Imports (bn € )  Exports (bn €)

444.797 510.008

2001

538.311 597.440 542.774 638.268

2002

518.532 651.320

2000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

534.534 664.455 575.448

731.544

628.087

786.266

733.994

893.042

769.887 805.842

965.236 984.140

664.615 803.312 797.097

951.959

902.523

1,061.225

899.405 890.393

1,092.627 1,088.025

910.145

1,123.746

949.245

1,193.555

954.917

1,203.833

1,031.013

1,278.958

1,090.000 1,104.141 1,025.344

1,317.900 1,328.152

1,205.281

Fig. 3 German imports and exports 1999–2020. (Source: https://www.destatis.de/DE/ZahlenFakten/ GesamtwirtschaftUmwelt/Aussenhandel/Aussenhandel.html#Tabellen)

1

Development of International Business

7

Hong Kong

73,345

Netherlands

38,674

Switzerland

36,961

Belgium

36,275

Denmark

18,534

Germany

16,579

Italy

8,331

Spain

6,484

Great Britain

6,000

Japan

5,098

USA

4,345

Fig. 4 Per capita exports in international comparison 2020 (in US $). (Source: https://de.statista. com/statistik/daten/studie/37013/umfrage/ranking-der-top-20-exportlaender-weltweit/ and own calculation)

By relating absolute export or import values to the number of inhabitants in the respective country, the importance of international trade from the perspective of an individual country becomes clear. Figure 4 shows that small countries in particular achieve considerable export values per capita. Germany is only in the middle of the pack here. In addition to international trade in the form of exports and imports, direct investment abroad also plays a role in illustrating the extent of internationalisation. Figure 5 shows that in terms of the balance of direct investment from a German perspective, more investment has flowed out than in for the period 2012 to 2020. In this context, the relatively high tax burden on companies compared with other countries and high wages – especially non-wage labor costs – probably play a role (see also chapter “The International Marketing Environment” in Part II). A similar picture can be seen in other countries. From a microeconomic perspective, internationalisation is also of crucial importance for many companies. Many German companies or companies based in Germany generate more than half of their sales abroad; in the chemical and pharmaceutical industries in particular, export rates of over 80% can be found.

8

Internationalisation and International Marketing Management

2411.7

USA

1670.4 601.0

Great Britain -70.9

France

220.2 412.4 255.9

Germany

632.8 448.4

Netherlands

Japan

Spain

Switzerland

Sweden

Italy

527.6

Inflows Outflows

73.4 1199.5 203.8 271.5 161.0 333.0 92.1 149.0 175.0 176.7

Fig. 5 5 Inflows and outflows of foreign direct investment 2012–2020 (in US $ billion). (Source: https://www.oecd.org/daf/inv/investment-policy/FDI-in-Figures-April-2021.xlsx)

2

The Nature of International Marketing Management

With regard to the term “management”, a distinction must be made between the institutional approach and the functional approach (Sander, 2019, p. 13). In the institutional sense, management is understood to be a group of people who are entrusted with authority to issue instructions in an organisation and are thus the bearers of management tasks. Management in a functional sense, on the other hand, deals with processes and functions

2

The Nature of International Marketing Management

9

such as planning, organisation, control and leadership in systems based on the division of labour. This understanding of the term is followed here. In general, the focus here is on those tasks that must be fulfilled in order for the system or the company to achieve its goals (on the goals and motives pursued in the context of international marketing management, see also the following section and chapter “The International Marketing Environment” in Part II). If one follows the view that “marketing” is not to be understood as a mere operational function, but rather a market-oriented corporate management, which should be reflected in all functional areas of the company, then international marketing management can be understood as the planning, organisation, coordination and control of all corporate activities directed at the current and potential international sales markets or the world market (Hermanns, 1995, p. 25 f.). To distinguish it from national marketing management, the following characteristics should be emphasised (Wißmeier, 1992, p. 47 ff.): • • • •

processing of at least two country markets, particular importance of the preparation of decisions, difficulty in obtaining information, consideration of the overall context in the company when making decisions and thus explicit attention to the cross-border coordination of decisions, • high complexity of marketing decisions due to the heterogeneity of country markets. International marketing management represents a subarea of the higher-level international management. In contrast to international marketing management, international management includes the management of additional tasks such as international financial management, international research and development management and international production management. In terms of content, the actual marketing task does not change through the expansion of actions beyond the home country to other (foreign) markets. International marketing can thus be defined as the planning and design of measures through which exchange processes between a company and its foreign markets are to be realised in order to achieve predefined goals. Obviously, the more the foreign markets and the products offered by the company abroad differ from the domestic products or market segments, the more important is a systematic and targeted international marketing. With regard to the concrete design of marketing decisions, the basic orientation of management plays an important role (see also Sect. 5 in this chapter). The importance of international marketing management becomes obvious when one looks at the phenomena that can now be observed in many markets, such as price erosion, shortening product life cycles, fragmentation of market segments, hybrid consumer behavior, etc. Each phenomenon in itself requires a response on the part of the company in the form of adequate marketing decisions. It should be noted that multinational corporations, which operate worldwide and generate a large part of their economic output abroad or in different countries, are particularly affected by these market developments; as “global

10

Internationalisation and International Marketing Management

players” they have to do justice to the heterogeneities of the large number of countries they serve and at the same time integrate all corporate activities into a coherent overall system. In concrete terms, the focus of these companies’ efforts is not on country-specific optimisation of activities, but on achieving an overall optimum across all countries by committing all subsidiaries to the worldwide division of labor and specialisation and thus to (largely) abandoning their independence. The importance of international marketing management, or international management in general, also becomes apparent when one considers the economic power behind individual multinational or global corporations. It is not uncommon for such groups to employ several hundred thousand people and achieve sales in the triple-digit billion range. For example, Daimler AG generated sales of 154.3 billion euros in 2020 and employed a total of 288,481 people worldwide (Daimler AG, 2021, p. 2). However, this still puts this group well behind its competitor Volkswagen as the world’s largest car manufacturer.

3

Motives for Internationalisation

The motives for internationalising corporate activities can be very diverse (see on international target planning also the explanations in chapter “Strategic International Objectives” in Part III). Basically, the motives for international corporate activity can be divided into (Macharzina & Wolf, 2018, p. 888) • economic versus non-economic motives, • defensive versus offensive motives and • resource-oriented, production-oriented and sales-oriented motives. Typical economic motives consist in the pursuit of profit, whereby with regard to international business, the aim is in particular to compensate for negative domestic economic developments, as well as in security and growth-oriented motives. The latter often manifest themselves in the form of sales or market share targets. Non-economic motives are, for example, image goals or are based on the pursuit of power and influence. The internationalisation efforts of companies have an offensive character if competitive advantages exist – e.g. due to technological or general quality advantages – which are also to be exploited on international markets; in this case, foreign markets are developed systematically and purposefully in order to exploit profit potentials in these countries as well. Defensive motives exist when foreign production serves to stabilise an endangered domestic position or when competing companies already located abroad are followed for competitive reasons. Generally speaking: “... proactive firms go international because they want to, while reactive ones go international because they have to” (Czinkota & Ronkainen, 2013, p. 281). Figure 6 shows the main motives for the internationalisation of offensively and defensively oriented companies.

4

Sub-Areas of International Marketing Management

11

Motives for offensive internationalisation

Motives for defensive internationalisation

ƒ Existence of products with a unique selling proposition (USP) ƒ Existence of technological advantages ƒ Special management qualification in the company for an international market development ƒ Tax advantages abroad ƒ Economies of scale through internationalisation ƒ Information advantage over the competition with regard to foreign markets

ƒ High competitive pressure in the domestic market ƒ Overcapacities ƒ Declining attractiveness of the domestic market or shrinking domestic market ƒ High inventory levels ƒ Short geographical distance to foreign market(s)

Fig. 6 Motives for internationalisation. (Source: Adapted from Czinkota & Ronkainen, 2013, p. 281)

Resource-oriented motives for internationalisation are present if the (low-cost) supply of the company with certain raw materials is to be secured in the long term through internationalisation. Production-oriented motives, on the other hand, imply a comparative cost advantage of the foreign country compared to the domestic country with the consequence of relocating production abroad. Typical sales-oriented motives refer specifically to quantities or values that can be generated abroad through the sale of products. In this case, the overriding objective is to maintain or expand the market position abroad. In a broader sense, sales-oriented motives are also present when an internationalisation of supplier companies takes place for reasons of “going international” of a main customer; in this case, a spatial proximity to the customer’s production site is desired – or sometimes even demanded by the customer to enable just-in-time deliveries and an associated reduction in inventories. Empirical studies have shown that sales-oriented motives in particular are of special importance for internationalisation decisions (see the explanations in chapter “Strategic International Objectives” in Part III). At the same time, it should be pointed out that, as a rule, several motives are simultaneously decisive for internationalisation, albeit with different weighting in each case.

4

Sub-Areas of International Marketing Management

The sub-areas of international marketing management result from the functions or tasks that the decision-makers in the company have to fulfil. The management sub-areas within internationally operating companies therefore consist of

12

• • • •

Internationalisation and International Marketing Management

planning, control, organisation and coordination as well as planning of personnel deployment and leadership within the framework of human resources management.

International marketing planning is of particular importance, because it is here that actions within the framework of international marketing are mentally played through and an attempt is made to anticipate their effect on the target figures being pursued. Finally, a decision must be made with regard to the activities to be carried out. Planning thus represents the logical starting point of the classic management process (Steinmann et al., 2013, p. 10 f.). In international marketing management, planning includes such important strategic decisions as (see Part III of this book) • the establishment of a strategic target system, from which tactical and operational targets for the internationally operating company are to be derived, • the selection of country markets and associated market segments to be worked on, • the selection of a market entry strategy for the foreign country markets, • the type of market development, e.g. cost or quality leadership or a niche strategy. In addition to strategic international marketing planning, tactical-operational planning must also be carried out; this leads to the determination of the concrete international marketing mix. The subject of marketing mix is the design of the individual marketing instruments (see also Part IV of this book). International marketing planning is dependent on information from the corporate environment in the individual countries. The collection and analysis of information relevant to the company in the individual countries is particularly important here, because as a rule less knowledge is available about these countries; these tasks are handled within the framework of international market research (on the international marketing environment and market research in international markets, see Part II of this book). International marketing controlling is closely related to international marketing planning. An essential part of international marketing controlling is the actual control as an operational function. In the classic result-based marketing control, the target figures that were defined in the context of international marketing planning are checked for their degree of fulfillment, whereas in marketing audits the corporate mission statement or corporate philosophy, the planning premises and the organisation of marketing planning are reviewed. The close connection between planning and control is based on the fact that planning without control is meaningless and control without planning is not possible (on international marketing controlling, see Part V of this book). The object of the international marketing organisation is the creation of an action structure that specifies all necessary tasks and links them to each other in such a way that the realisation of the plans within the international company is guaranteed (Steinmann

5

Basic Orientations of International Marketing Management

13

et al., 2013, p. 11). Specifically, the focus here is on the creation of manageable, planoriented task units (positions and departments) with the allocation of corresponding competencies and authority to issue directives, as well as the horizontal and vertical linking of jobs and departments. Against the backdrop of international market development, a decision must be made as to how the international activities are to be integrated into the company’s organisation. In addition, internationally operating companies must answer such important questions as • the integration of the marketing department into the company, • the organisational structure of the marketing department itself, • the extent to which decision-making powers are centralised or decentralised to the headquarter in the home country or to the subsidiaries “on the ground”, • the coordination of activities across countries, • approaches to the company’s organisational development as well as • the design of processes within and across the company’s units (on international marketing organisation, see Part VI in this book). In addition to the establishment of a suitable management style, the main areas of international human resources management are headcount planning and personal deployment within the international company. The focus here is on filling the positions created in the international organisation in accordance with the qualitative and quantitative requirements. In addition, it must be decided within the framework of international human resources management which personnel development measures are to be implemented. Ultimately, the aim is to ensure that the qualifications of the employees reach a certain level and that existing qualifications are used effectively in order to ensure that the company is sustainably secured in the market (on international human resources management, see Part VII in this book).

5

Basic Orientations of International Marketing Management

The basic orientation of management in the international company is of decisive importance with regard to marketing decisions. In essence, the basic orientation of management determines the way in which the individual country markets are dealt with. According to Heenan and Perlmutter (1979, p. 15 ff.), a distinction must be made between a • • • •

ethnocentric, polycentric, regiocentric and geocentric

14

Internationalisation and International Marketing Management

orientation in the sense of management behavior (EPRG concept). Ethnocentric companies orient their international activities to their home market. An attempt is made to offer or implement a product or marketing concept that is successful in the domestic market largely unchanged in foreign markets. The markets served are mostly structurally very similar to the domestic market. In general, foreign activities are considered subordinate to domestic activities (Zentes et al., 2013, p. 418); the focus is on the domestic market. Typical for such companies is market entry via export strategy (on the individual market entry strategies, see also chapter “International Market Entry Strategies” in Part III). Systematic market research work abroad is not carried out due to the overall low importance of the foreign market. Such an orientation of management is found in the initial stage of the internationalisation of enterprises. The aim of this international marketing is to secure the domestic existence of the company through the perception of lucrative foreign business. A polycentric orientation occurs when a company’s international activities are geared to the special features and needs of the individual country markets. This approach is based on the diversity of the countries, which consequently also have to be processed in a differentiated manner. Typical of this orientation is market development by subsidiaries that are located “locally” and have a comparatively high degree of decision-making autonomy (on the problem of decision-making centralisation or decentralisation in international marketing, see also chapter “Coordination of International Companies” in Part VI). The management of these subsidiaries is usually the responsibility of local managers who do not come from the domestic headquarter (Heenan & Perlmutter, 1979, p. 20). These managers have a distinct, detailed knowledge of the market due to their ties to the respective country. Such a polycentric orientation correlates with the concept of the multinational company or marketing (Zentes et al., 2013, p. 437 ff.). The grouping of several countries into superordinate areas, which are to be regarded as belonging together, represents the core of the regiocentric approach. The aim here is the development of an integrated, transnational market development strategy. This approach is promoted by the formation of common markets, e.g. in the form of free trade zones or economic and monetary unions (e.g. EU, NAFTA, Mercosur). A regiocentric orientation can represent the precursor to a geocentric orientation. The hallmark of a geocentric orientation is the view that the relevant market for the company under consideration is the world market. The aim of companies with such an orientation is to improve international competitiveness by integrating all company activities into a coherent overall system. National wishes and needs are not in the foreground of market development in favour of achieving cost advantages as a result of standardised mass production. As a consequence, the foreign subsidiaries can no longer act independently of each other, but must subordinate themselves to the primacy of the

5

Basic Orientations of International Marketing Management

Company specific criteria

15

Orientation Ethnocentric

Polycentric

Regiocentric

Geocentric

Complexity of the Complex in the organisation home country, simple at the subsidiaries

Variable and independent

Strongly Increasingly interdependent on complex and a regional basis highly interdependent on a global basis

Authority; decision making

High at headquarter

Relatively low at headquarter

High at regional headquarter and/or close cooperation between subsidiaries

Worldwide cooperation of the headquarter with the subsidiaries

Evaluation and control

Domestic Locally standards related determined to people and performance

Regionally determined

Standards are universal

Communication; information flow

Large number of instructions, commands, advices to subsidiaries

Little to and from the headquarter, but can be high between regional companies and between countries

Between headquarter and subsidiaries and among subsidiaries worldwide

Rewards and punishments; incentives

High at Large differences; headquarter; low high or low at subsidiaries premiums for subsidiary performance

Bonuses for the contribution to the achievement of regional goals

Bonuses for international and local managers for achieving local and global targets

Geographical identification

Nationality of the owners

Nationality of the host country

Regional company

Global company, but identification with national interests

Recruitment, staffing, development

People of the home country trained for key positions around the world

Persons of local nationality trained for key positions in their own country

Regional people trained for key position anywhere in the region

The best people from around the world trained for key positions around the world

Little to and from headquarter; little among subsidiaries

Fig. 7 Four types of management orientation in multinational companies. (Source: Adapted from Heenan & Perlmutter, 1979, p. 17 f.)

worldwide division of labor and specialisation. Such a geocentric orientation is the hallmark of companies that practice global marketing. Figure 7 summarises the four basic orientations of the EPRG scheme on the basis of essential criteria.

16

Internationalisation and International Marketing Management

With regard to the chronological sequence of the individual basic orientations, there are two typical paths of globalisation: in the past, European and American companies often developed multinational companies before moving towards increasing globalisation; a phase of ethnocentrism was thus followed by a polycentric orientation before switching to a global company with a geocentric orientation. Japanese companies, on the other hand, often skipped the phase of polycentrism and oriented their activities directly to the global market after an ethnocentric phase.

References Czinkota, M. R., & Ronkainen, I. A. (2013). International marketing (10th ed.). Cengage Learning. Daimler AG. (2021). Geschäftsbericht 2020. https://www.daimler.com/dokumente/investoren/ berichte/geschaeftsberichte/daimler/daimler-ir-geschaeftsbericht-2020-inkl-zusammengefassterlagebericht-daimler-ag.pdf. Retrieved 15 Dec 2021. Heenan, D. A., & Perlmutter, H. V. (1979). Multinational organization development – A systems approach. Addison Wesley. Hermanns, A. (1995). Aufgaben des internationalen Marketing-Managements. In A. Hermanns & U. K. Wißmeier (Eds.), Internationales Marketing-Management – Grundlagen, Strategien, Instrumente, Kontrolle und Organisation (pp. 23–68). Vahlen. Institut der deutschen Wirtschaft (Ed.). (2020). Deutschland in Zahlen, Ausgabe 2020. Institut der deutschen Wirtschaft. Macharzina, K., & Wolf, J. (2018). Unternehmensführung: Das internationale Managementwissen – Konzepte, Methoden, Praxis (10th ed.). Springer. Sander, M. (2019). Marketing-Management. Märkte, Marktforschung und Marktbearbeitung (3rd ed.). UTB. Statistisches Bundesamt. (2021). Die größten Handelspartner Deutschlands 2020. https://www. destatis.de/DE/Themen/Wirtschaft/Aussenhandel/Tabellen/rangfolge-handelspartner.pdf?_ blob=publicationFile. Retrieved 15 Dec 2021. Steinmann, H., Schreyögg, G., & Koch, J. (2013). Management. Grundlagen der Unternehmensführung – Konzepte, Funktionen, Fallstudien (7th ed.). Springer. Wißmeier, U. K. (1992). Strategien im internationalen Marketing – Ein entscheidungsorientierter Ansatz. Gabler. Zentes, J., Swoboda, B., & Schramm-Klein, H. (2013). Internationales Marketing (3rd ed.). Vahlen.

The Steps of International Marketing Planning

Abstract

Due to the higher complexity of international marketing decisions compared to national ones, a systematic, planned approach is of crucial importance. The steps of international marketing planning comprise a multitude of successive phases, which can be summarised into the following steps: • • • • •

situation analysis and forecast, strategic international marketing planning, international marketing mix, implementing and control of international activities.

It should be noted that the sequence of phases is not mandatory; there are also numerous feedbacks as well as interdependencies between the individual decision fields.

1

Situation Analysis and Forecast

The first step of international marketing planning consists of situation analysis and forecasting (see Fig. 1); the collection and processing of information is thus the starting point of marketing planning. Especially the multitude of country-specific framework conditions for international business activities requires special attention in the collection and processing of relevant information. In detail, the situation analysis and forecast (see chapter “The International Marketing Environment” in Part II) comprises

# The Author(s), under exclusive license to Springer-Verlag GmbH, DE, part of Springer Nature 2023 R. Berndt et al., International Marketing Management, https://doi.org/10.1007/978-3-662-66800-9_2

17

18

The Steps of International Marketing Planning

Situation analysis Industry and competition Industry structure Competitors Suppliers Customers

Global environment Economic factors Political-legal factors Socio-cultural factors Geographical factors

Company analysis Corporate objectives and corporate culture Financial strength Product features Personnel Production capacity

Forecast

Strategic target planning Market segmentation and market selection Planning the market entry strategy Planning the market development strategy

International marketing instruments Tactical-operational target planning International planning of marketing instruments International product management

International price management

International communication management

International distribution management

International marketing mix

Implementing international activities Organisation

Control

Coordination

Control of international activities Marketing audits

Result-based control

Fig. 1 Planning process of international marketing management

Human Resources Management in international companies

Strategic international marketing planning

2

Strategic International Marketing Planning

19

• the analysis of the global environment, i.e. those determinants which affect an economy as a whole, irrespective of the sector. Key areas of information here are the economic, political-legal, socio-cultural and geographical environment; • the analysis of industry and competition, i.e. those factors which only affect companies in a particular industry; this includes a general analysis of the industry structure as well as competitors, suppliers and customers; • the company analysis, which has as its object the uncovering of one’s own strengths and weaknesses in the individual areas of the company. The results of the situation analysis and forecast are, on the one hand, opportunities and risks of the foreign commitment and, on the other hand, foreign market-specific strengths and weaknesses of the company. The provision of the information basis for international marketing planning is the task of international market research (see on international market research e.g. Craig & Douglas, 2005; Punnett & Shenkar, 2004 as well as chapter “International Market Research” in Part II). Due to the considerably higher complexity of the tasks in international marketing compared to national marketing and the generally lower familiarity with the conditions on the individual foreign markets, there is an increased need for information; international market research is therefore of great importance, as it has the important task of reducing uncertainty when operating on foreign markets (see Sander, 1997, p. 5 f.). The forecast of the development of the individual variables is also of particular importance, since a foreign commitment is usually binding in the long term.

2

Strategic International Marketing Planning

If well-founded information and forecasts about the individual foreign markets are available, strategic framework planning can take place on their basis. The object of strategic international marketing planning is to define the long-term framework for tactical and operative marketing activities in the foreign markets being worked or to be worked (on strategic international marketing, see in particular Meissner, 1995). The goal is the creation of product-market-related strategies to ensure the long-term success of the company. In detail, strategic international marketing planning comprises the following stages: • Strategic target planning Within strategic target planning, the long-term, global marketing targets are determined from the overriding overall corporate targets (see chapter “Strategic International Objectives” in Part III). These are to be concretised and specified in tactical-operational marketing planning (marketing mix) and coordinated with the goals of the other functional areas (R&D, procurement, production, finance, human resources).

20

The Steps of International Marketing Planning

• Market segmentation and market selection The aim of market segmentation and market selection is to identify promising country market segments. A multi-stage procedure is recommended for this purpose: After a preselection (exclusion of countries that do not meet certain K.O. criteria), a number of countries that are basically suitable for market development are first filtered out within a rough selection. Subsequently, a market segmentation is carried out in the individual countries, i.e. the formation of different, but in each case homogeneous segments; this can be carried out within the individual countries (intramarket segmentation) or across countries (intermarket segmentation). Finally, a fine analysis of the identified country market segments is carried out in order to filter out the most promising ones. The problem of selecting foreign markets is dealt with in chapter “International Market Selection” in Part III. • Planning the market entry strategy When planning the market entry strategy, the first decision to be made is the mode of market entry. This involves the basic decision “domestic vs. foreign production”; in the context of domestic production, for example, a choice can be made between direct and indirect export, and in the context of foreign production between licensing and direct investment. In addition to the mode, the timing of market entry is also important – on the one hand, the cross-country sequence of market entry (waterfall or sprinkler strategy), on the other hand, the country-specific sequence of market entry (pioneer or follower strategy). The planning of the market entry strategy is dealt with in chapter “International Market Entry Strategies” in Part III. • Planning the market development strategy The market development strategy defines the framework for the use of the marketing instruments. In detail, decisions must be made on the elements of strategy variation (maintaining positioning, repositioning or new positioning), strategy style (offensive vs. defensive and innovative vs. conventional competitive behaviour), strategy substance (preference vs. price-volume strategy,) and strategy field (overall market vs. niche) (see chapter “International Market Development Strategies” in Part III). Furthermore, the decision on the basic strategy of international marketing is to be made, which includes the options “standardisation” or “adaptation” of international marketing.

3

International Marketing Mix

As part of the international planning of the marketing mix, the strategies developed are translated into concrete tactical-operational activities. Here, the basic decision “standardisation vs. adaptation” must first be made for each individual instrument, since

4

Implementing International Activities

21

even an “overall” standardised marketing strategy may well require country-specific adaptations for one or the other marketing instrument. The following are also the subject of tactical-operational marketing planning: • tactical-operational target planning, in which the strategic marketing targets for the individual marketing instruments are specified and operationalised; • planning of the marketing mix (international product management, international price management, international communication management, international distribution management) for the individual foreign markets. The planning of activities is carried out in coordination with the strategic planning, in particular with the definition of the market development strategy. In addition to such vertical interdependencies, the horizontal interdependencies within the marketing mix must also be taken into account, since only through the coherent use of all marketing instruments an appropriate positioning of the service offering in the individual country market segments can succeed (Sander, 1997, p. 9). The international marketing mix is discussed in Part IV of this book.

4

Implementing International Activities

In the realisation phase, the strategic and tactical-operational plans are implemented. Smooth implementation of the plans requires an efficient international organisation as well as the existence of functioning coordination mechanisms; especially in multinational companies with their large number of foreign subsidiaries, some of which are highly independent, conflicts can arise that make it difficult to implement the planned measures smoothly. The organisation, coordination and control of international activities are therefore of particular importance (see also Part VI in this book). Of decisive importance for the realisation phase is the basic orientation of the management and – connected with this – the degree of internationalisation of the company (Sander, 1997, p. 9). A global orientation, for example, requires completely different organisational structures and coordination mechanisms than an ethnocentrically oriented company that regards the sales or profits generated abroad merely as additional business to its domestic activities. Furthermore, the question of the extent to which decision-making competences are to be centralised or decentralised, i.e. whether decisions are to be made by the domestic company headquarter or by organisational units abroad, is also of importance here. In order to be able to implement the individual planned measures efficiently, the existence of appropriate personnel in quantitative and qualitative terms in the company must be ensured. This is an essential task of human resources management in internationally operating companies (see Part VII of this book).

22

5

The Steps of International Marketing Planning

Control of International Activities

The control phase involves checking whether and to what extent the strategic and tacticaloperational targets set have been met in the individual country markets (result-based marketing control); in addition, the elements of the marketing planning system, i.e. corporate mission statement, planning premises, organisation of marketing planning, are to be monitored on an ongoing basis (marketing audits). The target/actual comparison is followed by a cause analysis and – based on this – the planning of adjustment measures; these can concern both the targets and the strategic and tactical/operational plans. Due to the complexity of international marketing decisions, control activities in the foreign branches and at the headquarter should be integrated into an international controlling system (see Part V of this book for more details).

References Craig, C. S., & Douglas, S. P. (2005). International marketing research (3rd ed.). Wiley. Meissner, H. G. (1995). Strategisches Internationales Marketing (2nd ed.). de Gruyter. Punnett, B. J., & Shenkar, O. (Eds.). (2004). Handbook for international management research (2nd ed.). University of Michigan Press. Sander, M. (1997). Internationales Preismanagement. Eine Analyse preispolitischer Handlungsalternativen im internationalen Marketing unter besonderer Berücksichtigung der Preisfindung bei Marktinterdependenzen. Physica.

Part II International Marketing Information

The International Marketing Environment

Abstract

When operating on international markets, a large number of environmental factors must be observed in order to be able to operate successfully. Management decisions must be adapted to these environmental factors or aligned with these conditions. Which factors are to be taken into account in which country and to what extent can only be determined in each individual case.

1

Overview

The particular difficulty of international marketing decisions compared to a purely national activity lies in the partly very different country-specific situation in the individual target markets. While a large part of the environmental conditions is already known or comparatively easy to determine in the case of national marketing decisions, numerous data relevant for decision-making must first be collected in the case of international marketing, whereby considerable problems can arise with regard to the topicality and comparability of the information. Figure 1 provides an overview of the factors relevant for international marketing decisions. Basically, the individual determinants can be subdivided into global environment, industry and competitive factors as well as company-specific factors (Sander, 1998, p. 42 f.); which factors are relevant in individual cases depends on the specific situation of the company. In addition, there are specific conditions for the individual marketing instruments (see the corresponding chapters in Part IV).

# The Author(s), under exclusive license to Springer-Verlag GmbH, DE, part of Springer Nature 2023 R. Berndt et al., International Marketing Management, https://doi.org/10.1007/978-3-662-66800-9_3

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26

The International Marketing Environment

Company-specific factors

Industry and competition

Global environment

Factors

Examples

Economic factors

      

Market size Gross domestic product Per capita income Purchasing power Interest rate development Exchange rate development Labour costs

Political-legal factors

     

Home and host country law International law Political stability Labour disputes Economic agreements Tariff and non-tariff trade barriers

    

Language and religion Values and standards Customs Educational level Social institutions and social behaviour

Geographical factors

   

Climate Topography Resources Infrastructure

Industry structure

    

Market form Barriers to entry Capital intensity of the industry Value creation within the industry Technical change within the industry

Competitors

   

Type, number, and size of competitors Competitive intensity Competitor performance program Market shares

Suppliers

   

Suppliers’ concentration rate Type, number and size of suppliers Quality of raw materials and preliminary products Supply of labor and nominal goods

Customers

End user  Demand behavior  Need structure  Nature and size of market segments  Price willingness  Position of products in PLC

Company objectives

 Top corporate objectives / corporate philosophy  Country-specific marketing objectives

Financial strength

 Capital structure  Liquidity  Creditworthiness

Product features

 Standardisability  Product quality  Ancillary services

Human resources

 Qualification  International experience

Production capacity

 Existing capacity  Capacity utilisation

Socio-cultural factors

Fig. 1 The international marketing environment

Distributors  Purchasing power of distributors  Purchasing volume of distributors  Concentration rate  Distribution structures

2

Global Environment

2

27

Global Environment

The global environment describes the general situation of an economy independent of the industry in which a company is operating. Such environmental factors often vary greatly from country to country and can not only considerably restrict the scope for action in international marketing, but even make an activity in individual foreign markets appear inadvisable from the outset; this applies in particular to politically and economically unstable economies, e.g. in the Third World. The global environment can be divided into • • • •

economic factors, political-legal factors, socio-cultural factors and geographical factors.

2.1

Economic Factors

Economic factors must be taken into account in order to understand the size and characteristics of the various foreign markets; the size of the market can in turn be used to draw conclusions about market potential and market volume, which is of central importance for assessing the market opportunities of one’s own products. Such factors include, among others (see e.g. Czinkota & Ronkainen, 2013, p. 91 ff.): • • • • • • • •

population trends, total and per capita gross domestic product, per capita income and income distribution, inflation, purchasing power, interest rate development and exchange rate development, labour costs and unemployment rate.

Of direct importance for sales opportunities is first of all the population development. While there is still significant growth in the population worldwide, there is hardly any growth in the industrialised countries. Due to their high per capita income, the industrialised countries are particularly attractive for companies. Figure 2 shows the population development in the industrialised countries since 2000. Figure 3 shows the annual change in the gross domestic product of the EU-15 countries (Germany, Belgium, Denmark, Finland, France, Greece, Great Britain, Ireland, Italy, Luxembourg, the Netherlands, Austria, Portugal, Sweden and Spain) and the New EU-13 countries (Bulgaria, Estonia, Croatia, Latvia, Lithuania, Malta, Poland, Romania, the Slovak Republic, Slovenia, the Czech Republic, Hungary and Cyprus). The higher

28

Belgium

The International Marketing Environment

2000

2009

2010

2011

2012

2013

2014

2015

2016

10.3

10.4

10.9

10.4

10.4

10.4

10.5

11.3

11.4

2017

2018

2019

2020

11.5 11.56

11.7

11.7

Denmark

5.3

5.5

5.5

5.5

5.5

5.6

5.6

5.6

5.6

5.6

5.8

5.8

5.9

Germany

82.2

82.3

81.6

81.5

81.3

81.2

81.0

80.9

80.7

80.6

80.5

80.3

80.2

Finland

5.2

5.3

5.4

5.3

5.3

5.3

5.3

5.5

5.5

5.5

5.5

5.6

5.6

France

61.3

64.4

64.9

65.1

65.6

66.0

66.3

66.6

66.8

67.1

67.4

67.6

67.8

Greece

10.6

10.7

10.8

10.8

10.8

10.8

10.8

10.8

10.8

10.8

10.8

10.6

10.6

Ireland

3.8

4.2

4.6

4.7

4.7

4.8

4.8

4.9

5.0

5.0

5.1

5.1

5.2

57.8

58.1

60.8

61.0

61.3

61.5

61.7

61.9

62.0

62.1

62.3

62.3

62.4

Italy Japan

126.8 127.1 127.6 127.5 127.4 127.3 127.1 126.9 126.7 126.5 126.2 125.9 125.5

Canada

31.1

33.5

33.8

34.0

34.3

34.6

34.8

35.1

35.4

35.6

35.9

37.4

37.7

Netherlands

15.9

16.7

16.6

16.7

16.7

16.8

16.9

17.0

17.0

17.1

17.2

17.2

17.3

Austria

8,1

8,2

8,5

8,2

8,2

8,2

8,2

8,7

8,7

8,8

8,8

8,8

8,9

Portugal

10.3

10.7

10.7

10.8

10.8

10.8

10.8

10.8

10.8

10.8

10.4

10.3

10.3

Sweden

8.9

9.06

9.4

9.1

9.1

9.7

9.7

9.8

5.5

10.0

10.0

10.1

10.2

Switzerland Spain USA UK

7.3

7.6

7.8

7.6

7.9

8.0

8.1

8.1

8.2

8.2

8.3

8.4

8.4

40.6

40.5

46.5

46.8

47.0

47.4

47.7

48.2

48.6

49.0

49.3

49.9

50.0

282.2 307.2 309.4 311.1 313.9 316.4 318.9 321.4 324.0 326.6 329.3 330.3 332.6 59.1

61.1

62.4

62.7

63.1

63.4

63.7

64.1

64.4

64.8

65.1

65.4

65.8

State: at midyear; Germany: Western and Eastern Germany.

Fig. 2 Population trends in industrialised countries (in millions). (Source: Institut der deutschen Wirtschaft, 2010, p. 132, 2011, p. 132, 2012, p. 130, 2013, p. 130, 2014, p. 130, 2015, p. 130, 2016, p. 130, 2017, p. 130, 2018, p. 130, 2019, p. 130, 2020, p. 130)

GDP growth rates in the New EU-13 countries are evident, albeit from a much lower GDP level than in the EU-15 countries. Figure 4 shows the real change in GDP of individual countries. In addition, the growth rates of the United States, Canada and Japan are shown. Further insights emerge when the size of a country, measured in terms of population, is taken into account. Even within Europe, there are major differences in this context; Switzerland, for example, achieves more than four times the per capita income of Greece. Compared to poor countries such as Ukraine, this is more than 20 times higher (see Fig. 5). However, such global indicators should not be overemphasized when assessing the viability of an economic commitment in a particular country, as poorer countries can also have interesting market segments with high purchasing power. There has been a pleasing development with regard to the goal of price stability. Inflation rates of between -0.1% and 1.2% are indicated for 2020 in the leading industrialised countries. Figure 6 shows the development of inflation rates in selected industrialised countries over time.

2

Global Environment

29

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 4.5 4.3 3.6 3.5 3.4 3.2 3.1 2.7 2.1 3.3 0.7 1.2 2.6 2.5 2.0 2.0 1.8 1.6 1.0 0.0

0.0 -0.5 -3.3

-3.6 -3.9

-4.5 New EU-13

EU-15

Fig. 3 Development of the gross domestic product of the EU-15 countries and the new EU member states (in %). (Source: Metro AG, 2015, p. 12 and own calculations, Institut der deutschen Wirtschaft, 2020, p. 136)

The purchasing power of currencies abroad is also of crucial importance for international trade. In addition to inflation rates, exchange rate developments in particular – with the exception of the Euro area – play a role in the change in purchasing power. Figure 7 shows the purchasing power of the Euro in selected countries. In addition to the factors described so far, which can be used as indicators of market size, determinants that directly affect the financial side must also be taken into account. One of these is the development of interest rates, in particular borrowing rates; these determine the cost of capital in the individual countries and thus the attractiveness of a country for direct investment. As Figure 8 shows, long-term real interest rates in the leading industrialised countries declined almost without exception from 2013 to 2020. On the other hand, the development of exchange rates plays a significant role, as these influence the amount of export earnings in the case of an export strategy, and the amount of profits transferred from foreign subsidiaries to the domestic headquarter in the case of direct investment. With regard to the USA, Japan, Switzerland, Canada and the UK, there is no uniform picture in this respect (see Fig. 9). Overall, however, the Euro has proven to be a stable currency in the recent past, holding its own very well against other currencies. Labour costs, which can lead to a relocation of production abroad, especially in wageintensive industries, are also of great importance for internationalisation decisions. Labour

30

The International Marketing Environment

Ireland

5.9

Luxembourg

-1.8

Denmark

-2.1

Poland

-2.5

Sweden

-2.8

Finland

-2.9

Spain

-2.9

USA

-3.5

Netherlands

-3.8

Slovak Republic

-4.4

Germany

-4.6

Hungary

-4.7

Japan

-4.8

Canada

-5.4

Czech Republic

-5.8

Belgium

-6.3

Austria France Portugal

-6.7 -7.9 -8.4

Fig. 4 Real change in price-adjusted gross domestic product 2020 in selected countries (in %). (Sources: https://ec.europa.eu/eurostat/databrowser/product/view/NAMA_10_GDP, https://data. worldbank.org/indicator/NY.GDP.MKTP.KD.ZG, https://www.mofa.go.jp/policy/economy/japan/ index.html)

2

Global Environment

Ukraine

31

3,727

Bulgaria

9,976

Turkey

8,538

Russia

10,127

Romania

12,896

Croatia

13,829

Poland

15,656

Hungary

15,899

Slovak Republic

19,157

Greece

17,676

Czech Republic

22,762

Portugal

22,439

Spain

27,057

Italy

31,676

France

38,625

United Kingdom

40,285

Belgium

44,594

Germany

45,724

Finland

49,041

Austria

48,105

Netherlands

52,304

Sweden

51,926

Denmark

60,909

Ireland

83,813

Norway

67,295

Switzerland

86,601 0

20,000

40,000

60,000

80,000

100,000

Fig. 5 Gross domestic product per capita in European comparison in US $ (2020). (Source: https:// data.worldbank.org/indicator/NY.GDP.PCAP.CD)

costs in particular – especially non-wage labour costs – are a constant source of debate about Germany as a business location. There is also a large disparity in this respect within the European Union (EU 28); for example, the total hourly labour costs in the manufacturing sector in Bulgaria in 2018 were 10.8% of the labour costs in Western Germany (see Fig. 10). The extent of additional personnel costs also varies; while Denmark ranks at the lower end with 38%, in Austria additional costs are almost on a par with direct remuneration.

32

The International Marketing Environment

USA

Japan

Germany

France

Italy

UK

Canada

1990 2000 2000 2015 2002

2.8

0.8

2.4

1.7

3.8

2.7

2.0

3.2

0.1

2.2

2.3

2.9

3.2

2.9

1.6

-0.9

1.4

1.9

2.5

1.3

2.3

2003

2.3

-0.2

1.0

2.1

2.7

1.4

2.8

2004

2.7

0

1.7

2.1

2.2

1.3

1.9

2005

3.4

-0.3

1.5

1.7

2.0

2.1

2.2

2006

3.2

0.2

1.6

1.7

2.1

2.3

2.0

2007

2.9

0.1

2.3

1.5

1.8

2.3

2.1

2008

3.8

1.4

2.6

2.8

3.3

3.6

2.4

2009

-0.4

-1.4

0.4

0.1

0.8

2.2

0.3

2010

1.6

-0.7

1.1

1.5

1.5

2.5

1.8

2011

3.2

-0.3

2.1

2.1

2.8

4.5

2.9

2012

2.1

0

2.0

2.0

3.0

2.8

1.5

2013

1.5

0.4

1.5

0.9

1.2

2.6

0.9

2014

1.6

2.7

0.9

0.5

0.2

1.5

1.9

2015

0.1

0.8

0.2

0

0

0.4

1.1

2016

1.3

-0.1

0.5

0.2

-0.1

1.0

1.4

2017

2.1

0.5

1.5

1

1.2

2.6

1.6

2018

2.4

1.0

1.7

1.9

1.1

2.3

2.3

2019

1.8

0.5

1.4

1.1

0.6

1.7

1.9

2020

1.2

0

0.5

0.5

-0.1

1.0

0.7

Fig. 6 Annual change in consumer prices (in %). (Source: Institut der deutschen Wirtschaft, 2004, p. 140, 2011, p. 146, 2014, p. 144, 2015, p. 144, 2016, p. 144, 2018, p. 144, 2019, p. 144, 2020, p. 144, https://data.oecd.org/price/inflation-cpi.htm)

On the one hand, the unemployment rate provides information about the available resource potential with regard to newly recruited workers; on the other hand, it allows conclusions to be drawn about the available household income and thus the purchasing power of the population. Figure 11 shows the strongly diverging international unemployment rates; at the same time, it indicates that unemployment is still a current problem in many countries.

2

Global Environment

33

Niederlande Netherlands

0.95

0.92

0.94

0.97

Schweiz Switzerland

Frankreich France

0.95

Dänemark Denmark

Österreich Austria

ItalyItalien

USA USA

Czech Republic Tschechien

Poland Polen

Turkey Türkei

For one Euro, you get goods and services in the equivalent For one Euro, you getvalue goods services in the equivalent of and ... Euro: value of ... Euro:

2.33

2.86

1.83 1.45 1.82 1.39

0.91

1.03

0.76 0.92

1.09

0.93

0.78

0.67 0.67

Fig. 7 Purchasing power of the Euro in selected countries. (Source: https://www.oecd-ilibrary.org/ economics/data/prices/comparative-price-levels_data-00536-en)

USA

Japan Germany France

Italy

UK

Canada

2013

2.4

0.7

1.6

2.2

4.3

2.4

2.3

2014

2.5

0.5

1.2

1.7

2.9

2.6

2.2

2015

2.1

0.3

0.5

0.8

1.7

1.9

1.5

2016

1.8

-0.1

0.1

0.5

1.5

1.3

1.3

2017

2.3

0.1

0.3

0.8

2.1

1.2

1.8

2018

2.9

0.07

0.4

0.8

2.6

1.5

2.3

2019

2.1

-0.1

-0.3

0.1

1.9

0.9

1.6

2020

0.9

-0.01

-0.5

-0.2

1.2

0.4

0.8

Annual yield on 10-year government bonds or similar financial instruments; averages of daily values or of month-end values.

Fig. 8 Long-term real interest rates in selected industrial nations (in %). (Sources: https://www. deutschlandinzahlen.de/tab/welt/aussenwirtschaft0/zinsen/zinsen-langfristig, https://data.oecd.org/ interest/long-term-interest-rates.htm)

34

The International Marketing Environment

2.00

1.50 US-Dollar Yen (*10^2) Swiss franc Canadian Dollar

1.00

Pound sterling

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

0.50

Rates

ECB reference

Fig. 9 Development of Euro exchange rates of selected currencies. (Sources: Institut der deutschen Wirtschaft, 2010, p. 45, 2014, p. 50, 2015, p. 50, 2016, p. 50, 2018, p. 50, 2019, p. 50, 2020, p. 50)

2.2

Political-Legal Factors

Political factors describe the political situation and, in particular, the political stability of a country; these include, among others (Czinkota & Ronkainen, 2013, p. 131 ff.): • • • • • •

political conflicts (e.g. civil wars), sovereignty aspirations, role of the military, political interventions (expropriation, confiscation), economic system and economic order, tariff and non-tariff barriers to trade.

Such political factors can, under certain circumstances, give rise to a considerable foreign risk (on the individual foreign risks see e.g. Meissner, 1995, p. 78 ff.; Zimmermann, 1992 as well as chapter “International Market Selection” in Part III). Civil wars such as in the former Yugoslavia, unrest and military conflicts in the Ukraine, sovereignty aspirations in

2

Global Environment

35

Total

Thereof: Direct remuneration

Additional personnel costs

Additional expense ratio

Norway

48.36

30.78

17.58

Belgium

42.65

23.50

19.12

57 81

Switzerland

51.53

31.88

19.65

62

West Germany

42.92

24.65

18.28

74

Denmark

45.58

32.96

12.62

38

Finland

36.86

22.23

14.63

66

France

37.94

20.32

17.62

87

Austria

38.24

19.40

18.84

97

Luxembourg

33.96

24.41

9.55

39

Sweden

40.67

22.17

18.51

83

Netherlands

38.20

21.47

16.73

78

Ireland

32.24

21.62

10.61

49

Italy

27.93

21.62

10.61

49

United Kingdom

26.52

18.51

8.01

43

Japan

24.41

13.21

11.20

85

Spain

23.05

12.40

10.64

86

East Germany

27.84

17.06

10.78

63

Greece

16.01

9.22

6.79

74

Cyprus

12.17

8.65

3.51

41

Slovenia

18.13

10.69

7.44

70

Malta

13.67

0.00

13.67

.

Portugal

11.38

6.86

4.52

66

Czech Republic

12.51

7.14

5.37

75

Hungary

9.67

5.84

3.83

66

Slovak Republic

12.09

10.69

7.44

70

Estonia

11.70

7.65

4.06

53

Poland

9.18

6.10

3.08

50

Lithuania

8.72

5.26

3.46

66

Latvia

8.70

5.91

2.79

47

Romania 5.83 in the manufacturing 4.84 21 Fig. 10 Labour costs per hour worked industry in0.99 Euros 2018. (Source: Institut der deutschen Wirtschaft 2020, p. 142) Bulgaria 4.64 3.23 1.40 43 Total labor costs per hour worked; female and male workers; partly provisional figures; conversion: annual average of official exchange rates; additional cost ratio: non-wage labour costs as a percentage of direct compensation Fig. 10 Labour costs per hour worked in the manufacturing industry in Euros 2018. (Source: Institut der deutschen Wirtschaft, 2020, p. 142)

36

The International Marketing Environment

2019

Spain France Sweden Finland Portugal Slovak Republic Canada Luxembourg Belgium Denmark Ireland Austria USA Hungary Netherlands Poland Germany Japan Czech Republic

14.1 8.5 6.8 6.7 6.6 5.8 5.7 5.6 5.4 5.1 5.0 4.5 3.7 3.5 3.4 3.3 3.2 2.4 2.0

Fig. 11 Unemployment in selected countries (as % of all labour force). (Source: https://www. deutschlandinzahlen.de/tab/welt/arbeitsmarkt/arbeitslosigkeit/arbeitslosenquote)

Russia or Corsica, military dictatorships, etc. lead to a politically and, as a consequence, also economically unstable climate, which makes a commitment in individual countries unattractive or even prohibits it. Protectionist measures, such as import controls and import duties to protect the domestic economy, can also represent significant barriers to market entry. For example, German carmakers are relocating assembly or even entire production to countries such as Indonesia, where high import duties on finished cars virtually prohibit exports to these countries. On the other hand, liberalisation efforts can be observed in many parts of the world; these include customs unions and trade agreements such as the European Union, NAFTA in North America, Mercosur in South America and ASEAN in Southeast Asia. Figure 12 shows the evolution of regional trade agreements notified to the GATT or WTO over the period 1956–2020, which are currently still valid. While there were few trade agreements notified until the 1960s, the number of agreements started to increase from the 1970s onwards. Special mention should be made of the high number of trade agreements

2

Global Environment

37

Number of regional trade agreements

600 550 500 450 400 350 300 250 200 150 100 50 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

0

Fig. 12 Trade agreements reported to the WTO and in force 1956–2020. (Source: https://www.wto. org/english/tratop_e/region_e/region_e.htm)

concluded since the 1990s. It is worth mentioning the free trade agreement between the European Union and Japan, which entered into force in February 2019, creating the largest economic zone in the world. Gradually, almost all tariffs on the products of both economic areas are to be eliminated, which means enormous savings for exporters from both economic areas. The propensity for strikes and industrial action in the various countries is also significant for direct investment. In industrialised countries, the range of lost working days per 1000 employees on an annual average in 2010–2019 was from less than 10 days in the USA, Lithuania, Switzerland and Austria to more than 100 days in France (see Fig. 13). Tax aspects also play a significant role in market entry decisions in foreign markets. If we look at income and corporation tax in different countries (see Fig. 14), we see that these vary not inconsiderably internationally. In terms of consumer sentiment, value added tax also plays a special role. Here, too, the range is very wide (see Fig. 15). Finally, non-tariff trade barriers such as subsidies, countervailing duties, restrictive foreign exchange regulations, minimum pricing and the like also have an impact on entry (see e.g. Cateora et al., 2020, p. 180 f.). Legal conditions include (see e.g. Cateora et al., 2020, p. 200 ff.): • the legal system, • the home and host country law, and • international law.

38

The International Marketing Environment

France

110

Belgium

98

Canada

77

Finland

59

Norway

55

Spain

49

Denmark

44

Netherlands

19

United Kingdom

18

Germany

17

Ireland

16

Portugal USA

14 8

Lithuania

7

Switzerland

2

Austria

2

Fig. 13 Working days lost due to industrial action per 1000 employees (annual average 2010–2019). (Source: https://www.boeckler.de/pdf/pm_wsi_2021_04_27.pdf, p. 7)

The legal system describes the general legal order of a state; a fundamental distinction must be made between common law and code law (Usunier & Lee, 2013, p. 58). While common law is based on tradition and practices of the past and is particularly typical for the Anglo-Saxon region (Great Britain, USA, Australia, India, Egypt), code law is based on comprehensive catalogues of legal provisions, such as in Germany, Italy, France and Switzerland. In addition, other countries have their own legal systems that are strongly influenced by religion, such as most Islamic countries. Differences in legal systems can have significant consequences for marketing: for example, in the USA (common law), the right to a trademark would be awarded to the company that used it first; in Germany (code law), it would be awarded to the company that applied for it first. In addition to the law of the home country, the law of the host country must be taken into account in particular when making international marketing decisions: • law of currency and credit, • tax law,

2

Global Environment

39

Income tax

Corporate tax

Japan

55.9

Denmark

55.9

France

55.4

Austria

55

Greece

54

Canada

53.3

Portugal

53

Belgium

52.9

Sweden

52.3

Finland

23 22 32 25 24 15 30 25 21 20

51.2

Slovenia

50

Netherlands

49.5

Ireland

48

Germany

47.5

Italy

19 25 13 16 24

47.2

Luxembourg

45.8

18

United Kingdom

45

19

USA

43.7

Spain

43.5

Switzerland

21 25 9

41.7

Norway

22

38.2

Malta

35

35

Cyprus

13

35

Poland

19

32

Lithuania

32

Latvia

31.4

Slovak Republic

15 20 21

25

Estonia

20

20

Czech Republic

15

Hungary

15

23 9

Fig. 14 Income tax and corporate tax in international comparison (maximum rates 2020 in % incl. all surcharges). (Sources: https://stats.oecd.org/Index.aspx?DataSetCode=TABLE_I7, https://stats. oecd.org/index.aspx?DataSetCode=TABLE_I1#, for Malta and Cyprus: https://taxsummaries.pwc. com/)

40

The International Marketing Environment

Hungary

27.0

Norway

25.0

Denmark

25.0

Sweden

25.0

Finland

24.0

Poland

23.0

Portugal

23.0

Ireland

23.0

Italy

22.0

Slovenia

22.0

Belgium

21.0

Austria

20.0

Germany

19.0

Japan

8.0

Switzerland

8.0

USA¹

0.0

¹USA: no VAT rate at federal level Fig. 15 VAT rates (2021) in international comparison (in %). (Source: https://taxsummaries.pwc. com/quick-charts/value-added-tax-vat-rates)

• competition law, • labour and social law, etc. Competition law is of particular importance in this respect; here, for example, regulations can be found with regard to advertising (advertising restrictions for certain products such as alcoholic beverages, tobacco, pharmaceuticals; restrictions with regard to the media and times of day that can be used, prohibition of comparative advertising, etc.), units of measurement and weight to be used, certain product characteristics (e.g. safety regulations), etc. In addition, voluntary self-restraint agreements, e.g. in the field of advertising, belong to this group of environmental conditions. International law comprises supranational legal regulations that serve to create an international legal framework for the cross-border movement of goods, services and

2

Global Environment

41

information. They contain regulations and agreements that are respected by certain countries and can be of a voluntary nature or legally binding. Since different legal regulations in the individual target countries can considerably restrict the scope for international marketing decisions, precise knowledge of them is indispensable. In addition, the possibilities of legal enforcement in the individual countries are also important, as very different practices prevail in this respect in some cases.

2.3

Socio-cultural Factors

Culture includes all the achievements in a person’s social life; it is learned, shared and transmitted from one generation to another. Since cultural factors help to determine the way in which marketing measures are responded to, consideration of cultural characteristics in the targeted country markets is of central importance. Culture comprises the following elements (Czinkota & Ronkainen, 2013, p. 64 ff.): • • • • • • •

language (verbal and non-verbal), religion, values and norms, habits, aesthetics, education, social institutions and social structure.

Language is one of the biggest barriers to international marketing decisions; this applies above all to communication activities, but also to the marking and packaging of products. One problem is the diversity of languages, sometimes even in a single country, such as Switzerland, Belgium, Canada. Even in countries with the same language, certain terms are understood differently, or different terms are used for the same subject matter: for example, vacuum cleaning is called “to vacuum” in the UK, and “to hoover” in the USA. On the other hand, semantic, syntactic and phonetic aspects must also be taken into account; for example, literal translations can often bring about undesirable associations, such as the slogan of Eastern Air Lines “We earn our wings daily”, the translation of which in Latin America suggested that passengers often “fly into the sky” and thus do not survive the flight (Manguel, 1991, p. 30). Local support is therefore required in most cases to overcome language barriers. In many countries, the culture is very strongly influenced by religion, which can have significant consequences for international marketing decisions. For example, in order to export products to Islamic countries, animal fats must be replaced by vegetable fats; furthermore, Anheuser-Busch has developed an alcohol-free beer especially for the Islamic market.

42

The International Marketing Environment

Values and norms determine whether a product is accepted or rejected in a country. On the one hand, international marketing is problematic when the culture in the target country rejects products that were not manufactured in the country of origin. In Japan, for example, there is a widespread opinion that buying foreign products is “unpatriotic” (Czinkota & Ronkainen, 2013, p. 70). Similar attitudes can also be found in Great Britain (“Buy British”). On the other hand, the country of origin can promote sales if it suggests prestige, status or luxury; for example, the “American way of life” is a strong selling point in many Western, but also Asian countries (e.g. Coca-Cola, Levi’s). Such made-in images or country-of-origin effects can have a strong purchase-deciding influence (Zentes et al., 2013, p. 418 ff.). For example, German products, especially in the technical sector, are often associated with good quality. On the other hand, products from other countries can also have a rather poor quality image. This is particularly the case if the technological and economic status of a country is to be assessed as low (e.g. developing countries). In addition, made-by-images, i.e. attitudes towards certain manufacturers, can have a significant influence on the purchase decision. One of the habits is the way in which products are used. For example, while orange juice is drunk for breakfast in the USA, it is considered a soft drink in France and Italy. The product benefits to be communicated therefore differ from country to country and require a different communicative positioning. Business practices are also part of the habits; in Asian countries in particular, the initiation and handling of business is sometimes completely different from the habits prevailing in the West. Aesthetics includes the perception of individual words, objects and symbols. In Muslim countries, for example, the display of living objects is undesirable or forbidden; in some cultures, certain animals – such as the cow in India – are perceived as sacred or impure. Colours, too, sometimes have very different symbolic values: while the colour white is associated with purity in Europe, it symbolises mourning in Pakistan (see Fig. 16). Studies show that the popularity of colours can also vary cross-culturally. However, the colour “blue” seems to be popular across cultures and is the most popular colour in many cultural circles (Madden et al., 2000, p. 93 ff.). Consumption habits often depend on the level of education, e.g. the demand for classical music CDs, books, theatre and museum visits; in addition, the level of education determines which media are used by the recipients. In countries with a high illiteracy rate, campaigns in print media are therefore rather unsuitable; rather, they should be addressed via TV and especially radio. Social institutions influence the way people in a social environment are connected to each other. Among other things, family size is significant for marketing, e.g. with regard to packaging size design; Figure 17 provides an overview of the average household size in selected countries. But family composition is also important for marketing decisions: while in the West a family typically consists of parents and children, in less developed countries it also includes grandparents and other relatives, who sometimes exert a considerable influence on purchasing decisions.

2

Global Environment

Country Color

Austria

Brazil

43

Denmark

Finland

France

Italy

Pakistan

Concern DrunkenMourning ness Depression HelplessJealousy ness Pessimisms

Portugal

Sweden

Switzerland

Mourning Worry Hunger

Depression Pessimism Concern Illegal

Peace Innocence Purity

Kindness

Purity Innocence

War Blood Passion Fire

Trouble Anger Fire

Trouble Fire

Hope Envy

Envy UncomfortInexperienable ced Immature Kindness

Black

Mourning

Mourning Death Mystery

White

Innocence

Peace Innocence Cleanliness Purity Purity

Innocence Purity Cleanliness Young

Innocence Mourning Fear Unsuccess- Sobriety Elegance ful Love affair

Red

Trouble Dear Passion Fire

Heat Passion Hate Fire Trouble Violence

Dear Danger Fire

Trouble Dear Passion Fire

Trouble Heat Pleasure Shyness

Trouble Danger Fire

Green

Hope

Hope Freedom Immature Disease

Hope Boredom Health

Hope Envy

Youthful Fear

Envy Youth Luck Shortage of Piety money Eternal life Depressive anger

Blue

Faithful

Rest Cold Quality Indifference

Cold Without money Innocent

Trouble Fear

Fear

Jealousy (no special Difficulty in expression) solving problems

Naïve Gullible Frozen Cold

Anger Trouble Romantic

Yellow

Jealousy

Joy Sun Luck Envy Disease

(no special Disease expression)

Trouble

Virginity Weakness Trouble

Without money (slang)

Envy

Mourning Concern

Danger Falsehood Envy

Concern Jealousy

Trouble Marriage commitment (women)

Despair Scourge

Fig. 16 Colour symbols in international marketing. (Source: Wilkes, 1977, p. 122)

The social structure depends on the social class affiliation and is often due to religion, e.g. in India. The social structure, i.e. the proportion of the upper, middle and lower classes in the population, determines the selection of relevant market segments in the various countries. Cultural Dimensions According to Hofstede

A whole range of studies is available to understand and typologize different cultures (see e.g. Hofstede, et al., 2017; de Mooij & Hofstede, 2010; Hall, 1976; Hall & Hall, 1990; Schwartz, 1992). In the following, we will focus on Hofstede’s cultural dimensions, which have been widely used in international management. According to Hofstede, culture is understood as “mental programming”. This results from the fact that every person learns a large part of their thought patterns, feelings and potential actions in the course of their life; culture is significantly shaped by the social environment and is therefore a collective phenomenon (Hofstede et al., 2017, p. 3 ff.). In this context, Hofstede’s model is based on extensive empirical surveys, predominantly among employees of IBM 1967–1970 and 1971–1973; the database was expanded in 1981–1985 to include specifics of Far Eastern cultures (Hofstede, 2001, p. 48 f.; Hofstede et al., 2017, p. 46 f.). A second extension of the model to include a sixth dimension was based on the work of Minkov (2007, 2009). In detail, Hofstede was able to identify the following six cultural dimensions (see in the following Hofstede et al., 2017; de Mooij & Hofstede, 2010, p. 88 ff.):

44

The International Marketing Environment

5 4.5 4 3.5 4.7

3 2.5

4.2

2 1.5

2

2.4

Germany

Japan

2.6

2.6

USA

Poland

3.4

1 0.5 0 Turkey

Morocco

Jordan

Fig. 17 Average household size in selected countries (2020). (Source: https://www.prb.org/ international/indicator/hh-size-av/map/country)

Power distance Power distance describes how a society deals with inequality (Hofstede et al., 2017, p. 63 ff.), in particular the extent to which individuals expect and accept that power relations in society are unequally distributed. Societies with high power distance are characterised by clear hierarchies; social status and status symbols are of great importance. This also affects consumer behaviour (global brands, luxury products; see de Mooij & Hofstede, 2010, p. 89). Societies with high power distance are found in particular in Asian, Latin American and Arab countries, whereas Western countries tend to have low power distance (Hofstede et al., 2017, p. 68). Individualism vs. collectivism Individualistic societies are characterised by members focusing on themselves and their immediate family, whereas in collectivistic societies, individuals are integrated from birth into a group that provides for them in exchange for loyalty. Thus, group interest takes precedence over individual interest. Work-life balance and selfactualisation, on the other hand, are typical of individualistic societies. Western industrialised nations in particular are individualistic, while Asian and Latin American countries tend to exhibit collectivist patterns (Hofstede et al., 2017, p. 108 ff.). This

2

Global Environment

45

dimension is particularly important for marketing communication, as trust must first be built up in collectivist societies (de Mooij & Hofstede, 2010, p. 89). Masculinity vs. femininity In a masculine society, performance and success are central values, while care and quality of life are typical attributes of feminine societies. In masculine societies, status plays a major role and the distribution of roles between the sexes is clearly defined (Hofstede et al., 2017, p. 153 ff.). For international marketing, this is particularly important for the definition of target groups, as the distribution of roles helps to determine who makes the purchasing decision for individual product categories (de Mooij & Hofstede, 2010, p. 89). This dimension, in contrast to the first two dimensions, is not linked to level of development and geographical location: Germany, for example, tends to be more masculine, whereas the neighbouring countries of the Netherlands and Denmark are more feminine (Hofstede et al., 2017, p. 160 ff.). Uncertainty avoidance Uncertainty avoidance refers to the extent to which members of a society view unknown situations as a threat and try to avoid them. Cultures with high uncertainty avoidance have a high number of formal structures, rules and laws and are less open to change and innovation. Countries with a high level of uncertainty avoidance are found in particular in Latin America and the Mediterranean region, while those with a low level of uncertainty avoidance are found in English-speaking and Scandinavian countries (Hofstede et al., 2017, p. 204 ff.). This aspect plays a particularly important role for international marketing, as the adoption of new products is hindered by strong uncertainty avoidance (de Mooij & Hofstede, 2010, p. 90). Long-term vs. short-term orientation A long-term orientation means that a society pursues a long-term perspective and acts in a future-oriented manner; this also implies a willingness to invest in future developments and technologies. A high degree of long-term orientation is found in particular in Asian countries influenced by Confucianism. In societies with a long-term orientation, investments are planned for the long term and resources are used as sparingly as possible, whereas in societies with a short-term orientation (e.g. the USA), the short-term pursuit of profit is important (Hofstede et al., 2017, p. 253 ff.). A short-term orientation focuses on the past and present; tradition, fulfilment of obligations and stability play a major role here (de Mooij & Hofstede, 2010, p. 90). Indulgence vs. restraint This cultural dimension, which was only introduced in 2010, includes the extent to which one’s own needs are freely lived out in a society. This includes aspects such as leisure orientation, enjoyment orientation, dealing with sexuality, but also whether there is a rather optimistic or pessimistic view of the future. In cultures with a high degree of restraint, one’s own needs are suppressed, law and order have a high priority, the members strive for control over their own lives; in addition, a rather pessimistic basic attitude prevails. Enjoyment and indulgence, on the other hand, involve living out one’s own needs and an optimistic basic attitude towards life (Hofstede et al., 2017, p. 305 ff.).

46

The International Marketing Environment

Countries with a high enjoyment orientation are particularly interesting for international marketing, as their members are more willing to consume than those in more restrained societies. ◄

2.4

Geographical Factors

Geographical factors include: • • • •

climate, topography, resource endowment and infrastructure.

Climatic conditions such as altitude, humidity and temperature influence the demand for certain products on the one hand, and their functionality on the other. For example, many technical devices in tropical or dusty environments can only maintain their functionality through appropriate modifications (Cateora et al., 2020, p. 64). Topography includes natural barriers such as virgin forests, mountains and the like. Countries with many such barriers, such as in South America, are divided by geography alone into market segments that have few relationships with each other and sometimes even speak different languages. Furthermore, serving such markets involves considerable logistical problems. The endowment with resources, i.e. the availability of mineral resources and the possibility of producing energy, forms the basis for any modern technology; the occurrence of valuable mineral resources in individual countries gives rise to expectations of rapid economic development and thus the emergence of new markets. Infrastructural conditions include factors such as the size and level of development of transport networks, existing means of transport and transport hubs (e.g. ports), but also the communications infrastructure (e.g. media structure, telephone density, postal system) as well as the possibility of energy supply. The transport infrastructure depends very much on the topography and is a decisive factor in the choice of distribution routes. Especially in less developed countries with sometimes high geographical barriers, it is often not possible to use developed transport routes; moreover, several distribution centres are often required in one and the same country in order to be able to serve the market nationwide. Furthermore, the communication infrastructure has a significant impact on the possibilities of marketing communication and market research. Figure 18 shows the provision of communication facilities in selected countries.

2

Global Environment

47

Internet users

Mobile phones

DSL connections

United Kingdom

96.0

99.4

7.37

Japan

93.0

159.3

-

Germany

94.0

134.7

11.5

France

91.0

102.8

12.63

Spain

91.0

116.2

25.59

USA

90.0

106.6

22.45

Italy

83.7

128.6

13.08

Fig. 18 Communications infrastructure per 100 inhabitants or households (2020). (Sources: https:// datareportal.com/library, https://www.oecd.org/sti/broadband/5.1-FixedBB-SpeedTiers_2020-12. xls)

The BRICS Countries

BRICS is an acronym made up of the initials of Brazil, Russia, India, China and (since 2010) South Africa. These are five emerging countries that have experienced rapid economic development since the beginning of the millennium. Their annual growth rates in economic output have been between 5% and 10% in each of the last few years. They currently account for 42% of the world’s population, generate 24.5% of the world’s social product and are responsible for 17% of world trade. However, the BRICS countries are of very different economic importance. China’s economic output is 28 times greater than that of South Africa and four times greater than that of India and Russia. There are also major differences in per capita income. This is ten times higher in Russia and China than in India. Similarly, the political orientation is very different. While India, Brazil and South Africa are democracies, China is a capitalist-communist dictatorship and Russia is a sham democratic-authoritarian system. Nor are relations between the BRICS countries unencumbered. China and India have been at war over their Himalayan border. Brazil and China, meanwhile, are in fierce competition for African mineral resources. Nonetheless, from a business perspective, these are fundamentally economically interesting markets. However, whether these countries actually come into question as sales markets from the point of view of an individual company, for example, depends on many factors such as the respective product, the need structure, the size of the target group, the disposable income, etc., and must be examined in the specific individual case. Source: Adapted from Sommer, 2014. ◄

48

3

The International Marketing Environment

Industry and Competition

Industry and competition factors only concern companies that are active in the respective industry. In addition to the general industry structure, factors affecting competitors, suppliers and customers must be analysed (Sander, 1998, p. 52 ff.). Such factors in particular can vary greatly from country to country and require detailed analysis.

3.1

Industry Structure

The industry structure describes the general characteristics of the industrial sector in which the company operates and determines to a large extent the type of competition with which the company in question is confronted. This includes, on the one hand, the form of the market (e.g. oligopolistic or polypolistic); on the other hand, market entry barriers, such as nationalism and patriotism, but also subsidies for domestic suppliers, import duties for certain goods, etc., represent major restrictions on international marketing. Another factor is the intensity of competition within an industry; especially against the background of the harmonisation of the internal market in Europe, an increase in the intensity of competition can be assumed due to the resulting easier market access. The capital intensity of the industry plays a role, especially for the establishment of foreign production facilities; labour-intensive technologies are more suitable for use in low-wage countries than capital-intensive ones. Further industry structure factors are the value added within an industry and technological change.

3.2

Competitors

A competitive analysis comprises on the one hand the identification of competitors and on the other hand their evaluation. In the context of identifying competitors, it is important to determine whether one’s own company competes more with local suppliers or with internationally operating companies in the individual country markets. In general, there is an increasing trend towards globalisation of competition, i.e. a tendency of companies to plan their activities increasingly on a transnational level and to strive for a profile primarily towards other international competitors. An evaluation of the competitors should consider, among other things, the market power, the strategic orientation as well as the market coverage of the individual competitors (Hünerberg, 1994, p. 49). The market power of the competitors results from their size and market share, but also from the resources and potentials that the individual competitors have, e.g. financial strength, personnel, access to procurement sources and profit situation. The strategic orientation of the competitors can be described on the one hand by the general market development strategy (cost leadership, differentiation or niche strategy), on

3

Industry and Competition

49

the other hand by the basic marketing strategy (global or polycentrical strategy); furthermore, the extent of vertical and lateral integration is of importance. Finally, market coverage results from the range of services offered as well as from the degree of distribution of the products offered.

3.3

Suppliers

The analysis of suppliers is particularly important for companies that are planning direct investments in certain countries or are already present with their own subsidiaries. However, the analysis of international suppliers with regard to a global sourcing strategy also plays an important role for companies pursuing an export strategy. Such supplier factors include (Berndt, 1995, p. 29): • • • • •

number and size of suppliers, concentration and market power, quality of raw materials and intermediate products, labour supply and supply of nominal goods,

i.e. they affect all of the company’s procurement markets. In particular, the market power of suppliers can result in increased costs for the procurement of input goods; the quality of raw materials and intermediate products, on the other hand, influences the quality of the end products and thus their enforceability on the world market. Also of importance are local content regulations, which stipulate that a certain proportion of value creation must be realised by using local suppliers; such regulations are often found in emerging markets and primarily serve to support the domestic economy (see chapter “International Market Entry Strategies” in Part III). Such regulations have the consequence that the company is sometimes considerably restricted in its choice of suppliers.

3.4

Customers

3.4.1 End Users In an analysis of end-users, the following factors, among others, are relevant: Demand Behaviour in the Individual Country Markets Demand behaviour includes, for example, purchasing criteria, frequency of demand, specific product requirements and brand choice behaviour. Different product requirements in the individual countries generally lead to a product adaptation, different purchasing criteria to a adaptation of, among other things, the communication activities; the brand

50

The International Marketing Environment

Countries

Share of households with own computer1

Passenger cars2

Sweden

93³

479

France

84

488

92³

489

Italy

73

646

Portugal

71

5143

Finland

93

634

Germany

93

561

Poland

82

617

Slovenia

80

544

Luxembourg

95

663

Iceland

97

757

Turkey

50

151

73

331

Great Britain

Romania 1

2

3

2017 in % , 2018 per 1000 inhabitants Source: Eurostat

Fig. 19 Equipment of private households with durable consumer goods in selected countries. (Sources: https://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=isoc_ci_cm_h, https://stats. oecd.org/Index.aspx?DataSetCode=ITF_INDICATORS, https://www.statista.com/statistics/ 452097/portugal-number-of-cars-per-1000-inhabitants/)

choice behaviour is particularly important for those companies that compete on the foreign markets with established local brands. Development of the Need Structure Products that are staples in some countries often represent luxury goods in others. For international marketing decisions, it should be noted that upscale consumer goods are more in demand in developed countries, while in less developed countries broad segments of the population primarily seek to have their basic needs met. One exception is luxury goods of the upper class (e.g. luxury cars, expensive jewellery), which are increasingly in demand by the upper classes in the poorest countries. Of importance in this context is also the equipment of private households with certain upmarket goods; this can provide indications of potential demand for other goods. Figure 19 shows the household equipment with computers and cars as selected consumer durables in individual countries.

3

Industry and Competition

51

Attitudes and Preferences Attitudes and preferences are very much shaped by culture; typical examples are attitudes towards cleanliness, eroticism, humour, material values, etc., but also towards specific products such as cosmetics, alcoholic beverages or tobacco products. Nature and Size of Market Segments The nature and size of the market segments can be determined with the aid of market segmentation; this can be carried out on the basis of socio-demographic characteristics, life-style typologies or the benefit expectations of consumers (benefit segmentation). A central task of international marketing is the identification of transnational segments with a similar need structure, which can be processed with a largely standardised use of marketing instruments (see chapter “International Market Selection” in Part III). Price Willingness of Consumers Consumers’ willingness to pay depends largely on their economic situation (household income, purchasing power, etc.). Due to the very different purchasing power in the various countries, international price differentiation must be carried out in many cases in order to be able to adequately take into account the different willingness to pay of consumers in the individual countries (see also chapter “International Price Management” in Part IV). It should be noted that purchasing power alone is not a complete indicator of willingness to pay, as this also depends heavily on cultural and social factors. Product Life Cycle The position of the products in the life cycle of the individual country markets is of considerable importance for international marketing decisions, since a large number of factors such as turnover, profit and the number and behaviour of competitors and customers change in the course of the life cycle; as a consequence, there is also a need for phasespecific use of the marketing instruments. One and the same product can be in different phases of the product life cycle at the same time depending on various factors – such as the time of introduction, international competition, development status of the individual nations, market dynamics (Hinterhuber et al., 2002, p. 342 ff.). For this reason, the company must compare the life cycles in the individual countries in order to be able to make an adequate allocation of resources.

3.4.2 Distributors Distributors play a decisive role in the consumer goods sector, as the international distribution of consumer goods is generally dependent on acceptance by local wholesalers and retailers. Thus, blocked sales channels hinder the penetration of foreign markets to a considerable extent. The importance of distribution in international marketing becomes clear when the concentration rate in the food sector in particular is considered. In individual countries, considerable concentration rates can be seen here. For example, the

52

The International Marketing Environment

Norway

75.8

Finland

75.3

Belgium

74.3

Sweden

74.2

Denmark

74.1

Luxembourg

70.2

Austria

69.4

Switzerland

65.0

Portugal

64.4

Germany

62.5

Hungary

62.3

France

61.4

Netherlands

60.1

Ireland

56.9

Greece

56.8

Spain

54.1

Slovakia

51.7

Great Britain

49.3

Czech Republic

44.5

Italy

33.6

Ukraine Russia Poland Romania

31.3 26.2 26.0

Market share in food sales of the top 5 in 2013 in %.

22.4

Fig. 20 Concentration in European food retailing. (Source: Metro AG, 2015, p. 138)

market share of the top 5 in food retailing in Norway was an impressive 75.8% in 2013 (see Fig. 20). The increasing concentration and the associated buying power of the distributors has led to an intensification of acquisition efforts on the part of manufacturers, which has resulted in organisational activities such as the introduction of key account management. Particularly in the case of large retail chains, there is also an increasing trend towards internationalisation, which is reflected not only in the establishment of foreign outlets, but also in acquisitions and cooperations. The structure of the retail trade in the individual country markets served is of considerable importance for distribution decisions, since an indirect distribution strategy must make use of existing distribution channels in the individual countries (see chapter “International

4

Company-Specific Factors

53

Distribution Management” in Part IV); marketing activities towards the retailers must also be adapted to the specific structures in the individual countries. In addition, different retail practices in the individual countries must be taken into account; for example, Japanese retailers expect a full right of return to the manufacturer – even for defect-free goods – as well as extensive financing assistance.

4

Company-Specific Factors

While the global conditions as well as the factors of the industry and the competition describe the environment in which the company operates in the individual foreign markets and thus express the opportunities and risks of foreign market development, the analysis of company-specific factors serves to evaluate the company’s own strengths and weaknesses with regard to foreign involvement (Sander, 1998, p. 59 ff.). In detail, these are the following factors: • • • • •

corporate objectives and corporate culture, financial strength, product features, human resources and production capacity.

Since company-specific factors naturally vary from company to company in terms of their nature and relative importance, only an overview of the most important company-internal conditions will be provided below.

4.1

Corporate Objectives and Corporate Culture

The scope for international marketing decisions is determined by the objectives pursued. Such goals include both the global corporate goals and the market goals with regard to the various country markets (see in detail chapter “Strategic International Objectives” in Part III). Closely linked to the corporate goals is the corporate culture. Corporate culture comprises principles that prevail in a company and relate to the company itself, its relationships with the natural, technical and social environment as well as the relationships between individuals and groups in the company (Hünerberg, 1994, p. 73). On the one hand, corporate culture and corporate objectives influence the fundamental attitude to foreign activities, the willingness to take risks and the general attitude to certain countries or groups of countries (Meissner, 1995, p. 68 f.); on the other hand, they determine the fundamental strategic orientation of a company, i.e. whether an ethnocentric, polycentric or geocentric orientation predominates and – closely connected with this –

54

The International Marketing Environment

whether a rather standardised or rather adapted marketing strategy is implemented (see also chapter “The Steps of International Marketing Planning” in Part I and chapter “International Market Development Strategies” in Part III).

4.2

Financial Strength

The start-up of foreign activities often requires high initial investments, especially in the case of market entry strategies with capital participation such as the establishment of subsidiaries or joint ventures (on the individual market entry strategies, see chapter “International Market Entry Strategies” in Part III); the financial scope of a company is therefore of great importance. The financial strength of a company is determined, among other things, by: • • • • •

the equity base, the amount of the financial surplus, possibilities of equity and debt financing, the inventory of goods, receivables and liabilities, as well as relations with banks.

However, sufficient financial leeway is also necessary for ongoing international business activities, since on the one hand foreign projects often have to be – at least partially – financed in advance by the contractor, and on the other hand there is also an increased payment risk in foreign business, i.e. the risk of bad debt losses due to the inability or unwillingness of a foreign debtor to pay (on the risks in international marketing, see also chapter “International Market Selection” in Part III).

4.3

Product Features

The characteristics of the products offered have a strong influence on the entire international marketing mix, since price, communication and distribution activities have to be oriented towards the characteristics of the product. Thus, a first essential determinant is product quality; in this context, it has to be checked in particular whether the acquisitive effect of a high product quality also allows comparatively high prices to be achieved in less solvent foreign market segments or whether a lower-quality but lower-priced product variant should be offered for such markets. With regard to the strategic orientation, the standardisability of the products must also be examined; standardisability depends on the one hand on the structure of needs in the individual foreign markets, and on the other hand also on the technical and legal standards prevailing there. Finally, the ancillary services offered also play a role, especially in those countries where certain ancillary services are customary and form an integral part of the

4

Company-Specific Factors

55

offering. In this case, it is only possible to distinguish oneself from the competition if services are offered that go beyond the usual level.

4.4

Human Resources

Qualification and foreign experience of the human resources are important for internationally operating companies, but also fundamental success factors. The internationalisation know-how of a company comprises the following elements (Hünerberg, 1994, p. 75 f.): • general knowledge of international handling techniques such as international contract drafting, financing handling with foreign countries, shipping and customs clearance; • concrete knowledge of the individual foreign markets, such as potential business partners, distribution channels, funding opportunities, market and competitive conditions; • practical experience from current or completed business abroad. Due to the importance of internationalisation know-how for internationally operating companies, great importance must be attached to human resources management; this includes all activities of recruitment, training and further education of human resources involved in foreign activities (see Part VII in this book). The decisive factor here is that the international orientation of the company is anchored in the corporate culture and corporate principles and is communicated to the personnel in an adequate manner.

4.5

Production Capacity

An essential factor, in particular for the extent and intensity of international activities, is given by the existing production capacity and capacity utilisation. It is precisely underutilised domestic capacity that can provide the initial impetus for export activities; the reduction in unit costs associated with the expansion in volume on the one hand and the resulting increase in market share on the other can significantly boost a company’s competitiveness. If the existing production capacity is not sufficient for the start-up of foreign activities, but the conditions for the company’s own involvement in certain countries are favourable, a company can conclude licensing agreements with foreign licensees; alternatively, there is the possibility of expanding production capacity at home and initiating export activities, or of setting up production facilities abroad from the outset (see chapter “International Market Entry Strategies” in Part III).

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The International Marketing Environment

References Berndt, R. (1995). Marketing 3. Marketing-Management (2nd ed.). Springer. Cateora, P. R., Gilly, M. C., Graham, J. L., & Money, R. B. (2020). International marketing (18th ed.). McGraw-Hill Education. Czinkota, M. R., & Ronkainen, I. A. (2013). International marketing (10th ed.). Cengage Learning. de Mooij, M., & Hofstede, G. (2010). The Hofstede model. Applications to global branding and advertising strategy and research. International Journal of Advertising, 29(1), 85–110. Hall, E. T. (1976). Beyond culture. Doubleday. Hall, E. T., & Hall, M. R. (1990). Understanding cultural differences. Germans, French and Americans. Intercultural Press. Hinterhuber, H. H., Mazler, K., & Pechlaner, H. (2002). Methoden und Techniken der internationalen Wettbewerbsanalyse. In K. Macharzina & M.-J. Oesterle (Eds.), Handbuch internationales Management (pp. 333–359). Gabler. Hofstede, G. (2001). Culture’s consequences: Comparing values, behaviors, institutions and organizations across nations. Sage. Hofstede, G., Hofstede, G. J., & Minkov, M. (2017). Lokales Denken, globales Handeln: Interkulturelle Zusammenarbeit und globales Management (6th ed.). dtv Beck. Hünerberg, R. (1994). Internationales Marketing. Moderne Industrie. Institut der deutschen Wirtschaft (Ed.). (2004). Deutschland in Zahlen, Ausgabe 2004. Institut der deutschen Wirtschaft. Institut der deutschen Wirtschaft (Ed.). (2010). Deutschland in Zahlen, Ausgabe 2010. Institut der deutschen Wirtschaft. Institut der deutschen Wirtschaft (Ed.). (2011). Deutschland in Zahlen, Ausgabe 2011. Institut der deutschen Wirtschaft. Institut der deutschen Wirtschaft (Ed.). (2012). Deutschland in Zahlen, Ausgabe 2012. Institut der deutschen Wirtschaft. Institut der deutschen Wirtschaft (Ed.). (2013). Deutschland in Zahlen, Ausgabe 2013. Institut der deutschen Wirtschaft. Institut der deutschen Wirtschaft (Ed.). (2014). Deutschland in Zahlen, Ausgabe 2014. Institut der deutschen Wirtschaft. Institut der deutschen Wirtschaft (Ed.). (2015). Deutschland in Zahlen, Ausgabe 2015. Institut der deutschen Wirtschaft. Institut der deutschen Wirtschaft (Ed.). (2016). Deutschland in Zahlen, Ausgabe 2016. Institut der deutschen Wirtschaft. Institut der deutschen Wirtschaft (Ed.). (2017). Deutschland in Zahlen, Ausgabe 2017. Institut der deutschen Wirtschaft. Institut der deutschen Wirtschaft (Ed.). (2018). Deutschland in Zahlen, Ausgabe 2018. Institut der deutschen Wirtschaft. Institut der deutschen Wirtschaft (Ed.). (2019). Deutschland in Zahlen, Ausgabe 2019. Institut der deutschen Wirtschaft. Institut der deutschen Wirtschaft (Ed.). (2020). Deutschland in Zahlen, Ausgabe 2020. Institut der deutschen Wirtschaft. Madden, T. J., Hewett, K., & Roth, M. S. (2000). Managing images in different cultures: A crossnational study of color meanings and preferences. Journal of International Marketing, 8(4), 90–107. Manguel, A. (1991, November). Prisoner in a Modern Babel. World Press Review, 11, 30. Meissner, H. G. (1995). Strategisches Internationales Marketing (2nd ed.). Oldenbourg.

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Metro, A. G. (Ed.). (2015). Metro-Handelslexikon 2015/2016: Daten, Fakten und Adressen zum Handel in Deutschland, Europa und der Welt. Metro AG. Minkov, M. (2007). What makes us different and similar: A new interpretation of the world values survey and other cross-cultural data. Klasika i Stil. Minkov, M. (2009). Predictors of differences in subjective well-being across 97 nations. CrossCultural Research, 43(2), 152–179. Sander, M. (1998). Unternehmen und Umwelt. In R. Berndt, C. Fantapié Altobelli, & P. Schuster (Eds.), Springers Handbuch der Betriebswirtschaftslehre (Vol. 1, pp. 41–67). Springer. Schwartz, S. H. (1992). Universals in the content and structure of values: Theoretical advances and empirical tests in 20 countries. Academic Press. Sommer, T. (2014). Aufstrebende Märkte sind noch keine Mächte. http://www.zeit.de/politik/ ausland/2014-07/brics-gipfeltreffen-fortaleza. Retrieved 25 Mar 2015. Usunier, J. C., & Lee, J. A. (2013). Marketing across cultures (6th ed.). Pearson Education. Wilkes, M. W. (1977). Farbe kann verkaufen helfen. Marketing Journal, 2, 111–114. Zentes, J., Swoboda, B., & Schramm-Klein, H. (2013). Internationales Marketing (3rd ed.). Vahlen. Zimmermann, A. (1992). Spezifische Risiken des Auslandsgeschäfts. In E. Dichtl & O. Issing (Eds.), Exportnation Deutschland (2nd ed., pp. 71–100). Beck.

International Market Research

Abstract

Successful action in foreign markets requires knowledge of the market environment; for this reason, a situation analysis is the first step in international marketing planning. Obtaining information about the various foreign markets is the task of international market research. The aim is to reduce the uncertainty inherent in international marketing decisions. While information about the global marketing environment can be obtained from secondary sources, information about customer behaviour in the various target markets often requires primary surveys.

1

Challenges to International Market Research

1.1

Nature of International Market Research

International market research has the task of providing information for international marketing decisions. International market research has to fulfil the following functions: • early recognition of opportunities and risks on international markets, • providing information to support international marketing decisions at strategic, tactical and operational level, • providing information to support international marketing controlling, • increasing the efficiency of international marketing planning, • developing and applying appropriate methods for cross-country analysis. The above mentioned marketing problems affect at least two geographically delimited national markets; since a national market also has different cultural groups with # The Author(s), under exclusive license to Springer-Verlag GmbH, DE, part of Springer Nature 2023 R. Berndt et al., International Marketing Management, https://doi.org/10.1007/978-3-662-66800-9_4

59

60

International Market Research

One cultural group

Two or more cultural groups

Cross-cultural Research One nation

1.1 Domestic research

1.2 Domestic subculture research

Cross-national Research Two or more nations

2.1 International comparison of one cultural group

2.2 International comparison of two or more cultural groups

Fig. 1 Culture- and nation-related typology of international market research. (Source: Adapted from Holzmüller, 1986, p. 46; Schopphoven, 1991, p. 29)

correspondingly different needs, the typology of cross-border market research shown in Fig. 1 can be drawn up (Holzmüller, 1986, p. 45). Field 1.1 comprises research approaches that take place within a domestic environment and do not focus on cultural diversities, whereas research approaches that can be assigned to field 1.2 take into account cultural characteristics of different ethnic groups within a nation. Research in field 2.1 represents the most common case of cross-border market research: selected groups from one nation are compared with adequate groups from one or more other nations without taking into account national subcultures in each case. The inclusion of different ethnic subcultures leads to research approaches of type 2.2. While market research of type 2.1 and 2.2 is subsumed in the literature under the term “cross-national research”, approaches of type 1.2, 2.1 and 2.2 belong to “cross-cultural research”. The major challenges to international market research compared to national research can be characterised as follows (Czinkota & Ronkainen, 2013, pp. 237 ff.): • New parameters: internationalisation means that the company is confronted with a variety of factors that are not present in purely national activities, such as customs duties, exchange rates, and others. • New environments: environmental conditions such as culture, political system, legal system diverge from country to country and sometimes differ considerably from the conditions in the home country. • Broader definition of competition: the definition of the relevant market may vary considerably from one country to another; for the same product, completely different competitive structures may have to be taken into account in different countries.

1

Challenges to International Market Research

61

• Unfavourable market research infrastructure: particularly in less developed countries, there is a lack of population coverage as a basis for sampling, entire population groups are not accessible, qualified market research institutes are lacking. • Lack of reliability of secondary statistical data: due to limited budgets and the high costs of international surveys, the focus of international market research is often on the evaluation of secondary statistical material. However, outdated data material, non-comparable research designs and even politically induced “embellishment” of the results often make secondary statistical data material useless. • High time requirement and financial costs of primary research: international research designs are usually more complex than in national studies; in addition, there is the problem of comparability and currency of the collected information as well as the necessary cross-national coordination of research activities. For this reason, primary surveys are often only conducted in the company’s key markets. Due to the methodological and technical difficulties mentioned above, which do not exist to the same extent in the national field, the market research instruments for international market analyses are simplified and often standardised. The increasing importance of international market research is evident from the development of the volume of the market research market (ESOMAR, 2020). While the global market research volume (turnover of market research companies) in 2007 was still around USD 28 billion, in 2019 around USD 73 billion was already spent on market research, with Europe accounting for 26%. North America has now clearly overtaken Europe (see Fig. 2). Within Europe, the UK leads the way with around USD 6.7 billion, followed by Germany (USD 2.6 billion), and France (USD 2.4 billion). The Asia-Pacific region made significant gains with net growth of 2.7%. China in particular has gained in importance and now ranks fourth worldwide.

1.2

Requirements to International Market Research

Both secondary and primary research data have to meet various requirements so that they can support international marketing decisions (Bauer, 2009, p. 28 ff.): • • • • •

currency, quality, comparability, relevance and cost-effectiveness.

The currency of the data plays a role especially in secondary statistical studies, as the timely identification of trends and structural breaks is only possible on the basis of up-todate information. The quality of market research information includes criteria such as objectivity, reliability and validity of the data collected (Fantapié Altobelli, 2017, p. 96 ff.).

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1992

2718

13081 48332 North America Europe

Asia-Pacific Latin America Africa & Middle East

23780

Fig. 2 Global turnover of market research companies in 2019 by region (in millions US dollars). (Source: Adapted from Statista, 2021, p. 4; ESOMAR, 2020, p. 10)

Studies from different countries sometimes differ considerably with regard to the quality of the data collected. Most international surveys have a comparative character; the criterion of comparability therefore plays a decisive role. A standardised market research plan for all countries is only possible in the case of primary surveys; however, standardisation often does not make sense because the constructs to be surveyed have to be defined differently across countries due to cultural diversities (Holzmüller, 1986, p. 54; Craig & Douglas, 2005, p. 179 ff.). The equivalence problem thus addressed is dealt with in detail in the following section. The relevance of the data for decision-making means that international market research does not have the task of collecting broad, all-encompassing data on all countries, but must focus on those aspects that are necessary for preparing and making decisions. The cost-effectiveness of market research information must be seen in the context of its quality and relevance. Thus, a comparatively expensive primary investigation, in the context of which current, valid and relevant data are collected, is generally preferable to a cost-effective secondary analysis that does not meet the above-mentioned requirements; however, due to the high cost of international primary investigations, the principle applies that cost-effective sources of information should be exhausted first, and primary investigations should only be carried out for those facts that cannot be collected from secondary sources or not in the required quality.

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In connection with the requirements for market research information, international quality standards play a decisive role (Wiegand, 2002). For example, the International Chamber of Commerce (ICC) and the European Society for Opinion and Marketing Research (ESOMAR) publish the ICC/ESOMAR International Code on Market and Social Research. The standard is recognised internationally by over one hundred national market and social research associations.

1.3

Equivalence in International Market Research

1.3.1 Developing Equivalent Research Designs As already mentioned in Sect. 1.2, the criterion of comparability of the internationally collected data plays a central role due to the comparative nature of cross-national studies. It should be noted, however, that the fulfilment of this criterion may thwart the pursuit of discovering cultural differences in international market research (Simmet-Blomberg, 1998, p. 164). The criterion of comparability cannot usually be achieved by a standardised procedure in the countries to be investigated; on the contrary, a country-specific adaptation of various elements of the international study is often necessary. The extent of this differentiation should, however, remain limited, as otherwise the suitability of the object of investigation for a (comparative) cross-national study must be questioned (Simmet-Blomberg, 1998, p. 164). In order to ensure overall equivalence of the data to be collected internationally, equivalence of the individual components of the study design must first be achieved, i.e., equivalence of • • • • • •

the national objects of the study, the national investigation methods, the national units of investigation, the national investigation situations, the national data preparations and the national evaluations,

with each main category including several subcategories (see e.g. Bauer, 2009, p. 59 ff.). The realisation of overall equivalence is therefore a complex task with numerous interdependencies and feedback effects (see Fig. 3). The equivalence problem of international market research is widely discussed in the literature (e.g. Douglas & Craig, 1984; Pope, 1991; Bachleitner et al., 2014). A variety of different terminologies and concepts exist; examples are classifications of equivalence conditions used in comparative psychology, sociology, political science and cultural anthropology (see on this, among others, Bauer, 2009, p. 61; Holzmüller, 1986, p. 54). Little attention has been paid so far to the question of the transferability of the conceptual framework of international market research (see Douglas & Craig, 2006 for a detailed discussion). Most cross-national studies are implicitly based on the cultural

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Equivalence of the units of investigation Sampling units equivalence

Equivalence of research methods

Sample selection equivalence

Equivalence of research instruments

Equivalence of the research situations Temporal equivalence Interaction equivalence

Equivalence of interviewing tactics Translation equivalence Equivalence of measurement methods

Equivalence of research subjects

Equivalence of research data

Equivalence of response translations

Equivalence of human images Functional equivalence Conceptual equivalence Categorical equivalence

Equivalence of data preparation

Equivalence of data analysis

Equivalence of response categorisations

Interpretative equivalence Equivalence of use and exploitation

Fig. 3 Equivalence in international market research. (Source: Adapted from Bauer, 2009, p. 60; Bachleitner et al., 2014, pp. 145 ff.)

perspective of the home country or headquarters. This gives rise to the following problems, among others (Craig & Douglas, 2005, p. 184 ff.; Bachleitner et al., 2014, p. 14 f., 56): • The relevance and topicality of the research topic in different cultures may result in a different degree of concern of the respondents. • The underlying theoretical relationships are not relevant in individual countries, e.g. there are divergent cause-effect relationships between the constructs. • The constructs as such are of different importance in different countries or are expressed in different behaviours, e.g. trust. • The overarching unit of study is typically the individual country, but in many cases different units of study are more appropriate, e.g. cultural groupings within or between nations.

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• The constructs are measured in a similar manner. However, even when the measurement instrument is equivalent, response styles may vary (e.g. due to politeness bias). • It is implicitly assumed that there is a universal image of man, which, however, can differ greatly between cultures. For these reasons, a decentralisation of the research perspective is appropriate, i.e. a reduction in the dominance of the headquarters culture in the development of the research design. (On the importance of culture for international market research, see Steenkamp, 2001; Bachleitner et al., 2014.) Increasingly, cross-national studies are based on qualitative methods. While quantitative surveys focus on the comparability of results from different countries or cultures or on their transferability, qualitative research often aims to compare current results with established knowledge. Against this background, the discussion of equivalence in qualitative research takes place from a somewhat different perspective (Polsa, 2007).

1.3.2 Equivalence of Research Subjects The equivalence of the subjects of the study includes the following aspects: Equivalence of Human Images The human image as a comprehensive construct of attitudes, views, evaluations, and beliefs about people is often implicitly assumed to be universal, even though different cultures are based on very different human images. Against this background, the well-known Big Five scale for measuring personality, for example, can be methodologically questioned, as the personality dimensions recorded there are unlikely to apply universally (Bachleitner et al., 2014, p. 56). Functional Equivalence In this context, it is required that the object- or behaviour-related data to be collected represent functionally identical facts. In particular, different functions of the same or similar objects of investigation in the individual countries must be taken into account. An illustrative example is the different function of the bicycle in different countries – on the one hand as an important means of transport, on the other hand as a purely recreational object (Holzmüller, 1986, p. 55). In the context of qualitative studies, functional similarities or dissimilarities are a result per se and can be uncovered, for example, by analysing narratives, proverbs and other cultural artefacts (Polsa, 2007, p. 6). Conceptual Equivalence Conceptual equivalence is achieved when a theoretical construct is based on a universally applicable concept in all cultures studied, i.e. when the construct as such has the same meaning in different cultures (Reiche & Harzing, 2007, p. 5). However, due to the requirement for international comparability of the data to be collected, it is often not possible to operationalise theoretical constructs, such as attitudes or motivations, identically for all countries under investigation. Constructs such as “ambition” or “power”, for

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example, have to be defined and measured differently depending on the culture, as the concepts may be described by different factor structures. Therefore, measurement is mostly based on country-specific indicators. Qualitative preliminary research is often conducted to develop suitable indicators (Polsa, 2007, p. 5). Moreover, many terms are culturally contingent and result from the respective cultural history, so that they have no equivalent in another country, e.g. “freedom of the will” as a typical occidental construct. Even if the term exists in another culture, it may have a different connotation, such as “tolerance” (Bachleitner et al., 2014, p. 62). Categorical Equivalence Categorical equivalence is ensured when the categorisations of objects, stimuli, or behaviours take into account all national characteristics. This takes into account problems arising from different or unique definitions and delimitations in different countries (e.g. the category “urban” includes different sizes of residence in different countries; the term “private household” is also defined differently in different cultures). In addition, the same products are sometimes assigned to different product categories internationally, or problems arise due to different categorisations of socio-economic characteristics (e.g. differing income classes or occupational classifications). It is then often necessary to create substitute indicators in order to ensure the comparability of the data (Schopphoven, 1991, p. 34 f.; Bachleitner et al., 2014, p. 63 f.).

1.3.3 Equivalence of Research Methods The equivalence of research methods is ensured by the realisation of equivalence of research instruments, interviewing tactics, measurement, and translation. Equivalence of Research Instruments This aspect takes into account the culture-specific nature of the various research instruments, which generally requires country-specific adjustments to the methodology (Simmet-Blomberg, 1998, p. 301). For example, Japanese managers are less inclined to participate in e-mail surveys than in North America, so that the survey usually has to be conducted in written form. However, such adaptations must be designed in such a way that both an equivalent representation of the individual national samples and an equivalent internal validity of the national study results are achieved (Bauer, 2009, p. 64). Equivalence of Interviewing Tactics Depending on the subject of the study, it is often necessary to make country-specific adjustments to the forms and phrasing of questions and also, for example, to the duration of the interview. The aim is to prevent country-specific distortions of the results (e.g. through politeness bias or socially desirable answers) or to keep their extent as low as possible (see e.g. Schopphoven, 1991, p. 41; Simmet-Blomberg, 1998, p. 309). Especially in qualitative research such effects become increasingly apparent due to the intensive oral interaction (Polsa, 2007, p. 11).

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Translation Equivalence While in B2B surveys the questionnaire can usually be administered in English, in the B2C sector the questionnaire must be translated into the local language. Equivalence is achieved when the questionnaire has less of a linguistic proximity, but the intended effect is the same. The original questionnaire is first translated by at least two translators at the same time, the versions are discussed in the team. The resulting version is subjected to a pretest, which leads to further adjustments until the final questionnaire is ready. The entire process must be precisely documented (Bachleitner et al., 2014, p. 102). Translation equivalence also extends to the formulated justification of the research project, the research instructions and, if necessary, to non-verbal specifications. For example, the question about schoolleaving qualifications must be adapted to country-specific characteristics. Cultural specifics, such as the obligation of veiling women, may require the adaptation of visual material, etc. (Bachleitner et al., 2014, p. 103). Qualitatively oriented studies mainly rely on native speakers (Simmet-Blomberg, 1998, p. 310 f.). Equivalence of Measurement Methods Equivalence of measurement methods requires that the same factor structures prevail for the scales used, i.e. that the same items are associated with the respective dimensions in all countries. It is also required that the correlations of the items with the respective factors are largely identical in the individual countries (Bachleitner et al., 2014, p. 71). Measurement method equivalence requires the use of either culture-specific measurement methods (e.g. internationally differentiated rating scales) or culture-free measurement methods (Malhotra, 2015, p. 227 f.). However, the number and scope of culture-free measurement methods are limited. Problems include the internationally equivalent measurement of psychographic variables as well as the verbal paraphrasing of rating scale points (on measurement method equivalence, see in detail Craig & Douglas, 2005, p. 191 ff.). Confirmatory factor analysis and the Rasch model are usually proposed as suitable procedures for developing equivalent scales (Steenkamp & Baumgartner, 1998; Salzberger & Sinkovics, 2006). Generally speaking, the response behaviour can differ considerably from country to country due to cultural peculiarities. So-called response tendencies lead to a systematic distortion of the results, as the responses are influenced by factors other than purely content-related considerations. Such response tendencies are, for example (de Jong et al., 2008; Baumgartner & Steenkamp, 2001; de Langhe et al., 2011): • • • • • •

acquiescence: tendency to answer questions positively (yes-saying pattern); disacquiescence: tendency to answer questions negatively (nay-saying pattern); extreme response style/range (avoiding middle response categories); tendency towards the middle (avoidance of extreme response categories); social desirability (conformity to a – supposed – social norm); anchor contraction effect: tendency to report more intense/extreme emotions when interviewed in a language other than one’s native language.

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Use of the top response category in international comparison (index; average=100)

Hong Kong Japan Sweden Great Britain

USA Italy Philippines 0

50

100

150

200

250

Fig. 4 Purchase intention indices in international comparison. (Source: Adapted from Pope, 1991)

Such response tendencies are generally found at the individual level; in the international context, this is aggravated by the fact that certain response tendencies are also culturally influenced. The extent to which cultural differences can jeopardise equivalence is shown by the following example (Pope, 1991): as part of a controlled experiment, the institute Custom Research investigated whether country-specific differences could be observed with regard to the tendency to tick extreme positions on a scale. The results were sometimes astonishing (Fig. 4): for example, it was found that in the Philippines and Italy the willingness to tick the top answer category when asked about purchase intention was four times greater than in Japan. A lack of equivalence in measurement methods considerably limits the validity of intercultural surveys (He et al., 2008).

1.3.4 Equivalence of the Units of Investigation When generating samples for cross-national studies, international comparability on the one hand and the representativeness of the surveys on the other must be ensured (Schopphoven, 1991, p. 39 f.). The adequate determination of samples includes the following aspects:

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Sampling Units Equivalence The basic prerequisite for international studies is that information on functionally identical study units, such as intensive users of a particular product, is obtained in each of the countries to be studied. Functional identity does not, however, rule out the possibility that the units of investigation may differ, for example, in terms of socio-demographic characteristics or their role in influencing purchasing decision processes. Definition equivalence demands an equivalent empirical definition of the units of investigation in total or partial surveys. The definition of the units of investigation must therefore be carried out taking into account functionally equivalent characteristics or characteristic values. Here, too, it is advisable to carry out explorative preliminary investigations in order to be able to assess which definitional characteristics are to be used in each case (Bauer, 2009, p. 65 f.). Sample Selection Equivalence Due to different environmental conditions, it is often necessary to use differentiated selection principles as well as selection procedures and techniques in the countries to be studied in order to achieve an equivalent representation of the national samples (Holzmüller, 1986, p. 61). For example, random sampling is hardly feasible in some countries due to insufficient secondary sources (e.g. census data, address books); in this case, judgemental or purposive selection procedures are usually used (Salciuviene et al., 2005, p. 154). In qualitative surveys, the snowball method is often used (Fantapié Altobelli, 2017, p. 154); here, the paths of snowball sampling should be recorded and compared between cultures in order to be able to assess selection equivalence (Polsa, 2007, p. 6).

1.3.5 Equivalence of the Research Situations The equivalence of the research situations is determined by various factors related to time and timing, as well as to the interactions of the persons involved in the study. Temporal Equivalence Temporal equivalence requires that the fieldwork in the countries to be studied is carried out in such a way that both time-related influencing factors (especially social, political and economic developments) and time-related influences (of a natural, political, religious or economic nature) can be controlled (Bauer, 2009, p. 67). For example, different public holidays, main holiday periods, but also political events such as elections or civil wars can distort the results and affect equivalence. Changes in the legal framework (e.g. European Data Protection Regulation) can also affect temporal equivalence, for example if access to administrative data such as population registers is restricted as a result (Bachleitner et al., 2014, p. 93; Reiche & Harzing, 2007, p. 6). Temporal equivalence plays a special role in longitudinal studies, as it must be ensured in each wave of the survey (Bachleitner et al., 2014, p. 92).

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Interaction Equivalence In addition to the control of temporal influences, the consideration of interviewer and thirdperson impact on the research situation is also required. Personal and environmental influences affect both verbal and non-verbal behaviour. In addition, cross-national surveys must take into account, among other things, gender-specific and status-related interaction such as a gender or ethnic bias as well as culture-specific reaction patterns (Holzmüller, 1986, p. 62 f.). In qualitative interviews, equivalence of the verbal context must also be ensured; this is done by transcription and comparative analysis of video recordings in different cultures (Polsa, 2007, p. 7 f.).

1.3.6 Equivalence of Data Preparation Equivalence of the data preparation is ensured if semantic equivalence between the original and the translated answers as well as the equivalence of necessary answer categorisations (equivalence of the response categorisation) is given in the evaluation of the national sub-studies (Bauer, 2009, p. 68). While semantic equivalence must already be ensured in the design of the questionnaire in the case of predefined response categories, attention must be paid to the translation equivalence of the responses in the case of open questions. In the case of qualitative studies, particular importance should be attached to equivalence in the context of coding, analysis and interpretation of the results, especially because the procedure is often not fully structured (Polsa, 2007, p. 9). 1.3.7

Equivalence of Data Analysis

Interpretative Equivalence The “social reality” of the target countries is to be mapped from numerical and aggregated data, which requires a considerable interpretative effort. Crucial questions for an interpretation of the data are (Bachleitner et al., 2014, p. 148 f.): • Have the various aspects of equivalence been taken into account, or do restrictions have to be made in the interpretation? • Are the contextual variables used for interpretation themselves equivalent? • Does the researcher have sufficient knowledge of the cultural conditions in the target country to ensure an explanatory as well as an understanding interpretation? “Understanding” refers to “grasping the foreign culture from its own life contexts” (Bachleitner et al., 2014, p. 149). Specifically, this means that the similarities and differences to be explained should be seen in the context of their conditions. For example, data from collectivist societies cannot be directly compared with data from individualist societies, as they are based on completely different value systems (Bachleitner et al., 2014, p. 150).

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Equivalence of Use and Exploitation Internationally comparable surveys (e.g. Eurobarometer) are generally regarded by the public as reliable and contribute to the formation of public opinion. Most studies assume a universal concept of culture, which in fact goes hand in hand with cultural ethnocentrism. The use and exploitation of the results in the political and media public sphere is then often used to substantiate certain (national) positions. Cross-national equivalence would only exist if the results were used for the same purpose in different cultures, but this is generally not the case (Bachleitner et al., 2014, p. 163 ff.).

2

International Secondary Research

2.1

The Process of International Secondary Research

In the context of an international secondary data collection, existing data material collected for other or similar purposes, such as analyses or published studies, is used. In accordance with the respective international marketing problem, the secondary data are compiled, processed, analysed and interpreted across countries, irrespective of their original purpose, in order to be able to derive implications for a problem-adequate decision. (On the general concept of secondary research, see for example Fantapié Altobelli, 2017, p. 45.) For foreign market research in general and for strategic international marketing in particular, secondary research represents the essential informational prerequisite for assessing the future of markets and the potential and risks of individual strategies. As a rule, all procedures for the international provision of information have a counterpart in national market research, but the questions are becoming more complex overall. In some cases, this even generates new types of problems. The greater complexity of international secondary research is caused, for example, by environmental diversity, cross-national issues, geographical and cultural distance, novel or increased risks, lack of availability of institutions or instruments, and increased demands on the use of resources (Hünerberg, 1994, p. 346). In many cases, the greater importance of international secondary research compared to international primary research is emphasised (see for example Simmet-Blomberg, 1998, p. 253). The possibilities of international secondary analysis have grown significantly in recent years and decades. A major factor in facilitating and promoting secondary research at the international level has been the achievements of information and communication technology. Increasingly large and complex amounts of data can be sent and processed worldwide in a very short time. The number of electronic databases for international research is steadily increasing, and advances in communications technology allow rapid and inexpensive interaction. In connection with the possibilities offered by new technologies and the trend towards internationalisation and globalisation, an everincreasing amount of information on regions, countries, country markets and submarkets is becoming available. The number of external databases and archives as well as studies

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Time, organisation and financial planning

Definition of required information quality and quantity

Identifcation and evaluation of data sources

Data collection

Coordination with branches abroad

Coordination with market research institutes

Formulation of research problem and research objectives

Data analysis and interpretation

Documentation and presentation of results

Fig. 5 The process of international secondary research

and statistics published by various organisations and institutions is increasing rapidly. In the context of these developments, the importance of international secondary research has steadily grown. There is an increasing emphasis on a thorough review of existing sources before taking into consideration international primary research, which is usually more costly and time-consuming. International market research is closely linked to the supranational decision-making processes within the company. The factor that sets the decision-making process in motion is the realisation that actions are required in an internationally relevant problem for which there is a lack of information. Market research findings are used to define the problem in detail and to solve it. Figure 5 provides an overview of the steps of international secondary research. The process of international secondary research begins with the formulation of the research problem and research objectives. Ideally, this is coordinated between the company headquarter and the foreign branches. In many cases, support is provided by international market research institutes, or the work of local market research institutes is

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harmonised. The first thing to note at this level is the need for information. In contrast to the monocultural questions of national secondary research, in international secondary research multicultural issues, e.g. culture-dependent characteristics of purchasing behaviour, are investigated. Considerations initiating the international research process are, for example, hypotheses on international differences in consumer needs and desires and in the corporate environment (distribution channels, media, advertising regulations, etc.). At this point, the research benefit must also be evaluated, i.e. the (probable) costs of the secondary research must be compared with the risks resulting from a lack of information in order to be able to make a decision on the implementation of the market research approach. This is followed by a detailed definition of the research objective, taking into account that different groups within an internationally active company may be aiming for different research objectives. The next step is time, organisational and financial planning, i.e. scheduling the project and determining the financial resources to be made available for the study. In addition, the organisational handling of the project must be determined at this stage, including the distribution of responsibilities between head office and foreign branches, but also the extent and type of cooperation with domestic and foreign research institutes (see Sect. 4). The identification and evaluation of data sources follows the definition of the required information quality and quantity, which is determined by the time and financial resources available. In international secondary research, there is usually such a wide range of information sources and materials that can be used in principle that it is not possible to exploit them fully for reasons of time and money. Therefore, a planned selection and review of data sources and quality is required. In this context, information on the reliability of the primary collecting institution as well as research design and implementation must be assessed in order to be able to make an appropriate selection of secondary sources. After the selection of the data sources, data collection takes place, i.e. the collection of the facts of interest from the secondary statistical material. This is followed by the internationally equivalent data analysis and interpretation. In addition to the identification of potential sources, this is the main task of international secondary research. Particularly relevant for international secondary analyses is the fusion of different country-specific sources of the same as well as different types, which, however, presents certain problems. Since the information to be evaluated was usually collected in a context not directly related to the current research question, quality deficits can arise due to a lack of data currency as well as a lack of objectivity, accuracy and comparability of the information materials (Czinkota & Ronkainen, 2013, p. 245). The equivalence condition is much more difficult to fulfil in international secondary research than in primary research, especially due to language differences. Finally, based on the presentation of the research results, wellfounded decisions can be made on the cross-national marketing issues that prompted the research process. The success of international secondary research is largely determined by the careful selection and use of secondary sources. In this respect, the respective source of information

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also serves as an essential differentiation criterion in the characterisation of international secondary research. Depending on the type as well as the origin of the information materials, different types of international secondary research can be distinguished. Three different types of sources can be identified (Bauer, 2009, p. 77 ff.): • statistical data (e.g. data from the official or semi-official statistics of the various countries or company databases), • empirically based studies in which interpretations of certain facts are already available, such as country (market) analyses, consumer analyses, competitor analyses, media analyses, etc., • reports, notices and similar publications (e.g. newspaper articles, annual reports, sales force reports, catalogues, reference works). Depending on the type of information material, different analysis methods are used. To analyse statistical data, depending on the scale level of the data, various statisticalmathematical data analysis methods can be used (see Sect. 3.8). The data material of existing analyses and studies is re-examined and interpreted, usually from a slightly different perspective. Information that is purely textual can be processed in a standardised way using content analysis. According to the origin of the information material, a differentiation can be made between internal and external sources. The following Sect. 2.2 gives an overview of information sources relevant for international marketing. Due to the variety and multitude of sources, a comprehensive view is not possible; hence, selected categories are listed and exemplary sources are named.

2.2

Sources of International Secondary Research

Both within and outside a company, there is a wide variety of information sources available worldwide for secondary research. Internal secondary data include customer databases and data warehouses (Malhotra, 2015, p. 93 f.). Compared to other secondary sources they are easily available and less expensive, which is why they are of great importance, especially in the early stages of secondary research. Data and key figures from sales and distribution statistics, accounting and controlling provide a wealth of information for international marketing (Fig. 6). Sales and customer service reports are of particular importance, as such information can depict the situation on the respective local market very well. Accordingly, numerical information of a predominantly operational and past-related character – such as sales figures or turnover statistics – is supplemented by verbal data such as sales force reports and complaint reports in order to uncover cultural differentiations of consumer needs and behaviour as well as other marketing-relevant environmental factors;

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International Secondary Research

75

Source

Examples

Accounting and controlling

ƒ ƒ ƒ ƒ

Sales and distribution statistics

ƒ ƒ ƒ ƒ

Production and inventory statistics

ƒ ƒ ƒ

Previous primary surveys

ƒ ƒ ƒ ƒ

Cost structure and development Contribution margins Balance sheet ratios Profitability/profit Incoming orders and order backlog Field service reports Customer service reports (warranty cases, complaints, reminders, etc.) Sales channel performance indicators Production capacity Capacity utilization Inventory levels Product analyses Customer analyses Competition analyses Image analyses

Fig. 6 Selected internal sources of secondary research. (Source: Fantapié Altobelli, 2017, p. 46)

accordingly, a systematic development of verbal sources of information usually also takes place (Simmet-Blomberg, 1998, p. 255 f.). The company-wide comparability of the sources facilitates a uniform quantitative and qualitative company-wide data collection and storage. In this way, data can be collected in a standardised manner in an international data warehouse and made quickly available everywhere (Stahr & Backes, 1995, p. 69 ff.). The information material obtained from internal sources usually needs to be supplemented and put into perspective by (national and international) external secondary data (Fig. 7). External sources can provide the company with essential impulses, especially for markets with a high degree of foreignness of culture and corporate environment, as well as promote new perspectives and insights. The existence, characteristics and quality of external sources can vary greatly from country to country. Domestic external sources of information, in general, have the advantages of greater familiarity, better and faster availability and the absence of any language barriers compared with corresponding foreign sources of information. However, they are usually not available to a sufficient extent. In addition, they do not have the cultural proximity of information materials produced by institutions that are directly involved in market research on the ground. Figure 8 contains examples of some German non-commercial sources of information for international marketing. In addition to the national institutions of the respective countries, there are also a large number of international organisations that provide information on foreign trade issues. Figure 9 gives examples of some of these organisations. The sources mentioned in Figs. 8 and 9 provide online access (sometimes for a fee) to a wide range of country information,

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Source

Examples

Official statistics

ƒ ƒ ƒ ƒ ƒ

Ministries and state institutions

ƒ Federal and state ministries (e.g. for economics, finance, agriculture) ƒ Public institutions, offices and administrations (e.g. Federal Motor

German Federal Statistical Office Statistical offices of the federal states Statistical offices of the municipalities Statistical office of the European Communities Local statistical offices

Transport Authority, Federal Employment Agency, Chambers of Industry and Commerce) ƒ International authorities (EU, OECD, GATT, UNCTAD) ƒ International organisations (e.g. IMF, World Bank, FAO) ƒ Embassies and consulates Trade associations and societies

ƒ ƒ ƒ ƒ ƒ

Federation of German Industries (BDI) German Electrical and Electronic Manufacturers' Association (ZVEI) German Association of the Automotive Industry (VDA) Trade promotion agencies and country associations Chambers of commerce

Economic research institutes

ƒ ƒ ƒ ƒ ƒ

IFO Institute, Munich Institute for Trade Research at the University of Cologne Hamburg Institute of International Economics (HWWI) Kiel Institute for the World Economy Trade Research Institute, Berlin

Market research institutes

ƒ ƒ ƒ ƒ

GfK Group Kantar TNS Allensbach Institute for Public Opinion Research Nielsen

General trade publications

ƒ ƒ ƒ ƒ

Newspapers and magazines Trade books, trade journals Corporate publications Bibliographies

Databases

ƒ Offline databases ƒ Online databases

Internet-based information sources

ƒ ƒ ƒ ƒ ƒ

Online publications Search engines (e.g. Google) Web catalogs (e.g. Yahoo!) Link lists Social networks (e.g. Facebook, Twitter)

Fig. 7 Selected German external sources of secondary research. (Source: Adapted from Fantapié Altobelli, 2017, p. 47)

statistics and reports. Universities and academic institutes also provide a wide range of relevant publications and links. For example, the University of Chicago library provides access to a multitude of information on international marketing (www.lib.uchicago.edu).

2

International Secondary Research

Source

Available information

Africa Association of German Business e.V.

The Africa Association provides its members with a wide range of information on African markets and supports member companies in establishing and expanding business relationships in Africa.

www.afrikaverein.de Foreign Chambers of Commerce (AHK) www.ahk.de

Foreign Office (AA) www.auswaertiges-amt.de

Germany Trade and Invest (GTAI)) www.bfai.de

Chambers of Commerce and Industry (IHK) www.ihk.de

German Asia-Pacific Business Association (OAV) www.oav.de Destatis – German Federal Statistical Office www.destatis.de Scientific institutions

In more than 90 countries around the globe, around 140 AHK offices look after companies interested in bilateral economic relations with and from Germany. In countries with less strong entrepreneurial interest and where an AHK foundation is not possible according to the German understanding of autonomy, there are delegations or representative offices of the German businesses. The basic services of the AHK offices include commercial information services, legislative and administrative services, market and economic analyses, information on technology transfer and environmental protection as well as trade and investment promotion. In addition to foreign trade information on a large number of countries and regions, the German Foreign Office also provides addresses of embassies, chambers of commerce abroad, links to business development programs, etc. GTAI is the economic development agency of the Federal Republic of Germany. With over 50 locations worldwide and a strong partner network, it supports German companies in their international activities. GTAI provides a wide range of information. In addition to daily reports on more than 120 countries, it regularly offers online specials and webinars on selected topics. The wide range of compilations, fact sheets and weekly publications includes industry studies, country analyses, information on customs, tax and legal regulations, as well as series on advertising, trade fair presence, market research, sales and setting up branches for a wide variety of countries. Together with their central organ, the German Chambers of Industry and Commerce (DIHT), the Chambers of Industry and Commerce issue a series of publications that provide information on specific economic areas as well as on funding opportunities. The chambers advise members free of charge and individually on the possibilities and problems of working abroad. In addition to advising and supporting its members in establishing and expanding business relations with the Asia-Pacific region, the association provides its members with a wide range of information and publications and regularly organizes events and initiatives on specific topics. In addition to the International Statistical Yearbook, Destatis publishes, among other things, the annual foreign trade statistics differentiated by commodity groups and countries, as well as individual country reports as quarterly and monthly publications. Foreign information is also available from many scientific institutions. In addition to collecting, processing and archiving information, they also conduct their own primary surveys on foreign markets. These include the German Institute for Economic Research in Berlin, the Hamburg Institute of International Economics (HWWI), the Institute of the German Economy in Cologne, the Institute for World Economics at the University of Kiel, the Ifo-Institute for Economic Research in Munich, the RhenishWestphalian Institute for Economic Research in Essen, the Halle Institute for Economic Research, the Center for European Economic Research in Mannheim, and the Trade Research Centre in Berlin.

Fig. 8 Selected German non-commercial or semi-commercial sources of information

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Source

Available information

Advisory Services of the European Union, Brussels (EU)

The EU offers a wide variety of information services for companies in the EU area. These include a very wide range of information from the areas of taxes, finance, personnel, product requirements in the individual EU member states. In addition, information on funding opportunities and tenders is provided. The numerous EU publications can be found on a separate website: www.publications.europa.eu. Important publications are the annual Key Figures on Europe, the Eurostat Regional Yearbook, The EU in The World (every 2 years) and many more. Within the European Commission, Eurostat is responsible for building up a system of information that is comparable throughout Europe. The information on which the publications are based is stored in databases that can be accessed online.

Statistical Office of the European Union, Luxembourg (Eurostat) www.europa.eu www.publications.europa. eu www.ec.europa.eu/eurost at European Investment Bank (EIB) www.eib.org The World Bank, Washington www.worldbank.org

International Monetary Fund (IMF) www.imf.org International Chamber of Commerce www.iccwbo.org

The EIB publishes online a wide range of brochures on various topics, such as strategies, country reports, technical studies, economic analyses, etc. Access to the publications is free of charge. In addition to regularly published periodicals and newspapers, the World Bank also publishes research studies focusing on developing countries. Important publications are the annual reports Doing Business and World Development Report. In addition, a large number of special thematic reports on current issues are published. The website provides access to a wide range of information and statistical material. Important publications include the IMF Annual Report, World Economic Outlook and Regional Economic Outlook. In addition, numerous reports and data on individual countries are available, as are publications on special topics such as gender equality. The International Chamber of Commerce issues publications on banking and finance, international trade, and contracts, among other topics. Examples are ICC Guide to Import/Export and Business Guide to Trade and Investment. It also offers special publications on specific topics and regions, such as Business Law in China.

Organization for Economic The OECD publishes a large number of publications, for example Cooperation and Develop- OECD Economic Surveys on a biennial basis for a large number of countries. In addition, the OECD makes available - sometimes for a ment, Paris (OECD) fee - numerous reports, country studies, etc. on a wide variety of www.oecd.org topics. Every year, 250 new books and 40 updated databases are released United Nations (UN), New York www.un.org World Trade Organization (WTO) www.wto.org

The UN, together with its sub-organizations, publishes a large number of publications such as Statistical Yearbook of the United Nations and World Economic and Social Survey. Numerous publications and statistics are available online. For example, the WTO publishes the annual World Trade Report and World Trade Statistical Review. In addition, the website provides access to numerous publications on various topics such as economics, law, the environment, etc.

Fig. 9 Selected international non-commercial or semi-commercial sources of information

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Commercial sources of information on foreign markets include, for example, market research institutes such as GfK, Nielsen or Kantar TNS operating internationally or on a national level. Secondary data can also be obtained from credit agencies and information brokers as well as information services from publishing companies (e.g. the FAZ Information Service or the Financial Times Service). Secondary data from commercial sources are generally reliable, as they are subject to thorough verification. In addition, the motives and background of the original data collection are usually transparent. Online databases are an increasingly important tool for researching and transmitting secondary information. The use of external information potential with the help of telecommunications technology via databases opens up new dimensions of secondary research. Online access to the desired data and remote data transmission result in a significantly lower expenditure of time and personnel than traditional research. An important commercial provider in Germany is GENIOS (www.genios.de). GENIOS contains over 1500 different databases, for example on GTAI data, and offers gateway access to information services, with cross-database searches possible. For instance, access to the archives of FAZ and Handelsblatt is possible as well as further database access via GBI – Gesellschaft für Betriebswirtschaftliche Information mbH (www.gbi.de), FIZ-Technik (www.fiz-technik.de), the Bundesverband deutscher Banken: Datenbank für Wirtschaftsdaten (www.bankenverband.de), ProQuest (www.proquest.com), Lexis-Nexis (www.lexisnexis.de) or Questel (www.questel.com). For particularly interesting markets, there are complete portals, such as chinaproject.de. In the meantime, online databases and business information services are available for almost all countries and sectors, so that they will not be discussed in detail here. Companies also have access to the databases of market research institutes such as Nielsen (www.acnielsen.com), GfK (www.gfk.com/de) and Kantar (www.kantar.com). The World Bank website (www.worldbank.org) provides access (for a fee) to the WDI (World Development Indicators) and GDF (Global Development Finance) databases. Nowadays market research institutes are increasingly offering not only primary surveys and reports but also individually tailored secondary research for companies, as the flood of information on the Internet and the associated lack of clarity pose immense challenges for companies and require a professional approach to secondary data collection.

2.3

Applications and Limitations of International Secondary Research

Due to the usually more extensive nature of the task and, in particular, the larger number of research units in market research at international level, the advantages of secondary research compared to primary research are more significant than in market research at national level. Conducting primary statistical surveys in many countries is very costly and time-consuming; on the other hand, the desired information often already exists and can be compiled, processed, analyzed and interpreted in the context of desk research. Thus, in the first instance, international secondary research has clear technical advantages over

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primary research, as the time-consuming planning and implementation of international fieldwork is not required (Bauer, 2009, p. 159). Secondary analysis is the only way to obtain information when comparative data from many different countries and market regions are being collected, as international primary surveys would generally overstretch the budget. International secondary research can also be useful in the form of a preliminary or follow-up study to a primary statistical main study. If several, sometimes very heterogeneous markets and cultures are considered simultaneously in the context of primary research, it is considerably more difficult to formulate fundamental hypotheses for them than for a known domestic market. Therefore, it is advisable to determine and investigate elementary facts in advance through secondary research before conducting international, cross-cultural primary surveys. Often a two-step approach is chosen, in which a rough selection of alternatives – e.g. of distribution possibilities – is supported by secondary research and a subsequent fine selection – e.g. the choice of a specific sales channel – is realised by primary research (Hünerberg, 1994, p. 373). Secondary data also make a suitable comparative tool for checking primary surveys. New data can be compared with existing data to examine differences or trends. They can also form a basis for determining whether new data can be considered representative of the population as a whole (Stewart & Kamins, 1993, p. 5). The application focus of international secondary research is on the following areas (Craig & Douglas, 2005, p. 109 ff.; Bauer, 2009, p. 162 ff.): • selecting markets for initial entry, • strategy monitoring and • development forecasting and early warning information. In the initial phase of internationalisation, the requirements for successful market entry and rapid market penetration are examined in detail. The primary task of market research is the identification, evaluation and comparison of potential foreign markets (for market selection, see the explanations in chapter “International Market Selection”). At the beginning of the selection process, regions are excluded from further analysis if they do not meet certain conditions such as climatic product requirements, a politically stable situation or minimum requirements in terms of economic indicators (e.g. purchasing power and market size). Here, secondary research can help to identify interesting country markets on the basis of criteria such as consumer behaviour, competition, political preconditions and other environmental characteristics. Problem complexes of market research in the phase of market exploration are in particular the determination of the relevant framework conditions, the exploration of the potential market for existing or for new products of the company as well as the finding of suitable sales agents (Meissner, 1995, p. 106). For the final decision on the development of a country (sub-)market, primary statistical data are usually also collected.

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After market selection, the marketing mix for each country market is implemented and improved through continuous review. In the control phase, international secondary research is used for premise verification and strategy monitoring (Bauer, 2009, p. 164). If the assumptions about country-specific marketing-relevant characteristics and developments are not in line with the current secondary statistical results, there is reason to revise the strategic planning, as the planning of measures is based on premises that are not (or no longer) valid and thus leads to wrong decisions. By means of international secondary research, management can also gain knowledge of foreign markets that enables it to anticipate international changes and make forecasts in order to be able to adapt to global changes in good time. International secondary material is sifted through on a regular basis with only a broadly defined research objective. The aim here is to gain knowledge about regions that promise success in the future, to identify innovations and market niches that can be adapted abroad for the domestic market, and to identify and observe potential competitors against the backdrop of increasing globalisation (Bauer, 2009, p. 165 f.). In the context of international secondary research, meta-analysis is gaining in importance. This refers to the comparative analysis of empirical studies from the past in order to filter out cross-national similarities or country-specific differences in relevant marketing parameters, such as price elasticities, advertising elasticities, carryover coefficients and the like (see in detail Farley & Lehmann, 2001). For example, meta-analyses showed that advertising elasticity is somewhat higher in Europe than in the USA; on the other hand, the parameter values of various purchasing behaviour models and the values of the carryover coefficients of advertising proved to be hardly different in an international comparison. The application of meta-analyses is limited by the fact that well-founded studies are generally only available for industrialised countries, so that no generalisable statements can be made for developing and emerging countries. International secondary research is an indispensable tool for establishing sound planning bases for cross-cultural marketing. However, it is associated with various methodological difficulties that make a sound evaluation of secondary sources and materials necessary. Important quality criteria of international secondary research are schematised in Fig. 10. At the beginning of the evaluation of secondary materials and sources, the quality of the content, i.e. the relevance of the source for decision-making, is assessed. In addition, it must be checked whether the data are appropriate for the current research question, e.g. whether they have the required level of aggregation. If the information materials actually contribute to solving the marketing problem, the other (formal) quality criteria are checked. The central issue in international secondary research is the comparability of data from different studies (for details on the equivalence problem, see Sect. 1.3). Lack of data equivalence is a typical source of international error when aggregating data from different sources – especially from different countries. When aggregating data from different sources, it is also important to bear in mind that the answers to questions must also be

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Content quality

Formal quality

Timeliness

Decision Relevance

Completeness

Appropriateness

Equivalence

Accuracy -Objectivity -Professionalism -Originality

Fig. 10 Quality criteria of international secondary research. (Source: Adapted from Bauer, 2009, p. 144 ff.; Hünerberg, 1994, p. 373)

seen in the context of the questionnaire as a whole. If questions are combined that originate from different contexts, equivalence may no longer be given, as different information, stimuli and spillover effects from other questions must be taken into account (Bachleitner et al., 2014, p. 91). Differences in the bases of investigation arise primarily due to different research traditions in certain countries, technical-organisational reasons as well as difficulties of linguistic translation. Formal comparability as a fundamental problem of cross-national and cross-cultural market research is complicated in secondary analysis by the fact that no influence can be exerted on the research design of the data already collected (Bachleitner et al., 2014, p. 91). A lack of formal comparability of secondary information can be caused by a variety of reasons (Craig & Douglas, 2005, p. 86 f.): • In Germany, official statistics include the cost of purchasing a television set in entertainment expenditure, whereas in the USA it is included in the furniture and household equipment category. • The indication of the gross national income per capita as an indicator of the standard of living does not take into account that in individual countries there are different taxes and social contributions, but also social benefits, which have a significant influence on the standard of living.

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Typical equivalence problems with secondary statistical data are (Hünerberg, 1994, p. 374) • • • • • • • • •

conceptual differences, linguistic gaps, categorical/classificatory differences, different structural data, differing units of measurement, different populations (spatial, demographic), divergent sampling, deviating survey periods/date/rhythms, different evaluation methods.

The research may reveal that insufficient information is available for certain countries or certain questions, i.e. there are information gaps in secondary information appropriate to the problem. In principle, the intensity of data collection by governmental and non-governmental institutions and the willingness to publish official statistics vary greatly from country to country. In socio-economically less developed countries, important statistical data are often not collected. Much of the available country statistics focus on macroeconomic data for macroeconomic analysis. Secondary materials on marketingrelevant variables such as market structures of certain industries are often not available in sufficient extent and detail (Bauer, 2009, p. 160). Another problem of international secondary research is the measurement inaccuracy of the available statistical secondary information. The quality of the various information sources and materials can vary considerably. The most important quality problems with information sources lie in the lack of objectivity and professionalism of the researching institution, possibly exacerbated by a lack of originality of the information source (Bauer, 2009, p. 141 ff.; Malhotra, 2015, p. 90). The intention behind the original collection and evaluation of the data determines to a large extent the objectivity of the information source. In the case of legally prescribed and controlled tasks, such as annual reports subject to publicity requirements, or in the case of information collection as the actual objective, such as in the case of information services, scientific papers or government statistics, it is generally assumed that there is sufficient objectivity and neutrality. If information is published by an institution with the intention of gaining resources or changing attitudes and behaviour, it should only be used with strong reservations. The political background for manipulating data can be, for example, to make a country more attractive to investors or to qualify for (international) aid measures (Hünerberg, 1994, p. 373). A further problem lies in the lack of professionalism and inadequacy of a researching institution. Indicators for high-quality information material are the existence of sufficient financial and human resources as well as the necessary expertise to fulfil the respective market research task. For example, the statistical offices of many developing countries do

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not have the necessary quantitative and qualitative capacities to be able to meet a standard equivalent to that of the industrialised countries (Schopphoven, 1991, p. 34). If the data were not collected by the research institution itself, but secondary data were re-analysed or various secondary data were combined, the problems of objectivity and professionalism of the source are much more difficult to investigate. Thus, the originality of the information source has to be considered, i.e. whether it is a primary, secondary or even further downstream information source. Aggregated secondary data in particular are difficult to check for the quality of the original sources. Original information based directly on a survey is therefore generally preferable (Bauer, 2009, p. 141). Criteria for checking objective and professional procedures are validity (content dimension) and reliability measures (formal dimension). However, it is not always possible to check secondary material against these criteria, as essential information on the research design and especially on the methodological procedure is often not provided. The assessment can also be more difficult than with national sources due to the cultural distance to the measurement objects, the language barrier as well as the organisational complexity (Hünerberg, 1994, p. 349). In a cross-national and cross-cultural context, unpredictable change processes and an acceleration of trend developments can increasingly lead to very rapid obsolescence of data, i.e. to a lack of currency. Information materials are generally of higher quality the more up-to-date the data they contain. However, data that remain relatively constant over time may be included in international secondary research some time after the primary survey. The currency of information is determined not only by the length of the period between the original survey and secondary use, but also by the dynamics of the environment under investigation (Bauer, 2009, p. 146 f.). Since the use of information with quality deficits can lead to wrong decisions, great importance must be attached to the evaluation of data sources in the process of international secondary research. If the content or formal quality of the existing secondary material on an issue of international marketing is not of sufficient quality, then primary data collection should be considered. The following Sect. 3 gives an overview on primary research methods in international market research.

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International Primary Research

3.1

The Process of International Primary Research

If the information relevant to the research problem in question cannot be obtained or can only be obtained incompletely from existing (secondary) data material, it is necessary to conduct international primary research. Primary research goes beyond secondary research in that it involves obtaining specific new (primary) data material for the market research problem at hand. The procedure and methods of international primary research do not differ fundamentally from national projects, but country-specific methodological features must

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be taken into account. The preparation and implementation of international research projects also usually proves to be more complex and time-consuming, since the comparability of the research facts and results must be ensured (see also Sect. 1.3 on the problem of equivalence). In particular, it should be borne in mind that many less developed countries lack a suitable market research infrastructure; constructs, stimuli and research designs also have to be developed from scratch in some cases, as a direct transfer of the market research instruments commonly used in Western industrial countries is often not possible (Craig & Douglas, 2001, p. 84 f.). Cultural differences influence all stages of international market research – from the relevance and comparability of constructs to the interpretation of results. For this reason, cultural aspects should be taken into account at all stages of the research process (Steenkamp, 2001). An interculturally staffed research team can help to ensure a balance between the need for local input and adaptation of the research design to local conditions on the one hand, and the need for comparability and equivalence of the research on the other (Craig & Douglas, 2001, p. 86). An important area of application of primary research in the context of international management is strategic marketing planning. For example, primary surveys are increasingly being conducted in order to carry out international market segmentations on the basis of their results. While in the past macro variables such as income levels or consumer expenditure on certain product groups were frequently used as criteria for market segmentation, today constructs such as attitudes or life styles in the individual countries are playing an increasingly important role (see chapter “International Market Selection” in Part III). The relevant country-, market- and product-specific data can only be obtained through primary surveys conducted specifically for this purpose. The exact procedure of an international primary survey depends on the one hand on the structural circumstances of the company – for example, whether the company has its own foreign subsidiaries which can take on some of the market research tasks; on the other hand, it is influenced by whether market research tasks are carried out by the company itself or by external market research institutes (see Sect. 4 in this chapter). The delegation of market research tasks to foreign company units or market research institutes results in a greater need for coordination than in the case of purely national primary studies and – subsequently – in numerous coordination processes. As with national market research, the first step in international primary research is to define the research problem and formulate the research objectives (Fig. 11). If necessary, coordination with the branches abroad must already be carried out here, as they may pursue different objectives. A time and budget plan should then be drawn up, which should be agreed with the branches abroad and the commissioned market research institute(s). The next step is to define the basic population (e.g. consumers, companies, field staff). Field staff in particular are often used in international primary research, as they have in-depth knowledge of the individual foreign markets and are available at comparatively low cost. In connection with the definition of the population, it is also necessary to determine which characteristics or variables are to be surveyed.

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Time, organisation and financial planning

Planning of the research design

ƒ ƒ ƒ ƒ

Definition of the population and its relevant characteristics Determination of the international research method(s) Measurement, operationalisation and scaling of variables Sampling

ƒ ƒ ƒ ƒ

Conducting the field work Data preparation Data analysis Interpretation and presentation of results

ƒ ƒ

Control of the study planning Control of the study implementation

Data collection and data analysis

Coordination with branches abroad

Coordination with market research institutes

Formulation of research problem and research objectives

Control

Fig. 11 Process of international primary research. (Source: Adapted from Fantapié Altobelli, 2017, p. 20)

A decision must then be taken on whether to carry out a full or a partial survey. Usually – especially in the consumer goods sector – the choice will fall on a partial survey; in the case of a partial survey, the sampling selection plan must be defined, i.e. it must be decided which elements of the population are to be included in the study according to which procedure (sampling technique). The survey method must also be defined (e.g. interview, observation or experiment), and the level of measurement of the data must be determined. The subsequent data collection in the individual countries has to be coordinated with market research institutes and branches abroad. The data obtained is evaluated as part of the data analysis, country-specific differences are checked for significance. Country reports are prepared, which are combined into an overall report if necessary. The survey is then checked, in particular to determine whether equivalence of the results has been achieved. In the following, the most important process steps of an international primary research project will be examined in more detail. The focus here is on quantitative representative

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surveys (on qualitative methods in market research see e.g. Fantapié Altobelli, 2017, pp. 357–402).

3.2

Definition of the Study Population

Based on the international research problem, it must first be determined from which population (e.g. consumers of a certain product in selected countries or marketing directors of all international branches of a company) the desired information is to be obtained. The difficulty here lies in defining equivalent populations. Here are some examples (Bachleitner et al., 2014, p. 114 ff.): • The delimitation of private households is not uniform internationally. • Coming of age is defined differently: in most countries at 18, in Iran at 9 (women) or 15 (men), in Egypt at 21. • In some countries, there are ethnic minorities that are difficult to access; the same applies to people with nomadic lifestyles, who are usually not (or cannot be) recorded. • Rural populations or poor areas in urban agglomerations (slums) are also difficult to reach through market research, especially in developing countries. This sometimes leads to the survey population deviating from the actual (intended) population and to undercoverage effects, i.e. certain population groups are underrepresented even before sampling.

3.3

Choosing the International Research Methods

In the international context, observation, survey and experimentation are particularly suitable as research methods; panel surveys are limited to selected markets in crossnational studies, as the necessary infrastructure is lacking in less developed countries. In international research projects, the fundamental problem in selecting suitable research methods arises from the culture-bound nature of the individual instruments. It has been shown that if country-specific cultural characteristics are not taken into account, identical procedures and research methods in different countries can lead to very different reactions on the part of the people being studied. This ultimately affects the structure of the results (Holzmüller, 1986, p. 56). The costs of the individual research methods also vary considerably from country to country.

3.3.1 Survey The survey is the most important and most widespread form of primary research in international marketing and includes several types, the common feature of which being that the respondents themselves are prompted by stimuli (e.g. written or oral questions,

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illustrations) to make statements about the object of investigation. The individual types of survey can be classified according to a variety of criteria (Fantapié Altobelli, 2017, p. 56 ff.). According to the criterion “mode of administration”, a basic distinction can be made between paper survey, personal interview, telephone interview, and online survey (including online survey through a mobile device). In the context of a paper survey, the questions are submitted to the respondents through a questionnaire and are answered by them in writing. As a rule, standardised questionnaires are used for this purpose, which are distributed, handed out or sent by post, fax or e-mail. The advantages of this form of survey for international research projects are the low implementation costs and the high geographical coverage. Written surveys can also be carried out in countries where no local field organisation is available. One disadvantage of paper surveys is that the lack of interaction between the respondents and the researcher means that complex cause-effect relationships and thus many culture-specific phenomena cannot be recorded (Simmet-Blomberg, 1998, p. 303). In addition, specific problems such as illiteracy must be taken into account (Bachleitner et al., 2014, p. 95). An important prerequisite for the feasibility of international paper surveys is the availability of comparable, complete and up-to-date sampling frames (e.g. population registers, address directories) in the individual countries. Another important requirement is the availability of reliable and efficient postal services in the country markets surveyed. Particularly in countries in Africa, Asia, South and Central America, the existence of these structural prerequisites cannot generally be expected. In addition, there are often cultural differences in the willingness to complete questionnaires, so that the response rates achieved can vary greatly from country to country (Bauer, 2009, p. 183 ff.). Surveys conducted by post are therefore now the exception rather than the rule. In the case of personal interviews, the questions are posed orally by interviewers; the respondents’ statements are recorded through direct communication with the survey participants and recorded in writing, acoustically or audiovisually (Fantapié Altobelli, 2017, p. 59 ff.). The interactive communication situation is generally advantageous for the recording of intercultural characteristics. Conducting international face-to-face surveys requires an efficient field organisation in all targeted country markets. The costs of face-to-face interviews are usually considerably higher than for paper surveys. This is especially true for surveys in private households, but often also for surveys among employees of companies. In individual cases, when deciding on the appropriate form of survey, both the costs incurred and the accessibility of the respondents (by telephone or directly) must be taken into account, which can vary greatly from country to country (Bauer, 2009, p. 183 ff.). In the case of face-to-face surveys, it should also be noted that field organisation can pose problems in an international context. Although the use of local interviewers is desirable due to the cultural proximity, in many countries there is no efficient field organisation, so that either comprehensive training courses have to be carried out or interviewers from the home country have to be used.

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In addition, based on experience, the situation can be interpreted differently: While in Western countries surveys are nothing unusual and the respondent is aware that he or she does not have to expect any consequences, in totalitarian regimes the situation of a stranger asking questions is certainly interpreted differently. Moreover, in some countries (e.g. North Korea) surveys are banned altogether or at least – as in Iran, for example – severely restricted (Bachleitner et al., 2014, p. 131, 137). A telephone interview also requires a corresponding infrastructure in the individual countries. Telephone interviews are increasingly being conducted with the aid of computers. Computer-assisted telephone interviewing (CATI) is now widespread in Europe and North America; in Africa, South America, Japan and the Middle East, on the other hand, only a few market research institutes offer this service. In Europe, some providers specialise in the centralised implementation of harmonised European CATI surveys. In addition, networks and market research associations can be used to identify suitable providers for decentrally organised international research projects. When conducting representative telephone surveys, it is also important to ensure that the sampling frame is complete and up-to-date in all countries surveyed. If these are not available, the random digit dialing method should be used. A telephone survey is out of the question if the telephone density is low or if the population has inhibitions about giving information on the telephone (Gross-Wandl, 2003, p. 6). Online surveys on the WWW – also conducted through a mobile device – have now become established internationally. This is basically a special form of a written survey where the respondents answer the questionnaire directly on the computer – e.g. at home or at the Point of Sales – or on their mobile device. Online surveys are particularly suitable for use in international market research, as they have no spatial or time restrictions. In addition, the technical possibilities of internet, which are now fully developed, allow automated filtering as well as the support of images and sound (on the possible uses and limitations of the Internet for market research, see in detail Fantapié Altobelli & Sander, 2001, p. 71 ff. as well as Theobald et al., 2003). The advantages of online surveys, apart from their independence of space and time, are their wide geographical reach and the comparatively low time and financial outlay. A particular disadvantage is the restriction of the population to survey units with Internet access: while Internet penetration is almost universal in industrialised countries, the diffusion of the Internet is still in its infancy in some developing countries, or restricted to specific groups. Further problems result from the fact that it is generally not possible to draw representative samples; in addition, in most cases the sample is self-selecting, which further limits the validity of the results. According to the methodological approach, a distinction is made between qualitative and quantitative surveys. Quantitative methods are aimed in particular at objectively measurable quantities. Data collection is normally based on representative samples with the aim of obtaining generalisable statements. The questionnaire is standardised, i.e. the questions are defined in advance and in principle asked of all respondents (except for any country-specific adaptations to achieve equivalence) with the same wording and in the same order. Typically, data analysis is carried out using statistical methods. It should be

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noted that in international research projects, too strict a specification of standardised answer options can exclude significant cultural characteristics (Simmet-Blomberg, 1998, p. 324). Qualitative methods rely on comparatively small numbers of cases and produce relatively soft data; gaining insights generally requires considerable interpretive effort on part of the researcher (Müller, 2000, p. 131). The researcher refrains from pre-structuring the object of investigation in order to ensure the greatest possible impartiality. The interaction between respondent and researcher is an integrative feature of qualitative methods. Therefore, the interviewer only receives a guideline; the sequence and wording of the questions are determined at the interviewer’s discretion on a case-by-case basis, depending on the specific interview situation. The aim is not so much to achieve (statistical) representativeness; rather, an attempt is made to filter out characteristic content in relation to the research problem at hand. Since in the context of international market research the researcher is often not familiar with the conditions of the foreign market, qualitative studies are of central importance in the run-up to representative surveys (see in detail Sinkovics et al., 2005). In the initial stage of international research, qualitative research can contribute especially to structuring the research problem and provide decisive assistance in generating research questions and research hypotheses as well as in model building. For example, Whirlpool’s qualitative research found that, with regard to refrigerators, stability is an important purchase criterion for British consumers, whereas French consumers value fresh fruit and vegetables and Spanish consumers value fresh meat. Common procedures in the context of qualitative international research are focus groups, in-depth interviews and projective techniques (on the individual procedures, see e.g. Fantapié Altobelli, 2017, p. 357 ff.). In any case, the use of focus groups must take into account international peculiarities (Malhotra, 2015, p. 137). In the Middle and Far East, for example, respondents are not very inclined to discuss their feelings publicly; in other countries, such as Japan, it is considered impolite to contradict someone publicly. In such cases, it is therefore advisable to use in-depth interviews. When using projective techniques, care must be taken to ensure equivalence in the presentation of verbal or pictorial stimuli. Further difficulties, which occur more frequently in international use, arise in the recruitment of qualified moderators as well as in the coding, analysis and comparative interpretation of the data. The biggest problem here, however, is the comparability and equivalence of qualitative international research. Participants are embedded in different cultures and are thus subject to different behaviours, values and norms. This can significantly complicate the interpretation of qualitative data in an international context (Sinkovics et al., 2005, p. 16). With regard to the criterion “type of question”, a distinction can be made between open-ended and closed questions (on the different types of questions, see in detail e.g. Fantapié Altobelli, 2017, pp. 67 ff.). In the context of open-ended questions, there are no fixed answer categories, i.e. the answer of the respondent is noted verbatim. Openended questions are used in particular in personal interviews as part of qualitative studies. In closed questions the response categories are predetermined; the respondent must select

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one or more of the predetermined response categories. A special form of closed questions are scale questions, in which the respondents can make their judgements on the basis of a scale. The advantage of open-ended questions is the possibility of obtaining a broad spectrum of opinions; with regard to data analysis, however, closed questions are preferable. Open-ended questions are often carried out in the run-up to a quantitative survey in order to gain clues for the development of the questionnaire; in international market research projects, for example, their use can reveal new, different uses or product meanings (Schopphoven, 1991, p. 42 f.). Open-ended questions can prove suitable in the context of international studies if the researcher has little or no knowledge of purchasing criteria, background etc.; open-ended questions also reduce cultural bias, as no answer categories are prescribed. On the other hand, open-ended questions presuppose a high level of articulation on the part of the respondent, which cannot necessarily be assumed in countries with a lower level of education; also, the demands on the interviewer are higher than with closed questions, which raises the problem of the qualification of the interviewer’s staff. When preparing the questionnaire, it must also be taken into account that in some countries – e.g. China – the questionnaire is checked by governmental institutions, so that certain topics – especially in the political sphere – cannot be addressed (Gross-Wandl, 2003, p. 7). Furthermore, a distinction must be made between direct and indirect questions. Whereas direct questions ascertain an (unproblematic) object of investigation in a straightforward manner, indirect question formulations attempt to obtain information on sensitive issues indirectly, i.e. “in a roundabout way” or by means of an extended range of answers (Fantapié Altobelli, 2017, p. 72 ff.). In international research projects, it has proven advisable to first choose an indirect form of questioning for sensitive questions. For example, unlike in the USA, in Germany the question about income often leads to non-response; alternatively, however, questions can be asked about tenure, rental costs, vacation frequency, and the like, which together can be considered indicators of income levels (Schopphoven, 1991, p. 41). Examples of special methods of indirect questioning are word association and sentence completion tests as well as the shopping list method. According to the criterion “survey subject”, a distinction can be made between an individual survey and an omnibus survey. An individual survey is conducted on behalf of a single client and usually addresses a specific topic; in contrast, in the context of a omnibus survey respondents are interviewed on different topics on behalf of multiple clients. Several providers already regularly carry out Europe-wide omnibus surveys, in which the adult population of the respective countries is interviewed representatively on various topics. As an omnibus survey is usually carried out on behalf of several clients, the costs incurred by the individual company are relatively low. However, the number of questions per topic is limited; target group congruence as well as freedom from overlapping of the individual survey topics must also be ensured. In addition, attention should be paid to whether the omnibus is carried out by a single institute or by a group of providers. In the latter case, care should be taken to ensure that the demographic structural characteristics are harmonised internationally, that equivalent selection and evaluation methods are used in

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the individual countries and that data analysis is carried out centrally (Bauer, 2009, p. 215 f.). According to the characteristic “number of participants in one and the same interview”, a differentiation can be made between individual (single-subject) and group interviews. While in single-subject interviews only one respondent is interviewed at a time, in group interviews several people are interviewed at the same time. The aim of group interviews is to obtain as broad a spectrum of opinions and ideas as possible in a relatively short time; areas of application include research into motives and attitudes and the generation of ideas. It is hoped that the effects of group dynamics will reduce inhibitions to answering and trigger spontaneous reactions and associations. In the context of international research projects, this form of questioning places high demands on the language skills of the interviewer or discussion leader. It is particularly relevant in the (qualitative) investigation and uncovering of culture-related differences with regard to the attitudes, motives and feelings of consumer groups in different countries (Craig & Douglas, 2001, p. 87). With regard to the criterion “frequency of the survey”, a distinction can be made between cross-sectional and longitudinal surveys. In the context of a cross-sectional survey, the issue of interest is only surveyed once, whereas in the case of longitudinal surveys, the same issue is surveyed repeatedly over an extended period of time. This makes longitudinal surveys particularly suitable for recording developments over time. A special form of longitudinal surveys are panel surveys, in which the same group of people is repeatedly asked about the same issue. Panel surveys are used particularly frequently in the branded goods industry to record developments in sales and market share. At least in most Western European countries, national consumer panels (household and individual panels) exist, so that internationally harmonised panel surveys are possible in principle. In order to ensure the harmonisation of a cross-national panel, the project should be carried out either by a single market research institute or by a well-organised network of institutes. Large internationally active market research institutes such as GfK and Ipsos already have a great deal of experience in this area and maintain panels in a large number of countries (Bauer, 2009, p. 207 f.). Figure 12 shows the global distribution of turnover in market research by survey type. It is clear that online surveys and telephone surveys (CATI) dominate quantitative research. However, this can be explained by the fact that the market research market is dominated by Europe and North America, where internet and telephone penetration is almost universal. For intercultural surveys, pure online surveys are therefore in fact only suitable for special target groups, as Internet access only permits population representativeness in developed countries. The same applies to mobile phones (Bachleitner et al., 2014, p. 92). Among the qualitative survey methods, group discussions dominate worldwide; overall, however, qualitative surveys play only a minor role internationally.

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Online quantitative

17%

Mobile/Smartphone online quantitative

9%

Audience measurement

9%

Telephone (CATI)

8%

Online traffic/ audience

8%

Automated digital/ electronic

7%

Face-to-face

5%

Social Media Monitoring Other quantitative methods

4%

2%

Group discussions

3%

Online research communities (incl. blogging)

3%

Online qualitative

3%

In-depth interviews

2%

Mobile qualitative

1%

Ethnography

1%

Other qualitative methods

1%

Fig. 12 Global market research turnover by survey type 2019. (Source: Statista, 2021, p. 28; ESOMAR, 2020, p. 163)

3.3.2 Observation Observation is the systematic recording of the ongoing behaviour of the study participants. In principle, it is suitable for obtaining both environmental and market information. Observations can be classified according to various criteria (Fantapié Altobelli, 2017, p. 115 ff.). According to the person of the observer, we distinguish between self-observation and third-party observation. As a rule, third-party observation is carried out by independent researchers, if necessary with the use of technical aids. In most industrialised countries, market research institutes offer suitable tools or services. In the context of self-observation, observation is carried out by the respondent him/herself (e.g. through diary entries);

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however, due to the lack of objectivity of the results, self-observation is rather an exception in practice. According to the degree of awareness of the person being observed, we distinguish between overt and covert observation situations. In an overt observation situation, researchers identify themselves and explain the purpose of the observation. Hence, an observation effect can generally be expected, i.e. a change in the subject’s behaviour due to knowledge of the observation; for this reason, observations should be conducted covertly if possible, i.e. without knowledge of the participants (Fantapié Altobelli, 1998, p. 319). However, this may lead to ethical and legal issues. Closely related to the degree of awareness of the participants is the criterion “degree of participation” of the observer. In participant observation, the observer takes part in the event and interacts with the participants. If his or her role as observer is to remain unknown, he or she has to take a false role, which poses ethical questions; besides, participation makes it difficult to simultaneously record the facts being observed (Fantapié Altobelli, 2017, p. 116 f.). In the context of non-participant observation, the observer is not actively involved in the events; this favours the objectivity of the measurement. According to the criterion of the registration technique, we distinguish between manual and apparative observation. In the course of the progress of microelectronics, apparative observation methods have gained in importance in the international field; the most important of these include the telemeter for observing TV use, film and video recordings of the behaviour of test persons, eye-tracking devices, skin resistance measurement, scanning and swift-selection platforms. Several market research institutes carry out methodologically identical observations in different countries. For example, these institutes conduct comparable cross-national household and retail panels as well as in-store observations. The television audience panels of the individual countries, on the other hand, still show a lack of harmonisation, which can be attributed to the technologies used on the one hand and to different structural characteristics and operationalisations on the other (Bauer, 2009, p. 209 ff.). The advantages of observation lie in its comparative simplicity and low cost; in addition, it can be carried out to some extent independently of language barriers and the willingness of the test persons to provide information. The latter, however, can lead to legal problems if the recording is made without the consent of the person being observed. A particular disadvantage is the fact that only external behaviour can be recorded; psychological variables such as motives and attitudes cannot be measured by observation (Fantapié Altobelli, 1998, p. 321; Malhotra, 2015, p.168 f.).

3.3.3 Experiment In the context of an experiment, the facts to be investigated are analysed with the aid of a planned experimental set-up. The field of application of experiments is the empirical testing of reaction hypotheses with the aim of determining cause-effect relationships. Experiments are thus particularly suitable for obtaining information about the responsiveness of potential customers to marketing activities in target markets. As a rule, measurement in the

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context of an experiment is carried out with the help of surveys or observations. Experiments can be differentiated according to the experimental environment, the time order of the measurement, and the experimental set-up. According to the experimental environment, we distinguish between field and laboratory experiments. In a field experiment, the test is carried out under real conditions. The advantage here is the presence of a real environment; also, the test subjects do not need to know that they are participating in an experiment. Disadvantages are usually the high costs, the considerable time required and the fact that environmental influences cannot be controlled. Important variants of a field experiment are the regional test market or store tests. Laboratory experiments are conducted in a specially equipped studio; this allows the test to be carried out under controlled conditions. A disadvantage is the often low realism as well as the observation effect that usually occurs. Detailed descriptions of the individual test market alternatives can be found, for example, in Fantapié Altobelli, 2017, p. 419 ff. In the international context, it should be noted that field experiments are not always possible. In many countries, important environmental conditions (e.g. technology or infrastructure) are not sufficiently developed to enable field experiments (Malhotra, 2015, p. 195 f.): • In many countries, the television landscape comprises only public service channels, which makes it extremely difficult to include advertising measures in test market studies. • In some countries – e.g. in the Baltic States – there is a lack of larger supermarkets, so that the testing of sales promotions – if at all – is only possible with great effort. • In many countries in Asia, Africa and South America, the infrastructure is so underdeveloped that an acceptable level of distribution for testing purposes is not achievable. With regard to the time order of measurement, we distinguish between projective and ex post facto experiments (Fantapié Altobelli, 2017, p. 188). In a projective experiment, a process is studied from the time of the change in an independent variable to the effect that occurs on the dependent variable. Example: a test group is shown a commercial for a product, a control group is not. Subsequently, the purchase quantities of both groups are registered through a laboratory test. In the context of an ex post facto experiment, experimental conditions that have come about independently are selected, i.e. the independent variables have already occurred, but their effect (dependent variable) is measured in the present. Example: by means of a survey, it is first determined which persons have had contact with an advertising spot and which have not. The purchase quantities of the two groups of people are then recorded separately. Obviously, the determination of cause and effect is problematic in ex post facto experiments, especially since confounding influences are unknown. An important criterion for distinguishing between experiments is the experimental set-up, i.e. the design of the experimental facility. The individual experimental set-ups differ in particular with regard to the following criteria:

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• the way in which confounding variables – i.e., variables not manipulated as part of the experiment, but which may affect the dependent variable(s) under study – are taken into account, and • the number of experimental variables (factors) and levels (treatments) considered. The use of these criteria leads to the following subdivision of experimental set-ups (Fantapié Altobelli, 2017, p. 187 ff.): • Pre-experimental designs: These experimental designs do not explicitly consider confounding factors and thus imply that the confounding variables influence all test units in an identical manner. Basically, these are not experiments according to the definition used here; they are therefore only listed here for the sake of completeness. • True experiments: In true (“complete,” “formal”) experiments, confounding variables are deliberately controlled. The researcher varies the experimental factors using control groups and forms the groups according to the random principle (randomisation). A distinction is made here between basic forms and so-called extended experiments. Extended experiments are created by combining different basic forms of (real) experiments. This makes it possible to consider more than one test factor in several levels. • Quasi-experiments: Experimental set-ups in which not all of the above conditions for real experiments are given are called quasi-experiments. In an overall assessment of experiments, it should be noted that they provide valuable information about consumer reactions to marketing activities; the often high costs and the sometimes considerable time required, however, are regarded as disadvantages. Against this background, they are used relatively rarely in international market research. Experiments relating to several country markets are often not carried out in all cultivated markets, but only in selected key countries. However, this approach is not suitable for all research projects. For example, if the aim is to test individual product components and features, information is required from all country markets in order to find out whether or how certain product features should be varied to take account of country-specific consumer preferences. Experiments aimed at advertising tests, market share checks, or positioning analyses for products should also be conducted in all relevant country markets (Bauer, 2009, p. 219 ff.). However, the infrastructure for conducting experiments is often unsuitable, for example due to state control of TV stations, which makes advertising tests impossible, or the lack of retail chains with sufficient market coverage for test markets. Furthermore, it should be noted that the temporal order of stimulus and effect as well as the constancy of other influencing factors – two essential conditions for causality – are difficult to control in internationally conducted experiments, so that both internal and external validity are generally lower than in comparable national studies (Malhotra, 2015, p. 196).

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97

Measurement, Operationalisation and Scaling

The question of measurement, operationalisation and scaling of the variables and constructs of interest concerns how the relevant characteristics of the individual units of investigation are to be defined operationally. Typical characteristics to be examined are, for example, socio-demographic characteristics such as age, level of education, gender and income, as well as constructs such as image or awareness of brands, consumer attitudes and buying behaviour or habits. Operationalisation of the constructs or attributes to be studied requires a precise theoretical description and formulation of the relevant characteristics. In a second step, it must be determined with the help of which indicators these theoretical constructs are to be measured in the country markets to be examined. The result of measuring the thus operationalised constructs is the systematic assignment of symbols (usually numbers) to the observed values. In this context, the question of the level of measurement must be clarified (nominal, ordinal, interval or ratio scale; see e.g. Fantapié Altobelli, 2017, p.100 ff.). In international market research, it must be taken into account that scales of higher levels can overwhelm respondents. While in developed industrial countries the use of metric scales is straightforward due to generally higher levels of education and differentiated consumption experiences, in less developed countries the ability to make metric judgments is often not present. For this reason, ordinal scales or even dichotomous scales (“yes – no”, “agree – disagree”) are often used there to accommodate the respondents’ lack of discriminatory ability (Malhotra, 2015, p. 227). The actual measurement of variable values requires a scale of the variables of interest, i.e. the rule for assigning values to properties of objects. A distinction can be made between comparative scaling procedures, in which the objects to be evaluated are compared with one another, and non-comparative scaling procedures, in which each object is assessed individually (Fantapié Altobelli, 2017, p. 104 ff.). In the international context, non-comparative scaling should be preferred if the respondents have little experience with market research in general or with the specific product category, as comparative procedures (with the exception of pairwise comparisons) involve the simultaneous recording of multiple stimuli and can therefore more easily lead to the respondents being overtaxed. The quality of the data obtained during measurement depends to a large extent on the quality of the measurement process. The requirements for measurement methods are objectivity, reliability and validity. A measurement is objective if the measurement results are free from subjective influences of the investigator. If different researchers arrive at the same result using the same measurement method under identical measurement conditions, the measurement is to be regarded as objective. Reliability implies that repeated measurements under identical measurement conditions produce the same measured values, i.e., that the measurements are reproducible. Reliability is a necessary but not sufficient condition for validity. Finally, validity means that the measured results correspond to the facts that, according to the operationalisation, were intended to be measured (Fantapié

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Defining the basic population

Defining the survey population

Choosing sampling principle, procedure, and technique

Determining sample size

Fig. 13 Defining a sampling plan. (Source: Fantapié Altobelli, 2017, p. 134)

Altobelli, 2017, p. 96 ff.). The numerical values measured should reflect the circumstances in reality. It is crucial here that in an international context operationalisation and measurement of the constructs of interest ensure equivalence (see in detail Sect. 1.3 in this chapter).

3.5

Sampling

Once the form of survey has been decided, it must be determined which survey units are to be examined. This is very much dependent on the chosen survey method: while a representative sample must be used as a basis for a quantitative survey, qualitative surveys are carried out on the basis of qualitative sampling plans. A sampling plan is the method used to select the survey units of the sample to be investigated. Figure 13 shows the steps involved in defining a sampling plan. It must be determined in advance whether a full or a partial survey is to be conducted. Whereas in a full survey (census) all elements of the population (more precisely: the study population) are included in the survey, i.e. examined or interviewed, in a partial survey a sample is drawn from the population. In practice, a full survey is almost always ruled out for financial, organisational and time reasons. Projects in which the population of interest is relatively small are an exception. An example of this is internal surveys of sales representatives of a company with a global presence. If, however, consumers in different countries are to be surveyed, the population is usually too large to examine all the elements contained. For this reason, most international primary surveys are conducted as partial surveys and thus on a sample basis. When drawing up the sampling plan, it must be decided which elements of the population are to be included in the survey according to which procedure, i.e. according to which principle the sample is to be formed. In principle, a distinction is made between probability

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and non-probability sampling procedures (for details see Cochran, 1972; Pokropp, 1996). National peculiarities of the individual countries must be taken into account. Probability or random sampling implies that the choice of the sample elements is controlled by a random process. In this process, each element of the population has a calculable probability of being included in the sample. The random error (sampling error) can therefore be determined mathematically. The larger the sample size, the greater the probability that the sample correctly represents the population; the probability of (random) differences between the sample and the population is reduced. Known random sampling methods include simple random sampling, stratified random sampling, cluster sampling, and multistage sampling. If lists of persons are available in the target countries (e.g. population registers, telephone and address directories), random sampling is generally possible. However, the use of civil registers for sampling is not permitted in every country (e.g. not in Austria; Bachleitner et al., 2014, p. 117). In the case of non-probability sampling, no random process acts in the sampling. Thus, a statistical calculation of the sampling error is not possible. Rather, the sample is constructed deliberately, taking into account relevant characteristics, which usually still aims to make the sample representative of the population of interest, but not in a statistical sense. The procedures of non-probability sampling include, among others, convenience sampling, quota sampling, judgemental (purposive) sampling and cut-off sampling (Fantapié Altobelli, 2017, p. 137 ff.). As a rule, non-probability sampling becomes necessary when no directories of persons are available or obtainable in the target countries. As a substitute, a quota selection typically takes place in this case; in countries with ethnic minorities, cluster sampling is also appropriate (Bachleitner et al., 2014, p. 121). Practice shows that the majority of international studies are based on non-random selection procedures (Reynolds et al., 2003, p. 81). With regard to the sample size, it should be noted that it depends on the heterogeneity of the population (Bachleitner et al., 2014, p. 122). It is therefore larger in countries with several cultural subgroups. However, a statistically sound determination of the required sample size in many countries is made difficult by the fact that the information required for this – in this case, in particular, estimates of the variance in the population – is not available or not accessible; the required sample size is therefore determined by qualitative criteria such as the importance of the decision, sample size in similar studies, type of research approach, number of variables, and the like (Malhotra, 2015, p. 286). If an estimate of the variance is nevertheless made, it can be assumed that this varies from country to country; for this reason, the necessary sample size will also differ in the individual countries. In the case of international consumer surveys, it must also be taken into account that errors can result from an undocumented or poorly documented sampling frame (e.g. Schopphoven, 1991, p. 39 f.; Holzmüller, 1986, p. 61 f.). Possible causes are missing or differently designed population registers, voter lists or telephone directories. In the case of very heterogeneous sampling frames in the individual countries, non-random selection procedures can lead to more reliable results than pure random selection and at least have advantages with regard to the comparability of the subsamples (Reynolds et al., 2003,

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p. 83). It should further be noted that when selecting participants, their roles or functions may vary depending on the sociocultural setting. This comes into play, for example, in the case of research objects such as purchasing decisions in families or companies. A further source of error in the context of sampling arises from varying response rates to questionnaires sent by mail. In order to obtain representative results in the context of international primary research, identical, preferably random-based selection procedures should be used as far as possible in the individual country markets investigated. However, this desired representativeness can be in conflict with the intercultural comparability of the results. If country-specific characteristics are not sufficiently taken into account in the sampling plan, the elements of the population in the individual countries may have different probabilities of being included in the sample. The samples are no longer comparable with each other; a crossnational comparison of the results thus becomes problematic or even impossible (Reynolds et al., 2003).

3.6

Data Collection

Data collection implies the actual fieldwork, e.g. the concrete implementation of an online survey, a personal interview or an observation. When conducting an international primary research project, comparability and equivalence of the results must be ensured – regardless of the research method used. This means that the situational environment of the data collection must be comparable. On the one hand, the adequate, coordinated timing of the survey is addressed. Holiday periods, religious festivities and different daily routines in the various countries influence the accessibility of the persons to be surveyed. If possible, the surveys should be conducted internationally at the same time in order to avoid temporal distortions; on the other hand, specific situations of the target country may suggest a delayed implementation, for example due to elections, monsoon periods, holidays, etc., as such events can have an influence on the response behaviour (Bauer, 2009, p. 290 f.; Bachleitner et al., 2014, p. 132 f.). Interview location and time of day also play an important role internationally. In Islamic countries, for example, women are forbidden to let (male) strangers into the house if they are alone there, so that an interviewer must expect high failure rates if this fact is not observed (female interviewers, on the other hand, are permitted). In oral interviews, the conversational style also plays a role: while in some countries the conversational style tends to be formal with obligatory formulas of politeness (for example, in many Asian countries), in other countries, such as Australia, an emphatically casual style is preferred. In written surveys, it should be noted that colours and numbers often have a specific cultural (symbolic) meaning. In the West, for example, the colour red signals danger, whereas in China it expresses joy. When choosing scale points in the context of standardised surveys, it should also be borne in mind that in Germany a scale with the expressions from 1 to 5 is associated with school grades, while in other countries

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with different assessment systems the meaning of the scale values is not so obvious (Bachleitner et al., 2014, p. 108 f.).

3.7

Data Preparation

After completion of the field work, the collected data will be reviewed and processed in order to prepare them for data analysis and documentation of results. As in national research projects, the first step in international primary surveys is to check the incoming questionnaires and data. Aspects such as the response rates achieved, possible interviewer errors as well as completeness, readability and plausibility are of importance here. If necessary, the coding of the answers to open questions as well as the creation of corresponding code plans is required. Translation also plays an essential role here. In order to ensure a consistent, comparable procedure when carrying out the control measures, it is advisable to have these carried out centrally by an institute. The centralisation of these tasks also has advantages in terms of cost and time. On the other hand, the limited possibility to control the work of this single institute may prove to be a disadvantage. It also cannot be ruled out that when coding and translating open-ended responses, national culture-related peculiarities are not sufficiently considered or are only taken into account from the subjective perspective of a nation (Bauer, 2009, p. 298 ff.). Furthermore, it should be noted that the quality of the interviewers can vary greatly when conducting the fieldwork; in addition, different countries also have different perceptions of honesty, which can lead to data falsification and makes quality control absolutely necessary (Bachleitner et al., 2014, p. 139).

3.8

Data Analysis and Interpretation

3.8.1 Overview After completion of all preparatory work in the context of the control of the collected data, the phase of data analysis begins. A number of statistical and data analysis programs are available for this purpose, with the help of which a wide variety of evaluations can be carried out. Due to the existing variety of methods in data analysis, this section can only provide an overview of the individual analysis procedures. In addition, the methods as such do not have any specific international characteristics. Moreover, due to the often modest quality of international data, sophisticated data analysis procedures can often not be used. For an in-depth study of data analysis methods, we therefore refer to the specialist literature (see, for example, Backhaus et al., 2021; Bortz & Schuster, 2010). In the context of international studies, it must first be ensured that the units or dimensions of measurement are comparable across countries (e.g. in the case of currency, measurement and weight units) before the data analysis is carried out. Furthermore, data often need to be normalised or standardised in order to make meaningful international

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comparisons (Malhotra, 2015, p. 310). The type of data analysis itself varies depending on whether the studies are intracultural or intercultural. In intracultural studies, the relevant facts are examined within the individual countries, and comparative observations with other countries are not sought. In this case, the data analysis is carried out exclusively for the individual countries (in the context of an intramarket segmentation see chapter “International Market Selection” in Part III). In the context of intercultural studies, a simultaneous consideration of the countries included takes place. We can distinguish between two different approaches: in pan-cultural studies, the countries included are considered as a whole; consequently, the data collected are first aggregated across all countries and then analysed. An example of this is the determination of supranational market segments within Europe by GfK Roper Consumer Styles. In cross-country analyses the data are only aggregated at country level but analysed in a cross-country comparative manner (e.g. determination of mean values at country level and cross-country statistical comparison of mean values). The aim here is to identify similarities and differences in the target markets across countries. In order to process the data obtained in the course of international research projects in an appropriate manner and to make them accessible for interpretation, several methods of data analysis can be used, which can be classified according to various criteria, e.g.: • according to the scale level of the variables: procedures for nominal, ordinal, interval or ratio scaled variables; • according to the number of variables included in the analysis: univariate, bivariate and multivariate analysis methods; • according to the objective of the evaluation: data reduction procedures, classification procedures, procedures for measuring relationships and procedures for measuring preferences. In the following sections, the latter classification of the procedures – according to the objective of the analysis – will be used as a basis (Fig. 14).

3.8.2 Data Reduction Methods Data reduction procedures have the task of compressing the large amount of raw data collected in order to reduce the data material to a manageable size; this allows to identify structures in the data. Univariate data reduction procedures refer to single variables. The starting point of data reduction is a frequency distribution of the variable of interest. The typical question is: “How often do certain values of the variable occur in the sample?” Frequency distributions can be determined independently of the scale level; in the case of a large number of levels (e.g. income of the respondents), the formation of classes is recommended in order to obtain manageable results. It is often useful to characterise the distribution using localisation and dispersion measures. Measures of localisation indicate the mean position of a distribution (e.g. arithmetic mean for metrically scaled variables), while measures of

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Data Analysis Methods

Methods for data reduction

ƒ Univariate methods ƒ Factor analysis

Methods for classification

ƒ Cluster analysis ƒ Discriminant analysis

ƒ Multidimensional scaling

Methods for measuring relationships

Methods for measuring preferences

ƒ ƒ ƒ ƒ ƒ

ƒ Conjoint analysis ƒ Multidimensional

Correlation analysis Contingency analysis Analysis of variance Regression analysis Causal analysis

scaling

Fig. 14 Data analysis procedures. (Source: Adapted from Fantapié Altobelli, 2017, p. 225)

dispersion (e.g. variance) indicate the extent to which the observed values deviate from their mean (Fantapié Altobelli, 1998, p. 327). Univariate methods of data reduction are used in international market research to uncover differences in the characteristics of the variables of interest in the individual countries. An exemplary question could be: “What is the share of intensive users of product category X in the target markets?” Multivariate data reduction methods include, in particular, factor analysis. The basic principle of factor analysis is to extract a smaller, limited number of uncorrelated variables from a large number of variables – some of which are correlated with each other (on factor analysis, see e.g. Backhaus et al., 2021, p. 381 ff.). These factors are variables which are not directly observable as such, but which latently underlie the totality of the variables under investigation. In marketing practice, this data analysis procedure is often used to condense numerous object characteristics into a few central influencing factors: for example, the numerous characteristics of an automobile could be summarised into the factors safety, performance, and environmental friendliness. Factor analysis is used in an international context, for example, in comparative success factor research. An exemplary question here could be: “Which factors influence the success of product X in the targeted international markets?”

3.8.3 Classification Methods Classification procedures aim at splitting a multitude of objects into groups; in this respect, they also imply a data reduction of some kind, since a multitude of statements about individual objects is compressed into statements about groups of objects. The most common methods of classification include the multivariate methods of cluster analysis, discriminant analysis, and multidimensional scaling. The aim of cluster analysis is to merge heterogeneous objects (e.g. consumers, products) into homogenous groups (clusters) on the basis of suitable characteristics (see

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in detail Bortz & Schuster, 2010, p. 453 ff.; Backhaus et al., 2021, p. 451 ff.). In a first step, the clustering variables are chosen according to content, type and scaling (e.g. age, income and gender of consumers); subsequently, the values of the variables are collected for the objects in the sample, e.g. consumers. Based on the values of the variables for the objects under study, the similarities and dissimilarities between the objects are then determined, which are used as a criterion for group formation. The aim is to identify groups of objects that are as homogeneous as possible, but at the same time differ from each other as much as possible. In a final step, the single clusters are described and interpreted. By means of cluster analysis, for example, market segments can be defined in the individual target markets (see in detail chapter “International Market Selection” in Part III). Discriminant analysis is also used to classify objects. However, while the cluster analysis outlined above is based on similarities between objects, discriminant analysis is based on the dependency of a nominally scaled variable on two or more metrically scaled independent variables (Fantapié Altobelli, 2017, p. 265 ff.). An exemplary question could be: “Which characteristics can best be used to classify successful and unsuccessful market entries in China?”. The most important area of application of multidimensional scaling (MDS) is positioning analysis. It examines how certain objects (e.g. brands) are positioned in the subjective perception space of respondents (e.g. consumers). The typical question underlying this form of analysis is the respondents’ assessment of the similarities between objects. For example, a possible question might be: “Are there country-specific differences in the assessment of similarity between different product brands in product category X?” The perceived (dis)similarities of the objects form the basis for their positioning in space (usually two- or at most three-dimensional). The dimensions of positioning (e.g. in the case of watches, sportiness and prestige) can be formed by means of factor analysis (for multidimensional scaling see e.g. Fantapié Altobelli, 2017, p. 278 ff.).

3.8.4 Methods for Measuring Relationships Procedures for measuring relationships attempt to establish connections between variables. While a correlational relationship implies that the variables in question are in correspondence in the sense that they work in a synchronised manner, a causal relationship implies that a variable affects another (one-way). Analysis procedures for causal relationships measure the dependence of one or more dependent variables on one or more independent variables; to this extent, the discriminant analysis described earlier can also be classified as dependency analysis procedures (for one nominally scaled dependent variable and two or more metrically scaled independent variables). Other common procedures are: • regression analysis (for metrically scaled dependent and independent variables) and • analysis of variance (with one metrically scaled independent variable and one or more nominally scaled dependent variables).

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Regression analysis, on the one hand, is used to examine the nature and direction of the relationship between metrically scaled variables; specifically, the simple linear regression analysis model is used to analyze the linear dependence between a dependent and an independent variable, e.g. the dependence of sales volume on product price. Analysis of variance, on the other hand, examines the dependence of a metrically scaled variable (e.g. brand awareness) on one or more nominally scaled independent variables (e.g. advertising measure); a typical area of application of analysis of variance is the evaluation of experiments (Fantapié Altobelli, 2017, p. 287 ff. and 315 ff.). As a rule, causal relationships are investigated to obtain market response functions. In the international context, for example, the question arises as to whether different price or advertising response functions apply in the individual countries; if this is the case, a differentiation of the marketing programmes should be considered (see chapter “Interna International Market Development Strategies” in Part III). Methods for analysing correlational relationships examine the interdependencies between variables; in this respect, cluster analysis, factor analysis, multidimensional scaling and conjoint analysis can also be assigned to this class of methods. However, since the typical questions posed by the above-mentioned methods do not primarily aim at the investigation of reciprocal relationships in the narrow sense, we shall only mention • contingency analysis and • correlation analysis as “typical” procedures of interdependence analysis. Contingency analysis examines the interdependence of two or more nominally scaled variables, such as gender and leadership behaviour (on contingency analysis, see, for example, Backhaus et al., 2021, p. 355 ff.). However, the contingency analysis only provides an indication of the existence of a relationship and does not allow any statements about the direction of this relationship; this must be established with the help of plausibility considerations. In the case of the variables “gender” and “leadership behaviour”, for example, it could be assumed that gender influences leadership behaviour, but not vice versa. Methods of correlation analysis can in principle be used for different scale levels (see in detail Bortz & Schuster, 2010, p. 171 ff.). The most common are the product-moment correlation coefficient (for metrically scaled variables) and Spearman’s rank correlation coefficient (for ordinally scaled variables). An exemplary question might be, “Do the market shares of the major brands in category X correlate in each target market?”

3.8.5 Methods for Measuring Preferences In order to obtain indications of which objects (e.g. products, brands) are preferred by the persons surveyed (e.g. consumers), the preferences of the relevant group of persons must be investigated. Among the methods for preference research, conjoint analysis has become particularly important (preferences can also be determined with the help of

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multidimensional scaling). The basic idea of conjoint analysis is to infer the relative importance of individual object properties from overall utility judgments regarding objects to be evaluated (for detailed accounts of conjoint analysis, see e.g. Backhaus et al., 2021, p. 531 ff.; Green & Srinivasan, 1990). For example, respondents can be asked to rank alternative product designs; the global judgments are then used to infer the relative importance of individual product attributes. An important area of application of this procedure is the development or design of new products. Particularly in the area of international product policy, conjoint analyses can be used to determine in which countries which product features or feature characteristics are preferred; this can provide indications of the need for international product adaptation. The data analysis is followed by the interpretation and presentation of the results. The need for an equivalent interpretation of the results has already been discussed in Sect. 1.3 in this chapter.

4

Organisation of International Market Research

4.1

Overview

The organisational design of international market research is fundamentally determined by the form in which decision-making competencies and execution tasks either remain within the company or are delegated to externally commissioned market research institutes. The following organisational principles apply both to the allocation of decision-making competencies and to the allocation of execution tasks (Bauer, 2009, p. 307 ff.): • the decision-making competencies and execution tasks remain centrally within the company (centralised international market research); • their allocation is decentralised within the company, i.e. planning and implementation of the market research project is delegated to the foreign branches (internal delegation); • external market research institutes (domestic or foreign) are commissioned to varying extents to carry out the survey (coordinated international market research). If these organisational principles are combined with each other both regarding the delegation of decision-making and the delegation of execution tasks, this results in nine theoretically possible organisational forms for international market research, of which, however, only three combinations are actually of practical relevance (Fig. 15). In recent years, the partial or complete outsourcing of in-house market research departments in a large number of companies resulted in that the allocation of execution tasks is nowadays reduced almost entirely to the form of external delegation to commissioned market research institutes. Organisational variation therefore only concerns the allocation of decision-making authority.

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Allocation of decision-making authority

Centralisation

Internal delegation

External delegation

Internal delegation

Theoretical combinations

Realisable, but hardly (yet) realised combinations

External delegation

Allocation of execution tasks

Centralisation

„Centralised“ organisation

„Decentralised“ organisation

„Coordinated“ organisation

Fig. 15 Organisational types in international market research. (Source: Bauer, 2009, p. 308)

With regard to the external delegation of market research tasks to one or more market research institutes, it should generally be noted that the selection alternatives should be limited to those institutes that are committed to the “Code of Conduct” of one or more recognised national or international professional organisations and also undergo independent quality controls at regular intervals (Bauer, 2009, p. 311).

4.2

Centralised International Market Research

In the case of centralised international market research, decision-making powers remain within the company or at the international head office, while all executional tasks – the

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focus here is usually on field work – are delegated to external market research institutes in an exactly predefined form. By contrast, analysis and interpretation tasks are excluded from external delegation; these are carried out by the company itself. This form of organisation enables the results of the research to be compared internationally to a large extent. In addition, the commissioning company has extensive control options, and ultimately the costs of international market research can also be significantly reduced. Often, however, the company’s internal resources are not sufficient to carry out extensive international surveys in a centralised organisational form. Additionally, necessary adaptations of the research design to the cultural requirements of different countries cannot be made due to a lack of appropriate country knowledge. For this reason, the areas of application of centralised international market research are generally limited to international surveys with a simple structure and small scope. Furthermore, it should be critically noted that although centralisation ensures the comparability of results, there is a risk that this will be partially cancelled out by a strongly ethnocentric view of the company (Craig & Douglas, 2005, p. 45).

4.3

Decentralised International Market Research

When international market research is organised in a decentralised form, the corporate headquarter merely defines the objectives of the international market research. The respective foreign branches in the countries involved in the research are then fully entrusted with the design and local management of the research project. The advantage here is that each of the national sub-investigations can be optimally adapted to the respective conditions in the countries with a high degree of flexibility. In addition, decentralisation gives the foreign branches a high degree of autonomy in planning and conducting the national sub-investigations. However, this approach carries the risk of a lack of international comparability of the survey results (Craig & Douglas, 2005, p. 46; Simmet-Blomberg, 1998, p. 377). This risk can usually be countered by various standardisation measures in the course of the market research process. In addition, the company can hold international or country-regional coordination meetings or set up coordination committees. Overall, it should be noted that the organisational form of decentralised market research is primarily suitable for solving operational marketing problems.

4.4

Coordinated International Market Research

In the case of coordinated international market research, the commissioning company only decides on the type, content, scope and timing of the information required. All execution tasks and the analysis and interpretation of the data collected are delegated to the market research institutes commissioned. This gives the institutes a high degree of autonomy in

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fulfilling their mandates. However, the company’s cooperation with the institutes requires a permanent exchange and coordination process (Craig & Douglas, 2005, p. 46). Various solutions are used for the external delegation of decision-making competencies and execution tasks (Bauer, 2009, p. 320 ff.): • Type 1: In each of the countries participating in the study, a local institute is selected. Nationally defined decision-making competencies and sub-tasks are then assigned to this institute. This has the advantage that the selected institutes are very familiar with the respective national conditions. However, an increasing number of countries to be investigated has a negative effect on the overall course of the investigation due to the increasing coordination effort between the country institutes. In particular, there are coordination problems in determining the methods to be used, in conducting the study, and also in different ways of interpreting the data. • Type 2: Alternatively, it is possible to delegate the decision-making authority to a domestic market research institute only, to which all execution tasks within the scope of the survey are also delegated. This domestic institute in turn delegates the fieldwork to be carried out in the individual countries or also more extensive tasks, e.g. parts of the subsequent data processing, to corresponding institutes abroad. Several positive effects can be achieved through the leadership of the domestic institute compared to option 1. On the one hand, the above-mentioned coordination problems between the institutes can be considerably reduced. Secondly, the commissioning company has a central contact person and person in charge in the home country and can also circumvent any language barriers that may exist. Therefore, the selection of the domestic institute should meet various requirements. In addition to linguistic and regional competencies for the countries to be studied, the lead institute should have sufficient capacities to fulfil the central planning, analysis and interpretation tasks and also to be able to fully exercise its coordination and control functions. • Type 3: As an alternative to the form of external delegation of decisions and tasks described above, a domestic institute can be commissioned which is itself internationally active, i.e. which has its own foreign branches or holdings in foreign institutes or is itself a branch of a foreign institute. Also of interest are those domestic institutes that cooperate closely with foreign partner institutes or are members of an international market research network. A selection decision for these institutes is based in particular on the form and strength of the exchange relationships in the partnerships and networks. • Type 4: Finally, external delegation of decision-making and tasks can also take the form of an institute abroad that is not represented in the home country being commissioned with the study and in turn involving subsidiaries, partners, networks or external institutes in the individual countries in the study. In the simplest case, the delegation of tasks is limited to the field work to be carried out, but can also include, for example, the processing of the data collected.

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The possibility for the commissioning company to influence the selection of all market research institutes to be involved in the international survey is therefore dependent on the choice of one of the above-mentioned forms of coordination. If the foreign institutes to be involved are determined by a lead domestic or foreign institute, the commissioning company nevertheless has the possibility of indirect influence through a corresponding selection decision based on the institute’s membership of associations, networks, etc. (Bauer, 2009, p. 331 ff.). If the coordination task remains with the commissioning company, the criteria for selecting the market research institutes are identical to those used for national surveys (see e.g. Fantapié Altobelli, 2017, p. 30). If the selection decision is transferred to the lead institute, these criteria must be modified accordingly. Decisive factors include previous knowledge and experience with regard to conducting international surveys, membership of relevant professional associations, references from completed international market research projects, experience or specialisation in relevant foreign markets. Today, coordinated market research is the predominant form of organisation for international surveys. On the one hand, this can considerably relieve the commissioning company of planning and execution tasks. In addition, depending on the form of implementation chosen, the company is also relieved of coordination tasks. On the other hand, the company can also make use of the methodological, organisational and country-specific knowledge of the institutes over and above the usually rather limited possibilities of company market research; moreover, the danger of an ethnocentrically influenced investigation is low, especially if a high level of participation of the foreign institutes can be realised. However, the restriction of direct control of the participating institutes by the commissioning company can prove problematic (Bauer, 2009, p. 334).

References Bachleitner, R., Weichbold, M., Aschauer, W., & Pausch, M. (2014). Methodik und Methodologie interkultureller Umfrageforschung. Zur Mehrdimensionalität der funktionalen Äquivalenz. Springer VS. Backhaus, K., Erichson, B., Gensler, S., Weiber, R., & Weiber, T. (2021). Multivariate analysis. Springer. Bauer, E. (2009). Internationale Marketingforschung (5th ed.). Oldenbourg. Baumgartner, H., & Steenkamp, J.-B. (2001). Response styles in marketing research: A crossnational investigation. Journal of Marketing Research, 38(2), 143–156. Bortz, J., & Schuster, C. (2010). Statistik für Human- und Sozialwissenschaftler (7th ed.). Springer. Cochran, W. G. (1972). Stichprobenverfahren. de Gruyter. Craig, C. S., & Douglas, S. (2001). Conducting international marketing research in the twenty-first century. International Marketing Review, 18(1), 80–90. Craig, C. S., & Douglas, S. (2005). International marketing research (3rd ed.). Wiley. Czinkota, M. R., & Ronkainen, I. A. (2013). International marketing (10th ed.). Cengage Learning.

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de Jong, M. G., Steenkamp, J.-B., Fox, J.-P., & Baumgartner, H. (2008). Using item response theory to measure extreme response style in marketing research: A global investigation. Journal of Marketing Research, 45(1), 104–115. de Langhe, B., Puntoni, S., Fernandes, D., & van Osselaer, S. (2011). The anchor contraction effect in international marketing research. Journal of Marketing Research, 48(2), 366–380. Douglas, S. P., & Craig, C. S. (1984). Establishing equivalence in comparative consumer research. In E. Kaynak & R. Savitt (Eds.), Comparative marketing systems (pp. 93–113). Greenwood Publishing Group. Douglas, S. P., & Craig, C. S. (2006). On improving the conceptual foundations of international marketing research. Journal of International Marketing, 14(1), 1–22. ESOMAR. (2020). Global market research 2020. Esomar. Fantapié Altobelli, C. (1998). Umwelt- und Marktinformationen. In R. Berndt, C. Fantapié Altobelli, & Schuster (Eds.), Springers Handbuch der Betriebswirtschaftslehre (Vol. 2, pp. 305–353). Springer. Fantapié Altobelli, C. (2017). Marktforschung (3rd ed.). UTB. Fantapié Altobelli, C., & Sander, M. (2001). Internet Branding. Marketing und Markenführung im Internet. de Gruyter. Farley, J. U., & Lehmann, D. R. (2001). The important role of meta-analysis in international research in marketing. International Marketing Review, 18(1), 70–79. Green, E., & Srinivasan, V. (1990). Conjoint-analysis in marketing – New developments with implications for research and practice. Journal of Marketing, 54(10), 3–19. Gross-Wandl, C. (2003). Internationale Marktforschung, SMS-Jahrbuch 2003. http://www. isopublic.ch. Retrieved 10 Oct 2008. He, Y., Merz, M. A., & Alden, D. (2008). Diffusion of measurement invariance assessment in crossnational empirical marketing research: Perspectives from the literature and a survey of researchers. http://web.ebscohost.com/ehost/detail?vid=1&hid=109&sid=c2e61. Retrieved 15 Oct 2008. Holzmüller, H. (1986). Zur Strukturierung der grenzüberschreitenden Konsumentenforschung und spezifischen Methodenproblemen in der Datengewinnung. Jahrbuch der Absatz- und Verbrauchsforschung, 32(1), 42–70. Hünerberg, R. (1994). Internationales Marketing. Moderne Industrie. Malhotra, N. K. (2015). Essentials of marketing research. Pearson Education. Meissner, H. G. (1995). Strategisches Internationales Marketing (2nd ed.). Oldenbourg. Müller, S. (2000). Grundlagen der qualitativen Marktforschung. In A. Herrmann & C. Homburg (Eds.), Marktforschung (2nd ed., pp. 127–157). Springer Gabler. Pokropp, F. (1996). Stichproben – Theorie und Verfahren (2nd ed.). de Gruyter. Polsa. (2007). Comparability in cross-cultural qualitative marketing-research: Equivalence in personal interviews. Academy of Marketing Science Review, 11(8). http://www.amsreview.org/ articles/polsa08-2007.pdf. Retrieved 15 Oct 2008. Pope, J. (1991). How cultural differences affect multi-country research. Custom Research Inc. Reiche, B. S., & Harzing, A. W. (2007). Key issues in international survey research. http://www. harzing.com/intersearch_keyissueshtm. Retrieved 14 Oct 2008. Reynolds, N. L., Simintiras, A. C., & Diamantopoulos, A. (2003). Theoretical justification of sampling choices in international marketing research: Key issues and guidelines for researchers. Journal of International Business Studies, 34(1), 80–89. Salciuviene, L., Auruskeviciene, V., & Lydeka, Z. (2005). An assessment of various approaches for cross-cultural consumer research. http://web.ebscohost.com/ehost/detail?vid=1&hid=3&sid= 799f700f. Retrieved 14 Oct 2008. Salzberger, T., & Sinkovics, R. R. (2006). Reconsidering the problem of data equivalence in international marketing research. International Marketing Review, 23(4), 390–417.

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Part III International Marketing Strategy

Strategic International Objectives

Abstract

The starting point of strategic international marketing management is the formulation of strategic international marketing objectives. The “classic” dimensions “content”, “extent” and “time horizon” must be supplemented by the geographical component “country market”, as in different country markets different objectives are generally pursued. Based on the general internationalisation goals, market objectives are formulated for the targeted country markets. These are broken down for the various functional areas of the company and are the basis for defining the international marketing objectives.

1

The International Target System

The basis for the formulation of strategic marketing objectives are the overall corporate goals; these include, among others • growth and profitability objectives, • security objectives and • power and prestige objectives. Figure 1 shows a typical system of international objectives, i.e. those objectives which deal with the general reasons and motives for starting or expanding international activities. The strategic international marketing objectives initially relate to several country markets; in the course of segmentation and selection of foreign markets (see chapter “International Market Selection” in this part), they are to be specified for each country market. If, for example, a

# The Author(s), under exclusive license to Springer-Verlag GmbH, DE, part of Springer Nature 2023 R. Berndt et al., International Marketing Management, https://doi.org/10.1007/978-3-662-66800-9_5

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Strategic International Objectives

Overall corporate goals

General internationalisation objectives

Market objectives

Country 1

Country 2

…

Country L

Business field 1 Business field 2 … Business field m

Functional area objectives

Procurement objectives

Product objectives

Production objectives Pricing objectives

Marketing objectives

Financing objectives

Communication objectives

HR objectives

Distribution objectives

Fig. 1 The international target system. (Source: Adapted from Hünerberg, 1994, p. 93)

world market share of 30% is to be achieved in the next five years, the corresponding volume has to be formulated for the individual country market segments (Wißmeier, 1995, p. 111). In this context, one speaks of market objectives, i.e. of objectives for the individual countries as well as for the respective business segments (product-market combinations); this means that management has to create an international target portfolio to determine which targets are to be pursued in which countries with which strategic business segments. The market targets specified in this way are then to be concretised for the individual functional areas (e.g. procurement, production, marketing). When setting country-specific targets, it is important to consider the interdependencies of the targets in the individual country markets. For example, the impact on the objectives in the individual countries depends on the resources invested throughout the company and

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their allocation. Even in the case of polycentrically oriented companies with largely independently operating subsidiaries, the country market objectives must be coordinated with regard to the overall company objectives; in the case of geocentrically oriented companies, the objectives are formulated globally for the world market anyway. These interdependencies result in the need for feedback, which creates greater complexity and a greater need for coordination compared to purely national operations (Backhaus & Voeth, 2010, p. 20 ff.).

2

General Internationalisation Objectives

General internationalisation objectives are derived from the overall corporate goals and reflect the main motives for going international. Market position objectives include target contents such as sales or market shares in connection with the development of new markets. While the market position of ethnocentrically oriented companies primarily refers to the domestic market, polycentrically oriented companies pursue market position objectives in the individual country markets; the reference level of geocentrically oriented companies is primarily the world market. Market positioning objectives include the active development of market potential abroad as the basis for a long-term growth strategy; examples of this include the BRICS countries, which are considered as countries with great growth opportunities. An extension of the product life cycle can also be achieved for certain products: VW, for example, succeeded in achieving a market share of 61.5% in China by producing an obsolete Jetta model and the old Audi 100 (n.u., 1997a, b). Internationalisation activities can have a significant impact on the cost component, so that cost objectives such as access to low-cost resources, finance and labour play an important role. Whereas in 1994 the cost of an hour’s work in the automotive industry in West Germany was between Deutsche Mark (DM) 50–55, in the Czech Republic it was DM 5–7. For this reason, many Western automobile companies became involved in Eastern Europe after the fall of communism (Heckel, 1997, p. 22; Pues, 1993, p. 34). Furthermore, government subsidy programmes and concessions can be used where appropriate: Audi, for example, received a 10-year tax exemption in Hungary, and Dr. Oetker received a tax exemption up to the amount of the investments brought in (Störmer, 1993, p. 350 f.). Finally, internationalisation activities can lead to better capacity utilisation through the associated increase in output as well as to the exploitation of economies of scale and experience curve effects. Profitability objectives include targets such as profit as well as return on sales and return on capital. Profitability depends mainly on the achievement of market position and cost objectives, which are sub-targets for profitability targets. In connection with the return on capital, the use of capital should also be mentioned. In some countries, for example, it is possible to produce 24 hours a day; in addition to the tax exemption already mentioned, this was one of the reasons why Audi decided to set up a plant in Hungary (n.u., 1997d, p. 22). Financial objectives include, for example, creditworthiness, liquidity, debt-equity ratio, etc. The importance of financial targets becomes clear when one realises that the

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financial position of a company is a major factor influencing the procurement of equity and debt capital. Typical security objectives include risk diversification, i.e. reducing overall risk by extending activities to more markets. This reduces dependence on a single or a few markets; it can also stabilise overall sales by supplying several markets that are subject to different economic cycles. Other objectives, such as securing the supply of raw materials and safeguarding economic potential, can be classified as security objectives. This can, for example, be the reason for suppliers to follow the main customer abroad. Social objectives focus in particular on employees. The most important objectives include job satisfaction, motivation and social security. In this context, the goal of securing employment is crucial. The Mercedes A-Class can be taken as an example of this: 30% of the added value of the A-Class built in Brazil comes from Germany in the form of component deliveries; Mercedes Benz AG thus achieves new sales which certainly have a positive influence on German employment (n.u., 1997c). However, employment targets in particular often conflict with cost targets: relocation of production to low-wage countries generally leads to negative employment effects in Germany. Finally, power and prestige objectives aim at achieving and consolidating a position of influence towards suppliers, competitors, customers and the public and tend to be favoured by international activities. Image goals also play a role in this context: on the one hand, a presence in prestigious foreign markets, e.g. Paris and Milan for fashion manufacturers, leads to an image gain; on the other hand, many consumers have greater trust in international brands than in purely national ones. The variety of goals and drivers of internationalisation, which were identified in a number of scientific studies, can be seen in Fig. 2.

3

Market Objectives

In a further stage, the internationalisation objectives have to be broken down into market objectives, i.e. into product- and market-related objectives for the individual country market segments. They include in particular the following objectives (Hünerberg, 1994, p. 93 f.): • Market penetration, i.e. improving the market position in already developed country market segments by intensifying sales efforts for already offered products. This objective can lead to a transition from a pure export strategy to direct investment. It has been found, for example, that German companies often began their activities in Eastern Europe as direct exports without their own representative office, then moved to their own representative office and finally to a joint venture (Engelhardt & Eckert, 1993; Engelhardt & Blei, 1996). • Market development: Market development means opening up new foreign markets with existing products. A product that is successful in the domestic market is often the

3

Market Objectives

119

Key driving force

Examples of literature

1

Get internaonal experience

Johanson and Vahlne 1977

2

Get access to internaonally experienced management or skilled human resources

Child and Rodrigues 2005; Manolova and Brush 2002

3

Explore own advantage on markets abroad

Johanson and Vahlne 1977; Dunning 1980

4

Increase profits

Johanson and Vahlne 1977; Brouthers and Xu 2002; Kotler and Keller 2006; Redding 2006

5

Improve customer service

Child and Rodrigues 2005

6

Increase sales volume

Brouthers, Werner and Matulich 2000; Kotler and Keller 2006

7

Achieve internaonal reputaon and brand recognion

Brouthers and Xu 2002; Child and Rodrigues 2005

8

Government support or finance

Child and Rodrigues 2005; Dolles 2006

9

Improve own product development and innovaon rao

Vernon 1966; Brouthers, Werner and Matulich 2000; Child and Rodrigues 2005; Bell 2007

10

Improve cost efficiency in producon

Wells 1981; Brouthers and Xu, 2002; Child and Rodrigues 2005; Bell 2007

11

Increase technology content of own products

Wells 1981; Child and Rodrigues 2005

12

Improve quality of products

Brouthers, Werner and Matulich 2000; Brouthers and Xu 2002; Child and Rodrigues 2005

Fig. 2 Drivers of internationalisation. (Source: Söderman et al., 2008, p. 123)

first reason for starting foreign activities, usually in the form of exports to countries that are particularly similar to the home market. • Product development: In country markets already cultivated by the firm, the range of products and services is expanded by adding new products to the respective country range. In particular, polycentrically oriented companies with independently acting subsidiaries can accommodate country market specifics in this way. • Diversification: In the context of diversification, new products are developed for foreign markets not previously served. Diversification can be achieved, among other things, through cooperative forms of market entry, in particular through vertical and lateral cooperation (Mengele, 1994, p. 22 f.). • Withdrawal: Withdrawal extends from the elimination of a single product from the product range in a specific country to the complete withdrawal from a country market. A withdrawal is advisable if the achievement of the market position and profitability goals are no longer guaranteed or if image goals appear to be at risk (e.g. due to human rights violations in certain countries).

120

Strategic International Objectives

In general, the market objectives for the individual country markets are differentiated; this is also related, among other things, to the phase in the product life cycle in which the product is located in the individual country markets. In the introduction and growth phase, for example, the objective of market penetration dominates, while for companies whose products are already established in their traditional markets, market development becomes more important. Finally, towards the end of the product life cycle, selective or complete withdrawal is appropriate; however, this can be accompanied by simultaneous market development, as shown by the example of the VW Beetle, whose production was successfully relocated to Mexico after being eliminated from the German market.

4

Marketing Objectives

The realisation of market objectives in the individual country market segments requires that these are broken down to the level of the individual functional areas (procurement, manufacturing, marketing, finance, HR, etc.), whereby numerous interdependencies must be observed between the objectives of the individual functional areas. Within the marketing objectives, we distinguish between • economic objectives, • psychological objectives and • reach objectives. Economic marketing objectives are derived in particular from market position, cost and profitability objectives; psychological marketing objectives relate to non-observable phases of the purchase decision process and include target variables such as attention, awareness, image and purchase intention. Especially for psychological marketing objectives, cultural aspects are of crucial importance, since individual marketing actions can be perceived completely differently in different cultural areas. Finally, marketing reach objectives are particularly important for communication and distribution; they are aimed on the one hand at the number of current and potential consumers reached by marketing actions in the targeted foreign markets, and on the other hand at the frequency of exposure to specific marketing actions, especially in the field of advertising. In this context, reach objectives – e.g. exposure to advertising – are a prerequisite for the achievement of psychological goals – e.g. positive attitude towards the advertised product – which in turn determine the achievement of economic goals (e.g. purchase of the product, Sander, 1993, p. 272 f.). However, such complementarity does not necessarily have to occur: for example, an excess of contacts can lead to reactance on the part of the consumer and thus to product rejection and non-purchase. In principle, marketing objectives can be formulated both on a strategic and on a tactical-operational level; the more they are specified and operationalised for the individual marketing instruments, the more they refer to the tactical-operational level.

References

121

References Backhaus, K., & Voeth, M. (2010). Internationales Marketing (6th ed.). Schäffer-Poeschel. Bell, J. (2007). China’s new mantra: Innovate not imitate. Far Eastern Economic Review, 170(2), 37–40. Brouthers, L. E., & Xu, K. (2002). Product stereotypes, strategy and performance satisfaction: The cases of Chinese exporters. Journal of International Business Studies, 38(4), 499–518. Brouthers, L. E., Werner, S., & Matulich, E. (2000). The influence of triad nations’ environments on price-quality product strategies and MNC performance. Journal of International Business Studies, 33(4), 657–677. Child, J., & Rodrigues, B. S. (2005). The internationalisation of Chinese firms: A case for theoretical extension? Management and Organisation Review, 1(3), 381–410. Dolles, H. (2006). The changing environment for entrepreneurship development: Private business in the People’s Republic of China. In S. Soderman (Ed.), Emerging Multiplicity (pp. 234–254). Palgrave Macmillan. Dunning, J. H. (1980). Toward an eclectic theory of international production: Some empirical tests. Journal of International Business Studies, 11(1), 9–31. Engelhardt, J., & Blei, C. (1996). Markteintrittsstrategien deutscher Unternehmen in der ehemaligen UdSSR. In M. K. Welge & D. Holtbrügge (Eds.), Wirtschaftspartner Rußland (pp. 181–206). Springer Gabler. Engelhardt, J., & Eckert, S. (1993). Markteintrittsverhalten deutscher Unternehmen in Osteuropa. der markt, 32(127), 172–188. Heckel, M. (1997). Gewinnen im Osten. Wirtschaftswoche, 31, 16–22. Hünerberg, R. (1994). Internationales Marketing. Moderne Industrie. Johanson, J., & Vahlne, J.-E. (1977). The internationalization process of the firm – A model of knowledge development and increasing foreign market commitments. Journal of International Business Studies, 8(1), 23–32. Kotler, P., & Keller, K. (2006). Marketing management (12th ed.). Pearson. Manolova, T. S., & Brush, C. G. (2002). Internationalisation of small firms – Personal factors revisited. International Small Business Journal, 20(1), 9–31. Mengele, J. (1994). Horizontale Kooperation als Markteintrittsstrategie im internationalen Marketing. Dt. Univ.-Verl. n.u. (1997a). VW will aus China exportieren. Süddeutsche Zeitung, 148 (01.07.1997). n.u. (1997b). VW setzt auf das Volksauto für China. Handelsblatt, 123 (01.07.1997). n.u. (1997c). Ruhe wäre in unserer Industrie tödlich. Die Welt, 125 (02.06.1997). n.u. (1997d). Maximale Kapitalnutzung. Wirtschaftswoche, 31 (24.07.1997), 22. Pues, C. (1993). Marktorientierte Unternehmensführung in Osteuropa – Eine Bestandsaufnahme (Working paper No. 29). Wiss. Gesellschaft für Marketing und Unternehmensführung e.V. Redding, G. (2006). Asia and its actors, their logics and the challenges. In S. Soderman (Ed.), Emerging multiplicity (pp. 15–32). Palgrave Macmillan. Sander, M. (1993). Der Planungsprozeß der Werbung. In R. Berndt & A. Hermanns (Eds.), Handbuch Marketing-Kommunikation – Strategien, Instrumente, Perspektiven (pp. 261–284). Gabler. Söderman, S., Jakobsson, A., & Soler, L. (2008). A quest for repositioning: The emerging internationalization of Chinese companies. Asian Business & Management, 7, 115–142. Störmer, W. (1993). Dr. Oetker in Osteuropa – Ein Markt mit mehr Chancen als Risiken. Markenartikel, 55(7), 350–353. Vernon, R. (1966). International investment and international trade in the product cycle. Quarterly Journal of Economics, 80(2), 190–207.

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Wells, L. T., Jr. (1981). Foreign investors form the third world. In K. Kumar & M. G. McLeod (Eds.), Multinationals from developing countries (pp. 23–36). Lexington. Wißmeier, U. K. (1995). Strategisches internationales Marketingmanagement. In A. Hermanns & U. K. Wißmeier (Eds.), Internationales Marketingmanagement – Grundlagen, Strategien, Instrumente, Kontrolle und Organisation (pp. 101–137). Vahlen.

International Market Selection

Abstract

The selection of foreign markets is one of the basic strategic decisions of international marketing management. A multi-stage procedure is appropriate for the selection decision. By applying exclusion criteria, the total number of countries is first reduced to a manageable number of possible countries. In a second step, those countries are then filtered out which appear to be particularly attractive (country selection). In a last step, the market segments to be worked in the individual countries are finally selected (market selection). For this purpose, the company has to carry out an international market segmentation.

1

Preliminary Screening

The aim of this selection stage is to exclude those countries from further consideration which do not meet certain requirements or are not compatible with corporate policy principles. These include, for example (Köhler & Hüttemann, 1989, p. 1431): • factual obstacles, such as the absence of a need for the company’s range of services; • specific management values, e.g. likes or dislikes of certain countries for ethical or ideological reasons; • preliminary strategic decisions, such as the restriction to the Triad countries; • defined maximum or minimum requirements for certain assessment criteria, e.g. per capita income, market volume, etc. Various approaches to country categorisation can be used to pre-select relevant countries, e.g. the country comparisons of the World Bank, the OECD, the IMF or the HDI index of the United Nations Development Programme (UNDP). While the World Bank only takes # The Author(s), under exclusive license to Springer-Verlag GmbH, DE, part of Springer Nature 2023 R. Berndt et al., International Marketing Management, https://doi.org/10.1007/978-3-662-66800-9_6

123

124

International Market Selection

into account gross national income per capita and purchasing power parity, the HDI index also includes the factors of life expectancy and educational attainment in addition to gross national income per capita (UNDP, 2014). The overall index is determined by aggregating the three sub-indices and can reach values between 0 and 1. According to the HDI score, countries are divided into those with very high, high, medium and low human development. Figure 1 shows the UNDP categorization of selected country groups. The first group includes Western industrialised countries and some emerging economies and is led by Norway for 2017 (0.953), with Germany in fifth place with a value of 0.936. The fourth group is made up almost exclusively of African countries, the smallest value (rank 189) being represented by Niger with an HDI value of 0.354.

2

Country Selection

2.1

Country Selection Criteria

2.1.1 Overview As part of the country selection process, the remaining countries are subjected to a more detailed analysis in order to filter out those countries that are suitable for market entry. The country selection is made on the basis of decision-relevant criteria, which are to be defined by the company specific to the situation. The following factors influence the companyspecific formulation of criteria (Stahr, 1993, p. 43; Schuh & Trefzger, 1991, p. 124; Stegmüller, 1995a, p. 372; Zentes et al., 2013, p. 21 f.): • Industry and product type The criteria to be taken into account in the selection of countries must always be selected with due regard to the respective sector and product type; protectionist market barriers, for example, are only relevant for the sector(s) concerned. Products that violate local cultural norms (e.g. alcohol, pork) per se lead to the exclusion of certain country markets. • Company-specific factors The criteria formulation should reflect the strengths and weaknesses of the company. For a company with only limited resources and little experience abroad, the geographically closer foreign country would be a good choice; a possible criterion of “geographical distance” would have to be taken into account accordingly. • International management orientation The orientation system of management (see chapter “Internationalisation and International Marketing Management” in Part I) also influences the criteria for market selection. Ethnocentrically oriented companies, for example, will use the criterion “similarity to the home market”; for geocentrically oriented companies, on the other hand, the criterion “possibility of standardisation” plays a central role (see in detail Backhaus & Voeth, 2010, p. 68 ff.). • Market entry mode The country selection decision must basically be seen in connection with the form of market entry (Köhler & Hüttemann, 1989, p. 1435). In the context of an export strategy,

0.890 0.735 0.614 0.493 0.682 0.703 0.738 0.740 0.588 0.502 0.702

Very high human development

High human development

Medium human development

Low human development

Arab States

East Asia and the Pacific

Europe and Central Asia

Latin America and the Caribbean

South Asia

Sub-Saharan Africa

World

0.732

0.537

0.638

0.758

0.771

0.733

0.699

0.504

0.645

0.757

0.894

2017

70.8

56.8

67.2

74.9

71.3

74.0

70.2

59.4

67.9

74.5

80.2

2013

72.2

70.7

69.3

75.7

73.4

74.7

71.5

60.8

69.1

76.0

79.5

2017

7.7

4.8

4.7

7.9

9.7

7.4

6.3

4.2

5.5

8.1

11.7

2013

8.4

5.6

6.4

8.5

10.3

7.9

7.0

4.7

6.7

8.2

12.2

2017

12.2

9.7

11.2

13.7

13.6

12.5

11.8

9.0

11.7

13.4

16.3

2013

12.7

10.1

11.9

14.4

14.1

13.3

11.9

9.4

12.0

14.1

16.4

2017

13,723

3,152

5,195

13,767

12,415

10,499

15,817

2,904

5,960

13,231

40,046

2013

15,295

3,399

6,473

13,671

15,331

13,600

15,847

2,521

6,849

14,999

40,041

2017

Gross national Life expectancy at Mean years of Expected years of income per capita birth (years) schooling (years) schooling (years) (2011 PPP $)

Fig. 1 Average values of the HDI index by country group. (Source: UNDP, 2014, p. 34, 2017, n.d.)

PPP is purchasing power parity. Source: Human Development Report Office calculations.

2013

Human development group or region

Human Development Index Value

2 Country Selection 125

126

International Market Selection

for example, the existence of an established distribution channel is of decisive importance, whereas the existence of a qualified workforce plays a role especially in the case of foreign direct investment. The criteria to be used in a country selection can basically be divided into the following groups (Backhaus & Voeth, 2010, p. 70 ff.): • country attractiveness, • market barriers and • country-specific risks. Depending on their characteristics, country-specific risks can either affect the attractiveness of the market or represent a market barrier; hence, they are considered here as a separate dimension. The values of the criteria in the individual countries can be determined from the analysis of the international marketing environment (see chapter “The International Marketing Environment” in Part II); for this reason, only the most important criteria will be listed below.

2.1.2 Country Attractiveness The attractiveness of country markets describes the economic opportunities in the individual countries. The most important criteria or factors influencing the economic performance include (see e.g. Bea & Haas, 2017, p. 106 ff.): • market volume, i.e. the totality of products that can be sold on a country market (in terms of volume and value) in a given period; • market growth, i.e. the (percentage) increase in market volume within a certain period of time; • supply of energy, raw materials, components and semi-finished products; • availability of labour; • factor costs, i.e. costs of input goods, labour, capital; • number, size, demand and purchasing power of potential customers; • achievable prices in the individual countries. The attractiveness of foreign markets is recorded by various institutions. One example is the BER (Business Environment Rankings), which are published annually (for a fee) by The Economist Intelligence Unit (The Economist Intelligence Unit, 2014). The model measures the attractiveness of the business climate for 82 countries and is based both on an analysis of the business environment over the past five years and on a five-year forecast. It uses 91 indicators relating to 10 criteria. These include economic and political conditions, market opportunities, regulation of entrepreneurship and competition, policies towards direct investment, tariff and non-tariff trade barriers, taxation, financing opportunities, infrastructure and labour market. The data are both qualitative and quantitative in nature and are processed and aggregated through a scoring model. Figure 2 shows the top

2

Country Selection

127

Fig. 2 Business environment rankings of the top 12 countries. (Source: The Economist Intelligence Unit, 2014)

12 countries by BER (forecast 2014–2018). The World Bank also publishes an annual report on the business climate in 190 countries (for 2018, see e.g. Going International 2018).

2.1.3 Market Barriers Market barriers refer to the totality of all conditions whose non-fulfillment makes it difficult to enter the market of a particular country and to develop the market in line with demand. On the one hand, these include economic market barriers. These include (Backhaus & Voeth, 2010, p. 72 ff.): • Economies of scale Established companies may already be in a much more favourable position on the unit cost or experience curve (see chapter “International Market Development Strategies” in this part). For this reason, the company considering market entry has size-related cost disadvantages. • Cost advantages independent of size Here, cost differences can arise from the imperfection of factor markets – especially with regard to market transparency. This concerns, for example, access to information about the markets. • Buyers’ preferences As a rule, local suppliers have already created buyer preferences which newcomers have to overcome through increased marketing expenditure or price concessions. • Capital requirements The company interested in the foreign market must make high investments in R&D, customer acquisition, and in the case of direct investments, also for production facilities, etc.

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International Market Selection

• Access to distribution channels The domestic suppliers usually hold the distribution channels. The uptake of one’s own products by local sales intermediaries usually requires a great deal of canvassing effort. Another group of market entry barriers are protectionist barriers. These are based on tariff (e.g. customs duties) and non-tariff trade barriers such as import restrictions and subsidies. The aim of protectionist barriers is to protect the domestic economy against foreign suppliers (Backhaus & Voeth, 2010, p. 74 f.). Finally, the behavioural barriers are to be mentioned, such as a pronounced consumption patriotism on the part of consumers (“buy national”) or behavioural barriers to entry on the part of competitors (Backhaus & Voeth, 2010, p. 75).

2.1.4 Country Risks Country risks include economic or political undesirable developments in the target market which thus potentially threaten international activities. On the one hand, country risk acts as a significant market barrier; on the other hand, it affects the attractiveness of a country to a large extent. Political risks arise from the danger of unforeseeable changes in political structures and legal practices. These include (Meissner, 1995, p. 96) • Expropriation, nationalisation and confiscation risk, i.e. the risk of partial or total expropriation of the company, e.g. through nationalisation of production facilities; • transfer risk, which occurs when a country no longer meets its payment obligations such as interest, repayments, etc.; • disposition risk, i.e. the restriction of entrepreneurial room for manoeuvre due to government requirements, social unrest, wars; • substitution risk if the host country replaces previous imports with local production; • fiscal risk resulting from a country’s fiscal and monetary policy; • security risk in the sense of endangering the life, health and freedom of employees and their relatives in the host country; • legal risk resulting from differing legal standards and from difficulties in legal prosecution and enforcement in the individual countries. Economic risks arise from unforeseeable changes in economic variables. These include • payment risk due to the insolvency of the foreign partner; • exchange rate risk, i.e. the risk of loss of profit due to exchange rate fluctuations; • transport risk, i.e. the risk of the goods not arriving at all, arriving late or arriving at the wrong destination, as well as the risk of shrinkage and spoilage during transport.

2

Country Selection

Intensity of risk Type of risk

129

not present

low

noticeable

considerable

extreme

1

2

3

4

5

Political risks

ƒ Expropriation risk ƒ Transfer risk ƒ Disposition risk ƒ Substitution risk ƒ Fiscal risk ƒ Security risk ƒ Legal risk Economic risks

ƒ Payment risk ƒ Exchange rate risk ƒ Transport risk Country A

Country B

Country C

Fig. 3 Example of a risk profile

Numerous concepts have been proposed for evaluating country risks, which can be divided into qualitative and quantitative methods (see the overview in Zentes et al., 2013, p. 156 ff.; Backhaus & Voeth, 2010, p. 78 ff.). Qualitative methods describe the risk components relevant to the interested party without a predefined set of criteria and summarize them into recommendations (Backhaus & Meyer, 1986, p. 44). In the context of checklists, only the presence of individual risk factors is determined for the individual countries, whereas in the case of risk profiles an assessment of the intensity of the risk is also made (Fig. 3). The values of the individual countries with regard to the specific risk factors are connected by lines. Quantitative methods are based wholly or partly on statistical indicators (objective methods) or on scoring models (subjective methods). These include the following methods (Backhaus & Voeth, 2010, p. 76 ff.; BERI, 2009): • FORELEND Information System The main target group for this concept is banks. It has been compiled three times a year since 1978 by Business Environment Risk S. A. (BERI) and contains one- and fiveyear forecasts of the solvency of selected countries (approx. 50). The underlying scoring model comprises 29 qualitative and 20 quantitative criteria.

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International Market Selection

• Institutional Investor Country Rating Survey This concept is used to determine the creditworthiness situation in the near future for over 100 countries. The concept is based on an expert survey of around 75–100 banks and has been produced twice a year since 1979. In the March 2016 edition, Germany ranked third after Switzerland and Norway (Institutional Investor, 2016, n.d.). • WES The WES (World Economic Survey, formerly: ESI (Economic Survey International)) is produced quarterly for around 50 countries. More than 1000 economic experts from around 90 countries assess the economic situation and the prospects for economic development for important industrialised, emerging and developing countries (Ifo, 2019). The WES covers all country risks and is therefore of particular interest to exporters and investors. • Debt-service quota The debt-service quota is used, for example, by the World Bank to assess the creditworthiness of developing countries. The debt-service quota is calculated as the quotient of debt service (interest and principal payments on public and publicly guaranteed debt) and export earnings. • Euromoney Index The Euromoney Index has been recording the creditworthiness of a large number of countries since 1979 and is thus primarily aimed at banks. The index is published twice a year and has been based on a scoring model since 1982. What all methods have in common is that they are based to a large extent on the recording and forecasting of relevant economic indicators. The validity of the results thus depends to a large extent on the reliability of the data sources used: for example, the “Report on Development of Human Potential in the Russian Federation” put the gross domestic product of the Russian Federation for 1996 at 850 billion US dollars, while Goskomstat, on the other hand, gave a figure of around 338 billion US dollars. Similar discrepancies were found for other important economic indicators such as per capita income, inflation, balance of payments, debt ratio, etc. (Soussanov, 2002). This clearly shows that the sources of information used must be carefully examined in order to avoid wrong decisions. Probably the best known approach among the risk assessment concepts is the BERI index (see Meyer, 1987, p. 91 ff.; Hake, 2004). The BERI index is essentially a two-stage scoring model which, in addition to a risk assessment, also includes a recommendation regarding the market entry strategy to be chosen. The index consists of three sub-indices: • Operation Risk Index (ORI), • Political Risk Index (PRI) and • Remittance and Repatriation Factor (R-Factor). It has been compiled by Business Environment Risk Intelligence S.A. since 1973 and is based on a survey of a panel of around 100 executives from industrial companies, political

2

Country Selection

Criteria

131

Weights

Policy continuity

3.0

Attitude towards foreign investors and profits

1.5

Degree of privatisation

1.5

Monetary inflation

1.5

Balance of payments

1.5

Bureaucratic delays

1.0

Economic growth

2.5

Currency convertibility

2.5

Enforceability of contracts

1.5

Labour costs/productivity

2.0

Professional services and contractors

0.5

Communications and transportation

1.0

Local management and partners

1.0

Short-term credit

2.0

Long term loans and venture capital

2.0

Fig. 4 Structure of the Operation Risk Index (ORI). (Source: Hake, 2004, p. 607; Bouchet et al., 2003, p. 81)

scientists and sociologists, mainly in the triad regions of the USA, Japan and Europe. The index contains one-year and five-year forecasts and is compiled three times a year for 50 countries. The ORI assesses the business climate of a country. Each country is evaluated by 10–15 experts on the basis of 15 criteria, e.g. political stability, attitude towards foreign investors, bureaucratic obstacles; a scale from 0 = unacceptable conditions to 4 = superior conditions is used. The evaluation is based on a Delphi survey. The criteria are weighted; the sum of the weights is 25, so that the maximum ORI score of a country resulting from the weighted total score is 100 points. As a general recommendation, market entry is considered too risky if a country scores less than 40 points. For 2006, for example, the ORI score for the USA was 75 points, Japan 72, Germany 61, Poland 52 and China 46. Figure 4 shows an overview of the criteria and the criteria weights of the ORI Index. The PRI, which is used to assess the long-term political stability of a country, is structured in a similar way. The criteria used are fragmentation and power of political parties, social conflicts, restrictive measures, etc.; here, too, each country can achieve a

132

International Market Selection

Criteria Internal factors for political risks 1. Fractionalisation of the political spectrum 2. Fractionalisation by language, ethnic or religious groups 3. Restrictive measures to retain power 4. Mentality: nationalism, xenophobia, corruption etc. 5. Social conditions, wealth distribution, population density 6. Organisation and strength of radical forces External factors 7. Dependence on or importance to a major hostile power 8. Negative influences of regional political forces Symptoms for political risks 9. Social conflicts: strikes, demonstrations, street violence 10. Political conflicts: non-constitutional changes, assassinations, guerrilla wars

Fig. 5 Criteria of the Political Risk Index (PRI). (Source: Hake, 2004, p. 608; Bouchet et al., 2003,p. 80)

maximum of 100 points. The criteria of the PRI Index are shown in Fig. 5. There is no weighting here; each panel member can assign scores between 0 (very unfavorable impact on stability) and 7 (favorable impact on stability). In addition, each expert can allocate a further 30 points to other criteria that they consider important (Hake, 2004, p. 608). Finally, the R-factor reflects a country’s ability to pay in hard currency as well as its ability to transfer funds to the home country. In contrast to the first two sub-indices, the R-factor is based on quantitative data (financial analyses of import and export statistics, balance of payments and capital accounts); here, too, the data are condensed with the help of a scoring model, again with a possible score of 100. If the score is above 70, the risk of repayment is assumed to be low; if the score is below 55, the risk is considered to be high. Figure 6 shows the scoring model underlying the R-factor. By forming the arithmetic mean of the three sub-indices, the combined score (Profit Opportunity Recommendation, POR) is obtained, on the basis of which basic market entry strategies are suggested. A distinction is made between four levels, which are further subdivided depending on their tendency (Hake, 2004, p. 611 f.):

2

Country Selection

Criteria

133

Score (ai)

Weight (gi)

A1

Formal regulations for transfer of income and dividends

0-5

4

A2

Formal regulations for royalties, licence fees, etc.

0-5

3

A3

Formal regulations for repatriation of capital

0-5

3

A4

Formal regulations for transfer of income and dividends

0-5

4

A5

Practical implementation of capital transfer

0-5

3

A6

Futures

0-5

A. Official regulations B1

Trade balance

B2

Capital account

B3

Capital inflows as a result of high interest rates

B4

Capital attracting flight currency

B. Foreign exchange generation

max Σ ai • gi = 100

0 - 100

0.2

0 - 100

0.3

0 - 100

0.3

0 - 100

0.2

0 - 10 0 - 10 max Σ ai = 100 0 - 50

C2

Foreign exchange + gold reserves Public debt abroad

0 - 50 max Σ ai = 100

D1

Gross domestic product External debt

0 - 40

D2

Debt service Foreign exchange earnings

0 - 40

D3

Debt service + oil imports Foreign exchange earnings

0 - 20

R-factor

Weight (gi)

0 - 30

Foreign exchange reserves Monthly imports (goods and services)

D. Foreign debt

Score (ai)

0 - 50

C1

C. International reserves

3

Upper criteria

max Σ ai = 100

max Σ ai • gi = 100

Fig. 6 Scoring model for determining the R-factor. (Source: Adapted from Meyer, 1987, p. 95)

134

International Market Selection

• Level I (55–100 points): suitable for direct investment • Level II (45–54 points): only for dividend-free, non-income payments (e.g. licensing or management contracts); • Level III (35–44 points): only individual, short-term business transactions without capital and management transfers (exports); • Level IV (below 35 points): no business transactions. Despite its widespread use in practice, the BERI index is subject to numerous criticisms (Meyer, 1987, p. 118 ff.; Berndt, 1991, p. 6): • Some criteria have only ordinal scale levels but are treated as interval scaled. • Some criteria are partially highly correlated. • The criteria weights are fixed and are thus not able to represent the differences in importance of the objectives pursued in a company. • The division of the scale into areas for which recommendations for action are given in a precisely defined point scheme is completely arbitrary and can therefore not be of general validity. • It does not take into account that the company with internationalisation efforts may have countermeasures at its disposal to limit the risk, such as taking out export credit insurance or a forward exchange or currency option transaction.

2.2

Country Selection Methods

Country selection models have the task of structuring and systematizing the decisionmaking process in country market selection. The following procedures are commonly used (see e.g. the overview in Swoboda & Schwarz, 2004): • checklists, • scoring models and • portfolio analyses.

2.2.1 Checklists Checklist procedures are widespread because they are easy to use; they are used in particular to weed out those countries that are no longer eligible for further analysis. In each country, a check is made to see whether certain criteria, which are regarded as minimum requirements for market engagement, are met (Stahr, 1993, p. 31). This is to ensure that time-consuming and costly market research measures are restricted to a limited number of relevant countries. The procedure is generally as follows: • establishing a set of relevant criteria, • verification of compliance with the criteria for each country,

2

Country Selection

135

• exclusion of such countries that do not meet certain criteria from further analysis. The advantages of checklists lie in their ease of use, speed and cost-effectiveness; disadvantages include the frequently subjective selection of criteria and the risk that the criteria overlap. Furthermore, certainty is assumed with regard to the respective criteria characteristics in the individual countries, which is questionable due to the frequently insufficient level of information regarding individual countries. For these reasons, the procedure can only be used for a rough pre-selection of the countries in question.

2.2.2 Scoring Models Scoring models represent a further development of the checklist procedure, as they allow to take into account the varying importance of the respective criteria. As with the checklist procedure, the relevant criteria are first identified; these are then weighted according to their relative importance. The individual countries are then evaluated with regard to their respective fulfilment of the criteria; this is done using uniform scales by assigning a point value per country and criterion. The overall assessment of a country is made with the help of the total weighted score (TWS). n

TWSl =

gi ∙ wil i=1

with gi = weight of criterion i (1 = 1, . . . n) wil = score of country l (l = 1, . . . L) for criterion i. This allows to determine a ranking of the individual countries under consideration. Figure 7 contains an example of criteria scaling; an exemplary evaluation of two hypothetical countries is shown in Fig. 8. In the example, entry into country B would be preferable. The BERI index presented in Sect. 2.1.4 is therefore basically also a scoring model for country selection, as the result of the BERI index is a total weighted score for the individual countries; at the same time, the index also provides recommendations for the appropriate market entry strategy in each case. The main advantages of scoring models are: • The procedure is comparatively easy to handle. • The evaluation criteria are disclosed. • The decision is structured.

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Evaluation criteria

International Market Selection

Scaling Very good

Good

Satisfactory

Poor

Inadequate

(5)

(4)

(3)

(2)

(1)

1. Import conditions Foreign trade system

Fully liberalised imports

Largely liberalised Partially State foreign imports liberalised imports trade monopoly

Foreign trade monopoly in the presence of autarky ambitions

Tariff barriers to trade

None

Low burden of duties and taxes

Medium burden of duties and taxes

Prohibitive tariffs, discriminatory tariffs on imports

Non-tariff trade barriers

None

Problem-free Acceptable import Import quotas too granting of import Import bans quotas low licenses

High burden of duties and taxes

2. Marketing conditions Legal requirements for product design

None

Already fulfilled by the domestic products

Easily met requirements

Adaptation of Unfulfillable products required requirements

Restrictions on the choice of distribution strategy

None

Limited freedom of choice

State-regulated distribution

State-regulated distribution

Price level for own products

Significantly higher than domestic

Somewhat higher Similar price level Lower than than domestic to domestic domestic

Advertising conditions

No advertising restrictions

Low advertising restrictions

Acceptable advertising restrictions

State-regulated advertising

Advertising ban

Prohibition of distribution Significantly lower than domestic

3. Sales opportunities Export shares of the respective country

Very high

High

Medium

Low

None

Exploited market volume

Very low

Low

Medium

High

Market saturated

Import share

Very high

High

Medium

Low

None

Self-sufficiency

Very low

Low

Medium

High

Fully self-sufficient

Market potential

Very high

High

Acceptable

Low

Very low

Sales potential

Very high

High

Average

Low

Very low

Political risks

Negligible

Low

Acceptable

High

Extremely high

Economic risks

Negligible

Low

Acceptable

High

Extremely high

4. Foreign risks

5. Market dynamics GDP growth rate (real)

Very high

High

Average

Low

Low to negative

Market growth

Very high

High

Average

Low

Low to negative

Development of sales potential

Strongly increasing

Increasing

Slightly increasing Stagnant

Low to negative

Fig. 7 Exemplary criteria scaling for country selection. (Source: Adapted from Stahr, 1979, p. 152)

2

Country Selection

137

Country A Evaluation criteria

Weights Score

Country B

Weighted score

Score

Weighted score

Import conditions

0.15

4

0.60

3

0.45

Marketing conditions

0.30

2

0.60

5

1.50

Sales opportunities

0.20

2

0.40

2

0.40

Foreign risks

0.20

2

0.40

1

0.20

Market dynamics

0.15

5

0.75

3

0.45

Total

1.00

2.75

3.00

Fig. 8 Scoring model for country selection

On the other hand, the procedure also includes various disadvantages: • Criteria selection and weighting are subject to subjective influences. • An objective determination of the outcome regarding the respective criteria for all countries is problematic due to difficulties in obtaining information. • A compensation of “good” and “bad” evaluations takes place. • The criteria definitions might overlap.

2.2.3 Portfolio Analysis Portfolio analysis offers numerous applications in international marketing. Used as a method of country selection, the goal of portfolio analysis is to determine an optimal country bundle from a large number of possible foreign markets. A two-dimensional graphical representation is used to facilitate the selection. Figure 9 shows an example of a country portfolio with the dimensions “attractiveness of the market” and “risk potential of the country”. The size of the circle can be used, for example, to depict the market potential of a given country. Another variant of portfolio models for country selection is based on the comparison of the dimensions “market attractiveness” and “market barriers” (Papadopoulos et al., 2002). It should be noted that both portfolio dimensions are multidimensional constructs, i.e. both risk potential and market attractiveness can be characterised by different variables (see the explanations in the previous Sect. 2.1). Their aggregation can be done with the help of a scoring model. For example, the following rule can be used as a decision criterion: countries with medium to high risk and medium to low market attractiveness should not be dealt with (boxes IV, VII, VIII). Countries on the diagonal should be checked against additional criteria before a final decision is made (fields I, V, IX); countries with medium to

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International Market Selection

II France

III USA

IV Mexico

V Latvia

VI India

VII BosniaHerzegovina

VIII Russia

IX China

low

middle

high

middle high

Country risk level

low

I Luxembourg

Country attractiveness Fig. 9 Country market portfolio

high market attractiveness and with low to medium risk (fields II, III, VI) are definitely considered for market entry. The advantage of portfolio analysis is the transparency through the visualization of market attractiveness and country risk; furthermore, the simple manageability is to be emphasised. However, since the procedure is based on the scoring method, it has the disadvantages that can be attributed to scoring models as well; moreover, the portfolio dimensions “market attractiveness” and “country risk” are not completely free of overlap (Stegmüller, 1995b, p. 180 f.). In an overall assessment of the approaches to country selection presented, it should also be noted that most approaches are based on an outside-in perspective; however, international market selection is also very much shaped by corporate objectives, corporate

3

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139

strategies and situational factors in the sense of an inside-out perspective (Swoboda & Schwarz, 2004, p. 273). For example, an export-oriented company will use different selection criteria than a company planning a direct investment; furthermore, companies that are able to respond to differentiated market needs will make a different choice than those planning a standardised market approach. Decision-making should therefore in any case be supported by an analysis of the company’s internal resources and competitive advantages. Another shortcoming of most approaches to country categorisation and selection is that they mainly use secondary data at the macro level, describing in particular the economic and political-legal, and occasionally also the cultural, environment at a given point in time. Changes in the membership of countries in the identified country groups over time are typically not considered, although it is precisely such changes that are of crucial importance for the decision for or against a particular country (see the approach of Budeva & Mullen, 2014).

3

Market Selection

Once the company has chosen promising country markets, it is now necessary to identify and select attractive market segments. A market segment can be defined as a combination of customer requirements or product properties and customers that have certain characteristics; it should be comparatively homogeneous and significantly different from other market segments (Kuntkes, 2012, p. 347).

3.1

International Market Segmentation

An adequate selection of foreign markets as well as an efficient development of the single country markets require an identification of country market segments with similar characteristics, which are to be served by means of specific marketing actions. Such an international market segmentation can be carried out according to two approaches: • intramarket segmentation, i.e. the identification of market segments within individual countries, and • intermarket segmentation, i.e. the formation of cross-national target groups with similar characteristics and buying behaviour. An appropriate international segmentation can help to resolve the contradiction between standardisation and adaptation by standardising products or marketing programs across countries and targeting the same buyer segment(s) in different countries. Hence, international segmentation combines the benefits of standardisation (e.g. economies of scale) with the benefits of adaptation (better match to consumer needs) (Steenkamp & Ter Hofstede,

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2002, p. 186). Especially in increasingly globalised markets, it is important to identify commonalities of customer groups across national borders and to address them effectively and efficiently (Budeva & Mullen, 2014, p. 1209 f.; Kuntkes, 2012, p. 346). For detailed overviews of studies on international market segmentation, see Budeva & Mullen, 2014 and Steenkamp & Ter Hofstede, 2002.

3.1.1 Intramarket Segmentation The task of intramarket segmentation is the identification and selection of target groups within the targeted countries. This approach is therefore particularly relevant for companies with a polycentric orientation and independently operating subsidiaries, as in this case the main focus is on local conditions, target groups, and marketing strategies (Steenkamp & Ter Hofstede, 2002, pp. 185–186). The basic problem definition thus corresponds to a national market segmentation; the methodology also does not differ from the domestic approach: • choice of the segmentation basis, i.e. selection of the relevant segmentation characteristics, • determination of the characteristic values in the sample of the respective country, • formation of groups, e.g. with the help of cluster analysis. If the approach is used to also enable cross-national planning of the marketing toolkit, it should be noted, however, that the segmentation requirements are higher compared to a purely national approach due to the additional international dimension; moreover, considerable problems can arise in data collection. In this context, particular attention must be paid to the comparability of the approach in the individual countries, since the results of an intranational market segmentation only permit meaningful cross-national planning of the marketing instruments if the target groups defined in the different countries can be compared with each other. This concerns both the comparability of the data basis used in the individual countries (functional, conceptual and categorical equivalence) and the equivalence of the methodology (including measurement method, selection and translation equivalence; see Steenkamp & Ter Hofstede, 2002, p. 198 ff.). A comparable result does not necessarily go hand in hand with identical techniques and conditions; it is even possible that it is precisely the application of different procedures in certain situations that makes comparability possible (on the problem of equivalence, see chapter “International Market Research” in Part II). The other requirements for criteria of intranational market segmentation (relevance to purchasing behaviour, suitability for formulating appropriate marketing strategies, accessibility, measurability, temporal stability and economic efficiency) correspond to those of domestic market segmentation; however, the international dimension increases the complexity of the research design (Stegmüller, 1995a, p. 378 ff.).

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141

The following approaches for intranational market segmentation can be used: • classic segmentation based on traditional segmentation criteria, • segmentation on the basis of the consumers’ benefit expectations (benefit segmentation) and • segmentation based on life-style typologies. In the context of a classic segmentation, the following criteria can be used (Freter, 2008, p. 93; Stegmüller, 1995b, p. 164 and the overview in Fig. 10): • sociodemographic characteristics, • psychological characteristics and • behavioural characteristics (purchasing behaviour, communication behaviour, media usage). In particular, earlier segmentation approaches focused on the – easier to collect – sociodemographic characteristics of the target persons. A disadvantage of such segmentation is the overall low relevance to purchasing behaviour of the criteria included compared to the two approaches presented below; in particular, most typologies based on sociodemographic characteristics lack a reference to the specific product. The main benefits are the high degree of comparability, the cross-national accessibility and measurability of the criteria, and the cost-effectiveness of the survey. An intranational market segmentation on the basis of utility expectations (Stegmüller, 1995b, p. 221 ff.) is based on the fact that the respondents are to assess what degree of satisfaction of needs they expect from the use or consumption of a product or the use of a service. The group formation is based on similar structures in the benefit expectations; the individual benefit-generating components and their subjective importance are surveyed from the consumers’ point of view. The measurement of the benefit can be carried out on a compositional basis (direct questioning with the aid of rating scales) or on a decompositional basis (indirect questioning and application of conjoint analysis) (for the procedure of a conjoint analysis, see Backhaus et al., 2021, p. 531 ff.). The result of benefit segmentation is intranational target groups with similar benefit expectations with regard to the product or service in question. The main advantage of benefit segmentation is the high cross-national relevance of purchasing behaviour; however, data collection is more complex. Segmentation on the basis of life-style typologies is based on the assumption that people live according to established patterns of attitude and behaviour which are identifiable and measurable and allow conclusions to be drawn about purchasing behaviour (Cosmas, 1982; Wells & Tigert, 1971). In this context, lifestyle encompasses people’s activities, interests, opinions and values (AIO approach: Activities, Interests, Opinions); an overview of the most important life-style dimensions is provided by Fig. 11. In principle, a distinction can be made between personality-related and product-type-specific lifestyles.

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International Market Selection

Consumer characteristics

Sociodemographic characteristics Demographic characteristics

Age Gender Marital status Phase in the family life cycle / family structure Household size Nationality, migration and migration background Religious affiliation

Sociographic characteristics

Geographic characteristics

Country Region, State Place of residence Neighbourhood Size of place of residence City/Country Climate

Occupation School education Vocational education Social class (Household) income

Psychological characteristics Personality traits

Intelligence Self -reliance Innovativeness Motives Leisure interests Values

Product-related psychological characteristics

Awareness of product/brand Knowledge Product interest Attitude towards product / brand Brand preference

Behavioural characteristics Consumer behaviour Buyer / Non-buyer User / Non-user Frequency of use Purchase frequency of product category Price and brand awareness Brand loyalty Ownership of specific consumer durables Ownership of a product of the same product category Duration of ownership of a good of the same product category

Communication behaviour Role in the decision-making process Recommendation behavior (opinion leaders, influencers)

Media usage Television habits Preferred print media Internet usage Social media usage Frequency of media usage Interest in advertising

Fig. 10 Overview of classic segmentation criteria (consumers)

While personality-related lifestyles include variables such as price or fashion awareness, sportiness etc. and are of a more general nature, product-type-specific lifestyles include criteria specifically tailored to the type of product in the investigation; the latter therefore have a higher relevance to purchasing behaviour (Böhler, 1977, p. 112 f.). It is important

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Market Selection

143

Activities

Interests

Opinions

 work

 family

 themselves

 hobbies

 home

 social issues

 social events

 job

 politics

 vacation

 community

 business

 entertainment

 recreation

 economics

 club membership

 fashion

 education

 community

 food

 products

 shopping

 media

 future

 sport

 performance

 culture

Fig. 11 Life-style dimensions. (Source: Kramer, 1991, p. 41)

for a market segmentation according to the criterion “lifestyle” in any case that such target groups or market segments are found for which the lifestyle actually exercises a discriminating function. If, in the case of two people with the same basic lifestyle, a car is a simple means of transport for one and a prestige object for the other, a life-style segmentation would be completely useless, at least for the product “automobile”. In an international context, it should be noted that the items typically used in AIO segmentations may have completely different meanings in different countries, so that equivalence may be questioned (Steenkamp & Ter Hofstede, 2002, p. 197).

3.1.2 Intermarket Segmentation Intermarket segmentation aims at identifying target groups with similar needs and consumption structures across national borders. For example, young people often have the same taste in music, regardless of their nationality; in this sense, intermarket segmentation is based on cultural affinities. Market selection based on intermarket segmentation implies a geocentric orientation of management and suggests standardised market cultivation in the sense of a global strategy for the identified segments. On a smaller scale, however, the approach can also be useful in the context of a regiocentric orientation of the company. Such transnational target groups can be divided into two categories. We speak of transcultural target groups (cross-cultural groups) when the people in them are not only of different nationalities but also come from different cultural circles, for example a German craftsman and a Greek doctor with the same musical tastes. In the case of transnational target groups (cross-national groups), the group members come from the same cultural circles, albeit from different nations. Both forms of cross-national target groups are similar in that those persons who are in one and the same supranational target group are generally more alike than persons from different target groups from the same reference area (Kreutzer, 1991, p. 5; Steenkamp & Ter Hofstede, 2002, p. 186). In principle, intermarket segmentation can be carried out on the basis of classic segmentation criteria or utility expectations; however, life-style typologies are typically

144

International Market Selection

used. Probably the best-known example of a supranational consumer typology is GfK Roper Consumer Styles (see in detail Peichl, 2014; GfK, 2019). GfK Roper Consumer Styles is an international, multidimensional lifestyle segmentation. The typology is based on fundamental findings from lifestyle research and segments people according to the following characteristics: • basic value orientations, • attitudes with regard to purchasing behaviour and • affinity for technology. This holistic approach enables a comprehensive understanding of international consumers beyond their socio-demographics and independent of specific product categories. It was compiled as part of GfK Consumer Life (formerly: Roper Reports Worldwide, RRW) for over 25 countries worldwide and is reviewed annually. The global segmentation approach can be used as part of ad hoc and panel research at both domestic and international level and answers questions about target groups for products and brands, international target group potential and how these target groups can best be reached. In addition, it offers a wide range of interfaces to other market research instruments and marketing tools as well as the possibility of linking to other data sources, e.g. GfK Consumer Panel, GfK GeoMarketing, GfK eBus, GfKTrend Key. The tool was launched in 1989 for the European region. In 2007, the typology was placed on a new data basis and revised to include Schwartz’s value theory. In 2018, GfK Roper Consumer Styles underwent a fundamental update; among other things, the value system was revised again and new values were added, e.g. “enjoying life”, “adventure” and “social recognition”. Furthermore, the perspectives of attitudes with regard to purchasing behaviour (price, brand, quality) and technological affinity were added, as new technological developments in particular have a lasting impact on consumers’ lifestyles and purchasing behaviour (GfK, 2019, p. 6 f.). The identified lifestyles of the GfK Roper Consumer Styles are arranged on a lifestyle map (Fig. 12), which shows the relevant values of the respective consumer group. Consumers are divided into four quadrants according to their value orientations and consumption preferences. The values and attitudes depicted are reflected in corresponding purchasing behaviour. The individual lifestyles – despite differences in the respective living and brand environments – essentially share the same values and goals across national borders, i.e. the profiles of the target groups in the individual countries are very similar. Differences between countries are reflected by the different sizes of the respective lifestyle types. The characteristic feature of GfK Roper Consumer Styles is that they are defined uniformly for the countries included, so that cross-national lifestyles can be identified. In principle, it is therefore irrelevant whether a “trend surfer” comes from Germany or England. His or her “style” is clearly defined for both countries in terms of attitudes, behaviour and opinions and can be precisely addressed by cross-national marketing measures.

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Market Selection

145

Fig. 12 The GfK Roper Consumer Styles lifestyle map. (Source: GfK, 2019, p. 5)

With the help of GfK Roper Consumer Styles, essential clues for marketing activities can be gained. The values-based approach provides indications for lifestyle-specific consumer preferences across national borders, enables a review of the brand’s target group positioning among international consumer segments with widely differing consumer preferences, and also allows communication and media planning for the strategic target groups to be optimised throughout the marketing process (GfK, 2019, p. 3 f.). The holistic approach can be integrated into a broader context to develop coherent cross-category strategies, as values are key drivers of purchasing behaviour beyond the boundaries of specific product categories (GfK, 2019, p. 8). In addition, the analysis of lifestyles can help to uncover so-called “white spots” on the lifestyle map, i.e. positions that are neither occupied by the company’s own products nor by competing products. An alternative approach to intermarket segmentation is offered by Sinus Sociovision (2013). Target group formation takes place through systematic intercultural comparison (bottom-up) on the basis of the national Sinus Milieu models. Comparable milieus from different countries are grouped into broader, multinational lifestyle segments, the Sinus Meta-Milieus. The positioning of lifestyles in the two-dimensional space is based on the two dimensions “social situation” and “basic orientation”. In 2013, the Sinus-Meta-Milieus were completely revised. Sinus-Meta-Milieus are now available for 28 countries, whereby a distinction is made between developed markets and emerging markets. For both groups of countries, there is an independent model with nine milieus each, which describe the

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International Market Selection

Fig. 13 Sinus meta-milieus in developed markets. (Source: Sinus Sociovision, 2013)

Fig. 14 The “digital avantgarde” in selected emerging markets. (Source: Sinus Sociovision, 2013)

lifeworlds of consumers. Figure 13 shows the meta-milieus in developed markets, while Fig. 14 shows examples of the “digital avantgarde” segment in selected emerging markets. The advantage of cross-national target groups lies in the possibility of standardised marketing of individual lifestyles across national borders; this means that the cost advantages of a standardisation strategy can be combined with the advantages of a target

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Market Selection

147

group-specific approach. Disadvantages are the time-consuming and cost-intensive data collection as well as the fact that the typologies are general and therefore not relevant for all products or services. Specific surveys for individual companies are comparatively expensive. Nor does it take into account the fact that a purely lifestyle-oriented cross-national segmentation also has to take regional aspects into account, since geographical proximity due to cultural, climatic or linguistic conditions certainly gives rise to similarities in consumer behaviour. An integration of lifestyle-oriented and regional segmentation is proposed by Ter Hofstede, Wedel and Steenkamp (2002). It should also be noted that belonging to the same lifestyle type does not necessarily equate to comparable consumer behaviour. For example, it was shown that in Europe, completely different life-style types are among the intensive users of instant coffee: there are three group overlaps between Belgian and French instant coffee drinkers, one between Belgian and British, and not a single one between German and British consumers; a standardised concept for the marketing of instant coffee in these countries would therefore not be very promising (Müller & Kornmeier, 1996, p. 22 f.).

3.2

Methods for International Market Selection

Once the market segments in the individual targeted countries have been identified, the second step is to select promising market segments. In each case, the company has to decide which range of products or services is to be offered in the individual countries, since – depending on the conditions in the individual country markets – different products and services may be considered for different markets. In the following, we present portfolio analysis as a procedure for the rough selection as well as the profitability analysis as a procedure for the fine selection.

3.2.1 Portfolio Analysis In the context of international market selection, the portfolio method is intended to help determine with which products or services a company wants to become active in which markets; in doing so, it is based on the country selection that has already been made. The portfolio analysis is carried out in several steps. Step 1: Defining strategic business areas Strategic business areas (SBAs) are a section of a company’s overall field of activity and represent the planning units of strategic planning. They are characterised by an independent market task, a clear delimitation from the products or product groups of other SBAs as well as a clearly identifiable group of suppliers and can be described according to various dimensions (product, technology, problem solution, competitors and customers; Bea & Haas, 2017, p. 155 ff.). In organisational terms, they find their equivalent in the so-called strategic business units (SBUs). SBUs can be responsible for several products, but it is also

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International Market Selection

possible that the same product is assigned to different SBUs, for example due to different target groups or markets. Step 2: Determining the portfolio dimensions The basic prerequisite to be fulfilled for the creation of a portfolio matrix is the definition of the criteria to determine whether • the prospect of a SBA is rated as positive or negative in terms of its growth or profit potential, and • the competitive position of a SBA can be assessed as strong or weak. Market prospects, for example, can be represented by market attractiveness, and competitive strengths by relative competitive advantages (Bea & Haas, 2017, p. 162 ff.). Market attractiveness can be assessed, for example, on the basis of the criteria described in connection with country selection (market volume, market growth, customer structure, supply of input goods, personnel, capital, etc.), although the analysis here is carried out with specific reference to the individual business areas. The relative competitive position, on the other hand, describes the relevant competitive advantages over the strongest competitor; since in this case we are dealing with an assessment of markets that have not yet been addressed, potential competitive advantages are to be assumed. The various performance and management potentials of the company can be used as indicators of relative advantages, i.e. relative competitive advantages in the entire value creation process, R&D, corporate management, etc. (Bea & Haas, 2017, pp. 165 ff.). In this context, the company’s core competencies are of particular importance. In principle, the company’s own resources should preferably be deployed where existing competencies meet the greatest possible market potential (Tomczak et al., 2014, p. 139). Step 3: Positioning the SBAs in the portfolio matrix Positioning of the SBAs in the portfolio matrix first requires the evaluation of the single SBAs with regard to the two portfolio dimensions, i.e. to assign them specific numerical values (e.g. on a scale of 0–100). For this purpose, an evaluation sheet can be used, which serves as the basis for a scoring model (see Fig. 15). The SBAs should be positioned in the portfolio matrix for the individual countries selected from the country selection; the result is the portfolio matrices shown in Fig. 16. The outer circles can, for example, represent the current market potential (in terms of volume or value), the middle ones the company’s own sales or revenue potential, and the smaller ones the company’s own profit potential. On this basis, it can first be roughly decided in which countries which products are to be offered (for example, those with medium to high market attractiveness and a medium to good competitive position). In a further selection stage, the information from the market segmentation is to be included in the analysis, as different market segments may also have to be dealt with in

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149

Summary of the analysis of market attractiveness and competitive position Time of the analysis... Analyses for product area.../service area... In country... A. Market attractiveness very poor

poor

medium

good

excellent

weight

Result (score x weight)

Market size Market growth Customer structure Price ranges Buying capability Market access Competitive intensity Political/economic risks

100

Total

Market attractiveness = Result : 100 = B. Relative competitive position very poor

poor

medium

good

excellent

weight

Result (score x weight)

Market-adequate product Prices and conditions Market presence Distribution Communication Achievable market share Financial results etc.

Total

100

Relative competitive position = Result : 100 =

Fig. 15 Evaluation form for assessing market attractiveness and competitive position. (Source: Stahr, 1993, p. 38)

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International Market Selection

China USA Profit potential

Germany Product 2 Sales potential

Market attractiveness

Product 1

Product 3

Market volume

Product 4

Competitive position Fig. 16 International opportunity portfolio for specific products/product groups. (Source: Adapted from Stahr, 1993, p. 41)

different countries. The schematic procedure is shown in Fig. 17: First, the suitable fields of action are selected on the basis of the product country matrix; within these fields of action, the suitable market segments per country and product are selected on the basis of the market segmentation (Meissner, 1995, p. 146 f.). The criticism of portfolio analysis expressed in connection with country selection (see Sect. 2 in this chapter) is also valid here. In particular, the difficulty of reliably determining the profit potential of the individual SBAs in the various country market segments should be emphasised. In addition, the outside-in perspective dominates here as well; therefore, entrepreneurial resources and competencies should be given greater consideration for a well-founded decision.

3.2.2 Profitability Analysis In a further step, the country market segments filtered out by means of a rough analysis are subjected to a detailed profitability analysis in order to assess their economic viability. Due to the generally long-term nature of a foreign commitment and the sometimes considerable investment required for starting international activities, it is advisable to use Net Present

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Market Selection

151

Markets Country A

Country B

Country C

Products Product a Product b Product c

Segment 1 Segment 3

Segment 2 Segment 4 Segment 5

Market B a = Selected fields of action in the product-country matrix = Selected market segments

Fig. 17 Matrix for market selection in strategic international marketing. (Source: Meissner, 1995, p. 147)

Value (NPV) models. For this purpose, the expected cash flows are forecast for the targeted foreign market segments and evaluated over a longer planning period. The basic NPV model for the selection of country market segments can be described as follows (see, inter alia, Seidel, 1977, p. 145; Perlitz & Schrank, 2013, p. 343): T

NPV l = t=0

Rtl
ð1 þ iÞ - t þ

T

ðI tl- Otl Þ
ð1 þ iÞ - t þ LTl ð1 þ iÞ - T

t=1

with NPVl = net present value of country market segment l (l = 1, ..., L), Rtl = financial resources required for exploiting country market segment l in period t (t = 0,. . . T), Itl = cash inflow for exploiting country market segment l in period t (t = 1, ..., T), Otl = cash outflow for exploiting country market segment l in period t, LTl = liquidation proceeds for the exit from the foreign market segment l at the end of the planning period T, i = interest rate.

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International Market Selection

The most advantageous market segment is the one whose discounted cash flow assumes the highest value compared to other segments; the interest rate may represent the expected return of an alternative project or the cost for borrowing money. Country segments with a negative net present value are to be excluded from further consideration. The cash flows of the net present value depend to a large extent on the chosen market entry strategy; in principle, therefore, the choice of a particular country market segment, the mode and the timing of market entry have to be made simultaneously. This fact will be taken into account in chapter “International Market Entry Strategies” in this Part III, where detailed NPV models will be presented for different market entry modes. In addition, it should be taken into account that the amount of cash flows depends to a large extent on the chosen market development strategy (see chapter “International Market Development Strategies” in this Part III); hence, the estimation of future cash flows of alternative international projects should include the market development strategies taken into consideration as well. It should also be noted that NPV models for evaluating international market segments have to take into account the following influencing factors, among others, which do not play a role in the case of domestic activities: • different tax rates, duties and levies in different countries, • different exchange rates, • political and economic risks that entail undesirable, unforeseeable consequences (e.g. expropriation). The following is critical of the net present value method as a method of economic analysis: • cash inflows and outflows are assumed to occur at the end of the period; • forecasting the necessary financial input data is extremely difficult. Precisely because of the complexity and uncertainty of the information required, the use of sensitivity analyses as well as the transition to probability estimates within the framework of a risk analysis is therefore appropriate. A risk analysis is basically carried out in the following steps (Berndt, 2005, p. 96 ff.): • formulation of an explanatory model showing the relationship between the (partly stochastic) input variables and the target variable, • determination of the probability distributions of the stochastic inputs, • determination of the probability distribution of the target variable from the probability distributions of the stochastic input variables and the values of the deterministic variables, • presentation and interpretation of the results.

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153

The basic NPV model can be adapted to the special conditions of international business as follows (see in the following Seidel, 1977, p. 145 ff.). Taxes have an effect on the attractiveness of a country segment; therefore the net cash flow is reduced by the factor (1 - s) (s = tax rate). However, taxes are not determined from cash flow, but from the profit. Therefore, items that differ with regard to the net cash flow and the taxable profit must be considered separately. Annual depreciations Dt that represent expenses but not cash outflows are taken into account in such a way that the corresponding tax gain is added to the incoming net cash flow after taxes. The sales volume of a period t in a country market segment (for the sake of simplicity, the index for the different country market segments will be omitted in the following) results from the product of market volume Mt and market share at and determines together with the respective realisable unit price pt the cash inflow It per period: I t = at
M t
pt : The cash outflow Ot in period t is derived from the costs of the period with cash effect: O t = at
M t ð m t þ l t þ r t Þ þ F t with mt lt rt Ft

= = = =

material cost per unit in t, labour cost per unit in t, other variable costs per unit in t, fixed costs in t.

When calculating the foreign project in domestic currency, the cash flow must be converted to domestic currency using the foreign exchange rate ERt of the respective period t in order to enable comparability with other country segments. Also to be taken into account are possible liquidation proceeds at the end of the planning period in the event of withdrawal from the country segment, Lt; these must also be converted into domestic currency and discounted to t = 0. The risks of full or partial expropriation are captured in the model by the control variable ut; this ensures that cash flows are not (or only partially) included after (partial) expropriation has taken place. If compensation is paid in connection with the expropriation, this payment must also be included in the net present value calculation. The model equation for a given country segment is as follows:

154

International Market Selection

NPV = - O0
ER0 T

þ

½ðat
M t
pt - at
M t
ðmt þ lt þ r t Þ - F t Þ
ð1 - sÞ þ s
Dt 
ERt
ð1 þ iÞ - t

t=1

þLT
ERT
ð1 þ iÞ - T Liquidation proceeds

Net cash flow


ð1- ut Þ þ ut
e
V t
ERt
ð1 þ iÞ - t Compensation:

with O0 ER0 s Dt ERt LT T ut e Vt

= = = = = = = =

cash requirements for market entry, foreign exchange rate at the time of market entry, tax rate, depreciation in period t, foreign exchange rate in period t, liquidation proceeds in T, duration of the international operations, control variable with ut = 0 for all t if there is no expropriation, ut = 0.5 in the case of an equity joint venture, ut = 1 in the case of an expropriation, = compensation rate for expropriation, = book value of the foreign project at the time of expropriation.

In the next step, a forecast of the model parameters subject to risk must be made (Seidel, 1977, p. 151 ff.). For the near future, the Delphi method or a one-time expert survey is used; in this process, a probability distribution of the input variable in question is determined. For the distant future, exponential smoothing or regression analysis is used, again including probability statements. As a result, a probability distribution of the variables for each period t is obtained for each risky input variable. Subsequently, a Monte Carlo simulation is used to determine a probability distribution of the net present value for operating in a specific country segment. For this purpose, random numbers are assigned to the various value ranges of the factors. The result is a frequency distribution of the net present value for a specific international project (Seidel, 1977, p. 161 ff.). The corresponding relative distribution can be interpreted as a probability distribution. In this way, probability distributions of the net present value can be determined for the various country market segments in question. By forming the distribution functions of the net present value, one obtains the so-called risk profile (probability of falling below a certain net present value); the corresponding complementary function is to be interpreted as the opportunity profile (probability of exceeding a certain net present value). This makes it possible to compare the various country market segments.

3

Market Selection

155

Probability of exceeding a given NPV (%)

100 90 80 70

A

60 50

median

40

B C

30 20 10

-20

-10

0

10

20

30

40

50

60

70

80

(million)

Fig. 18 Opportunity profiles for three international projects. (Source: Seidel, 1977, p. 165)

In a demonstration example by Seidel (1977, p. 164 ff.), the three international projects A, B, and C lead to the opportunity profiles shown in Fig. 18. It is obvious that alternative A always performs worst. B is better than C for NPVs ≤ ten million; for NPVs > ten million the ranking is reversed. Therefore, it is necessary to use additional decision criteria for risk situations in order to determine the relative advantageousness of the projects B and C. In addition, the expected net present value ENPV can be derived as a function of the planning horizon. This is advisable because the expected returns of the single projects depend on the duration of operation in a foreign market. In the demonstration example (see Fig. 19), project A always performs worst; whether B or C is advantageous depends on the duration of the foreign market operations.

156

International Market Selection

Expected Net Present Value ENPV

C

B

A

TC TB 0

tcrit

TA

where:

P

time

P = planning period TA, TB, TC = dynamic payback period of the projects = critical point in time at which the ENPVs for two projects are equal tcrit

Fig. 19 Development of the expected NPV of international projects in the planning period. (Source: Seidel, 1977, p. 167)

4

Empirical Findings

Numerous empirical studies on the choice of foreign markets deal with the basic procedure of market selection. Older contributions on this topic assume a single-stage procedure – i.e. market selection takes place “en bloc” and rather detached from the rest of the strategic decision-making process (see the overview in Papadopoulos et al., 2002). More recent studies tend to show that international market selection takes place as a multistage process. Usually, these are qualitative surveys based on case studies (see e.g. Brewer, 2001; Johansson, 2008; Kumar et al., 1994; Rahman, 2003). Usually, the process is subdivided into rough selection and fine selection, sometimes with several intermediate stages (see e.g. Swoboda et al., 2007 and the studies cited there). Ozturk, Joiner, and Cavusgil (2015) develop a three-stage model for analysing and evaluating foreign markets based on secondary analytical longitudinal data. Marchi et al. (2014) develop a multi-stage fuzzy decision-making model specifically for small firms.

4

Empirical Findings

157

A second group of studies deals with the criteria for evaluating foreign markets (see the overview in Papadopoulos & Martín Martín, 2011). In a study by Müschen (1998), which focused on market development strategies in the countries of Central and Eastern Europe, four central factors were identified for assessing country attractiveness: • • • •

production cost advantages, market attractiveness, corporate competitive advantages, and internalisation,

with the factor “market attractiveness” rated as the most important. The relevant dimensions of country risk were as follows • • • • •

disposition risks, employees, expropriation and transfer risks, quality and logistics requirements and communication and culture,

with disposition risks rated as particularly relevant. Obviously, the stability of the environment in the host countries has a high value in the companies surveyed. This is not surprising insofar as market entry decisions have a long-term character and the companies are therefore dependent on a reliable economic, political and legal environment. According to the Uppsala model of internationalisation (Johanson & Wiedersheim-Paul, 1975), the psychological distance between home and target markets plays a decisive role in the choice of foreign markets. Numerous studies deal with the construct of psychological distance (see the overview in Brewer, 2007). The importance of psychological distance for market selection – especially in the export case – is demonstrated by Dow (2000) and by Brewer (2007), among others: low psychological distance promotes the initiation of export activities with the target country in question. In the presence of high psychological distance, on the other hand, direct investment is preferred (Kim & Rhee, 2001). Overall, however, the results regarding the relationship between distance factors and country selection are contradictory. While some studies demonstrate a significant influence of cultural and geographic distance on foreign market choice, other studies fail to substantiate this effect (see the review in Malhotra et al., 2009). A recent case study-based research by Magnani, Zucchella, and Floriani (2018) among Italian and Brazilian firms showed that, in addition to geographic and psychological distance, a firm’s strategic objectives play a key role in market choice. In a study by Scharrer (2001), among other things, criteria for the country selection of medium-sized companies in Bavaria were examined (see Fig. 20). The most important factor is the basic suitability of the company’s products; the most important risk factor is considered to be the payment risk. With regard to market attractiveness, market potential

158

Country attractiveness

International Market Selection

Mean

Country risk

Mean

Companyrelated factors

Mean

Market potential/growth

2.17 Payment risk

2.14 Suitability of products

2.05

Demand behavior

2.38 Political stability

2.63 Product mix structure

2.55

Competitive conditions

2.40 Currency stability

2.73 Market share/ competitive position

2.63

Number and strength of competitors

2.52 Transfer risk

2.86 Own brand/product image

2.71

Household income/ purchasing power

3.00 Border formalities/ trade barriers

2.89

Communication systems

3.11 Impairment of business activities

2.99

Gross national product

3.23 Expropriation risk

3.80

Population size/growth

3.29

Fig. 20 Criteria of country selection. (Source: Adapted from Scharrer, 2001, p. 189)

and market growth play the most important role. Schu and Morschett (2017) examine the market selection criteria of European online retailers. Market size, legal regulations, knowledge of the target market, common language and logistics performance of the target country have a positive influence on the probability of selecting a specific country, whereas geographical and cultural distance have a negative impact on market selection. Sakarya, Eckman and Hyllegard (2007) deal with criteria specifically for market entry in emerging markets using Turkey as an example in a qualitative study. Among other things, long-term market potential, cultural distance, competitiveness of the local industry in the relevant sector and customers’ attitudes towards foreign products and services are recommended as criteria. With regard to the methods used by companies for country selection, according to Scharrer’s study, checklist procedures and classic decision rules clearly dominate. In contrast, utility analysis, scoring models and the profile method are less popular (see Scharrer, 2001, p. 198 f.). Finally, some studies address the relationship between systematic market selection and success (see e.g. Brouthers & Nakos, 2005; Yip et al., 2000). In general, it can be assumed that a systematic approach to planning the internationalisation strategy favors market success, especially in the early stages of the internationalisation process (Brouthers et al., 2009; Martín Martín & Papadopoulos, 2007). He, Lin, and Wei (2016) develop a market choice framework based on transaction cost theory. The influence of transaction costs on market choice and their impact on export success are analysed. Table 1 shows an overview of selected studies on international market selection. A very comprehensive and structured compilation of previous research contributions can be found, for example, in Ozturk, Joiner and Cavusgil (2015).

4

Empirical Findings

159

Table 1 Selected studies on international market selection Study (Authors) Müschen (1998)

Brief characterisation of the study Market development strategies of companies in central and Eastern Europe

Dow (2000)

Investigation of Australian exporting companies

Yip et al. (2000).

Survey of 68 US companies in an early stage of internationalisation

Scharrer (2001)

Survey of Bavarian SMEs on criteria and procedures for country selection

Brouthers and Nakos (2005).

Internationalisation process of Greek small and medium-sized enterprises

Brewer (2007)

Measuring the psychic distance between Australia and 25 other countries and applying it to Australian exporting companies.

Swoboda et al. (2007)

Market selection of trading companies using the example of the metro group

Brouthers et al. (2009).

Model for international market selection based on neural networks

Key findings The attractiveness of the market is the most important criterion for assessing country attractiveness. The most important dimension for assessing country risk is disposition risk. Psychological distance is a significant factor influencing the early initiation of export activities in companies. A low psychological distance promotes the start of export activities. At the beginning of the internationalisation process, market entry is less systematic. A systematic market entry favors the success of internationalisation. Market potential and market growth are the most important criteria for assessing country attractiveness, while payment risk plays the biggest role in country risk. The most important internal criterion is the fundamental suitability of the products. In addition to checklist procedures, classic decision rules dominate in country selection. Utility analysis, scoring models and the profile method are less popular. A systematic international market selection has a significant influence on the success of export activities. A low psychological distance promotes the start of export activities. Psychological distance is a more important criterion than cultural differences. Market selection is a multi-stage process. From the first rough selection to the final choice of country markets, several intermediate stages are passed through. A strategic, systematic approach to market selection has a positive influence on the success of internationalisation. (continued)

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International Market Selection

Table 1 (continued) Study (Authors) Malhotra et al. (2009).

Brief characterisation of the study Investigation of multinational companies in 18 emerging markets from 1990 to 2006

Caiazza (2014)

Interview with directors of Italian companies operating in Egypt

Buerki et al. (2014)

Survey of 19 top managers from French companies

Marchi et al. (2014) Ozturk et al. (2015).

International market selection for small enterprises Estimation of the market potential of potential target countries based on Euromonitor data

He et al. (2016).

Market choice of exporting Chinese companies

Christian et al. (2016)

Market choice among 5 African emerging markets

Key findings Cultural distance and geographical distance have a negative influence on the number of international acquisitions. In contrast, economic distance and administrative distance have a positive effect. The market potential of the target country is a significant moderating factor. The main drivers for market selection are cost savings, sales opportunities and access to additional markets. Disadvantages include unclear legislation, a lack of skilled workers and political instability. Key criteria identified for market selection include market potential, access to financial resources and political stability. In particular, emerging markets with high political stability, adequate infrastructure facilities and average population size are considered attractive. Development of a three-stage process model based on a fuzzy expert system Development of a three-stage model for the analysis and evaluation of foreign markets based on secondary analytical longitudinal data. The market potential of a country is forecast as a function of income elasticity, growth potential, and macroeconomic variables. Development of a frame of reference based on transaction cost theory. The influence of transaction costs on market choice and their effects on export success are analysed. Companies that explicitly consider transaction costs in their market choice are significantly more successful than their competitors. Development of a decision-theoretical approach (TOPSIS model) based on 13 economic indicators in 5 emerging African countries. (continued)

References

161

Table 1 (continued) Study (Authors) Schu and Morschett (2017)

Brief characterisation of the study Factors influencing the market selection of European online retailers

Magnani et al. (2018).

Comparative case study analysis of market entries of Italian companies in Brazil and vice versa

Wu et al. (2018).

Market selection as a moderator between institutional framework conditions of the target market and innovation performance of Chinese companies

Key findings Market size, legal regulations, knowledge of the target market, common language and logistics performance of the target country increase the probability that a specific target country will be selected. Geographic and cultural distance have a negative influence on market selection. Strategic goals of the company play a central role in market selection, in addition to geographical and psychological distance. The level of economic development in the target market moderates the relationship between the host country’s institutional framework and firms’ innovation performance.

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International Market Entry Strategies

Abstract

Once a company has decided to enter one or more foreign market(s), it can choose from a wide range of alternative entry modes, ranging from simple indirect exports to the establishment of its own subsidiaries. The different forms of market entry can be divided into the main strategies of exports, licensing and direct investments. In addition to the market entry mode, a company must also decide on the timing of market entry as part of its market entry strategy.

1

International Market Entry Modes

1.1

Overview

International market entry modes describe how a company expands its product and services to a non-domestic market and can be classified according to the following criteria (Backhaus & Voeth, 2010, p. 195; see also the detailed compilation of criteria in Kutschker & Schmid, 2011, p. 850 ff.): • • • • • •

capital transfer and participation, value creation focus, risk, control, extent of cooperation with other companies, and transaction costs.

In the following, market entry modes are first differentiated according to whether the value creation takes place (predominantly) in the domestic market or abroad. In addition, it is # The Author(s), under exclusive license to Springer-Verlag GmbH, DE, part of Springer Nature 2023 R. Berndt et al., International Marketing Management, https://doi.org/10.1007/978-3-662-66800-9_7

165

166

International Market Entry Strategies

International market entry modes Value creation in home country Direct export Indirect export

Export trader Export agent Export cooperation

Without direct investment

To retailer To final user To importer/general agent

With direct investment

Representative office Branch office Sales joint venture Distribution subsidiary

Value creation in host country Contractual agreements (Licensing)

Property right license Know-how license Franchising

Foreign direct investment (FDI)

Joint venture Branch Subsidiary

Fig. 1 Classification of international market entry modes

taken into account whether the market entry is associated with a direct investment or not. Figure 1 shows the resulting system. Furthermore, a distinction can be made between independent (e.g. export, wholly owned subsidiary) and cooperative forms of market entry (e.g. licensing agreements, joint ventures). In the following sections, the main entry modes exports, licensing agreements and direct investments as well as cooperations and countertrade as selected alternative modes of market entry are discussed in detail.

1.2

Export

Export strategies are characterised by the fact that the focus of value creation – usually production – is in the domestic market; the goods and services produced are transported to foreign markets and offered for sale there. Exports are typical of early phases of internationalisation and generally require only minor changes to the range of products and services offered and to the company’s structures and processes, thus enabling the company to generate sales immediately. Frequently, overcapacities in the domestic market are the reason for taking up – in this case rather sporadic – export activities; however, export can also be an expression of an active market development strategy (Czinkota and Ronkainen 2013, p. 232 f.). Export activities are often accompanied by an ethnocentric orientation of the company. An export strategy basically requires free movement of goods and payments, i.e. the absence of restrictions such as import bans or restrictions on foreign exchange transfers. In addition, established distribution channels must exist. The benefits of exports are that they are feasible even for small companies with little experience abroad, allow flexible reactions to environmental changes and do not require any capital, management or personnel transfer; however, exports are unsuitable in the presence of tariff and non-tariff trade barriers, highly fluctuating exchange rates, high payment risk and goods that are difficult to

1

International Market Entry Modes

167

transport (Pues, 1993, p. 36; Tietz & Zentes, 1993, p. 76). In principle, a company can choose between two basic forms of export: indirect and direct export. Indirect Export In the case of indirect export, the company does not act as an exporter itself, but uses independent, legally autonomous export intermediaries located in its home country, which carry out delivery and sales abroad on their own (Nienaber, 2003, p. 78; Kutschker & Schmid, 2011, p. 856). Typical variants are export traders, export agents, and export cooperations. Export traders are domestic export dealers or export houses that specialise in certain product ranges or countries, as well as branches of foreign companies, such as foreign department stores or import companies that maintain purchasing offices or branches in Germany (Waning, 1994, p. 180). One example is the Hamburg export house HESSE, ANDRÉ & Co. (http://www.haco-hamburg.de/), which specialises in sanitary ware, machinery, spare parts and textiles. Sometimes export houses are also divisions of consulting companies that specialise in certain markets. One example is RUSEU Business Consulting, which offers consulting, commercial agency and brokerage services as well as the services of an export house specifically for the Russian market (https://www.ruseuconsulting.de/deutsch/unsere-leistungen/). Export agents are commercial agents, trade brokers and commission agents who are based in the producer’s home country and carry out the sale of export goods on their own. Unlike export traders, they do not act on their own account but on behalf of their principal. Ownership of the goods and the associated distribution risks thus remain with the producer (Schanz, 1995, p. 18 f.). Export cooperations are voluntary associations of exporting companies which remain economically and legally independent but transfer some or all export functions to a central export body (e.g. a jointly supported export office). This handles the transactions in its own name or in the name of the respective member company. For the individual company, the costs and risks associated with export activities are reduced, and market entry barriers can be overcome more easily (Zentes et al., 2013, p. 231 f.). Indirect exporting is beneficial if the exporting company has little experience abroad as well as few financial and human resources and wishes to exploit its sales opportunities with as few risks as possible, as it can draw on the many years of experience of the exporting intermediaries. The main disadvantage is that the company cannot build up its own expertise, as it does not have direct contacts with foreign buyers and users; furthermore, it has practically no control over how the product is marketed abroad (Kutschker & Schmid, 2011, p. 856 f.; Grünig & Morschett, 2017, p. 107). Direct Export In the case of direct export, the company itself carries out all activities in the domestic market in connection with the export of the goods, i.e., the goods or services are sold abroad without the involvement of export intermediaries. It should be noted that direct export should not be confused with direct distribution, as in the case of direct export the products can reach the

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International Market Entry Strategies

foreign buyer after crossing the border both via the company’s own distribution organs (direct distribution) and via third-party distribution organs (indirect distribution) (Zentes et al., 2013, p. 232 f.). In contrast, indirect export excludes direct distribution per se. Direct exports can be without and with direct investment. Direct exports without direct investment are characterised by the fact that the company’s own export departments distribute the products from the domestic market to the customers abroad. Direct exports without intermediaries in the host country are a form of direct distribution; the product is distributed directly from the domestic producer to the final foreign customer. In the case of direct exports with an intermediary in the host country, the producer supplies its product to a local retailer or to an independent foreign importer who resells the goods to retailers or to the final customers. These include foreign trade representatives (foreign agents), commercial brokers, commission agents and general importers (Kutschker & Schmid, 2011, p. 859 ff.). Direct exports with direct investment involve a certain amount of capital participation abroad. With the increasing importance of exports for the manufacturing company, it makes sense to institutionalise them to achieve better management and control of export activities and – at least for the key markets – to replace the external distributors abroad that are not subject to directives by company-owned – and thus directive-dependent – ones. Depending on the amount of capital tied up and thus also on the intensity of the economic interdependence, a distinction is made between representative offices, branch offices, and distribution subsidiaries. Representative offices are often the first stage of a company’s own representation in the foreign market. The exporting company sends a managing director to the target country, who sets up a representative office there with usually only a few employees; this is part of the company in terms of personnel and organisation. The tasks of the representative office are to open up the market, maintain contacts, initiate business and observe the market (Backhaus & Voeth, 2010, p. 197). Branches often emerge from representative offices and, like these, are legally dependent from the company; however, they have to be entered in a commercial register (or a comparable official register). Compared to representative offices, they have more staff, more extensive decision-making powers and are equipped with the most important entrepreneurial functions (Reiter, 1995, p. 31 f.). Sales subsidiaries represent the most capital- and risk-intensive form of direct exports. Unlike representative offices and branch offices, sales subsidiaries are independent legal entities and can conclude transactions on their own responsibility. Typically, they handle the warehousing and sale of products as well as maintenance and services. Sales subsidiaries allow comprehensive management and control of local activities as well as active and systematic market cultivation. They can be established through the founding of a new company, the acquisition of an existing sales organization, or as a sales joint venture with a partner company (Grünig & Morschett, 2017, p. 109; Weiss, 1996, p. 9). The benefits of direct exports compared to indirect exports lie in the greater proximity to the market and the greater controllability and manageability of export activities. They also allow companies to build up their own foreign trade know-how. The main disadvantages

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169

Types of royalties Fee-based compensation  



Flat fee Recurring fee (royalty)  Input-related  Output-related (based on sales, turnover, profit contribution, or profit) Fees for support and services

Other compensation    

Return of goods produced under license to the licensor at special conditions Cross licensing Equity participation in licensee Revenues from the sale of components and accessories to the licensee

Fig. 2 Types of royalties. (Source: Adapted from Schuh et al., 2011, p. 258; Berekoven, 1985, p. 45)

are the higher risks, especially if they involve direct investments (for more on the benefits and disadvantages of direct exports, see Kutschker & Schmid, 2011, p. 861 ff.).

1.3

Licensing

Licensing is a form of market entry with production in the host country, i.e. the focus of value creation is abroad. By granting a licence, a domestic licensor allows a foreign licensee to use intellectual property rights such as patents, utility models, designs, trademarks, or a specific unprotected know-how (e.g. experience, knowledge) for a defined geographic area and a defined period of time in return for payment (Berndt & Sander, 2002, p. 603). In most cases, the licensor receives an initial fee plus a turnover-related fee from the licensee as remuneration for the granting of the licence; however, other types of licensing compensation are also possible, which are listed in Fig. 2. Companies typically then decide to license to a foreign licensee, • when low financial and human resources do not allow direct investments in the targeted foreign market; • when licensing is the only way to overcome tariff or non-tariff barriers to trade; • if the risk for direct investment is too high, e.g. due to unfavourable political conditions; • if the preferences of foreign customers differ significantly from those of domestic customers, so that significant local modifications are required. A prerequisite for licensing, however, is that the licensor offers the licensee an benefit, such as a technological lead in industrial products or the good image of the brand in the consumer goods sector (e.g. Boss, Jil Sander, Porsche). Starbucks Sells Distribution License to Nestlé

The Swiss food company Nestlé will in future market the products of the US coffee house chain Starbucks worldwide. This was announced by both companies. Starbucks will receive 5.97 billion euros for the license, which will significantly increase its annual sales.

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International Market Entry Strategies

Starbucks sells products such as coffee beans, tea bags, ready-to-drink coffee drinks or ice cream in supermarkets in addition to doing business in its more than 28,000 stores in more than 50 countries around the world. Nestlé will take over this in the future. However, there are no plans to transfer fixed assets: Starbucks stores will remain in the sole hands of the coffee chain in the future. Through the cooperation, Nestlé aims to grow primarily in North America and especially in the USA. [. . .] Source: n.u. 2018 ◄ With regard to the nature of the subject of the licence, a distinction is made between the following forms of licensing: • intellectual property licenses, • know-how licenses and • franchising. Intellectual property rights (e.g. patents, utility models, design patents, trademarks, copyrights) are licensed within the scope of property right licenses. The most common forms in practice are the patent licence and the trademark licence. By granting a patent license, the licensor allows the licensee under certain conditions to use an invention and to offer products that have been produced using the invention. In the case of a trademark license, the licensee is entitled to use the trademark registered in the name of the licensor to identify goods or services. A trademark licence is often granted in conjunction with a patent licence (Schuh et al., 2011, p. 255 f.; Schanz, 1995, p. 29 ff.). Under know-how licences certain technical or business knowledge and experience are transferred for which no industrial property right can be acquired or – e.g. for reasons of secrecy – is to be acquired. The transferred knowledge and experience are mostly manufacturing secrets (e.g. technical teachings without invention character, research results) or business secrets (e.g. knowledge about sources of supply, marketing concepts, future perspectives of enterprises and markets) (Schanz, 1995, p. 30). In the case of a knowhow licence agreement, it is essential to ensure that the know-how is adequately protected against unauthorised disclosure and use (Schuh et al., 2011, p. 255; Nienaber, 2003, p. 87 f.). Know-how licenses comprise different variants. • Management contracts are a special form of cooperation in foreign business. A domestic company (contract firm) provides management know-how – and possibly also personnel – while the foreign partner (managed firm) bears the direct investment (Nienaber, 2003, p. 86). Management contracts take place most frequently in plant construction. • In the context of contract manufacturing, a domestic company transfers certain stages of the manufacture of a product to a foreign partner under a contract which essentially corresponds to a contract for work and materials (Weiss, 1996, p. 10). The transfer of know-how is limited to the specification of corresponding product or quality ideas; this

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requires the transfer of information in the form of e.g. blueprints, drawings and technical standards to the foreign contractual partner. The products are produced exclusively for the contracting company, which then markets them itself (Nienaber, 2003, p. 92). • Training and education contracts are similar in nature to management contracts. The main difference is that no management know-how is transferred, but the company primarily transfers training know-how for apprentices and workers in technical and commercial fields abroad (Kulhavy, 1993, p. 24). Franchising is a contractual agreement between two legally and financially separate companies, the franchisor and the franchisee (Morschett et al. 2015, p. 393 ff.). Typically, franchise agreements contain elements of both of the first-mentioned forms: the franchisor transfers property rights and know-how to the franchisee in the form of a technology management package, including an ongoing technical and commercial assistance. The franchisee is obliged to follow the franchisor’s management (appearance, product, range, communication, etc.), bears the full risk, and on the other hand participates in the franchisor’s image (Kulhavy, 1993, p. 22; Grünig & Morschett, 2017, p. 111). Examples of international franchising agreements are McDonald’s, Benetton, Burger King, Holiday Inn or The Body Shop. “The Body Shop” Is Pushing into Pharmacies

The French cosmetics group L’Oréal is pushing into pharmacies with another brand. Since December, the sale of creams and lotions of the brand “The Body Shop” has been tested in 20 selected pharmacies. The group wants to open up a new sales channel for natural cosmetic products, which are otherwise sold exclusively through franchise stores. The model project is initially limited to six months and only covers part of the total range. [. . .] Through its franchise system, “The Body Shop” has grown since 1976 into a global company with a worldwide network of branches from London to Los Angeles. In addition to store sales, the products are also sold directly to customers. “The Body Shop” operates more than 2400 stores in 59 countries. Total sales in 2007 were around 1.3 billion euros. Source: Stüwe, 2009 ◄ The main benefit of licensing is that no assets other than the know-how are transferred abroad, which makes it easy and quick to enter the foreign market. Moreover, in case of failure, a quick exit from the market is possible. The disadvantages include the risk that the foreign licensee becomes a competitor for the own company; in addition, an unauthorised transfer of know-how on the part of the licensee may lead to an undesired diffusion of technology. In addition, compliance with the quality standards prescribed by the licensor is sometimes problematic, which may lead to a negative image transfer to the licensor. Therefore, special care should be taken when choosing a foreign licensee. Furthermore, the granting of a licence can block alternative possibilities of market development in the long term (Nienaber, 2003, p. 88 f.; Grünig & Morschett, 2017, p. 110 f.). A detailed

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description of the economic, legal and political problems of international licensing agreements can be found in Berndt & Sander, 2002.

1.4

Foreign Direct Investment (FDI)

In the case of direct investment, the focus of value creation is in the host country; for this purpose, capital and management services are transferred abroad. The following motives for shifting production abroad can be cited (Kulhavy, 1993, p. 25 f.; Berekoven, 1985, p. 47 f.): • sales-oriented motives such as access to new sales markets, circumvention of tariff and non-tariff trade barriers, circumvention of consumer patriotism that may exist abroad (“buy national”); • cost-oriented motives, such as the use of comparative cost benefits (cheaper raw materials or labour abroad), lower transport costs, use of investment incentives from the foreign government; • establishing and maintaining contacts with authorities, customers, local suppliers and dealers, • better opportunities for local management and control of business activities. Disadvantages are that foreign production involves high capital and management costs and the company is more exposed to political and economic risks than with other forms of market entry. Direct investments can be systematised according to various criteria: • Depending on the scope of the services performed on site, a distinction can be made between pre-production, packaging, outward processing, assembly or complete production (Berekoven, 1985, p. 47). • According to the type of growth, we distinguish between internal growth (start-up) and external growth (acquisition and equity participation). • A further distinction can be made according to the type of resources transferred: financial resources, material resources, or know-how. • Depending on the amount of capital invested and the resulting level of control, we distinguish between joint ventures and equity participation on the one hand, and wholly owned subsidiaries on the other. Joint Ventures Joint ventures are built up and controlled by at least two legally and economically independent companies. The participating companies contribute their resources and experience, the amount of which is contractually agreed. Depending on the amount of the contributions, the distribution of risks and profits as well as the distribution of decisionmaking powers among the partner companies has to be specified in detail; other important

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components of the contract are the purpose and duration of the cooperation, which is usually long-term. In the context of international joint ventures, at least one contractual partner must be based abroad or the business activities of the joint venture must take place predominantly abroad (Hellwig, 1989, p. 1064 ff.). The benefits of cooperating with a foreign company in a joint venture are, in particular, that the market and country knowledge of the foreign partner company as well as its contacts to authorities, suppliers and customers can be used; the financial participation of the foreign partner also reduces its own risk of market entry (Stahr, 1979, p. 165). Joint ventures are also suitable for medium-sized companies, since a shortage of capital can be compensated for by the foreign partner; this applies in particular if the medium-sized company only contributes business or technical know-how to the joint venture and the capital is contributed by the foreign partner (Steinmann et al., 1981, p. 118). In some countries, joint ventures are the only permitted form of FDI (Backhaus & Voeth, 2010, p. 199). Joint ventures are problematic regarding the sharing of profits, the limited freedom of action of the investor and the high potential for conflict (different views of the contracting partners with regard to corporate management, sharing of profits, etc.); the latter increases the coordination effort in the long term and endangers stability (on the benefits and disadvantages of joint ventures see e.g. Kutschker & Schmid, 2011, p. 891 ff.). Airbus Signs Joint Venture Contract to Build Composite Aircraft Parts Manufacturing Centre in Harbin, China

Toulouse, January 30, 2009 Airbus and a group of Chinese industrial partners today signed a contract to establish a joint venture manufacturing centre in Harbin, China. In future, composite parts and components for the Airbus A350 XWB programme and the Airbus A320 Family will be manufactured there. [. . .] The manufacturing centre will be established in 2009 under the name of Harbin Hafei Airbus Composite Manufacturing Centre Company Limited. Harbin Aircraft Industry Group (HAIG) will hold a 50 percent stake, while Airbus China will hold 20 percent and HAI, AVICHINA and HELI will each hold 10 percent. Manufacturing operations are scheduled to begin in September 2009, and a new plant should be operational by the end of 2010. [. . .] Airbus is committed to a long-term strategic partnership with China. The total value of industrial cooperation between Airbus and the Chinese aerospace industry is expected to be US$200 million by 2010 and US$450 million annually by 2015. Source: EADS, 2009 ◄

Wholly Owned Company Wholly owned companies involve unrestricted ownership of the foreign operation by the domestic company and thus also its sole decision-making powers. This means that conflicts

174

International Market Entry Strategies

of interest cannot arise in the first place, and the company retains complete control over the foreign activities; however, this form of market entry is the riskiest of all, as it requires a considerable transfer of capital and management services; for small and medium-sized enterprises, this form of entry is therefore generally ruled out (Nienaber, 2003, p. 95 f.). The production company abroad can be managed either as a branch or as a subsidiary. While in the case of a branch the liability lies with the domestic company and the latter has to pay domestic tax on the profits arising abroad, a subsidiary is legally independent and is liable with the capital invested abroad. The taxation of profits – with the exception of profits transferred to the domestic parent company – also takes place abroad. Compared to a branch, the influence of the parent company is usually less. Subsidiaries often have a very high degree of autonomy, especially if the management has a polycentric orientation. In addition, subsidiaries usually comprise more stages of the value chain in the production of goods and services and therefore require a higher capital input, which considerably increases the economic risk. Political risks can also have a greater impact on the subsidiary, as expropriation can be carried out more easily than with a pure branch due to its legal independence (Stahr, 1979, p. 164 f.). Wholly owned companies can be created on the one hand by founding a new company and on the other hand by taking over existing companies. The takeover of local companies in particular offers the benefit that existing contacts, technical know-how, and an established market position can be used (Kutschker & Schmid, 2011, p. 906 ff.). This strategy is typically pursued by large international food corporations (e.g. Unilever, Nestlé), which regularly carry out their international expansion by buying up local brands. Unilever to Launch Cosmetics Business with Acquisition in France

The consumer goods group Unilever is reaching for the French cosmetics supplier Garancia. A binding takeover offer has been made in this regard, Unilever announced on Wednesday. Concrete details were not disclosed. Garancia sells its high-quality dermatological face and body care products primarily through pharmacies in France and selected retail channels. The acquisition is expected to close in the second quarter, according to the statement. Just the day before, Unilever announced a change at the top of its cosmetics division, which will be led by former Procter & Gamble man Sunny Jain. Jain had most recently worked at online giant Amazon, where he was responsible for the personal care and cosmetics divisions, among others. Source: n.u., 2019 ◄

1.5

Cooperations and Networks

A cooperation is a long-term relationship between independently acting companies whose decisions in certain business areas are made jointly or are dependent on each other. We distinguish between (Mengele, 1994, p. 20 ff.):

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• horizontal cooperation involving partners from the same industry, • vertical cooperation, i.e. cooperation with suppliers, customers and sales partners, • conglomerate or diagonal cooperation involving agreements between completely unrelated partners. Cooperative forms of market entry can take place with or without capital participation and with or without retaining economic and/or legal independence; they thus range from simple export cooperations to joint ventures, strategic alliances and corporate networks. dba Launches a Comprehensive Sales Cooperation with Zanox in Germany, Austria, Switzerland and France

(openPR) – Berlin and Munich, February 1, 2006 – The second largest German domestic airline dba sets immediately on on-line marketing of zanox, the market leader for success-based Multichannel Commerce. In a first step, the partnership covers the areas of affiliate marketing and multichannel sales. The sales cooperation is international and currently covers Germany, Austria, Switzerland and France. [. . .] As a special highlight, dba is offering its sales partners a welcome offer of 6 euros per successfully brokered booking. This attractive “pay per sale” offer is intended to motivate partners in particular and is valid for 6 weeks, from February 1 to March 15, 2006. dba has been successfully serving national and international destinations for more than a decade. The decision in favor of zanox and its complete online marketing offering helps to ensure that dba will continue to operate successfully in the future. For the first time, the company is making comprehensive use of the enormous potential of the affiliate marketing and online shopping sales channels. [. . .] zanox is currently represented in more than 25 countries and 4 continents. The company offers its partners extensive cross-country selling. The multichannel commerce offering is based on a large international network. Source: Zanox, 2006 ◄ In principle, cooperation can take place in all functional areas of a company; cooperation agreements are most frequently found in the areas of procurement, R&D, advertising, production, and distribution. The objectives of cooperation are to improve one’s own competitive position by exploiting the strengths of the partner, to achieve synergy effects and to reduce the cost burden. The partners involved can, for example, specialise in certain parts of the overall product range; as a result, each partner can produce higher quantities and thus achieve cost effects such as economies of scale and experience curve effects, which reduce the unit costs of production (Mengele, 1994, p. 130 ff.). The benefits of cooperative forms of market entry lie in the possibility of using foreign know-how, in sharing the risk among several partners, and in exploiting the benefits of specialization and task sharing. Furthermore, the companies involved can exploit the partner’s image on the foreign market; existing market entry barriers can also be overcome or market entry barriers against potential competitors can be created. The disadvantages

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International Market Entry Strategies

lie in the generally high coordination effort and the problem of the long-term stability of strategic alliances, as conflicts of objectives and the danger of individual benefit-taking at the expense of the coalition can arise (Johnston et al., 1999, p. 260). Due to advancing globalization and increasing international competition, more and more companies are operating in international networks (Johnston et al., 1999). The goals are, in particular, the expansion of international technology leadership and the strengthening of the global competitive position. Cooperation Agreement Intensifies Cooperation Between German and French Technology Networks

Germany and France are strengthening their technology cooperation: In Sophia Antipolis in southern France, VDI and VDE-Innovation + Technik GmbH and the Sophia Antipolis Foundation signed a cooperation agreement on November 9. The aim of the agreement is closer cooperation between French Pôles de compétitivité (regional innovation networks) and German competence networks. VDI und VDE Innovation + Technik GmbH in Berlin operates the office of Competence Networks Germany, an initiative of the Federal Ministry of Economics and Technology. Around 120 technology clusters from 9 fields of innovation and over 30 regions in Germany are currently grouped under the umbrella brand Kompetenznetze Deutschland. The Sophia Antipolis Foundation, the scientific and economic support organization of the technology park of the same name near Nice, supports the French initiative Pôles de compétitivité in its international activities. Pôles de compétitivité brings together 71 leading French regional networks and accompanies them in their further development and internationalization. Many of the networks represented in the two initiatives are very interested in bilateral cooperation. The office of the Initiative Networks of Competence Germany and the Sophia Antipolis Foundation want to meet this demand more intensively in the future through the cooperation agreement. The cooperation will start with the visit of French networks from the field of renewable energies to potential partners in Germany. Source: Kompetenznetz Deutschland, 2007 ◄

1.6

Countertrade

Countertrade comprises a number of transactions in which the sale of a product or service is linked to the purchase of a product or service in return (Jalloh, 1990, p. 19 f.). The compensation ratio is defined as the percentage of the value of the countertransaction to the value of the main transaction, i.e. the percentage of the contract value for which compensation is to be paid. Such transactions are often concluded with countries with a shortage of foreign exchange or a current account deficit.

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177

Types of countertrade Commercial compensation   

Barter Counterpurchase Advanced purchase

Financial compensation

Industrial compensation  

Buy-back Offset

 

Clearing Switch

Fig. 3 Classification of countertrade transactions. (Source: Adapted from Fantapié Altobelli, 2004, p. 91)

In practice, a variety of forms of compensation transactions have emerged, which can be divided into three main groups (see Fig. 3): • commercial compensation, • industrial compensation, and • financial compensation. Depending on their nature, countertrade can contain elements of both export activities and foreign direct investments. The individual forms of commercial compensation, for example, tend to be short-term in nature and can thus be attributed to foreign trade transactions, whereas industrial compensation comprises long-term agreements with a project character, thus comparable to FDIs. Financial compensation includes intergovernmental agreements with the aim of facilitating the international transfer of payments (Jalloh, 1990, p. 20); since the latter cannot be attributed to international market entry, it is not pursued further here. In practice, mixed forms are frequently encountered, so that individual transactions can no longer be clearly assigned to the basic forms listed here. The individual forms can be briefly characterised as follows (Fantapié Altobelli, 2004, p. 90 ff.). A classical barter transaction implies a short-term exchange of goods between the parties without the use of money and effected by one contract. For this reason, the compensation rate is always 100%, since delivery and counter-delivery must correspond in value. Deviating from this, delivery and counter-delivery can be invoiced in an agreed currency and both transactions be settled by payments, so that the compensation ratio can deviate from 100%. However, the transaction is still regulated in a single contract. Since this can cause difficulties in obtaining export credits or government export credit insurance, most commercial countertrade transactions are nowadays processed as so-called counterpurchase. In this case, both transactions are invoiced in an agreed currency and regulated in two different contracts which are linked by a protocol; thus, the compensation character of the transaction is not apparent outwardly. Here, too, the compensation rate can deviate from 100%. In advanced purchase the order of the transaction is inverted, thus providing the importer with the currency needed to pay for the main transaction.

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International Market Entry Strategies

Within industrial compensation the most important types are buy-back and offset transactions. In buy-back transactions, the exporter transfers technology such as a plant or equipment to the host country and agrees to purchase a percentage of the goods produced with the supplied equipment for a defined number of years. In an offset transaction, the supplier of the equipment agrees to realise a certain proportion of the order value by value creation in the host country, for example by sub-contracting local suppliers. Offset transactions are generally not permitted under the WTO; the only exception is the defence industry, where compensation agreements are now almost the rule. Political Pressure Angers Armaments Companies

Companies complain about an increasing burden on exports due to countertrade in favour of domestic industry There is growing anger in the defence industry about the political pressure to enter into so-called offset commitments in international business. Behind these is the demand by governments to the companies to ensure investments in the buyer country at the same time as selling armaments. [. . .] In recent months, a number of these offset deals have caused a stir: Because the Polish government bought U.S. “F-16” fighter jets from the defense company Lockheed Martin, General Motors plans to transfer part of the “Zafira” production from the Opel plant in Rüsselsheim to Poland. EADS, too, has been able to sell the “Eurofighter” fighter jet to Austria only with promises to do so. “Especially in Europe, industrial policy is being made in this way,” says a manager who specializes in the offset business – and it is not only for the industry that this is becoming a problem. The principle can be easily explained using Poland as an example: The government buys “F-16” jets for $3.5 billion and in return demands about $6.3 billion from industry in the form of investment, technology transfer and import deals. But since Lockheed Martin cannot invest enough in Poland, on the one hand the US government steps in. On the other hand, Lockheed pays other companies to put money into Polish industry. In the case of Opel, this has led to considerable outrage among those affected. “It is a unique occurrence that state subsidies for the ‘Zafira’ production were bought with Polish-American arms deals,” for example, Opel General Works Council head Klaus Franz told the Handelsblatt. This was a political decision against Germany as a production location. But Lockheed Martin and General Motors, which confirm the deal without giving figures, point out that without such deals exports are impossible. A US Congressional report from July shows that although the growth in Europe is no longer as strong as in Asia, Europe takes a good two-thirds of the big pie of the US offset business – more than $40 billion between 1993 and 2002. “More and more countries are demanding offset business,” confirms Sascha Lange, a defense expert at the German Institute for International and Security Affairs (Stiftung Wissenschaft und Politik, SWP). [. . .]. Source: Rinke et al., 2004 ◄

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179

Countertrade has several benefits, such as reducing payment risk and circumventing currency problems. It allows access to markets that would otherwise be closed due to trade policy restrictions and offers the possibility of concluding transactions that would not have been concluded in the context of conventional export transactions. Even in markets that would otherwise be accessible, a compensation offer can favour the award of international tenders. Problems lie in particular in the valuation of the goods offered, administrative hurdles, insufficient transport capacities, unacceptable deadlines for fulfilling the counterdelivery as well as a frequently low quality of the goods offered (Fantapié Altobelli, 2004, p. 96 f.; Pues, 1993, p. 36). As an example of the successful use of compensation deals, the company Pepsi can be cited, which was able to build up an extensive distribution network there in this way even before the opening of Eastern Europe and was thus able to achieve a competitive benefit over Coca-Cola (Pues, 1993, p. 36).

2

Timing of Foreign Market Entry

In addition to the oganisational aspect of the market entry mode, a company must also decide on the timing of market entry as part of its market entry strategy. The timing strategy includes (Wesnitzer, 1993, p. 72): • the determination of the transnational timing strategy, i.e. the definition of the time sequence in which the targeted foreign markets are to be entered, as well as • determining the country-specific timing strategy, i.e. deciding on the individual point of time of entry into a foreign market.

2.1

Transnational Timing Strategies

The timing of market entry can basically follow three patterns: the waterfall strategy, the shower strategy, and the water drop strategy. A waterfall strategy (see Fig. 4) implies that new foreign sales markets are entered successively, i.e. they are developed one after the other and only after an extensive market research. At the beginning, the company opens up a foreign market that appears to be the most important or most promising, and only moves on to a further foreign market when the position in the first market is secured. Typically, countries that are most similar to the home market are developed first; with each subsequent stage, the heterogeneity of the foreign markets worked increases (Kutschker & Schmid, 2011, p. 119 f.; Backhaus & Voeth, 2010, p. 106). As an example of a waterfall strategy, the European expansion strategy of Tchibo can be cited. In Germany, Tchibo launched its first online shop in 1997, followed by Austria in 2000 and Switzerland in 2001. In 2007, Tchibo then opened a pan-European online shop, which, however, was not successful and was discontinued. In 2008, online shops were opened in Poland and the Czech Republic, and in 2009 in Turkey (Stallmann & Wegner, 2015, p. 256).

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International Market Entry Strategies

Degree of heterogeneity

Entry

Country 1 Country 2 Country 3 Country 4 Country 5

0

1

2

3

4

5

Time (Years) Fig. 4 The waterfall strategy. (Source: Adapted from Backhaus & Voeth, 2010, p. 106)

Entry

Country 1

0

Country 2

Country 3

Time (Years)

Country 4

Country 5

1

Fig. 5 The sprinkler strategy. (Source: Adapted from Backhaus & Voeth, 2010, p. 111)

Within a sprinkler (or shower) strategy, the company tries to open up several foreign markets simultaneously or at least within a short period of time (see Fig. 5). This is usually done with the aim of gaining pioneering benefits. This strategy can make sense when

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181

opening up previously closed markets, such as the Eastern European market after the political upheaval in 1989. The company Dr. Oetker can be cited as an example, which opened up the markets in Poland, Hungary, Russia and the former Czechoslovakia very quickly between 1991 and 1993 (Störmer, 1993, p. 350 f.). It should be noted that a firsttime market development by means of a sprinkler strategy must be limited to a selection of countries or regions; it is less practicable for the world market. On the other hand, it is relevant in connection with the simultaneous launch of new products in already developed markets as part of a global strategy (Kutschker & Schmid, 2011, p. 120). The reason for this is often the high development costs, increasing competitive pressure and a shortening of product life cycles in many sectors, which are increasingly forcing companies to launch their products in as many markets as possible. Within the water drop strategy (Heinemann et al., 1997, p. 254 f.), a company decides on a specific region and initially enters the market in one country within the selected region; subsequently, the foreign commitment is extended to other countries in this region. In a further step, if necessary, other regions are developed in the same way. This successive approach is also interesting for small and medium-sized enterprises because it allows them to develop an entire region comparatively quickly and cost-effectively (Nienaber, 2003, p. 102). Which of the above-mentioned transnational timing strategies is chosen depends on a whole range of factors. Since the entry points must be coordinated across countries, the timing strategy depends to a large extent on the management orientation resp. internationalisation philosophy. For example, an ethnocentrically oriented company will tend to choose the waterfall strategy due to a lack of resources and because of the limited number of foreign markets that have similarities to the home market, while geocentrically oriented companies tend to prefer a sprinkler strategy. A water drop strategy is suitable for regiocentrically oriented companies. The company’s risk behaviour also has a major influence on the timing strategy. Since a company that is active in foreign markets cannot exclude a minimum degree of risk despite extensive market research, it makes more sense – from a risk point of view – to develop foreign markets successively, since in this way extensive information can be obtained, corrections can be made and the risk of flops can be limited, whereas with a simultaneous approach failure in some foreign markets is taken into account. Product-related influencing factors also determine the choice of the cross-country timing strategy. Companies that offer products with a short product life should sell them in as many foreign markets as possible in order to be able to amortize the R&D costs more quickly. A sprinkler strategy also makes sense when the competitors are expected to enter the target markets themselves, introducing substitutes and setting technical standards. For example, the Video 2000 system was introduced using a waterfall strategy; despite technical superiority, the system was defeated by the VHS system because the latter was introduced in all important key markets as part of a sprinkler strategy (Waning, 1994, p. 17 ff.). Figure 6 shows an overview of the various influencing factors.

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International Market Entry Strategies

External factors

Company-related factors

Strategy suitable when...

Waterfall strategy

Sprinkler strategy

Water drop strategy

Financial or human resources

low

high

low to medium

International experience

low

medium to high

low

Risk appetite

low

high

low

Internationalisation philosophy

ethnocentric, polycentric

geocentric, regiocentric

ethnocentric, regiocentric

Innovativenness

low

high

low

Market entry barriers

high

low

high

Market entry costs

high

low

high

Intensity of competition

low

high

low

Risk of imitation by competitors

low

high

low to medium

Market dynamics

low

high

low to medium

Innovation rate of the industry

low

high

low

Profitability of a pioneer strategy

low

high

low

Duration of product and technology long cycles

short

long

Homogeneity of markets

low

high

low to medium

Globalisation of the industry

low

high

low to medium

Fig. 6 Factors influencing the transnational timing strategy

Kalish et al. (1995, p. 113 ff.), using a diffusion and game theory approach, demonstrate that a waterfall strategy is preferable under the following conditions: • • • • • • •

the production life cycle is long, the foreign market is comparatively small, the growth rate of the foreign market is relatively low, the foreign market is not very innovative, competitors on the foreign market are weak, competitors behave cooperatively, the entering company has a monopoly position on the foreign market.

3

The Choice of Market Entry Strategy

183

It should be noted that the choice of the timing strategy is closely linked to the choice of the market entry mode and may even determine it. The spectrum of market entry modes to be adopted is limited, for example, if a company intends to develop many foreign markets by means of a sprinkler strategy, since in this case capital-intensive market entry forms must generally be excluded due to limited financial and human resources; in this case, exporting and licensing are more suitable (Wesnitzer, 1993, p. 30).

2.2

Country-Specific Timing Strategies

The second aspect of a timing decision relates to the timing of entry into the individual foreign markets, i.e. the focus is on the question of whether the company should enter a particular foreign market early (pioneer strategy) or late (follower strategy) with respect to its main international competitors (Kutschker & Schmid, 2011, p. 986 ff.). The decision has to consider the environmental and corporate situation in the individual case, but it will largely be based on the company’s intuition and flair as well. Which of the two strategies is preferable is debatable, since a pioneer strategy is not necessarily the better one, as was often assumed in the past. For example, companies such as Hewlett-Packard in the laser printer market – which always gave way to Xerox – or Matsushita (VHS system) were more successful than pioneers (Oelsnitz & Heinecke, 1997, p. 36). The benefits of a pioneer strategy are the gain of market know-how, the early use of experience curve effects and the associated strategic cost benefits, the early establishment of market positions and thus the generation of brand loyalty on the part of consumers as well as the retention of retailers. Disadvantages lie in particular in the high costs of market development and in the fact that market development also benefits the followers (Dahm, 1995, p. 127). It should be noted that the choice of the country-specific timing strategy, like the choice of the transnational timing strategy, may reduce the number of options available for the upcoming market entry. In the former Eastern bloc countries, for example, for later followers the option of acquisition of local companies was largely eliminated or at least reduced, since the most promising domestic companies available after the opening were sold to the pioneers (Heckel, 1997, p. 18).

3

The Choice of Market Entry Strategy

3.1

Theoretical Background of International Market Entry

In order to derive determinants that justify internationalisation in general and the choice of a specific international market entry strategy in particular, there is no universally valid theory of international business in the business management literature; rather, a variety of partly competing, partly complementary approaches have emerged. In the following, selected approaches will be outlined.

184

International Market Entry Strategies

The transaction cost theory goes back to Coase (1937) and was taken up by Williamson (1975). According to the theory, the optimum organizational structure achieves economic efficiency by minimising the costs of exchange. The theory is based on the fact that each economic activity (“transaction”) generates costs. These cover, among others, expenses arising in the information and negotiation phase of a transaction as well as the control and adjustment costs after conclusion of the transaction (Picot, 1982, p. 270). The theory is based on the comparison of the transaction costs when a transaction is settled over the market and the costs resulting from an internal execution (“hierarchy”). On the basis of the transaction costs the enterprise can select the most efficient organisational form of the economic activities. Since the conceptual contribution of Anderson and Gatignon (1986), transaction cost theory has been the concept most often used in international management to explain the choice of market entry mode (see the overview in Schellenberg et al., 2018). If the costs of an external implementation are higher than those of an internal implementation, the firm will try to enter a foreign market through foreign direct investment. The transaction costs depend on the type of transaction, which can be characterised by the following factors (Williamson, 1975, p. 40 ff.; Kutschker, 1992): • • • •

asset specificity, i.e. to what extent transaction-specific investments are required; frequency of exchange; environmental uncertainty (e.g. policy development, regulatory framework); behavioural uncertainty (information and communication behaviour, opportunistic behaviour of market partners) and • complementarity of the partners’ skills.

High specific investments, a high degree of uncertainty and a high frequency of transactions in an international context favour a direct investment strategy, whereas cooperative market entry modes are advisable in the presence of complementary capabilities of the partners. The most benefitous forms of market entry according to transaction cost theory are shown in Fig. 7. An empirical examination at the example of the mechanical engineering industry was conducted by Hildebrand and Weiss (1997). The central result was that the choice of market entry strategy depends essentially on the transaction costs of the transfer of technological and marketing know-how; however, this is relativised by the benefits of cooperation. Hence, strategically relevant advertising and sales investments (transfer of marketing know-how) lead with high probability to a sole ownership strategy; in the case of a high cultural distance to the foreign market in question and a high risk, however, the benefit of cooperation increases, which favours market entry on a cooperative basis (Hildebrand & Weiss, 1997, p. 22 f.). The Uppsala model of internationalisation was developed by Johanson and Vahlne (1977, 1990). The starting point was a number of surveys among Swedish companies, which showed an increasing intensification and expansion of internationalisation activities over time. That is, starting from rather sporadic and unstructured export activities at the

3

The Choice of Market Entry Strategy

Ownership strategy is advantageous when...

100% subsidiary

185

Joint Venture

Market

asset specificity of the investment

high

high

low

frequency

high

low

high

medium

high

environmental uncertainty high behavioral uncertainty

hardly controllable controllable

complementarity of capabilities

one-sided dependence

interdependence

low unproblematic

Fig. 7 Transaction cost-specific comparison of market entry modes. (Source: Adapted from Kutschker, 1992, p. 512)

beginning of the internationalisation process, firms successively move to more management- and capital-intensive forms – up to direct investments. On this basis, the authors developed a process model in which the intensification of international involvement results as the outcome of a learning process in the sense of adaptation to changes in the environment and changes in the company (increase in foreign experience and market commitment). In the course of the process, the psychological distance in the sense of cultural differences between the target markets and the home market increases. Behavioural approaches explain the internationalisation of companies on the basis of the behaviour of decision-makers (motives, attitudes, etc.). In the various approaches, different determinants are taken into account, such as risk propensity, internationalisation philosophy or international experience. These determinants can lead to the fact that an objectively identical initial situation is subjectively evaluated differently and therefore leads to a different decision with regard to the choice of the foreign market entry mode (Wimmer & Wesnitzer, 1993, p. 239). Especially international experience is often used as an explanation for the choice of the market entry mode: while an inexperienced manager will resort to low-risk forms of market entry such as export or licensing strategies, an experienced manager is more likely to consider direct investment. In this respect, there is a link to the Uppsala model, since here too an increase in market knowledge gradually leads to an intensification of international involvement. Within the framework of principal-agent theory, the focus is not on integration by means of an ownership strategy, as is the case with transaction cost theory, but on cooperative forms of market entry such as strategic alliances. Starting point of the considerations is the observation that with an internalisation strategy the enterprise gains in size and complexity. The consequence is that what happens in the company becomes increasingly intransparent. Under these conditions, management increasingly tends to make decisions in its own interest rather than in the company’s interest. This increases the so-called “agency costs”; the consequence is a loss in value of the shareholders’ equity. In the case of a strategic alliance, the problem only arises to a lesser extent: on the one hand,

186

International Market Entry Strategies

such a cooperation is less capital-intensive and directly geared to generating profits; on the other hand, the cooperation is also subject to control by the partner. The theories outlined here and also various other theories of internationalisation (see the overview in Zentes et al., 2013, pp. 8–15) have the disadvantage that they only explain partial aspects of market entry or are only valid under certain conditions. More recently, therefore, there have been increasing attempts to integrate the individual theories. In the framework of the so-called eclectic theory Dunning (1980, 1995) tries to combine aspects of different approaches. According to the eclectic theory, direct investment is successful if the following three conditions are present: ownership benefits, location-specific benefits, and internalisation benefits. Malhotra et al. (2003) take a further step towards integration by combining a variety of theories – market imperfection theory, resource-based view, transaction cost theory, strategic management theory, eclectic theory and network economics – and developing a holistic conceptual framework. Furthermore, they take into account a whole range of moderating effects such as market conditions, global strategic factors, transaction-specific factors and political-legal factors, which influence the form and timing of market entry. Taking the above factors into account allows an explanation of why firms deviate from the expected path of internationalisation.

3.2

The Pre-Selection of Market Entry Strategy

The pre-selection of the market entry strategies is typically based on catalogues of criteria against which the individual entry modes are evaluated. Figure 8 shows an overview of the

Host country factors Cultural distance Country risk Income level and purchasing power Consumer behaviour Market structure Market size Market growth Competitive situation Substitute goods Government influence Type, number and structure of intermediaries Market transparency

Home country factors Home country culture Market volume Market structure Competitive situation

Company-related factors

Transaction-related factors

Overall corporate strategy Internationalisation strategy Competitive strategy International experience Human and financial resources Company size Market position Diversification of product range Cost situation Capacity utilisation

Factor specificity Phase in the international product life cycle Advertising intensity R&D intensity Capital intensity Resource intensity Size of the foreign unit

Fig. 8 Factors influencing the market entry mode. (Source: Adapted from Zentes et al., 2013, p. 280)

3

The Choice of Market Entry Strategy

187

most common determinants of market entry strategy which have been identified in numerous empirical studies. In general, it is advisable to proceed sequentially. In a first step, exclusion criteria are checked which rule out certain forms of entry from the outset. Direct investments, for example, are not suitable in the case of low financial and human resources and little experience abroad. Export strategies require the free movement of goods and capital; hence, import bans in the target country or restrictions on currency transfer rule out an export strategy. Cooperative forms of market entry (cooperations, licenses, joint ventures) require the existence of capable local partners. In addition, it must be checked whether the expected market volume limits the number of available alternatives from the outset. If the target market has only a low market volume and growth potential, the company is more likely to choose export strategies or cooperative forms of market entry. On the other hand, if a high growth rate is expected in the foreign market, the establishment of a subsidiary or the acquisition of a local company should be considered. If competition is intense and growth rates in the foreign market are low, acquisition would be preferable to setting up a new company, since building up one’s own production capacities would create an oversupply (Waning, 1994, p. 237). When choosing an international market entry strategy, it should also be noted that the market entry mode and the financing of the foreign commitment are often closely related, as government agencies strongly influence the decision with incentives, e.g. tax benefits, subsidies, etc. The choice of the market entry mode is also influenced by the fact that the financing of the foreign subsidiary is often not a matter of course. On the one hand, many countries support the establishment and expansion of foreign subsidiaries, for example in order to achieve know-how transfer or to create local jobs. On the other hand, companies that have taken over a domestic company by means of an “unfriendly takeover” are sometimes disadvantaged by being deliberately passed over in the awarding of public contracts (Waning, 1994, p. 238). High tariffs, such as those levied in some countries for luxury goods or to protect their own industry, suggest direct investment. The relevant influencing factors can be incorporated into valuation profiles, scoring models and portfolio analyses, as already described in chapter “International Market Selection”. Since the methodologies have already been presented there in detail, we will not discuss them here. As an example of a scoring model for the pre-selection of market entry strategies, the BERI index can be cited, since the result of the BERI index is not only a weighted total score for the individual countries as a basis for country selection, but also – depending on the score achieved – provides recommendations for the appropriate market entry strategy in each case.

3.3

The Fine Selection of Market Entry Strategy

For the final selection of the market entry modes filtered out in the course of the pre-selection, the company must carry out a detailed profitability analysis. Due to the

188

International Market Entry Strategies

strategic nature of the market entry decision, the net present value method is the most suitable. As already mentioned, such a profitability analysis must, strictly speaking, be carried out for a specific combination of foreign market segment and entry strategy; however, for the sake of clarity, a segment-specific analysis will not be carried out here. In the following, we will show how the net present values can be determined for exports, direct investments, and license agreements (see in detail Perlitz, 2004, p. 190 ff.). Net Present Value of Exports When calculating the net present value of exports (Perlitz, 2004, p. 190 ff.), a distinction must be made as to whether the goods and products to be exported can be produced on existing, underutilised capacities or whether additional investments must be made to build up capacities. If no additional investment is necessary – i.e. if only the variable costs increase as a result of the additional production – the net present value of exports can be determined as follows:

J

NPV 1EX =

T

j=1 t=1

ERt
paEX,t,j - cdv,t,j
xaEX,t,j ð1 þ iÞt


ð1- sEX,t Þ

with NPV 1EX = net present value of exports in the case of underutilized capacities in the home country, ERt = foreign exchange rate in period t (t = 1, . . ., T), paEX,t,j = net price of the product in the host country (“abroad”) in period t for product j (j = 1, . . ., J), = variable costs per unit in the home country (“domestic”) in period t for product j, cdv,t,j xaEX,t,j = export quantity in period t for product j, sEX, t = income-related tax rate in the home country in period t, i = interest rate. If, on the other hand, investments are necessary due to a lack of free capacity, i.e. if the additional production increases fixed costs as well as variable costs, then the net present value of exports is determined as follows: T

NPV 2EX = -

t=0 T

þ t=1

with

I dEX,t ð1 þ iÞt J j=1

ERt
paEX,t,j - cdv,t,j
xaEX,t,j - F dt - Ddt
ð1 - sEX,t Þ þ Ddt ð1 þ iÞt

3

The Choice of Market Entry Strategy

NPV 2EX I dEx,t F dt Ddt

= = = =

189

net present value of exports in the case of domestic investment, expenditure for domestic investment in period t (t = 1, . . ., T), fixed costs in the domestic market in period t, depreciation of assets in home country in period t.

In both equations for calculating the net present value of exports, we assume that both sales and costs correspond to cash inflows and outflows in the same period (with the values having to be modified accordingly if this isn’t the case). The net present value can be affected by different constellations of the environment in the target countries. The turnover of the export business, for example, is positively influenced by export promotion measures such as tax concessions, whereas export premiums, credit facilities, subsidies, lower tariffs in the transport of goods for the export industry, etc. result in a reduction in costs. On the other hand, the net present value is negatively influenced by tariff and non-tariff trade barriers such as maximum (or minimum) import prices in the destination country, import quotas, anti-dumping measures by foreign states, packaging, labelling, safety, hygiene and marking standards, etc., since they can reduce the net present value either because of lower sales (due to tariff trade barriers), or because of higher costs (due to non-tariff trade barriers). Additionally, there are a number of other rapidly changing factors that can make it difficult to forecast future cash in- and outflows and thus to determine the net present value of exports. Net Present Value of Foreign Direct Investment The calculation of the net present value of direct investment abroad (Perlitz, 2004, p. 192 ff.) is considerably more extensive than the calculation of the net present value of exports, since the calculation of the net present value of direct investment abroad may have to take into account several categories of inflows from foreign investment for which the respective net present value has to be determined. Only by adding these individual net present values does the total net present value of the direct investment under investigation result, which enables a comparison with the net present values of other international market entry strategies (e.g. export strategies). In any case, the net present value must be determined from the current business; this is calculated as follows (Perlitz, 2004, p. 194):

NPV FDI T

=

ERt t=1

with

αt


J j=1

xat,j
pat,j -cav,t,j þ

B b b=1 xt,j ∙

pbt,j
ERbt -cav,t,j

ð1þiÞt

-F at
1-saFDI,t

190

International Market Entry Strategies

NPVFDI = net present value of profits from current operations, αt = capital share of the parent company in period t (t = 1, . . ., T), xat,j = sales of product j (j = 1,. . . J) in the host country by the company abroad in period t, = export quantity of product j to third country b (b = 1, . . ., B) by the company xbt,j abroad in period t, pat,j = net price of product j in the host country in period t, = export price of product j to third country b in period t, pbt,j a = variable costs per unit in the host country in period t for product j, cv,t,j F at = fixed costs in the host country in period t, = exchange rate for foreign currency in the host country in period t, ERt = exchange rate for third country b against the currency in the host country in ERbt period t, saFDI,t = tax rate with respect to the host country in period t. We assume here that the sales in the period in which they are generated lead to cash inflows and that the additional variable and fixed costs (excluding depreciation) lead to cash outflows. Furthermore, restrictions that can influence the amount of the net present value must also be taken into account here, such as restrictions on equity investment or voting rights, production and sales restrictions, minimum or maximum price restrictions or specified export quotas to third countries. In addition, payment surpluses can arise from the following transactions – this must be examined in each individual case: • • • • •

synergy effects from the acquisition of an existing company, export of input materials and/or other products of the company, technology contracts with foreign companies, import of products of the foreign company, payment surpluses that would be lost without direct investment abroad.

The calculation of the corresponding net present values is described in detail in Perlitz, 2004, p. 195 ff. Net Present Value of Licensing For the calculation of the net present value of licensing it is irrelevant whether it is a property right license, a know-how license or a franchise license. The decisive factor for the calculation of the net present value is rather the type of royalty contractually agreed. As an example, we show net present value formulas in the case of a flat-fee (initial) royalty and in the case of an initial royalty plus a turnover-based royalty. The formulas shown below apply to one licence product only; in the case of more than one product they have to be

3

The Choice of Market Entry Strategy

191

modified accordingly (see in the following as well as for NPV formulas for other types of royalties Perlitz, 2004, p. 209 f.): 1) in the case of a flat-fee royalty (P) T

NPV PTECH =

t=1

ERt
Pt - C IL,t
ð1 - sTECH,t Þ ð1 þ iÞt

;

2) in the case of a flat-fee royalty (P) plus a turnover-based royalty (lU) T

NPV U TECH =

t=1

ERt
Pt þ ERt
xaU,t
paU,t
lU,t - C IL,t
ð1 - sTECH,t Þ ð1 þ iÞt

with NPV PTECH = net present value of profits from licensing with a flat-fee royalty, = net present value of profits from licensing with a flat-fee royalty plus a NPV U TECH turnover-based royalty, Pt = flat-fee royalty in foreign currency in period t, xaU,t = sales by the licencee in the host country in period t, a pU,t = net price of the product in the host country in foreign currency in period t, = costs incurred by the technology provider for licensing in period t in C IL,t domestic currency, sTECH, t = tax rate applicable to the technology provider in period t, lU, t = turnover-related royalty in foreign currency in period t. In applying these formulas we assume that the royalties are collected and taxed by the licensor in the year in which they arise. In addition to the royalty fees, restrictions imposed by the licensor on the licensee, such as territorial restrictions, price restrictions, quantity restrictions, purchase obligations (e.g. of raw materials and commodities), export bans to third countries, distribution channel restrictions, grant-back clauses, etc., which can have both a positive and a negative impact on the net present value, have a significant influence on the net present value of licensing. If a company planning market entry has calculated the net present values for the international market entry modes under consideration after the rough analysis, it can draw up a priority list for the different market entry modes and evaluate and compare their expected profitability. Including different entry times for the selected country markets in the NPV calculation additionally allows the evaluation of individual timing strategies. When estimating the cash flows as input data for the net present value calculation, however, it must be taken into account that the in- and outflows depends to a large extent on the chosen market development strategy (see chapter “International Market Development

192

International Market Entry Strategies

Strategies” in this Part III); the forecast of future cash flows should therefore be based not only on alternative market entry strategies but also on alternative market development strategies. The complexity of the decision-making situation and the large number of variables to be estimated – some of which involve risk – make it advisable to support the decision-making process with the aid of risk analyses (see chapter “International Market Selection” in this part).

4

Empirical Findings

Which market entry strategies are chosen by companies under which conditions is the subject of several empirical studies. For the German-speaking countries, for example, the study by Ferring (2001) should be mentioned, which dealt with international market entry strategies and market development strategies of retail companies. 150 leading internationally active trading companies were surveyed. With regard to the choice of strategy, the following key findings were obtained (Ferring, 2001, p. 234 ff.): • In general, the most frequently chosen market entry mode is direct investment by establishing branches abroad; the other forms (acquisition, merger, participation, joint venture and franchising) play a rather subordinate role overall. • The importance of establishing branches is highest in the USA, followed by Eastern Europe and Asia. • Acquisitions in the USA, Western Europe and Asia are comparatively important in a regional comparison. • Franchising is most important in Asia, followed by Western Europe. The following significant influencing factors have been identified for the choice of market entry strategy (Ferring, 2001, p. 238 ff.): • For the establishment of new branches, the availability of personnel and achievable time benefits are particularly decisive, followed by simplification of control and cost or risk reduction. • Relevant influencing factors for acquisitions are in particular time benefits, transfer of know-how as well as cost and risk reduction. • Time benefits, transfer of know-how and availability of personnel or partners are of particular importance for investments. • Important determinants of franchising are the availability of franchise partners, the acquisition of market-specific know-how and the reduction of costs or risks. • For joint ventures (with start-up or on a purely contractual basis), the main factors are the acquisition of know-how, the achievement of time benefits and, equally important, the availability of cooperation partners and cost or risk reduction.

4

Empirical Findings

193

The subject of the study by Nienaber (2003) was the internationalisation strategies of small and medium enterprises (SME); 650 German SME from various sectors and of various sizes were surveyed, with an evaluable response rate of 12.6%. The study led to the following results with regard to the choice of strategy (Nienaber, 2003, p. 194 ff.): • German SMEs most frequently implement export strategies, followed by direct investments. Contractual cooperation strategies such as franchising, licenses and management contracts play a rather minor role. • Neither industry affiliation nor company size are significantly related to the choice of strategy. The following relevant influencing factors were identified for the choice of individual market entry strategies (Nienaber, 2003, p. 210 ff.): • For the choice of indirect export, the winning of new markets, a high intensity of competition abroad as well as the securing of developed markets play a major role. • Direct exports are favoured by the existence of highly developed products, the possibility of securing developed markets and the existence of in-house know-how. • For export cooperations, the winning of new markets, political stability as well as internal company know-how are of above-average importance. • Political stability also plays a major role for franchising; however, the risk of know-how loss and product imitation are seen as significant barriers. The same determinants apply, in the same order, to management contracts. • The risk of product imitation is considered to be particularly significant for licence agreements, followed by the risk of loss of know-how. Political stability also plays an important role for license agreements. • Political stability is also crucial for joint ventures, but the risk of know-how loss is also significant. The extent of in-house know-how also plays a major role. • As expected, political stability is a knock-out criterion for wholly owned companies; other important factors are the existence of in-house know-how and the presence of highly developed products. There are numerous international studies on the empirical relevance of individual factors influencing the choice of market entry mode, e.g. Kim and Hwang (1992), Agarwal and Ramaswami (1992) and the meta-analysis by Morschett (2007). For internationalization decisions in emerging markets, Malhotra et al. (2009) found that cultural and geographic distance have a significant positive impact on the number of international acquisitions. The market potential of the target country has a significant moderating effect and may compensate for distance factors. A theoretical analysis that simultaneously takes into account the form and timing of market entry can be found in Pennings & Sleuwaegen, 2004. The relevant factors influencing market entry are named as follows:

194

• • • • •

International Market Entry Strategies

uncertainty regarding future profits, tax differences between home and host countries, comparative cost benefits of local companies, institutional requirements and extent of cooperation between the partners involved in a joint venture.

Another group of studies examines the importance of the market entry mode for the internationalisation performance, including Pan et al., 1999, Brouthers et al., 2003, Homburg & Bucerius, 2006, Chang et al., 2013. Research on determinants and success factors of market entry modes has a long tradition; accordingly, several publications now deal with the state of the art of international research on this topic. For example, the meta-analyses by Morschett (2007), Morschett et al. (2010) and Zhao et al. (2017) should be mentioned here. A comprehensive and up-to-date literature review is provided by Schellenberg et al. (2018) and Shen et al. (2017). Zentes et al. (2013, p. 240 ff., 245 ff., 252 f., 260 f., 267–272) provide extensive overviews of studies on success factors of the various market entry modes, so that only selected recent studies (since 2010) are outlined here in Table 1. With regard to the timing of market entry, the study by Nienaber showed the following results (Nienaber, 2003, p. 283 ff.): • German SMEs generally prefer the waterfall strategy, i.e. successive market entry; this applies in particular to small SMEs; the water drop strategy comes second, while the sprinkler strategy (simultaneous market entry in all countries) is considered least suitable. • Only companies in the mechanical engineering sector assign a comparatively high importance to the sprinkler strategy. Most studies on country-specific timing strategies show that early market entry creates pioneer benefits (see the overview in Lieberman & Montgomery, 1998), as it allows to build up resources and capabilities early on. Delios and Makino (2003) explicitly examine resources as a moderating factor for the success of foreign market entry; in contrast to previous studies, they also explicitly consider unsuccessful foreign market entries. The authors achieved the following key findings: • Companies that pursue a pioneer strategy fail more often in the market than followers. • On the other hand, pioneers who have been successful in one foreign market perform better than followers. • The extent of these effects varies depending on the resources of the company (R&D, advertising, distribution).

4

Empirical Findings

195

Table 1 Selected studies on the choice of international market entry form Authors Morschett et al. (2010).

Brief characterisation of the study Meta-analysis of 72 independent studies on the determinants of the choice of market entry mode.

Lòpez-Duarte and VidalSuárez (2010).

Influence of external uncertainty (political risk, cultural distance) on the choice of market entry mode (wholly owned company vs. joint venture) Data basis: 334 direct investments of listed Spanish companies in the period 1989–2003

Nielsen and Nielsen (2011).

Influence of international experience and nationality of top management on the international market entry mode Data basis: 165 listed Swiss companies

Schwens et al. (2011)

Influence of informal institutional distance between home and target countries and formal institutional risk in the target country as moderators of the relationship between determinants and choice of market entry mode of SMEs. Data basis: 227 German SMEs

Maekelburger et al. (2012).

Moderating influence of factors to reduce internal uncertainty (knowledge safeguards) and external uncertainty (institutional safeguards) in the relationship between factor specificity of investment and choice of entry mode. Data basis: 206 German SMEs

Key findings A high power distance in the home country favours market entry in the form of wholly owned companies. Country risk, legal restrictions, market growth and market size of the target country, on the other hand, tend to favour cooperative forms of market entry. Joint ventures tend to be preferred to wholly owned companies when both the political risk and the cultural distance are large. However, this is only the case if there are no language barriers between the partners. In the presence of language barriers, joint ventures are less suitable for reducing external uncertainty. A large international experience of the top management favours market entry as a wholly owned company. A heterogeneous international composition of top management favours cooperative forms of international market entry (joint ventures). High risk in the target country strengthens the positive influence of international experience on the choice of a direct investment strategy. A high informal institutional distance and formal institutional risk strengthens the positive relationship between the presence of proprietary know-how and the preference for a direct investment strategy. In the presence of knowledge safeguards (international experience, networks and imitation of best practice competitors in the target country) as well as institutional safeguards in the target country (protection of intellectual property, great cultural proximity to the home country), the positive influence of factor specificity of investments on the choice of a direct investment strategy as a form of market entry is weakened. (continued)

196

International Market Entry Strategies

Table 1 (continued) Authors Parola et al. (2013).

Brief characterisation of the study Factors influencing the form of market entry for infrastructural services (soft services) Data basis: 416 market entries in 80 countries

Musso and Francioni (2014)

Internationalisation process of SMEs in relation to market selection and choice of market entry mode Data basis: 221 Italian SMEs

Swoboda et al. (2015)

Influence of the choice of market entry mode in the past on subsequent market entries Data basis: 309 market entries of the largest retail companies in the period 1960–2008.

Zhao et al. (2017).

Meta-analysis of 44 independent international studies on the influence of market entry mode on firm performance.

Key findings The choice of market entry in the form of a wholly owned company is internally favoured by the availability of resources, importance of local market knowledge, high geographical diversification, and pursuit of aggressive growth strategies. External influencing factors are in particular size of the home market, size of the target market, reliability of the political-legal framework. A joint venture is favoured, among other things, by a high number of potential local partners. The results are generally consistent with those of studies among manufacturing companies. Both in market selection and in the choice of market entry mode, the approach of SMEs is not very systematic and usually passive. In particular, SMEs tend to conduct market selection and the choice of market entry mode simultaneously. A sequential approach is associated with greater structuring of the internationalisation process. The more frequently a market entry mode was chosen in the past, the more likely it will also be chosen for later market entries. The relationship is moderated by the political distance of the target country from the home country, the international experience of the company and the speed of internationalisation. Studies based on transaction cost theory generally show a positive correlation between market entry modes with high control (wholly owned companies, majority joint ventures) and success. Alternative theoretical explanations lead to contradictory results. Most studies look at financial success factors and focus on direct investment. (continued)

References

197

Table 1 (continued) Authors

Brief characterisation of the study

Key findings Wholly owned companies have the strongest positive influence on corporate success. The identified moderating factors were the industry, the time span of the database used, the data source and the age of the subsidiaries.

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International Market Development Strategies

Abstract

International market development strategies define the framework for the use of marketing instruments in the targeted country market segments; they thus determine the long-term positioning of the company and its strategic business areas in the targeted foreign markets. An international market development strategy includes decisions on three levels: • fundamental strategic orientation, • international basic marketing strategy and • international business area strategy.

1

Fundamental Strategic Orientation

The fundamental strategic orientation is based on an analysis of the individual country market segments and determines at company level which strategies are to be adopted for the various international business segments. International marketing planning at the corporate level has the following tasks: • choosing the markets where the company will be present and deciding which products and services are to be offered in each market segment; • creation of a target portfolio in order to formulate objectives for the individual business areas and priorities for the allocation of resources; • determining the position of the company in the market, in competition, in society, etc.

# The Author(s), under exclusive license to Springer-Verlag GmbH, DE, part of Springer Nature 2023 R. Berndt et al., International Marketing Management, https://doi.org/10.1007/978-3-662-66800-9_8

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International Market Development Strategies

Germany

C

low

high

A

B

A

low

Market attractiveness

high

B

D low

Market attractiveness

USA

high

C

low

Relative competitive advantage

D

high

Relative competitive advantage

Products/SBA

Fig. 1 Product portfolios for two countries

The basis for these strategic decisions is the positioning of the individual Strategic Business Areas (SBAs) in the country market portfolios (see chapter “International Market Selection” in this part); on this basis, business strategies can be formulated at the corporate level for the individual business units, which are to be specified in more detail within strategic planning at business unit level. Figure 1 shows exemplary portfolios for two countries. In the example, the SBAs are defined by the products/services offered by the company; the individual products are positioned by means of the multidimensional constructs “market attractiveness” and “competitive advantage”, which are determined as the weighted sum of the values of the individual variables of the respective dimension. The size of the circles indicates, for example, the share of each product or strategic business area in total sales or its contribution to the company’s total profit. By comparing the portfolios of the individual countries, it is possible to decide which products or services should be expanded in which markets, which should be maintained and which should be abandoned. Depending on the position of the SBAs in the company portfolio, the following strategies are recommended (Berndt, 1996, p. 87 ff.): • The first quadrant (lower left area of the portfolio matrix) contains SBAs with low market attractiveness and a weak competitive position (dogs). In the example, this applies to product C in both country markets; hence, this product should be eliminated from both country portfolios.

2

International Basic Marketing Strategies

203

• The lower right section of the matrix contains SBAs with a strong competitive position but low market attractiveness. They are usually referred to as cash cows, as they generate cash flow that can be used to finance the growth of other SBAs. In the example, this is the case for product D in both country markets. For cash cows, a harvesting strategy is appropriate with the goal of maximizing cash flow without significant resource input. • The future development of SBAs with a weak competitive position in an attractive market (“question marks” in the upper left area of the matrix) depends on the resources invested in them. The question marks have to be analysed carefully, as they require large additional cash investment to increase their market share. If this repositioning to a “star” is successful, an investment and growth strategy should be adopted; if this is not possible, they should be divested or liquidated. In the example, this is the case for product A on the German market. • SBAs with a strong competitive position in attractive markets (in the upper right-hand area of the matrix) are referred to as “stars” and represent the company’s future profit potential. However, to finance their growth, they initially consume more resources than they generate themselves; the necessary funding must therefore be generated by the cash cows. In the example, product A in the USA and product B in both country markets have the position of stars and should be further expanded. The business strategies formulated on the basis of the portfolio analysis merely indicate the strategic thrust for the individual business areas from the company’s perspective; as part of the formulation of international business area strategies, they have to be specified and concretized for the individual strategic business areas according to the dimensions strategy variation, strategy style, strategy substance and strategy field. In the classic portfolio analysis, the focus is on the market; however, appropriate strategic action is only possible if the resource perspective is adequately taken into account (Bea & Haas, 2017, p. 166). The formulation of strategies at business unit level must also take into account the chosen international basic marketing strategy “standardisation vs. adaptation”.

2

International Basic Marketing Strategies

2.1

Overview

The international basic marketing strategies range between the two extreme options “standardisation” and “adaptation” and define the extent to which marketing programs and marketing processes are standardised across countries. As a rule, this basic decision is also made at the company level. Since the 1960s, the topic of international marketing has been shaped by the discussion of “standardisation vs. adaptation (or differentiation)” (Buzzell, 1968). The abundance of publications that has been produced in the meantime shows that the interest is still unbroken; in particular, at the beginning of the 1980s the discussion was

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International Market Development Strategies

Strategy level

Instrument level

Programs

Marketing strategy

- Physical product - Branding - Communication - Distribution - Pricing

Processes

- Marketing information systems - Marketing planning systems - Marketing controlling systems - Marketing personnel systems

- Product planning - Advertising planning - Sales planning

Fig. 2 Areas of marketing standardisation. (Source: Bolz, 1992, p. 10)

revived by Levitt (1983). The decision problem “standardisation or adaptation” is still one of the central strategic aspects of international marketing. Closely related, but not exactly the same, is the discussion “globalisation vs. localisation”. Standardisation involves a cross-national uniform planning and realisation of marketing activities; in this context, a distinction must be made between two aspects which can be pursued independently or simultaneously (Sorenson & Wiechmann, 1975; Kreutzer, 1985, p. 146; Jain, 1989, p. 71): • standardisation of marketing programs, and • standardisation of marketing processes. While standardisation of marketing programs concerns the general marketing strategy as well as the individual marketing instruments, process standardisation includes the standardisation of structures and processes of marketing decisions (Bolz, 1992, p. 9 ff.). Figure 2 shows the different areas of marketing standardisation.

2.2

Standardisation Versus Adaptation of Marketing Programs

In the context of marketing program standardisation, the entire marketing strategy or individual elements of the marketing mix are applied uniformly worldwide. Examples of a – largely – standardised overall strategy are Coca-Cola, Levi’s and Benetton. Program standardisation is favoured by the following factors, among others (Jain, 1989, p. 71 ff.; Kreutzer, 1985, p. 144 f.): • emergence of global markets through homogenisation of consumer needs, especially in the Triad countries, • same phase of the product life cycle in the individual target markets, • low culture-boundness of the products,

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205

• minor differences in the economic, socio-cultural, legal and geographical-infrastructural conditions in the target markets, • ethnocentric or geocentric internationalisation philosophy, • centralised organisational structures, • intensification of price competition in many markets with resulting rationalisation efforts, • globalisation trends in the media and information sector. On the one hand, a standardisation of the marketing program is often realised by those companies that pursue a so-called international marketing strategy as an expression of an ethnocentric orientation (Meffert, 1985, p. 3). This is typical for an early stage of internationalisation; the activities focus on the home market, the activities abroad take place predominantly in the form of exports. The marketing concept is transferred largely unchanged, initially to those countries that show a high degree of similarity with the home market (waterfall strategy). On the other hand, however, standardisation is also found in geocentrically oriented companies that pursue a global strategy (Meffert, 1991). In this case, the marketing concept is developed from the outset for the world market, a countryspecific optimisation doesn’t take place in favour of a global optimisation. Nissan, for example, has abandoned the brand name Datsun, which previously had been successfully introduced in many countries, in order to be able to implement a worldwide uniform Nissan campaign (Kreutzer, 1985, p. 144). The aim of this strategy is to improve international competitiveness by integrating and coordinating all corporate activities into a coherent overall system. The subsidiaries no longer operate independently on a purely national level, but rather operate worldwide collaboratively with the goal of global optimisation. This is accompanied by a decoupling of the value chain, i.e. in each local company only parts of the value creation process are realised – namely those for which either core competencies or comparative cost advantages are available in the country in question (Bridgewater & Egan, 2002, p. 87). A globalisation strategy goes further than mere standardisation in terms of content: it is directed not only at the market but also in-house (Kreutzer, 1987, p. 167 f.), i.e. it encompasses not only the marketing area but also all management functions. Benefits of a program standardisation are (Meffert, 1989, p. 447; Meffert & Bolz, 1995, p. 100 ff.): • • • •

cost savings by exploiting volume, specialisation, and learning effects, supporting a global corporate identity, facilitating global optimisation of marketing activities, increasing customer benefit through uniform standards (e.g. in the computer industry).

The lack of consideration of country-specific consumer needs and – associated with this – sales losses as a result of an inadequate target group-specific address is, however, an obvious disadvantage. This makes it clear that there are limits to a complete standardisation, resulting on the one hand from different cultural, legal and technological

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market conditions, and on the other hand from internal organisational conditions such as the extent of decision delegation in multinational companies (Paliwoda & Thomas, 1998, p. 361 ff.). Thus, if comparatively independently operating subsidiaries exist, the implementation of a standardisation strategy may encounter considerable resistance. According to a study by Kashani (1990), however, such resistance can be overcome by the following factors (Kashani, 1990, p. 752 ff.): • presence of promoters in management, • presence of positive test results, • involvement of the subsidiaries in the decision-making process, e.g. by forming internationally staffed teams, • maintaining a minimum degree of flexibility to take account of country specificities. Adaptation – or differentiation – of marketing programs results from a polycentric management orientation and involves a country-specific adaptation of the marketing concept. A full adaptation strategy implies that the individual country markets are largely worked independently of each other. Adaptation is mainly carried out in those companies that pursue a so-called multinational marketing strategy (Meffert, 1985, p. 4; Meffert, 1989). A globally optimal strategy is deliberately neglected here in favour of different nationally optimal strategies; the market is strongly segmented both internationally and intranationally. The subsidiaries have extensive decision-making powers, the parent company predominantly assumes coordination functions with regard to the achievement of the global corporate goals (see chapter “Internationalisation and International Marketing Management” in Part I). The main benefit of local marketing adaptation is the consideration of country-specific factors and consumer needs, which leads to higher sales. The disadvantages are the higher costs of market cultivation, the greater coordination effort and the risk of creating a diffuse international image. The two alternatives “standardisation” and “adaptation” are merely extreme points on a continuum and are rarely encountered in pure form; in practice, mixed strategies often prevail. In recent years, the trend in many companies has been towards segment-oriented standardisation, e.g. according to regions or according to transnational target groups (see chapter “International Market Selection” in this part). The discussion “globalisation vs. localisation” is thus increasingly being displaced by the question of the appropriate international target group definition, segmentation approach, and selection. In many cases, only selected marketing instruments are standardised, e.g. product characteristics, brand name, communication, and the remaining marketing mix, e.g. distribution channels or prices, are adapted locally. In principle, all elements of the marketing mix can be the object of standardisation. Standardisation of international product management involves offering the same products, unmodified except for minor adjustments, in all country markets; prerequisites are:

2

International Basic Marketing Strategies

207

• the existence of similar needs worldwide, or at least in the regions and economic areas covered, • a low degree of culture-boundness of the products, as well as • a worldwide – or at least region-wide – brand awareness. Product standardisation can take the form of an unmodified transfer of the product concept to foreign markets (in the case of an ethnocentric internationalisation philosophy) or the development of global products for the world market (in the case of a geocentric internationalisation philosophy). An adapted product strategy involves on the one hand a country-specific adaptation of the existing product concept and on the other hand the development of new, specific products for the foreign markets (country-specific product innovation). It is precisely through product standardisation that considerable cost savings can be achieved in R&D and production; however, cost savings can also be achieved through modular construction in the sense of component standardisation as part of a differentiated strategy (Kreutzer, 1985, p. 150). In the context of international pricing, the following options exist in principle (Sander, 1997, p. 83): • • • •

standardised strategy, dual pricing strategy, differentiated strategy, and price corridor strategy.

A standardised strategy results in uniform prices in all targeted markets; Swatch’s pricing strategy can be cited here as an example. The disadvantage of not taking into account country-specific differences, e.g. willingness to pay, is offset by the advantages of building up a uniform price image across countries, avoiding uncertainty or annoyance among customers, and reducing intra-company competition and the extent of grey markets. Under a dual pricing strategy, domestic prices are calculated on a full-cost basis, whereas export prices are calculated on a marginal-cost basis; hence, they even may be lower than domestic prices. Obviously, there is a risk of dumping here. This strategy is suitable particularly for ethnocentrically oriented companies which regard export activities merely as additional business. A differentiated strategy implies a regional or local price differentiation and aims at skimming off consumer surplus in the individual country markets; thus, it corresponds to a demand-oriented price determination. However, due to the interdependence of markets, this strategy has its limits (Czinkota & Ronkainen, 2013, p. 463). Finally, the price corridor strategy involves a synthesis of standardisation and differentiation (Simon & Wiese, 1992, p. 476 ff.). Starting from a reference price (e.g. domestic price), a bandwidth is defined within which the prices demanded in the individual countries may move. In this way, a certain degree of price standardisation is ensured, while at the same time allowing flexibility with regard to country-specific characteristics such as local willingness-to-pay.

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International Market Development Strategies

Various options are also available in the context of international communication (Kanso, 1992; Berndt et al., 1995). Within a standardised strategy, the same communication concept is used in all the country markets served – with the exception of any necessary linguistic adaptation. To avoid linguistic problems, text is often omitted, or a – usually short – English-language text is provided with subtitles in the national language, as in the Levi’s TV advertisement 2019. The prerequisite for this is the existence of global markets and uniform target groups in the various countries. In the case of an adapted strategy, the company implements country-specific communication concepts; this strategy may be required in the case of strong cultural differences between the individual countries. In addition to these two extreme positions, there are numerous gradations, e.g. • the specification of an international umbrella campaign, which can be concretised on a country-specific basis (one example is Mercedes’ international social media umbrella campaign entitled “Grow up” from 2017), or • the realisation of a standardised advertising campaign, which is supplemented by country-specific sales promotion measures (example: Swatch). The benefits of standardisation are lower production costs of advertising materials, the possibility of using international media and the achievement of an internationally uniform image; the main disadvantage is the lack of consideration of cultural differences and different consumer habits (Meffert & Waltermann, 1986; Szymanski et al., 1993). Of all the marketing instruments, distribution offers the least scope for standardisation; this is due in particular to the sometimes considerable differences in distribution structures in the individual countries and to different purchasing habits on the part of consumers. Standardisation can be realised, however, through direct distribution or contractual distribution systems such as franchising (see chapter “International Market Entry Strategies” in this part).

2.3

Standardisation Versus Adaptation of Marketing Processes

The importance of marketing processes is obvious for multinational companies with comparatively autonomous subsidiaries, which face the need to coordinate information, planning, and control processes across countries in order to implement the corporate internationalisation strategy. However, companies with less capital- and managementintensive international activities are also frequently confronted with the question of the extent to which a standardisation of marketing processes can contribute to increasing efficiency. Process standardisation implies the uniform structuring of the tools needed for developing and implementing marketing programs such as information, planning, and control processes (Townsend et al., 2004, p. 7; Jain, 1989, p. 71). Such processes include (Kreutzer, 1987, p. 168):

2

International Basic Marketing Strategies

Process standardisation

209

Formalised guidelines

Process adaptation

Degree of freedom of task fulfillment

Degree of regulation of task fulfillment

Routine behaviour

Adaptive behaviour

Innovative behaviour

Fig. 3 Continuum of international marketing process standardisation. (Source: Adapted from Kreutzer, 1987, p. 168)

• structures and approaches for developing, enforcing and controlling marketing concepts, • information and management processes, • personnel selection and development processes. As already pointed out in the context of standardisation of marketing programs, the options “process standardisation” and “process adaptation” are extreme points on a continuum (see Fig. 2). We distinguish between the following intensity levels of a process standardisation (Kreutzer, 1987, p. 168) (Fig. 3): • Process standardisation: The marketing processes are standardised as far as possible, the individual employee has hardly any possibility to intervene in the sequence and design of activities. This results in a so-called routinized behaviour. • Guidelines: The headquarter gives formalised guidelines for process design, but the ultimate design is left to the employee; this is intended to achieve so-called adaptive behaviour. • Process adaptation: In this case, standardisation is avoided as far as possible in order to achieve innovative behaviour among employees. Within the different types of marketing processes, there are many possibilities for standardisation. Marketing information systems are of particular importance. This includes both internal and external information flows and processes in connection with international market research. Standardisation of internal information processes is based on

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the company language, the form of information transfer, information channels, etc.; media such as business TV, intranet and extranet are important in this context. Standardisation of external information collection, on the other hand, involves standardising survey methods and evaluation procedures in order to achieve cross-national comparability of market research results (see chapter “International Market Research” in Part II). Standardisation of marketing planning and control processes results in the specification of uniform planning and control guidelines for the areas of strategy generation as well as for the planning of objectives and actions. This includes, for example, a standardisation of planning procedures (e.g., uniform planning systems for product development or for planning advertising campaigns), of budgeting procedures, uniform control instruments such as key performance indicators or profit and loss statements as well as uniform tolerance limits for deviation analyses. The goal is a cross-national advance coordination of decentralized activities (Sorenson & Wiechmann, 1975). By using globally standardised procedures for personnel selection and development, the company can achieve an internationally uniform corporate behaviour. This applies in particular to managers who have to propagate the corporate mission worldwide; it also facilitates international cooperation. This strategy is implemented at Procter & Gamble, for example, through an appropriate staffing policy (Kreutzer, 1987, p. 172). The international corporate behaviour can be supported by appropriate personnel development measures, e.g. by uniform management and further training programmes, global job rotation, institutionalised discussion groups, etc. The main benefits of process standardisation are (Kreutzer, 1985, p. 173 ff.): • the realisation of economies of scope through the use of common resources in different countries, e.g. planning and control concepts, • improving coordination and integration of the cross-border activities of the company or its subsidiaries, • improving the transfer of know-how by institutionalising and standardising the flow of information, • faster implementation of new concepts and strategies in the individual foreign branches. The main disadvantages of process standardisation are • the risk that employees feel hindered in their freedom of decision-making by rigid schemes and react in a demotivated manner; this also affects the managers “on site”, whose scope for decision-making is restricted; • a low degree of flexibility, which, for example, inhibits creativity in the development of new products or advertising campaigns; • a strong conformity, which prevents so-called “productive conflicts”; • the emergence of “not-invented-here” problems in the foreign branches due to overly rigid specifications by the company headquarter.

3

International Business Area Strategies

3

International Business Area Strategies

3.1

Overview

211

International business area (or segment) strategies define the positioning of the Strategic Business Areas (SBAs) in the international environment. This results in the behaviour of the corresponding Strategic Business Units (SBUs) towards competitors, customers and sales intermediaries in the international markets, i.e. the way in which the strategic business units act in the individual country markets in order to contribute to the long-term achievement of the overall corporate goals. In principle, the following starting points can be used to develop an active positioning (Tomczak et al., 2014, p. 160 ff.): • Outside-in orientation: First, an attempt is made to identify latent needs – at least in the key markets – for the international target groups; innovative problem solutions are then developed for these needs. • Inside-out orientation: Starting from the company’s resources (e.g. core competencies), innovative problem solutions are developed for which customers with corresponding needs are subsequently identified. However, lasting competitive advantages can usually only be realised if the external market perspective is integrated with the internal resource orientation. In this stage, the international basic marketing strategy at the corporate level is concretized for the individual business areas; this is done by defining the following key elements (Tomczak et al., 2014, p. 167 ff. and Fig. 4): • • • •

strategy variation, strategy style, strategy substance, and strategy field.

The strategy variation determines the extent to which the company has to change the marketing strategy pursued in the individual country market segments; the options range from maintaining the previous market position to completely repositioning the business segment under consideration. The strategy style describes the behaviour towards the international and local competition on the individual country markets: on the one hand, whether offensive or defensive, on the other hand, whether innovative or conventional. The strategy substance defines the benefits to be offered to customers – performance benefit vs. price benefit. Finally, the strategy field denotes the extent of market coverage, i.e. whether the company addresses the overall market or one or more market niches. The

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Strategy variation To what extent should the company change the current marketing strategy in the individual country markets? Strategy style

Strategy substance

Which competitive behaviour towards the competitors in the individual country markets should the company choose ?

What benefits should the company offer to customers in the individual country markets?

Strategy field Which target groups should the company focus on in the individual country markets?

Fig. 4 Elements of an international business area strategy. (Source: Adapted from Tomczak et al., 2014, p. 167)

overall business area strategy is thus a combination of the characteristics of the individual elements (see Fig. 5).

3.2

Strategy Variation

A variation of the previous marketing strategy is always necessary when shifts in demand, technical progress or actions by competitors impair the success of the previous strategy. In detail, three typical behaviours can be distinguished (Haedrich et al., 2003, p. 61 ff.): • maintaining the market position, • repositioning, and • new positioning. Maintaining the market position is recommended if the previous strategy sufficiently satisfies the needs of the target group and the target group is economically viable. The

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Strategy variation

Strategy style

Strategy substance

Strategy field

Mantaining the position

213

Repositioning

New positioning

Offensive competitive behavior

Defensive competitive behavior

Innovative competitive behavior

Conventional competitive behavior

Preference strategy

Price-volume strategy

Total market

Niche

Fig. 5 Business area strategies. (Source: Adapted from Tomczak et al., 2014, p. 192)

central effort in this case is to maintain the core target group(s). Essentially, the aim here is to improve market penetration, i.e. to increase the efficiency of market cultivation while maintaining the existing products and markets. This is achieved on the one hand by intensifying sales efforts and on the other hand by rationalisation measures, e.g. in the production area. Changes here only take place at the instrumental level, e.g. adapting the packaging to fashion trends or updating the advertising campaign (Tomczak et al., 2014, p. 168 f.; Esch, 2019, p. 214). Maintaining the strategy position in all country market segments is only possible when no major changes have occurred in any market that threaten the success of the previous strategy. It should be noted that maintaining the position in all country markets may well go hand in hand with differentiation at the marketing mix level, as a certain positioning might be achieved in different ways due to situational differences in the individual country market segments. In the context of repositioning, the previous target group is also maintained in principle, but there is also a certain shift or expansion of the target group. Reasons for this can be changes in the attitude of the previous target group, a too small size of the market segment or the imitation of the strategy by the competitors. As a consequence, the marketing strategy has to be modified in such a way that the needs of marginal target groups are also satisfied (Tomczak, 1989, p. 118). It is obvious that the previous marketing mix also

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has to be varied, for example by product differentiation (if necessary in connection with price differentiation), opening up new distribution channels such as consumer markets if up to now only selective distribution channels were supplied, etc. Seat Tinkers with Repositioning

With new models and a repositioning of its brand, Audi’s Spanish subsidiary Seat wants to appeal to broader customer segments in the future. “We don’t just want to be seen as sporty, but also as lively and comfortable,” Marketing and Sales Director Giuseppe Tartaglione told the industry newspaper “Automobilwoche”. Thus, in addition to horsepower-hungry young men, families are to be increasingly addressed. [. . .]. Seat no longer wants to be just an “entry-level brand” for Audi, Tartaglione said. The brand, which serves the youngest target group in the VW Group, does not want to hand over aging customers to Audi in the future, he said, but wants to retain them with new products. [. . .]. Source: Horizont, 2006 ◄ At the international level, repositioning means that a strategy modification and/or a target group expansion takes place in one or more country market segments. Within the framework of a standardised international basic strategy, this can mean that a certain degree of country-specific differentiation is permitted in order to be able to react flexibly in the individual country market segments. The form in which new target groups are added depends to a large extent on the form of international market segmentation practised (see chapter “International Market Selection” in this part): in the case of intramarket segmentation, completely different target groups can be added from country to country depending on the specific situation, which reinforces the trend towards international differentiation; in the case of intermarket segmentation, it makes sense to add one or more further crosscountry target groups – for example, those consumer styles which occupy a neighbouring position on the lifestyle map. If there are no longer any market opportunities on the basis of the previous marketing strategy, for example if the product has reached the end of its life cycle, the attitudes of the target group have changed fundamentally, there is no longer any comparative competitive advantage or the target group has shrunk considerably, a new positioning (brand relaunch) is required. A completely new target group is to be addressed by a fundamentally new marketing strategy; the goal is to convey a new product benefit so far not offered by competitors and that meets those needs of the target group that are relevant to the purchase decision. On the instrumental level, strong quality improvements (with accompanying price increase) are to be thought of, but also the reverse strategy of switching from a preference to a price-volume strategy may be advisable (Tomczak et al., 2014, p. 170 f.; see also Sect. 3.4 in this chapter). The West brand can be cited as an example of new positioning. While in the 1980s the same positioning as Marlboro was aimed for (adventure and freedom) – and thus an independent brand development was effectively prevented -, with the Test-The-West strategy a completely new positioning was realised by addressing a fundamentally new target group (Esch, 2019, p. 215).

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215

If a company pursues a consistent globalisation strategy, the new positioning has to be pursued in all the country market segments it cultivates. Difficulties in implementation obviously arise when the product is in different phases of the product life cycle in different country markets: a new positioning is then not only unnecessary in some markets, but may even be counterproductive. In this case, it should be considered whether a – partial – transition to a differentiated strategy makes more sense. Coca-Cola, for example, changed the positioning of “Diet Coke” in Japan by renaming it “Cola Light” and launching an accompanying advertising campaign in which the drink was no longer positioned as a diet drink but as a means of maintaining a good/athletic figure.

3.3

Strategy Style

The second element of a business segment strategy, the strategy style, aims at the role a company intends to take within the current and potential competition. According to the degree of competitive intensity, the company can choose between offensive and defensive competitive behaviour. Offensive behaviour is associated with a certain degree of aggressiveness, which can go from pure market competition to fighting (unfriendly takeovers, market displacement). The conquest of a foreign market can, for example, take place through cooperation with a foreign partner (coexistence), but also through the acquisition of local competitors (Töpfer & Hünerberg, 1990, p. 82). Through defensive behaviour, the company seeks to defend its position as a whole or in specific country market segments. This can lead to a strategic withdrawal from individual country markets so that the company can concentrate on those country market segments in which it has significant competitive advantages. Offensive or defensive behaviour must also be seen in the context of an overarching globalisation strategy. While offensive globalisation involves a proactive integration of all corporate functions, defensive globalisation implies that individual corporate divisions are integrated in response to competition (Meffert, 1991, p. 402). As a rule, those value activities are integrated first that are characterized by a comparatively low proximity to the market as well as by high cost degression and experience curve potentials, such as R&D and production; marketing activities are usually integrated only later in time – and only partially. According to the criterion “dealing with competition rules”, we distinguish between innovative and conventional behaviour. Essentially, these are timing considerations (see chapter “International Market Entry Strategies” in this part), which in this case, however, do not relate to market entry, but to the point in time at which certain strategies and actions are taken in the individual strategic business areas. Again, a distinction can be made between a pioneer strategy and a follower strategy. A pioneer strategy involves a strong focus on innovation, which is characterised, among other things, by high R&D budgets, a high proportion of new products in the production programme and a pioneering role in the market (Lieberman & Montgomery, 1988; Golder & Tellis, 1993). Particularly in global competition, innovation orientation plays a crucial role. The reason for this is that global

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companies often compete with other globally operating competitors who are comparable in terms of size and geographic scope; an orientation of the competitive position solely towards economies of scale, international access to resources and global market presence is therefore not sufficient to achieve lasting competitive advantages. In view of ever shorter product life cycles, an innovative orientation of the competitive strategy goes hand in hand with a rapid and, if possible, simultaneous implementation of innovations in the various country markets (Meffert, 1991, pp. 409–410). In many industries, for example, it is common practice to introduce new models simultaneously worldwide, such as in the automotive and computer industries. Benefits are especially the creation of a technologically advanced image, the possibility of setting industry standards and the early development of marketing know-how (Meffert, 1991, p. 410). In addition, there is the possibility of blocking distribution channels as well as access to resources for imitators. Furthermore, the pioneer can achieve degression and experience curve effects at an early stage (see also Sect. 3.4 in this chapter). Figure 6 shows how a pioneer orientation can affect the development of costs and prices (Bea & Beutel, 1992, p. 246 ff.): • In the introductory phase, the price is below the unit cost, the pioneer aims at rapid market penetration. • Due to the experience curve effect, costs fall continuously, but the price is initially kept largely constant. This results in high monopoly profits for the pioneer, which attract new competitors (price screen).

Cost per unit Price

market price cost per unit of the follower cost per unit of the pioneer

Introduction

Price screen

Price collapse

Stability

Cumulated production volume

Fig. 6 Price and cost development of the pioneer and the follower. (Source: Adapted from Bea & Haas, 2017, p. 149)

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• The emergence of the followers leads to a price collapse; the pioneer, however, has in the meantime been able to reduce its costs to such an extent that it can still realise high profits despite the low market price; the follower, on the other hand, may have to cover higher unit costs because it has not yet progressed as far as the pioneer on the experience curve. • Finally, there is the phase of stability, in which the market price develops parallel to the experience curve. Within a follower strategy, the company first waits to see whether the pioneer’s innovation will prevail on the market and only later challenges the pioneer with an imitation product. Hereby we differentiate between early followers (“second movers”) and late followers. The advantages of a second mover strategy are that the risk of market introduction is lower, lower R&D costs are required, market research may not be necessary and the imitation may be of better quality. Sometimes the product can even be offered at a lower price (despite lower experience curve effects) – namely if the R&D and marketing costs “saved” by the follower are very high. Second Will Be the First

[. . .] What do the Boeing 707 and Microsoft have in common? What do the Palm Pilot and AMD have in common? Common technology? Wrong. All American? Also wrong. What really connects them: They were all second in their market. They weren’t the first to come up with a new product. They first let others innovate, and then innovatively copied and improved. [. . .] Even as a “second mover” it is possible to live comfortably: Norma came on the market 20 years after Aldi. It was initially a hundred percent Aldi copy, and is now also a successful grocery chain. Palm didn’t offer the first personal digital assistant – first Apple had to fail expensively with its Newton, then Palm came out as an improved Newton. Palm had learned as a second mover at Apple’s expense. AMD moved as a chip manufacturer for a long time only in the slipstream of the stronger competitor Intel, took as a business no more than the crumbs that the pioneer left. But at some point the pursuer had copied so much from Intel that the situation suddenly turned around: AMD was first to market with a 1-gigahertz chip. [. . .] The new entrepreneurial insight is: It’s better to be right than to be first. Source: Gloger, 2001 ◄ The influence of innovation orientation on process and program standardisation was investigated in the study by Bolz (1992) cited above. Thus, a high innovation orientation causes above all a high product and marketing standardisation as well as a high degree of centralisation of R&D, production and marketing; in contrast, the influence on coordination through process standardisation is negative. The combination of the degree of competition intensity and dealing with competition rules leads to the following competitive strategy options (see in the following Tomczak et al., 2014, p. 175 ff.):

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International Market Development Strategies

• Offensive and conventional competitive behaviour The aggressive behaviour manifests itself in an intensification of marketing activities, but while retaining the traditional business areas. Examples are Coca-Cola, Procter & Gamble, McDonald’s. This strategy is typical for market leaders; however, it is also suitable for strong market challengers who try to attack the position of the market leader. • Defensive and conventional competitive behaviour This strategy is typical of market followers, i.e. companies that adapt to competition and simply try to maintain their market share. • Offensive and innovative competitive behaviour This strategy is particularly suitable for market challengers who are striving to establish and expand independent and lasting competitive advantages. A typical example of this is the furniture store IKEA. Market leaders can also use this strategy successfully if, for example, their own position is threatened. • Defensive and innovative competitive behaviour This option requires the search for market niches in order to be able to circumvent competition on the overall market. The international strategy of Body Shop can be cited as an example (on the niche strategy, see in detail Sect. 3.5 in this chapter).

3.4

Strategy Substance

The third element of a business area strategy, the strategy substance, deals with the determination of customer value; this can be defined as the relationship between the perceived value and the perceived price of the product or service, i.e. the subjectively perceived price-performance ratio (Tomczak et al., 2014, p. 177 f.). Accordingly, there are basically two starting points for gaining a comparative competitive advantage: offering a better product or service as part of a preference strategy, or offering a cheaper product or service within a price-volume strategy. The typical characteristics of both strategies are shown in Fig. 7. From the company’s point of view, the question arises as to whether it should pursue a cost leadership or a differentiation strategy. The strategy of price or cost leadership aims at achieving comprehensive cost advantages; this makes it possible to offer the product or service at a lower price than the competition or – if a quality advantage exists – to achieve higher profits. The prerequisite is the exploitation of economies of scale and experience curve effects. High cost reduction potentials are often found in the areas of R&D, service, sales force and advertising; cost savings can also be realised in product design on the basis of a value analysis (Porter, 2013, p. 74 ff.). Typical examples are low-cost carriers, which are able to offer extremely low-cost flight connections by dispensing with in-flight meals and other (personnel-intensive) services.

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International Business Area Strategies

219

Preference strategy

Price-volume strategy

Customer benefit

Performance benefits lead to a relatively better satisfaction of needs

Price advantages lead to a relative cost saving

Competitive advantage

"Better" principle: compared to the competition, a better performance is offered at the same price (differentiation, quality orientation).

„Cheaper" principle: compared to the competition, a lower price is charged for the same product or service (cost leadership).

Use of marketing instruments

Combined and consistent use of all non-price marketing instruments to influence customers

Price as a central marketing instrument to influence customers

Retail:

Douglas

Aldi

Automotive:

Mercedes

Kia

Computers:

Apple

Medion

Examples

Fig. 7 Characteristics of the preference and price-volume strategy. (Source: Adapted from Tomczak et al., 2014, p. 179) Low-Cost Carriers in Focus

Ryanair is the recognized cost leader in the European low-cost carrier segment: Compared to the three best national airlines, the Irish carrier operates 67 percent cheaper, easyJet 42 percent cheaper. This is possible, among other things, due to optimized seat density, higher aircraft productivity, fewer staff, direct sales via the Internet and lower service expenses. In a saturated market, however, differentiation is also becoming increasingly important. Thus, the offers of low-cost airlines also differ more and more: While Ryanair mainly flies to remote and small airports and does without in-flight catering, Air Berlin flies to large airports and offers in-flight catering. EasyJet, on the other hand, flies higher frequencies than its competitors. Companies such as Ryanair, EasyJet and Air Berlin are benefiting from the tense economic situation, as many people are paying more attention to their spending and preferring cheaper providers. However, the new thriftiness of corporate customers is even more essential for the utilisation of low-cost airlines: many companies are now encouraging their employees to switch to budget airlines for business travel. However, a

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International Market Development Strategies

hybridisation of the market can currently be observed: many established airlines are also trying to push into the attractive low-cost segment. Sources: Antrecht, 2005; Lachman, 2009 ◄ For internationally operating companies, a cost-leadership strategy involves reducing their own unit costs below the level of other international competitors by means of productivity-enhancing process innovations. This strategy is usually accompanied by standardised market development in order to exploit all cost reduction potentials (Meffert, 1991, p. 406). Especially by the internationalisation of the activities in connection with a standardised market cultivation, several cost effects can be realised, which can be classified into volume effects and learning effects (see in the following Bea & Beutel, 1992, p. 246 ff.). Long-Run Economies of Scale This effect is based on the fact that larger companies generally have lower unit costs. Since many forms of internationalisation contribute to corporate growth, from this perspective internationally operating companies will have lower unit costs in the long term than purely national suppliers. Product-specific economies of scale are based on an increase in the production volume of a particular product and result, for example, from fixed costs degression, from a change in production technology or from a higher specialisation of employees. Through internationalisation, e.g. by means of exporting, the production quantity can be significantly expanded so that product-specific economies of scale can be achieved. If internationalisation is linked to an expansion of capacity, plant-specific economies of scale can also be realised, which result from the fact that capital expenditures generally increase only disproportionately when capacity is increased. Furthermore, an internationalisation of corporate activities can also lead to the achievement of so-called company-specific economies of scale. For example, overhead costs in the areas of R&D, accounting, and marketing can be distributed among several production sites; discount advantages can also be exploited as procurement volumes increase. Experience Curve Effects The indicator for the experience of a company is the cumulative output quantity. The central statement is that when the cumulative production volume doubles, the unit costs related to the value added and expressed in constant monetary units fall by a constant and predictable proportion, which is usually between 10% and 30% (Lambin, 1987, p. 188). The most important determinants of experience effects are • learning effects in production, administration, sales, • intensification of division of labour and specialisation, • improvements in production technology, rationalisation.

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This makes it clear that experience effects do not occur “automatically”, but are the result of constant efforts by the company to exploit the available rationalisation potential and improvement opportunities. The functional relationship between unit costs and cumulated production volume can be expressed as follows (Lambin, 1987, p. 150): c½X ðt Þ = c0 

X ðt Þ X ðt 0 Þ

-β

with c[X(t)] c0 X(t) X(t0) β

= = = =

cost per unit in period t, cost per unit at the beginning of the period under consideration, cumulative production volume in period t, cumulative production volume up to the beginning of the period under consideration, = cost elasticity.

The functional relationship is shown graphically in Fig. 8. The potentials for cost reduction in the context of internationalisation are manifold (Meffert, 1991, p. 406 f.): • integrated and coordinated procurement activities across countries (“global sourcing”), • reduction of the vertical range of manufacture within the framework of “global rationalisation”, • just-in-time concepts with suppliers, • internationally integrated and coordinated production, • efficient cost management, e.g. through cross-border, standardised cost controlling. It is usually assumed that cost advantages can only be achieved through a standardised strategy. This statement must be relativized with regard to the use of flexible manufacturing systems (CIM, CAM), since smaller batches can also be produced cost-effectively as part of an international differentiation strategy (Meffert, 1989, p. 448). While a price-volume strategy aims to build up a competitive advantage based on cost leadership, a preference strategy aims at differentiating one’s own products or services from the competition and making them more attractive to customers, i.e., the company’s products and services are to be differentiated from those of the competitors in such a way that consumers perceive them as unique. For this purpose, the necessary prerequisites must be created – if they do not already exist. A preference strategy creates brand loyalty and makes the market position less vulnerable to attack; however, an increase in market share is not always feasible as a result: measures to achieve differentiation advantages require high investments, e.g. for R&D, high-quality materials, service, technology, which has a

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Experience curves (linear scale)

Cost per unit 12 10

20%-Experience curve

30%-Experience curve

8 6 4 2 0 0

2

4

6

8

10

12

14

Cumulative production volume

Fig. 8 The experience curve at 20% and 30% cost reduction

corresponding effect on prices. As a result, the sales potential is often limited to small, exclusive target groups (Porter, 2014, p. 37 ff.). A preference strategy often also includes a pronounced innovation orientation, i.e. the constant effort to develop new products and technologies. It can – but does not have to – also go hand in hand with a pioneer strategy. Apple: Success Through Innovation

The US company Apple Computer, Inc. has always been considered one of the most innovative companies in the technology sector. Apple founded the personal computer revolution in the 1970s and redefined the structures in the 1980s with the Macintosh. More recently, the company has become known for innovative products that combine design and ease of use. For example, Apple led the digital music revolution with the iPod portable music and video player and the iTunes Internet store, and this year took off with the revolutionary iPhone mobile phone. The success of the innovation strategy appeared convincing so far. Since June of the current year, the Californians have already sold more than 1.2 million iPhones in the USA. [. . .] In addition, the company’s strategy of attracting more buyers for its more expensive notebooks and computers with its easy-to-use digital music players and mobile phones has paid off recently. The Americans have also marketed product

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223

innovations such as the latest operating system Leopard more skilfully than almost any other high-tech company. (Source: Finanzen.net 2007) ◄ A preference strategy includes a pronounced quality orientation, whereby quality should not be limited to the end product alone: in the sense of total quality management, quality rather starts with all value activities within a value chain (on the connection between value chain, interface management and total quality management see in detail Fantapié Altobelli, 1995). A value chain divides the company into strategically relevant activities – so-called value activities – with the aim of identifying current and potential competitive advantages in the individual activities; the term “value” refers to the amount that customers are prepared to pay for what a company offers. The crucial point here is that competitive advantages arise not only from the final product, but from all activities required with the creation and marketing of the product (Porter, 2014, p. 65 ff.). Figure 9 shows Porter’s value chain model. Uniqueness only leads to differentiation if it is perceived as a value by the consumer. Accordingly, not only the objective quality characteristics, but also the subjective quality perception of current and potential consumers must be taken into consideration. This makes it clear that features such as image and branding also contribute to psychological differentiation from competitors; thus, advertising and promotion play a decisive role in consumers’ perception of quality. Purchase criteria are to be assigned to the different value activities in order to be able to determine which value activities are relevant to the purchase decision and, thus, hold differentiation advantages (Fantapié Altobelli, 1995, p. 145). Every value activity can contribute to quality – including indirect activities such as order processing, form of correspondence, etc. In the case of low-interest products in particular, a high quality of service can, for example, prevent a company from falling into a low-price profile; in this way, for example, the company Wheelabrator, a

Support activities

Firm Infrastructure Human Resources Management Technology Development Margin

Primary activities

Procurement

Inbound Logistics

Operations

Outbound logistics

Marketing & Sales

Fig. 9 Porter’s value chain model. (Source: Porter, 2014, p. 64)

Service

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International Market Development Strategies

manufacturer of blasting agents for surface production, achieved a leading position in the European market (Schulz, 1991, p. 80). Quality arises from the following factors, among others (Porter, 2014, p. 173): • • • • • • •

product characteristics (basic and additional benefits), width and depth of the product range, range of fringe benefits, process technology, quality of the materials used, qualification of staff, information technology used.

In the context of total quality management, however, attention must be focused on the entire chain from the raw material supplier to the end user: customers demand proof of quality capability from each upstream stage, as this is the only way they can in turn assure their respective customers of quality (Fantapié Altobelli, 1995, p. 149). Total Quality Management thus requires a consistent orientation towards the customer and goes far beyond mere quality control. Quality becomes a principle of corporate culture, so that quality awareness must be developed and realised in all areas of the company. This requires strong inter-functional cooperation between R&D, production and marketing: McDonald’s, for example, has developed standardised specifications for food preparation as well as for the operational management of its restaurants, which are intended to ensure a uniform quality standard worldwide. This shows that a strong quality orientation in internationally operating companies requires a high degree of process standardisation. Due to the great importance of the subjective quality perception of consumers, it should be noted in international activity that the perception and relative importance of quality characteristics can diverge strongly across countries. This is due in particular to cultural factors such as customs, aesthetics, values and norms, etc. (on the importance of cultural factors, see chapter “The International Marketing Environment” in Part II). The consequence is often a differentiation of marketing programs in order to meet different needs in the individual country market segments; furthermore, a decentralised organisation of the individual subsidiaries is often found, whereby, however, a cross-national coordination takes place in the sense of a process standardisation in order to realise uniform quality standards. When entering emerging markets, it is increasingly important to bear in mind that local customers often have very high expectations of product and service quality, as Western products are frequently regarded as status symbols. This is particularly important in the Chinese market (Czinkota & Ronkainen, 2013, p. 370). Particularly successful in international competition are those companies that succeed in building up both a favourable cost position and a quality advantage in the course of so-called outpacing strategies (Gilbert & Strebel, 1987). Here too, however, success depends on clear positioning, since customers perceive a product as either relatively better or relatively cheaper. Even offerings that are – objectively speaking – both better and

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cheaper than competing offerings will be purchased by customers either because they offer a cost saving for the same performance, or because they are perceived to be superior from a performance perspective. For example, Japanese luxury cars such as Lexus are bought because of the relative price advantage compared to corresponding offers from Mercedes and BMW; possible performance advantages are not the decisive purchase argument. The same applies to mobile phones; top models from the Far East sometimes offer at least the same performance as Apple or Samsung, but at a significantly lower price.

3.5

Strategy Field

The selection of the strategy field defines the extent of market coverage and is thus closely intertwined with market segmentation and market selection at the corporate level (see in detail chapter “International Market Selection” in this part). The boundaries between segmentation decisions at company and business unit level are fluid and require a close coordination between company management and business unit management (Tomczak et al., 2014, p. 190). For internationally operating companies in particular, the coordination processes are more complex, since on the one hand a business area definition and selection takes place at the overall company level – e.g. from the perspective of the parent company –, on the other hand at the level of the management of the subsidiary and finally at the level of the individual strategic business units operating in the various country market segments. This also makes it clear that the way in which business areas are selected, as well as the scope and direction of the necessary coordination processes, depend very much on organisational aspects (see Part VI). At the business unit level, it is particularly important to review the country market segments selected from the company’s perspective against the backdrop of changing environmental conditions and, if necessary, to modify them – for example, by developing marginal target groups, concentrating on key accounts or intensive users, intensifying the cultivation of regular customers, in the industrial goods sector focusing market cultivation on power promoters in the buying center, and the like (Tomczak et al., 2014, p. 190). A key element when choosing the strategy field is thus the decision as to whether the company should operate in the overall total market or focus on one or more niches. For an internationally operating company, the question thus arises whether it should act as a global market leader or limit its activities to one or more global niches. The decision depends to a large extent on the available resources. A strategy of global total market coverage implies that a company covers all market segments in all country markets it operates in. This strategy can usually only be pursued by the large multinational companies in an industry, as it requires a considerable amount of resources. Typically, it is chosen by multinational companies whose main competitors are other multinational companies. This strategy favours the realisation of economies of scope through the use of shared resources, e.g. in the case of several product lines. IBM, for example, was able to exploit considerable economies of scope after expanding its

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production program from mainframes to mid-size systems and PCs (Meffert, 1991, p. 405). A disadvantage is often the fact that with an excessively broad definition of business areas the target groups are not worked on intensively enough and the market thus becomes attractive for those companies which focus their activities on clearly defined segments. A niche – or focus – strategy implies that a company operates on a limited section of the market in the various countries. This means that the company does not aim for total market coverage, but rather focuses on one or a few promising market segments. As a rule, these are market segments that are protected from competition or are not very competitive; hence, the company can achieve a largely unique position or superiority in the market (Hünerberg, 1993, p. 667). The following niche types can be distinguished (see in the following Porter, 2013, p. 78 ff.; Hünerberg, 1993, p. 668 ff.): • • • • •

space-time niches, market partner niches, program niches, communication niches and contract niches.

Space-time niches include a geographical component, i.e. a concentration on regionally defined market segments. This can mean specialisation in certain countries, in selected cross-border regions or in several regions in one or more countries. On the other hand, this niche type also includes a temporal dimension. This aimes in particular at the duration of market activities compared to the competition, e.g. the speed of order processing. Efficient time management, for example as a result of business reengineering, can establish strong competitive advantages compared to the competition (Fantapié Altobelli & Gaitanides, 1999). Market partner niches include concentration on certain customer groups (e.g. large customers, private customers, intensive users) or on cooperation partners, sales intermediaries, service providers (e.g. specialist retailers, travellers). One example is AVON, which practices direct sales worldwide through its own sales organisations. Program niches concentrate on certain parts of the production and sales program. The differentiation from the competition can basically take place via all marketing instruments – product quality, design, packaging, service. Service components in particular are gaining in importance in industries characterized by extensive product homogeneity. Swatch can be cited as an example of a program niche. Communication niches result from a distinctive design of the means of communication and/or by concentrating on certain communication media. The – albeit controversial – campaign by Benetton could be cited here as an example. The BMW subsidiary Mini also pursues a global niche strategy, which is supported by innovative communication.

3

International Business Area Strategies

227

Mini Goes New Advertising Ways for Convertible

BMW subsidiary Mini is always good for a surprise when addressing potential buyers. For the launch of its new convertible, the small car brand is now using a special tool in addition to guerrilla marketing, extremely short TV spots and a web special: print ads that can be used to interact with the computer by means of a webcam. The model itself cannot be seen in the advertisements. Instead, Mini uses pictograms to give the viewer instructions on how to catch a glimpse of the convertible, which will go on sale at the end of March 2009: Only when the viewer holds the print ad on the website www.mini.de/webcam in front of his webcam does the convertible appear on the screen as a 3D model. If the ad is moved, the vehicle also moves in real time. [. . .] The campaign is supplemented by an online special as well as a total of 60 guerrilla marketing ideas, which are presented to the worldwide Mini-marketers in form of a book. Source: Horizont, 2008 ◄ Finally, contract niches arise by special features of the contract design – such as prices and, in particular, conditions. Comprehensive warranty and return rights, financing conditions, etc. can contribute to differentiation from competitors operating on the overall market. Regardless of which niche type a company chooses, it can pursue both a preference and a price-volume strategy within the niche (Bea & Haas, 2017, p. 200). Cost leadership can be achieved in the context of a niche strategy, for example, by offering a standardised product in all country market segments; this specialisation advantage is reflected in cost effects that enable the company to offer globally in the low-price segment. Differentiation advantages in the sense of a preference strategy, on the other hand, can be achieved if the international competitors pursue a global strategy; a niche supplier can then serve particularly interesting market segments in the individual countries by tailoring its marketing efforts to these segments. Generally speaking, pursuing a niche strategy is particularly suitable for small and medium-sized enterprises whose resources are not sufficient to serve the entire global market. Examples of a preference strategy are the approach of Rolls Royce or Rolex, which address the luxury segment worldwide, or the strategy of the mediumsized company Stihl, which has been able to position itself successfully worldwide in the professional user segment. A price-volume strategy is currently being practiced by Korean car manufacturers, who are concentrating on the low-price segment. The benefits of a global niche strategy are numerous (Meffert, 1991, p. 405; Hünerberg, 1993, p. 673 ff.): • The global occupation of a niche enables the realisation of economies of scale and experience curve effects. • Increasing marketing standardisation tendencies of the “global players” lead to the need for individual solutions as a counter-reaction.

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International Market Development Strategies

• Many niches are characterised by a lower price sensitivity of the demand, so that high profit potentials are given. • By concentrating on a global niche, transnational coordination and integration is promoted. However, there are also some disadvantages to this: • Global market leaders can – by way of an expansion of the target group definition due to a necessary repositioning – penetrate the market segments of the niche suppliers. • The frequently observed cross-border convergence of certain customer groups can dissolve entire niches. • Global niche suppliers may be protected from global overall market suppliers, but not from local competitors who may be active in the same niche in the relevant national market. Whether a niche strategy rather requires a standardisation or adaptation of marketing activities cannot be answered clearly, since this depends not only on the type of niche worked on, but also on the type of competitive advantage sought in the niche. For example, Bolz (1992) found that the extent of market coverage only affects the degree of centralisation, but not program standardisation and hardly any coordination efforts.

4

The Choice of Market Development Strategy

As already mentioned, market development strategy includes the following dimensions: • the fundamental strategic orientation, • the international basic marketing strategy and • the international business area strategy; the definition of the international market development strategy therefore involves a decision on its individual components. An exemplary market development strategy could be as follows: • investment and growth strategies for Product I in all countries (basic strategic orientation); • standardisation of marketing program as far as possible, standardisation of planning and information systems as part of process standardisation (basic strategy); • maintaining the market position in country A, repositioning in countries B and C (strategy variation); • offensive conventional competitive behaviour in country A, offensive innovative behaviour in countries B and C (strategy style);

4

The Choice of Market Development Strategy

229

• global preference strategy (strategy substance) and • concentration on a program niche (strategy field). In order to select the appropriate market development strategy, the first step is to eliminate those strategic options that are not in line with the given market environment. High cultural distance of the target markets, the lack of supranational target groups with similar buying patterns, a different marketing infrastructure in the target countries as well as a polycentric orientation of the management will, for example, make the basic strategy “standardisation” rather unlikely. Factors that can limit the choice of international business area strategy include the following • • • • • • •

size and purchasing power of the international target groups, international positioning the company is striving for, competitive position in the target markets, behaviour of international and local competitors, type of competitive advantage over the competitors, existing resources, and previous experience abroad.

For the remaining strategic options, a rough selection can be made in a next step; the criteria to be applied are to be derived from the international target system. Examples of such criteria are • • • • • • • • • •

shareholder or stakeholder value, investment required, payback time of the investment, exploitation of core competencies in target markets, contribution to the achievement of competitive advantages, consistence with the corporate culture, “fit” with previous company policy, requirements for control and coordination, risks of market development, customer satisfaction and customer loyalty.

The criteria can be used in checklists, scoring models or portfolio analyses (for the methodology, see chapter “International Market Selection” in this part). A fine selection of market development strategies can be made on the basis of dynamic investment calculation techniques. The NPV-models presented in the chapters “International Market Selection” and “International Market Entry Strategies” must be expanded accordingly; for this purpose, the cash inflows and outflows must be estimated as a function of the selected market development strategy – if necessary, including probability statements. As a rule, such estimates can only be obtained with the help of country market experts. The

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International Market Development Strategies

complexity of the decision-making situation and the large number of variables associated with risk suggest the use of a risk analysis (for the general methodology and an exemplary application for international market selection, see chapter “International Market Entry Strategies”).

5

Translating Strategic Plans into Tactical and Operational Actions

The strategies resulting from strategic international marketing planning have to be implemented, i.e. converted into concrete action plans for the single business units and functional areas. The tactical-operational planning referred to here is to be distinguished from strategic planning in that its results represent concrete action programs. Figure 10 shows the main differences between strategic planning and tactical-operational planning. While strategic planning defines the long-term framework for action at company and business unit level – both for the head office and for the individual foreign branches – the task of operational planning is to develop a plan of objectives and actions for the individual functional areas of the company, for example production, R&D, marketing. In this process the company has to determine • • • • • •

which actions (what?) at what times (when?) with which resources (with what?) in what way (how?) by which business units (who?) and in which country market (where?)

are to be realised in order to fulfill the objectives defined in the planning process. Figure 11 shows the relationship between strategic planning and tactical-operational planning. Since strategic and operational planning tasks are generally performed by different company units and at different hierarchical levels, coordination between strategic and operational planning is of crucial importance for the successful implementation of strategies. For this reason, the design of the interfaces between strategic and operational planning is a key success factor (Hungenberg & Wulf, 2003). The Balanced Scorecard (Kaplan & Norton, 1996) is a particularly suitable instrument for implementing strategies. The comparatively narrow financial perspective in the context of classical budgeting is supplemented by three additional perspectives: customer perspective, internal business process perspective, and learning and development perspective; for each perspective, the management formulates objectives, key indicators, targets, and initiatives. In addition, cause-effect relationships between the perspectives and their key indicators are elaborated (Bea & Haas, 2017, p. 218 ff.). Figure 12 shows the Balanced Scorecard as developed by Kaplan and Norton.

5

Translating Strategic Plans into Tactical and Operational Actions

Strategic planning

231

Tactical-operational planning

Alignment Tasks

 realisation of profit potential within the selected strategic business areas  translating strategic plans into tactical and operational measures  development of programs and action plans  budgeting of resources by functional areas and regional / international units  creative problem solving and management by objectives

 largely qualitative, "soft" data  financial data mainly used to evaluate alternatives  uses instruments of strategic early warning and thus suitable for uncovering discontinuities

 largely quantitative data  very specific details and figures  predominantly based on extrapolation and thus not very suitable for detecting discontinuities in specific areas

      

   

Responsibility

 selection of strategic business units based on long-term profit considerations and compliance with company’s environment  allocation of resources to the strategic business units  framework for concrete action plans (tacticaloperational planning)  identification of opportunities and risks  assessment of trends, core competencies and competitor strategies  safeguarding the company against strategic surprises  review of previous strategies, if necessary, reorientation of the company

Data

short to medium term area-oriented predominantly quantitative targets low level of abstraction highly structured and differentiated periodic, organisation-oriented planning, coordination, and control of all company activities

Instruments

     

      

long-term innovation-oriented, holistic predominantly qualitative targets high level of abstraction little structured and differentiated continuous, problem-oriented long-term framework planning

portfolio analysis value chain analysis analysis of competition scenario and cross-impact analysis sensitivity analysis simulation analysis strategic early warning

 primary responsibility lies with senior management and executives responsible for strategic business units  management reviews plans for feasibility, which are prepared by line managers

decision-oriented

rolling planning critical path analysis balanced scorecard key figure analysis

 main responsibility lies with the heads of the functional areas and regional or international subsidiaries

results-oriented

Fig. 10 Comparison of strategic and tactical-operational planning. (Source: Adapted from Hinterhuber, 1997, p. 206)

In addition to tactical-operational target planning, the focus of tactical-operational international marketing planning is the planning of the individual marketing instruments, which are to be integrated into a consistent marketing mix. In detail, international marketing mix comprises the following instrumental areas: • • • •

international product management, international price management, international communication management, and international distribution management (see in detail the corresponding chapters in Part IV).

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International Market Development Strategies

Strategic planning Strategy at the corporate level

Strategy business unit 1

Marketing action plan

Strategy business unit 2

R&D action plan

Production action plan

Strategy business unit 3

HR action plan

Tactical-operational planning Budgets and multi-year plans

Fig. 11 The relationship between strategic planning and tactical-operational planning. (Source: Adapted from Hinterhuber, 2015, p. 279)

6

Empirical Findings

A large number of empirical studies are available on the extent of standardisation of marketing programs. However, due to different research objectives, different research designs and different regional references, the results are partly contradictory. In general, the highest degree of standardisation is found in the area of product policy, whereas the other marketing instruments are often adapted to country-specific conditions. For the German area, for example, the studies by Langner (1996) and the explorative study by Belz et al. (1999) should be mentioned – both in the area of industrial goods – in which standardisation is strongest in product policy. Richter’s (2002) survey among the top 500 German companies also found that product policy is the most standardised marketing instrument. Product quality and brand name are most frequently standardised within the product mix, whereas ancillary services such as after-sales service and warranty are usually adapted to local conditions. The instruments within the communication mix show a medium overall degree of standardisation; the distribution of product samples and the use of displays are somewhat more standardised, the use of advertising agencies is more local. In the case of pricing policy, it is noticeable overall that the methods used to determine prices – as an expression of process standardisation – are more standardised than the price level itself. In the context of distribution management, the highest degree of standardisation is achieved in the tasks of sales force.

6

Empirical Findings

233

Financial „To succeed financially, how should we appear to our shareholders?“ ObjecIndicator Target Initiatives tives

Customer

Internal business processes

„To achieve our vision, how should we appear to our customers?“

„To satisfy our shareholders and customers, what business processes must we excel at?“

ObjecIndicator Target Initiatives tives

Vision and strategy

ObjecIndicator Target Initiatives tives

Learning and growth „To achieve our vision, how will we sustain our ability to change and improve?“ ObjecIndicator Target Initiatives tives

Fig. 12 The Balanced Scorecard. (Source: Adapted from Kaplan & Norton, 1996, p. 9)

Standardisation of the marketing mix or individual marketing mix elements is favoured by the following factors (Richter, 2002, p. 193 ff.): • comparable consumer characteristics and consumer behaviour in home country and target markets, • a similar market share in home country and target markets, • a low level of rivalry among competitors, • similar target groups in home country and foreign markets, • a similar product positioning in home country and foreign markets, • a similar marketing infrastructure.

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International Market Development Strategies

Gabrielsson and Gabrielsson (2003) examine the marketing strategies of global companies in the information and communication technology sector; in doing so, they distinguish between companies that pursued a globalisation strategy from the outset (born globals) and those that only achieved globalisation as the final stage in the internationalisation process (globalising internationals). It becomes clear that global companies pursue a worldwide standardisation strategy from the outset, whereas globalising international companies first adapt their strategy to specific countries and only switch to a standardisation strategy at a later stage. The standardisation of marketing program in retailing is somewhat different (Ferring, 2001, p. 242 ff.). A comparatively high degree of standardisation only takes place with regard to the type of business, business type positioning, location policy and price positioning in comparison to the competition; the marketing instruments, on the other hand, are generally adapted to local conditions. Exceptions are the presentation of goods, the design of the salesroom and the formal advertising message. The question as to which strategy – standardisation or adaptation – makes the greater contribution to corporate performance cannot be answered unequivocally. Fraser and Hite (1990) were able to establish an overall positive correlation between product standardisation or standardisation of advertising and performance measured in terms of market share and RoI – but only for European and English-speaking markets (Fraser & Hite, 1990, p. 249 ff.). Samiee and Roth (1992) as well as Kotabe and Okoroafo (1990) also found a positive correlation between standardisation and performance (Kotabe & Okoroafo, 1990, p. 353 ff.). According to a study by Bolz (1992), the standardisation of product and distribution policy in particular has a performance-increasing effect, while a standardisation of communication policy has a negative influence on corporate performance; no clear statements could be made with regard to a standardisation of pricing (Meffert & Bolz, 1995, p. 104 f.). According to the study by Richter (2002), financial performance is favoured overall by a high degree of standardisation; the hypothesis that a low degree of standardisation positively influences customer satisfaction, on the other hand, could not be confirmed (Richter, 2002, p. 267). The study of Albaum and Tse (2001) could not prove a significant relationship between adaptation of marketing instruments and company performance. According to Özsomer and Prussia (2000), these partly contradictory results can be attributed to the fact that situational variables were neglected in most studies. In their own study, they were able to prove that a differentiated marketing strategy in conjunction with decentralised structures has a significant positive influence on corporate performance. The multitude of empirical studies on this topic over the last 50 years (see e.g. the overview in Schmid & Kotulla, 2011) has not been able to satisfactorily resolve the standardisation-adaptation debate. Ryans et al. (2003) complain that academic research in this area has consistently been done without a sound theoretical framework – starting with the fact that different authors define the terms “standardisation” and “corporate performance” differently. Theodosiou and Leonidou (2003) also attribute the inconsistent findings in this research field to inappropriate conceptualisations, poor research designs and weak analytical techniques. On the basis of a meta-analysis of 36 empirical studies, the authors conclude that the decision “standardisation vs. adaptation” and the corporate performance to be achieved with it depend very much on specific situational factors in the individual foreign markets (see also Cavusgil & Zou, 1994).

6

Empirical Findings

235

Birnik and Bowman (2007) analysed more than 80 key academic studies on the topic of marketing standardisation with the aim of obtaining generalisable statements on the various antecedents, impact mechanisms and performance effects of marketing standardisation in the sense of “best evidence”. The studies were characterised according to the following features: • • • • • • • • •

theoretical background of the studies, factors that affect strategic decision making, relevant contextual variables, decision parameters examined, extent of marketing standardisation, elements of marketing standardisation, factors favouring successful implementation, effects achieved and impact of standardisation on business performance.

The results of the analysis can be found in Fig. 13. Tan and Sousa (2013) conducted a metaanalysis with 110 independent samples from 108 scientific articles. The following resulted as significant antecedents of marketing standardisation

Factors supporting strategic choices (SC) • • • • •

Clarity of strategic objectives (PUV vs. costs) Use of cross-country research and segmentation Mapping feasibility vs. desiderability Use of mapping matrix tools Customer rather than product orientation

Context variables (C)

Design Degree of mix parameters standardizaregarding mix tion elements (D) higher

• Industrial products • High-tech industries • Produc/market similarity • Fully owned subsidiaries

• Brand • Product

• Packaging • Advertising • Customer service

Factors supporting effective implementation (I) • Cross-border coordination • Alignment and knowledge sharing

Generative mechanisms (G)

Outcomes (O) • Higher revenues

Improved PUV • Brand preference • Market share

• Clear responsibilities

• Realised prices

• Modular product approach

• Usage

• Lower costs • Higher profitability • Greater value creation

• Loyalty

Reduced costs • Consumer products • Intensive local competition • Culture-bound products

• Sales & distribution • Promotion • Pricing • (Web)

• Unit production costs • Synergies

lower

Fig. 13 Summary of the results of key studies on marketing standardisation. (Source: Birnik & Bowman, 2007, p. 315)

236

• • • • • •

International Market Development Strategies

similarity of environmental conditions, competitive intensity, international experience, company size, management commitment, and foreign market coverage.

Product standardisation, distribution standardisation and price standardisation have a significant direct influence on the company’s performance. Standardisation of product, distribution and communication management also favours price standardisation and through this has an indirect effect on corporate performance. Figure 14 shows the results of the meta-analysis. There are also various empirical studies on the effectiveness of standardised marketing processes, which, however, also lead to partly contradictory results. A higher degree of process standardisation and formalisation tends to contribute positively to the performance of the company as a whole, whereas the performance of individual national companies is often impaired by it; however, this also depends on the size of the company (Meffert & Bolz, 1995, p. 102 f.). The study by Bolz (1992) cited above shows that process standardisation only explains the cost component of market development performance, but has little influence on sales performance. Only the standardisation of information processes makes an overall positive contribution to performance, whereas a standardisation

Product Standardization

Promotion Standardization

0,167***

Price Standardization

0,131***

Overall International Performance

Distribution Standardization

Chi-square = 0,394; d.f. = 1,000; GFI = 1,000; CFI = 1,000; RMSEA = 0,000; *** p