How To Sell Your Product In The Global Market
During the last half of the twentieth century, many barriers to international trade fell, and a wave of firms began pursuing global strategies to gain a competitive advantage. However, some industries benefited more from globalization than others.
Some nations have a competitive advantage over other nations in certain industries. To create a successful global strategy, business owners must first understand the nature of global industries and the dynamics of global competition.
Well-designed global strategies help companies gain competitive advantages. Advantages can arise from the following sources:
Efficient Economies of scale help firms to gain access to more customers and markets, and position them to exploit the prospective country’s resources such as labor and raw materials.
Operational Flexibility – shift production as costs, exchange rates, etc. change over time. Strategic First-Mover advantage and sole provider of a product to a market cross subsidization between countries.
Risk Diversification – macroeconomic risks (business cycles not perfectly correlated among countries).
Diversified Operational Risks (labor problems, earthquakes, wars). Broadened Learning Opportunities due to the diversity of operating environments.
We employ a framework comprised of three categories of strategic objectives, and three sources of advantages that can be used to achieve them. These are assembled into a matrix of results in the following framework:
- Strategic Objectives vs. Sources of Competitive Advantage
- National Differences / Scale Economies / Scope Economies
Efficiency in Operations – Exploit cost factor differences by Scale in each activity. Share investments with Flexibility and Market or policy-induced changes. Balance scale with strategic and operational risk Portfolio diversification.
Innovation and Learning Societal Differences in management and organization experience – cost reduction and innovation shared learning across activities.
The Nature Of Competitive Advantage In Global Industries:
A global industry can be defined as: An industry in which firms must compete in all world markets of that product in order to survive. An industry in which a firm’s competitive advantage depends on economies of scale and economies of scope gained across markets.
Some industries are more suited for globalization than are others. The following drivers determine an industry’s globalization potential.
- Location of strategic resources
- Differences in country costs
- Potential for economies of scale (production, R&D, etc.)
- Flat experience curves in an industry inhibit globalization. One reason that the facsimile industry had more global potential than the furniture industry is that for fax machines, the production costs drop 30%-40% with each doubling of volume; the curve is much flatter for the furniture industry and many service industries.
- Industries for which the larger expenses are in R&D, such as the aircraft industry, exhibit more economies of scale than those industries for which the larger expenses are rent and labor, such as the dry cleaning industry.
- Industries in which costs drop by at least 20% for each doubling of volume tend to be good candidates for globalization.
- Transportation costs (value/bulk or value/weight ratio) => Diamonds and semiconductors are more global than ice.
Common customer needs favor globalization. For example, the facsimile industry’s customers have more homogeneous needs than those of the furniture industry, whose needs are defined by local tastes, culture, etc.
If a firm’s customers are other global businesses, then globalization may be required to reach these customers in all of their markets. Furthermore, global customers often require globally standardized products.
Global channels require a globally coordinated marketing program. Strong established local distribution channels inhibit globalization.
Transferable marketing – whether marketing elements such as brand names and advertising require little local adaptation.
World brands with non-dictionary names may be developed in order to benefit from a single global advertising campaign.
Global competitors – The existence of many global competitors indicates that an industry is ripe for globalization. Global competitors will have a cost advantage over local competitors.
When competitors begin leveraging their global positions through cross subsidization, an industry is ripe for globalization.
Trade policies, Technical standards, Regulations, Tariffs and Trade Barriers.
Types of International Strategy: Multi-domestic vs. Global:
- Multi-domestic Strategy – Product customized for each market.
- Decentralized Control – Local decision making is effective when large differences exist between countries.
- Advantages – Product differentiation, local responsiveness, reduced political risk and minimized exchange rate risk.
Product is the same in all countries. Centralized control – little decision-making authority on the local level. Effective when differences between countries are small. Advantages: cost, coordinated activities, faster product development.
A fully multi-local value chain will have every function from R&D to distribution and service performed entirely at the local level in each country. At the other extreme, a fully global value chain will source each activity in a different country.
Philips is a good example of a company that followed a multi-domestic strategy. This strategy resulted in Innovation from local R&D, Entrepreneurial spirit, Products tailored to individual countries, and High quality due to backward integration.
The multi-domestic strategy also presented Philips with many challenges: High costs due to tailored products and duplication across countries. The innovation from the local R&D groups resulted in products that were R&D driven instead of market driven.
Decentralized control meant that national buy-in was required before introducing a product – time to market was slow.
Globalizing Service Businesses:
Service industries tend to have a flat experience curve and lower economies of scale. However, some economies of scale may be gained through knowledge sharing, which enables the cost of developing the knowledge to be spread over a larger base.
Also, in some industries such as professional services, capacity utilization can be better managed as the scope of operations increases. On the customer side, because a service firm’s customers may themselves be operating internationally, global expansion may be a necessity.
Knowledge gained in foreign markets can be used to service customers better. Finally, being global also enhances a firm’s reputation, which is critical in service businesses.
Coordinating across offices and sharing knowledge. Whether to hire locals or international staff. How to compensate the staff.
Consider Cultural Differences In Global Business Expansion:
The number of companies operating internationally is growing constantly. The world is opening up for foreign firms and new destinations and companies’ businesses are increasing. Because of high competition the companies operating abroad are faced with a much larger task than before.
When going global
, the challenges the company must handle are new and unfamiliar. Obstacles that firms never faced before will becoming crucial in every day work. Culture is one of these obstacles and can affect the entire operation.
Culture can influence the business in different ways. Language problems, pricing difficulties and culture collisions are not uncommon, especially in the beginning. The company must be able to handle these difficulties in a way that is satisfactory to all involved.
Mistakes can be difficult to correct, and disrespect for the new culture can destroy the business. There’s some general advice companies must always have in-mind, before and during a co-operation on the international market.
It is important, even before entering the new country, to inform personnel about the manners and customs in the new culture. If the first impression becomes negative, then this can be hard to shake.
Different cultures have different ways of doing business. Planning ahead and keeping delivery times can be good examples. Culture can be both a positive and a negative influence, and many companies struggle in their new, unfamiliar environments.
The important thing to keep in mind is that the new culture may be very different from what we are used to at home. You must be well-informed and well-prepared before starting a new operation in a new country.
It is very important to understand and respect the new culture, and one must avoid forcing one’s personal beliefs on the people in the new country.
By learning the host country’s language, respect and trust can be more easily won, and competitive advantages can arise.
Foreign Market Entry:
An important part of a global strategy involves the method the firm will use to enter the new market. There are four possible modes of new market entry:
- Exporting Licensing (includes franchising)
- Joint Venture
- New Market
- Direct Investment
These options vary in their degree of speed, control, and risk, as well as the required level of investment and market knowledge. The entry mode selection can have a significant impact on the firm’s new market success.
In emerging economies, capital markets are relatively inefficient. There is a lack of information, the cost of capital is high, and venture capital is virtually nonexistent.
Because of the scarcity of high-quality educational institutions, the labor markets lack well-trained people, and companies must often fill the void.
Due to the lack of communications infrastructure, building a brand name can be very difficult, but good brands are highly-valued because of the lower product quality of the alternatives.
Relationships with government officials are often necessary for success, and contracts may not be well enforced by the legal system.
Knowledge Management In Global Firms:
There is much value in transferring knowledge and best practices between parts of a global firm. However, many barriers prevent knowledge from being transferred: Barriers attributable to the knowledge source’s lack of motivation and lack of credibility.
Barriers attributable to the knowledge itself – ambiguity and complexity. Barriers attributable to the knowledge recipient’s lack of motivation (not invented here syndrome), lack of absorptive capacity – need prerequisite knowledge to advance to the next level.
Barriers attributable to the recipient’s existing process – process rigidity. Barriers attributable to the recipient’s external environment and constraints.
Furthermore, even when the transfer is successful, there’s often a temporary drop in performance before the improvements are seen. During this period, there is a danger of losing faith in the new way of doing things.
To Facilitate Knowledge Transfer, A Firm Can:
Implement processes to systematically identify valuable knowledge and best practices.
Create incentives to motivate both the knowledge source and recipient.
Develop absorptive capacity in the recipient – cumulative knowledge. Develop strong technical and social networks between parts of the firm that can share knowledge.
We Are Consultants, Analysts And Advisors Who Have Expertise In Taking Local Companies Global.
Through our Global Advisory Council, we employ our Local To Global System (L2G) to set your project priorities based on what’s important to you, when viewed through the lens of your project expansion analysis.
We take responsibility for reducing your risk, while owning the situation and positioning you to deliver your goods and services to the global market.
L2G with DAAI & ZARA System
L2G Market research and strategic business plans are key, however, due to the overall security of doing business in any part of the Globe, every firm should feel the freedom to choose the entry mode that best suits their business.
Whether that is through the implementation of a wholly owned subsidiary, joint venture, or some other mode of entry, the outlook for success will be increased, based on the similarities between the local market’s production / consumption and the global market’s production / consumption.
DAAI = Diagnose, Assess, Analyze The Importance
As the PDH-SAT-GAC, we develop the “DAAI Feasibility Study Report” to expand your local business, focusing on the Terminal Value of your product and service in a 20-2000 SQM radius in your new zone.
Your expansion study includes the Diagnosis, Assessment, and Analysis of the Geo-Socio-Eco-Political Importance. Typically, this critical study will take 18-24 Months.
Once the DAAI report matches your basic company vision, we will then move on to the next step, which is the ZARA Phase.
ZARA means “seed.” Everything must be handled very carefully, and cultivated in such a way that you will gain the reward.
ZARA = Zone, Area, Rectify, Acquisition
The ZARA System is built on the foundation created by your DAAI report. Our PDH-SAT-GAC navigates your product and services to any sector on the globe. After determining the Zone Area SQM, we Rectify and perform the Market Acquisition based on the regional Socio-Cultural.
Another Key Question: Compete with the local brand, or align with them? What should you do?
Things to keep in mind when looking to engage in a new country direct investment that will aid you in overcoming barriers to entry.
Analyze Key Issues For Market Penetration And Acquisition Strategies:
- Have a comprehensive understanding of the culture in which the firm wishes to invest, including traditions, expectations, governmental policies, stability, openness, economy, and infrastructure.
- Actively pursue relationships with potential business partners, and take advantage of opportunities to network.
- Create a comprehensive business plan and entry strategy in order to gain governmental support, while anticipating competition.
- Develop and implement policies for dealing with barriers, especially in the area of ethics.
New country investors may position themselves in the premium segment, the mass market, or combine both in a multi-tier strategy.
The latter may often be most promising in terms of the long term market position, yet it needs to be supported by a combination of global brands and operational capabilities for the specific local context.
New country investors need to design (not select) an appropriate entry mode that provides access to the local resources needed to support the chosen entry strategy.
The optimal mode will vary with the level of aggressiveness and resource commitment that the investor chooses to pursue. Moreover, the range of the available modes is wide, and decision makers should adopt and combine what suits best their local industry structure, consumer behavior and their institutional environment.
Multinational enterprises (MNEs) are expanding their global reach, carrying their products and brands to new and diverse markets in emerging economies. As they tailor their strategies to the local context, they have to create product and brand portfolios that match their competences with local needs.
A multi-tier strategy with local and/or global brands may provide MNEs with the widest reach into the market and the potential for market leadership. However, it has to be supported with an appropriate combination of global and local resources.
Outside entrants have to develop operational capabilities for the specific context, which requires complementary resources that are typically controlled by local firms.
We offer a Free Local To Global Market Assessment Call to make it easy for you to gain more confidence and peace of mind, about how to move forward with your Expansion. Click the Button Below to learn about this Free Service and about how you can benefit.