International marketing is marketing products and SERVICES to customers outside a company’s home country. It is important to both businesses and countries and involves a variety of strategy issues, laws, and other considerations. International marketing is as old as civilization. Almost any issue of National Geographic Magazine will include a story about trade, whether it concerns an ancient sailing ship being raised from the ocean bottom or travel along centuries-old trails where merchants carried goods from one civilization to another. International trade exists and has existed for a variety of reasons, including access to products not available domestically, COMPARATIVE ADVANTAGE among producers in one country, foreign DEMAND, saturation of domestic demand, and technological advantage. Historically the United States has not been a leader in international trade. As a colony it was subject to British laws requiring marketers to use British ships and requiring some products to be sold only to British merchants. With independence, U.S. producers focused mostly on meeting local demand. As the country grew and INFRASTRUCTURE expanded marketing opportunities, most U.S. manufacturers were content to work in domestic markets, while international trade was predominantly with Britain and later Canada. U.S. expansion into international markets grew rapidly after World War II, with the increasing dominance of American manufacturers and the growth of MULTINATIONAL CORPORATIONs. Today international trade represents a little more than 15 percent of U.S. GROSS DOMESTIC PRODUCT; most industrialized countries have a much higher percentage. While the U.S. percentage is small, on a dollar basis the United States is the largest trading country in the world, and U.S.-based companies dominate many international markets. Companies expand into international markets either by careful analysis of the options and opportunities or almost by accident. Often international marketing begins with a request from a foreign company or a proposal from a foreign supplier. Many U.S. companies expanded internationally based on the MARSHALL PLAN programs for redeveloping Europe and Japan. Many companies use MARKET RESEARCH to first assess opportunities when considering whether to expand into international markets. Market research is used to answer questions such as
• How is the social and cultural environment different?
• Are there infrastructure constraints?
• Who are the competitors and how competitive are they?
• Are there sufficient numbers of potential customers with sufficient purchasing power?
• What political and legal issues are likely to be a concern?
• What operating laws, standards, and taxes need to be considered?
Each of these questions needs to be analyzed carefully. Numerous articles describe INTERNATIONAL MANAGEMENT blunders—mistakes made by companies “going international.” A classic example notes how Chevrolet marketed its Nova car in Spanish-speaking countries where no va means “no go.” An Asian manufacturer shipped sandals to the Middle East with a tread pattern that closely resembled the Arabic word for Allah (god). Kodak attempted to sell their film in Japan by charging a lower price than Fuji, but later research revealed that Japanese film buyers perceived the lower price as meaning the PRODUCT was of lower quality. Once international marketing opportunities have been identified, companies then address the question of how to expand internationally. The choices include EXPORTING, LICENSING, FRANCHISING, foreign direct INVESTMENT (FDI), JOINT VENTURES (JVs), and wholly owned subsidiaries. The choice will usually depend on a company’s resources and willingness to take on RISK. Exporting—selling directly to a foreign buyer or to a middleman—requires little CAPITAL and, if managed properly, involves relatively little risk. Licensing—granting the right to a foreign producer to manufacturer a product for sale through foreign companies— also involves few resources and little risk. However, one risk is the potential creation of GRAY MARKETS, where licensed products made in other countries are returned into the company’s domestic market, competing with domestically made products. Franchising is a contractual agreement between a manufacturer or business-idea owner, the franchiser, and a WHOLESALER or retailer, the franchisee. It requires little capital on the part of the franchiser and relatively little risk. The franchiser sells to the franchisee the right to market its products or ideas, and to use its TRADEMARKs and BRANDS. The franchisee agrees to meet the franchiser’s operating requirements, usually pays an initial fee for the franchise, and agrees to pay a percentage of sales to the franchiser. There is a potential risk if the franchisee harms the franchiser’s reputation through shoddy products or dubious business practices. Foreign direct investment (FDI) is the purchase of production, distribution, or retail facilities in another country. FDI requires capital, and because it generates physical ASSETS in another country, it creates greater risk. FDI also provides greater control and PROFIT potential than other less-risky international marketing options. Joint ventures (JVs) are a popular method of expansion among U.S. companies; many U.S. companies first expanded into China and Mexico using JVs. Often the U.S. firm provided the capital and technology, while the Chinese or Mexican firm provided the contacts and distribution or retailing capability. Influence, connections, and relationships—called guanxi in China—are often as important as money in making business happen in international markets. Joint-venture agreements require capital and involve risk. There is an old saying that CONTRACTs are only as good as the people signing them. In many international markets, contracts are seen as establishing a relationship, not defining the terms and agreements of each party to a joint venture. Because of this, many U.S. businesses have been surprised or disappointed in their international joint ventures. The last option for expanding internationally is the creation of a wholly owned subsidiary. Investment in foreign manufacturing or in an ASSEMBLY PLANT provides company control but requires investment capital and involve risk. Many companies create foreign operations as a means to overcome BARRIERS TO ENTRY. In the early 1900s, U.S. companies often created what were called “branch plants” in Canada as a way to sell goods there. Basically, international markets are divided into three known spheres of influence in Europe, North America, and Asia, plus one unknown. The EUROPEAN UNION (EU) is called “fortress Europe.” Companies wanting to market there often find it to their advantage to create manufacturing or assembly operations in one or more of the EU countries. North American international marketing is heavily influenced by the NORTH AMERICAN FREE TRADE AGREEMENT (NAFTA). Trade diversion, the shifting of production facilities in response to changes in international trade laws, grew with NAFTA’s passage; other foreign companies frequently establish production facilities in North America in order to have access to the U.S. market. South Asia has historically been called “Japan Inc.” dominated by Japanese multinational corporations. With the decline in the Japanese economy and the ascension of China to the WORLD TRADE ORGANIZATION (WTO) in 2001, Japanese dominance is being challenged by the relatively unknown, China. While identifying opportunities for international marketing and deciding what type of international organization or option to use, marketers develop an international MARKETING STRATEGY, a firm’s overall plan for selecting and meeting the needs of a target market. Marketing planning begins with comparing opportunities against the firm’s resources, then developing objectives and mapping strategies, including tactical plans for implementation and control, to meet those objectives. Marketing strategy includes decisions regarding product, promotion, pricing, and distribution (called the four Ps of marketing). When expanding into international markets, basic assumptions should be questioned and confirmed and minute details addressed. When considering product decisions, the easiest option would be to sell the same product in new markets. Depending on the country, marketers may need to change the size of the product, language, symbols, colors, and usually labeling. International marketers often hire labeling specialists to address the requirements of the country they are targeting. Since most of the rest of the world uses the metric system, weights and measures as well as container sizes probably will need to be changed. Packaging laws and environmental requirements can also necessitate product changes. Pricing is a second strategy consideration. Logically marketers would like to charge a price similar to domestic prices but will consider adjusting prices based on consumer INCOMEs in the new market. Other pricing factors need to be considered as well. For example, in many markets higher prices convey an image of better quality, so having the lowest or competitive price may not be the best strategy. Markups also vary from country to country, and the number of participants in the marketing chain may influence pricing decisions. For example, because lower incomes are normal in many South Asian countries, U.S. snack-food marketers reduced the size of their packages and then reduced prices. As mentioned above, the number of participants in DISTRIBUTION CHANNELs may vary in international markets. Major retailers like Wal-Mart will alter their distribution strategy depending on the country they are entering. In Canada, Wal-Mart bought the Woolworth chain of stores but, rather than bring in its own distribution system, contracted with a Canadian-based company to distribute products to the stores. In many countries, distributors and their connections to government agencies require international marketers to hire local service providers. A fine line exists between hiring for distribution and customs services and paying bribes to get products into the market. Promotion can be the most difficult challenge for international marketers. Symbols, colors, and expressions are all possible sources of confusion or misinterpretation, in addition to the obvious problem of language translation. Even in English-speaking countries, promotional messages need to be “translated.” For example, in the United States to say people are “on the job” means they are there and actively working; in England the phrase refers to prostitution. There are many such “Englishes,” and symbols also have many meanings. In Bali there is a lovely hotel called Hotel Swastika, bearing what Americans call the Nazi symbol—yet in Bali this symbol refers to the four forces on Earth. Color is another issue. While white is associated with purity and cleanliness in the United States, in many countries it is associated with death and funerals. Even after addressing promotional message issues, international marketers have to consider media options. Newspaper, television, and radio options are likely to be different, and billboards and the use of premiums may not be allowed. Promotional specials may be regulated, and PERSONAL SELLING may be more important in some international markets. International marketing strategy is a classic example of Murphy’s Law, “if it can go wrong, it will go wrong.”
See also FOREIGN INVESTMENT.