International Markets Engagement
Businesses can use different methods of entry to access international markets. A firm interested in internationalization faces tough decision regarding the choice of the best entry mode. Generally, the method of entry is determined by issues relating to ownership and control, target market location, as well as internalization advantages (Sanjeev & Sridhar, 1992). One method is the standalone entry. It is also known as the foreign direct investment. This is implemented by companies that perceive themselves as being adequate in terms of capability to take capital risks and enter the markets on their own.
Under Joint Ventures, companies enter a strategic alliance characterized by equity participation by both the parties; the foreign entrant and the partner in the local market. The equity participation takes forms and different ratios, like a minority or equal, controlling or majority stakes. The method is less risky, the entrant leverages on the local partner’s facilities, distribution systems and managerial competence (Sanjeev & Sridhar, 1992).
Under licensing the entrant grants the local firm the rights and access to specific know-how, product design, patent/trademarks as well as intellectual property. The entrant benefits from the royalties and other kinds of fees or payments. This method has been used by Disney in Japan.
In franchising, the franchisor grants the franchisee all the legal and commercial rights to distribute certain goods and/or services under the brands and systems of the franchisor. This is done in exchange of fee. The franchising method of entry ensures fast market expansion and business network growth. Companies like McDonald has used the method with a firm emphasis on assured common customers’ experiences throughout its networks. Some companies use exporting as a method of entry. Under the entry method, the entrant produces in one country but markets them in another country. This takes place through well-established marketing, promotion and distribution channels. The method of entry requires a momentous investment in control and marketing strategies.
Distribution channels refer to systems that products and services are availed to the final consumers. A marketing channel consists at least the producer and the consumer. In between, agents, wholesalers, and retailers may facilitate to avail the product to the consumer. In Saudi Arabia, the following four types of channel are used:
Producer to Consumer is a type of distribution where the manufacturer makes, stocks and delivers manufactured products to the consumer. The manufacturer has control over all distribution centers and acts as a wholesaler of their products. Most of the consumers under this category are industrial. It requires storage facilities in various regions where the product is marketed. Computer software is good example of a product that can use this channel (Berkowitz & Rudelius, 2000).
Producer-retailer-consumer is a distribution channel where the manufacturer acts like the wholesaler and distribute the product to retailers for final delivery to the consumer. The manufacturer may have to open distribution centers for easy distribution to the retailer. It is expensive to run this model in foreign market because of setting up storage facilities. Caterpillar distribution fits well into this kind of channel.
Producer-wholesaler-retailer-consumer utilizes wholesalers. This model is preferred as it reaches a wider market than the above mentioned. However, it makes the price of a product expensive and may not compete with similar products from the competitors. It is, therefore, important to investigate the models used by other players. Motor vehicle spares can be distributed with this model
The final model is producer-agent-wholesaler-retailer-consumer. It is the most preferred mode for exporting product to a foreign country. In Saudi Arabia, there are agents licensed to import various products from all over the country. The agents are best placed to assist in the distribution of imported products as they understand their home market. Food products are good example of products that can be exported using this type of channel (Berkowitz & Rudelius, 2000).
Promotion is a critical tool in marketing as it creates awareness for the brand. Promotion can be done through advertising, sales promotion, public relations and personal selling. Advertising is Saudi Arabia is mostly through television, radio and print media. Since the media is not as vibrant as in the U.S. advertising may not reach many people and hence a need for another form of promotion. It is also important to understand the target market before embarking on an advertising campaign. For example, a software solution for businesses cannot fit well as T.V. advert (Thilmany, 2009).
Sales promotion is another form of marketing tool that is different in Saudi Arabia. It is important to complement advertising with sales promotion as it emphasizes the message to the potential customers. Public relation is also important in Saudi Arabia as the culture differences with the U.S may portray an undesired image of the products. Therefore holding press conferences and running press releases to remove any misconceptions about the products is very critical. It can be done using the media platform available in the country (Thilmany, 2009).
The final tool of promotion is personal selling. It is credited as the best tool to conquer new markets as the seller meets the potential customer and explains the benefits of the product. He also answers the question from the customer at first hand. Personal selling is the best method for selling software services to the business community. It also applies to technical products like specialized factory machinery. In Saudi Arabia, this method is not different from the U.S. as it merely entails visiting clients’ premises and understanding their needs (Thilmany, 2009).
Pricing Issues: Countertrade
The article summarized, Why Failed So Often the Offset Part of a Defense Procurement Deal?-A Case Study Based Examination by Kirchwehm Heinz is based on the concept of Offset in procurement as an aspect of countertrade. The article examines the detailed circumstances when a failing offset projects in defense procurement contracts may occur. The author established that not all sets of related projects under countertrade can be successfully finalized, more because of poor pricing strategies that later render the projects unachievable. For example, the US Fighter Planes and F-16 for Poland projects failed. The article also identifies the factors that determine of a successful offset and how to avoid the related problems in other projects. These included good infrastructure and necessary skills for efficacious know-how transfer.
An offset obligation is defined in the article as a countertrade that must be accepted by a bidder to be able to win contracts for procurement projects that are superior in nature. The type of counter-trade occurs mostly in government-to-government deals, commercial deals in aerospace and as well as defense businesses. The offset maybe implemented as part of an industrial, political agreements or commercial agreements. It seeks to meet specific of the buyer and seller. The buying country is able to build economic and industrial base, benefit from transfer of technology, and new markets access and the employment opportunities. The selling side benefits from the offset based countertrade through activated global supply chain, business diversification, new markets entry and enhanced competitiveness.
Today, almost all large procurement projects have the offset obligation clause. However, the composition and nature of the offset package are the main unique benchmarks among various competitors. Economically, the benefit of this form of countertrade lies in the multiple values within the real procurement project. While there are many benefits of this form of countertrade, in some situations, the offset may fail. Therefore, the companies and all the parties need to know the causes of such failures.
Berkowitz, K., & Rudelius H. (2000). Marketing Channels and Wholesaling. New Delhi: The
Heinz, K. (2014). Why Failed So Often the Offset Part of a Defense Procurement Deal?-A
Sanjeev, A. & Sridhar N. (1992).Methods Of Entry: Choice of Foreign Market Entry Mode:
Impact of Ownership, Location and Internalization Factors. Journal of International Business Studies, 1(1).
Thilmany, D. (2009). Marketing and Promotion Resources: Leveraging Existing Programs and
Resources. Retrieved on 19th April 2015 from http://cals.arizona.edu/arec/wemc/nichemarkets/06marketingandpromotionresources.pdf