INTRODUCTION TO INTERNATIONAL MARKETING DRIVERS OF INTERNATIONAL EXPANSION The Term Drivers of International Expansion denotes the factors which

contribute or drive a Company in the expansion of its marketing activities so as to force it to enter into international marketing activities. There are a very few companies in the world which operate their activities in: a) Isolated Country Specific Environment; b) Fewer can manage to avoid an international involvement. Even if they want, they cannot afford to do so. In this world of Globalization or Liberalization, even the local manufacturing companies and catering to local consumers have to be: a) Dependent on parts or equipments and/or raw materials which originate abroad, or b) They sell their products to consumers/clients, which have some kind of exposure to international trade practices, and international products. A complete isolation from International Trade is possible only where there is a close environment viz. North Korea where for certain reasons; their consumers are kept away from International influence. It is observed that most of the Companies, quite often: a) Either cannot avoid involvement in International Marketing increasingly; b) Or cannot afford to do so. In other words, avoiding International Marketing Expansion would lead to: 1. Loosing Market share to its competitors; 2. Getting deprived and hence missing lot of business opportunities so created by International Environment.

DRIVERS OF INTERNATIONAL EXPANSION Business Environment Drivers - Competition - Regional Economic & Political Integration -Technology - Improvements in the Transportation & TeleCommunication Infrastructure - Economic Growth - Transition to a Market Economy - Converging Consumer Needs Firm Specific Drivers - PLC Considerations - High New Product Development Costs - Standardization, Economies of Scale & Cheap Labor - Experience Factors

1. BUSINESS ENVIRONMENT DRIVERS: a) COMPETITION: Competitive Pressure is frequently a DRIVER OF INTERNALIZATION

Many a cases it is observed that due to intense competition prevailing in the Business Environment, many companies have to remain in the market even if it may be a loss making preposition for them i.e. just for their survival in the market. McCann Erickson is a leading Advertisement Agency working for Coca Cola since 1942 in over 89 countries around the globe. Quite often if loses money in the countries where its accounts are limited. But they cannot afford to close and leave such markets and adopt only the profit making ones. Even if it attempts to do so, it is but natural that their Principals i.e. Coco Cola would replace McCann with another competitors of theirs who have been eyeing for such opportunities which come their way. Hence the company, as part of their marketing strategy, is forced to remain in the market with the principle that they would recover their losses sustained in one particular field in one part of the world from the other field in other part of the world. b) REGIONAL ECONOMIC AND POLITICAL INTEGRATION:

Of course Cultural similarities as Language and Religion have a direct bearing on facilitating International Trade since Economic and Political similarities also play an important and crucial role as a Driver of Internalization.

Regional Agreements/Arrangements formulated by certain groups of countries are examples of successful attempts at LOWERING OR ELIMINATING Trade Barriers between Member Countries and promoting trade within the perimeter of each Common Market. Further the benefits of INTEGRAION not only benefit the Member Countries but also benefit Non-Member countries also. i) ii) iii) North American Free Trade Agreement (NAFTA); Southern Cone Common Market (MERCOSUR) European Union (E.U.: FORTRESSS EUROPE) Politically and Economically integrated. These markets allow subsidiary companies incorporated in these markets to benefit from Free Trade within the region. Further Companies outside the Integrated Region are also encouraged to carry on business activities within the zone without impediments as are posed typically by crossing Borders. In this process: a) Customs paper work gets reduced; b) Tariffs for each country within the zone are avoided. For example a USA based Company exporting products to these MULTIPLE COUNTRIES in European Union will have to: a) Cross the border only once; b) Complete the Customs Paper Work, at Entry Point, and pay Import Duty there itself rather than completing such formalities time and again and at different different levels. Further a subsidiary of USA Company, operating and having an office in EU Region becomes a Corporate Citizen of EU and hence enjoys theses benefits because All Transactions are done in Euros. c) TECHNOLOGY: Technology has brought a complete REVOLUTION in the International environment by creating abundant opportunities for companies involved in International Business. 1. Media Development: These days consumers are exposed to programming originating in other countries all over the world. It may not be out of place to mention here that Programmes from USA are dominating the International Airways as follows:

a) Baywatch b) CNN c) NBC

: Audiences all over the world; : Business Community all over the world; : Crossing international borders its mix of Late Night Comedies and News Magazines.

2. Web & Internet: This development in Information Technology has revolutionalized the business opportunities to such an extent that it has not only brought Buyers and Sellers, across the globe, closer but also increased business opportunities faster and to unimaginable levels. While Brick and Mortar stores and Traditional manufacturers took long years/decades to achieve success, due to unlimited International exposure through Web & Internet, even Small companies do business processes instantly which is a boon for the International Trade. d) IMPROVEMENTS IN THE TRANSPORTATION AND TELECOMMUNICATION INFRASTRUCTURE: In the field of Transportation and Telecommunication infrastructure, tremendous progress has been achieved thereby increasing possibilities of business processes: Earlier, a Mercedes Service Station in Bujumbura (BURUNDI, in Sub-Saharan East Africa) took 15-20 days for repairing the car for want of Spare Parts from Stuttgart (Germany). First for materializing a foreign call due to lengthy, tedious and cable operated telephone lines and then sending the parts by courier. These days due to Satellite, STD/ISD calls get materialized as local calls, are cheaper and with the fax/emails, even written communication has become instantly possible, cutting short the delays and procedures. In the field of Transportation, with the introduction of Inter Model or Multi Model Transport Systems, movement of consignments/goods through Containerization, has been streamlined from point to point irrespective of mode of Transport involved, and at a faster pace. Besides Reefer Vessels and Reefer Containers have facilitated the shipments of perishable items. Even with up gradation of Port Handling facilities the Handling of Cargoes has become faster and easier. Further with the development of Air Cargo Complex, consumers, across the globe, can think of receiving fresh fruits and vegetables, cut flowers and live stock items of food as fresh as they originated in the country of shipment. e) ECONOMIC GROWTH: Economic growth not only increases Per Capita Income of the people but also raises Standard of Living of their subjects. Consequently it increases purchasing power and drives them from lower to middle class and so on. For example this has made emergence

of Middle Class in larger markets such as India and Brazil. Consequently it has facilitated and created markets of very High Potential for international products/brands. Hence it is proved that emerging economies have become open fields for foreign trade and practices. f) TRANSITION TO A MARKET ECONOMY: In the Eastern Bloc of countries, due to very nature as Socialist Communist Economies, all factors of production and trade were in the hands of Govt. Now due to deregulation and privatization of Govt. monopolies, under the former Communist Regime, the transition of these markets has thrown open great opportunities into International Trade: a) It has led to rapid economic development in the region; b) Given birth to important new markets for international brands. Consequently it has led Multi National Companies manufacturing Consumer Durable or FMCG Products to enter into: a) purchase or enter into partnership with local companies, who have been operating at a loss, producing low quality goods and give them fresh birth into successful enterprises selling global brands to local consumers; Whirlpool, Procter & Gamble, Atria (Phillip Morris), Unilever, Colgate Palmolive, etc. are reaping maximum benefits of this Transition to a Market Economy. b) Service Provider companies like Pizza Hut and Accenture have entered into these markets by engaging themselves in the highest level of commitment: FDI. Hence International Companies and Joint Ventures between multinational and local companies, private local businesses as well as former State-owned enterprises compete for local consumers in the Transitional Economies of Central & Eastern Europe. g) Converging Consumer Needs: Consumers, all over world, are no more loyal to local brands. They have got the taste of Levis Jeans, Heineken Beer, Nike Sneakers, Coca-Cola and Ralph Lauren Shirts, manufactured by MNCs and pushed into International Markets. Hence Generation X consumers in USA and SE Asia are loyal to: 1. 2. 3. 4. 5. Same Soft-Drink Brands; Listen to same music; Wear same brands of clothing; Have the same idols; View the same Television shows and watch MTV for entertainments;

This all is the result of Converging Consumer Needs all over the world.

2. FIRM SPECIFIC DRIVERS: a) PRODUCT LIFE CYCLE CONSIDERATIONS: Whenever a product is placed in its Maturity Stage or Declining Stage, manufacturers of International Cos. Try to prolong its life by changing its position on to Global Product Life Cycle. This is possible by shifting to Market where it is high in Demand. For example: Cigarette industry, in Industrialized/Developed Countries is either in late Maturity or Decline Stage. Hence manufacturers would like to exploit the potential of Emerging Markets where cigarettes are in Growth Stage more so when consumers have a high purchasing power like China, Central & East Europe. This is nothing but prolonging the Product Life Cycle of one product. b) HIGH NEW PRODUCT DEVELOPMENT COSTS: Again this concept is directly related and associated with Product Life Cycle. Quite often, Companies spend a lot of money and time in developing a new Product which is quite obvious under such circumstances. For example: Nike, on an average spends more than a year with high investments in Developing, Testing, Manufacturing and then Launching a new Design which lasts not more than six months on the shelves in US Markets. Under these conditions, what to think of making profits, they may not be able to cover their Product Development costs as well, if they try to restrict their market activities in USA only. It means this situation drives them to shift its Market Focus to Developing Countries where it can exploit the situation to their advantage. Here they would not only be able to recover high cost of Product Development but also make huge profits. Hence it is proved that a Company, under such circumstances, undertaking International Operation is not by a choice, but by Compulsion, which is a Pre-Condition for survival. c) EXPERIENCE TRANSFERS: MNCs/International firms learn their lessons what they have experienced in different parts of the world and try to implement them on other markets. For example: Colgate Palmolive developed AXION Paste, for washing dishes and introduced it in Latin American markets after observing that the women washed dishes by breaking few Silvers of Soap into pieces in a tub. Response to this Paste in Latin American market was quite encouraging. Encouraged with this, they offered this product to consumers in East and Central Europe where again women were washing dishes with

old method. Pizza Hut observed that they were successful in East and Central Europe by targeting younger generations by playing Pop Music on high pitch. Encouraged with this strategy, they started capturing other markets all over the world. OBSTACLES TO INTERNATIONALIZATION Impediments that the firm may encounter in the process of internationalization. Companies who are desirous of making their presence felt in International Marketing quite often some across problems in their way, which are called Obstacles to Internationalization. These are some sorts of, Humps, Road Blocks in the way of one Company who wants to drive down to International. These can be both from: a) Within the country (Internal) or b) Outside the country (External). These obstacles are: a) Financial in nature: When they do not have sufficient funds to expand their Marketing activities beyond National frontiers; b) Psychological in nature i.e. fear of: i) Unknown territories across the borders or their environment; ii) Local business practices. These fears could affect companys local expansion efforts also. Companies may face these obstacles in their process of Internationalization expansion efforts, which they may not come across in other expansions efforts. These obstacles are of three types: OBSTACLES 1. Self Reference Criterion 2. Government Barriers 3. Competition TO )) )) )) ----------- )) )) INTERNATIONALIZATION

GLOBE

1. SELF REFERENCE CRITERION: Individuals conscious and unconscious reference to their own national culture, to Home Country norms and values, and to their knowledge and experience in the process of making decisions in the Host Country.

It is not necessary that whatever perceptions, ideologies or habits you have learnt/practiced in your Home Country should be applied or thrusted on to the Host Country. They may prove to be wrong and dangerous. In other words, you should be able to overcome these barriers and adopt them in the process of making decisions in the Host Country. It can be defined as Ability of the Firm and especially of its Marketing Programme to adopt the Local Business Environment (Host Country) in order to serve the needs of Local Consumers and to address the requirements of Local Govt., Local Industry, and Local Channels of Distribution. It has been observed that in a number of circumstances and situations where a breakdown in communication between two parties involving different cultures, languages, etc. can lead to serious breakdown of business negotiations. For example: In USA, while talking if some one sees directly in the eyes of another party, it conveys a feeling that communicator is honest, open, fair and direct in his approach or dealings. But if the same marketer goes to Japan, this gesture can lead to give an impression that he is harsh, uncultured, arrogant, etc. This is called OCULESICS. Solution: a) In such circumstances, MNC should select suitable personnel for International Operations who are sensitive to such situations and to others and also have experience in working under different environments. c) Train then before sending to particular territories in International Marketing about the culture of the Host Country so that such breakdowns are avoided. d) Diplomats going on Foreign Assignments are trained and groomed suitably for such behaviors, etc. 2. GOVERNMENT BARRIERS: Quite often, Local Governments, Developing Countries in particular, adopt restrictive trade policies whereby they do not allow new entrants, viz. International Firms based on logic that they are supposed to be important either for their industries or for security reasons. Such Trade Barrier or Tariffs, tactics are: a) b) c) d) Import Quotas, Policies denying Import Licenses, Foreign Exchange restrictions; Local Content requirements.

GATT, WTO, Regional Economic Integration bodies such as EU, NAFTA, MERCSOUR

Etc. do not like such stipulations which put restrictions on Trade, etc. Rather they use other tactics such as Non Tariff Barriers, viz. cumbersome procedures for import paper works processing, delays in awarding Import Licenses, preferential treatment to local service providers and product manufacturing for all contracting work, etc 3. INTERNATIONAL COMPETITION: Though it is argued in previous paragraphs that Competition is a good driver of Internationalization, but quite often Competitors also adopt such tactics where they try their level best to deny entries to new entrants into markets already covered by them for obvious reasons. Few of such traits are: a) b) c) d) Blocking channels of distribution; Binding Retailers into Exclusive Legal Agreements; Slashing prices temporarily to prevent product adoption; Engaging in an Advertising Blitz, which could hurt a companys initial sales in a market and compel it to abandon the market.