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INTERNATIONAL MARKETING ESSAYS SCENARIO OF COMPANY’S INTERNATIONALISATION IN CHINESE MARKET The last two decades have witnessed a growing interest in the area of internationalisation, defined by Rao and Naidu (1992) as a gradual process by which business firms become involved in international business activities. In fact, in the contemporary world, all businesses begin their operations in the domestic market, but most of them draw up a long-term plan on how they will be expanding internationally. According to Kotler and Armostrong’s (2005) process of international expansion, a company must first clearly articulate the reasons why it wants to export its business to foreign markets. Main common reasons pushing firms to internationalize are profit, expansion, market opportunity and growth. a firm seeking to enter a foreign market must make an important strategic decision on which entry mode to use for that market. Entry mode refers to the institutional arrangements under which the companies carry out their operations in the foreign market (Pehrsson, 2008). The consequences from the choice of entry mode can have strong effect on the survival of the firm. In order to select an appropriate entry mode for COMPANY, Driscoll (1995)’s framework can be used. The model identifies and analyses three main foreign market entry methods – namely export, contractual and investment modes. Export entry modes consist in sending directly/indirectly the goods produced in the domestic country to another country. Contractual entry modes relate to cooperative relations implemented through contacts with foreign partners and include a variety of arrangements such as licensing, franchising, management contracts; investment entry modes include setting up foreign branches such as joint ventures or whollyowned subsidiaries. In addition, Driscoll framework suggests that, in order to achieve the objective of internationalization, a company should take 3 factors into account: firm factors, environmental factors and moderators. Firm factors refer to the: - firm-specific advantages, - experience and - strategic considerations; environmental factors concern: - demand and competitive conditions, - political and economic conditions as well as - socio-cultural conditions; whereas moderators refer to: - government policies - corporate policies - and firm size. These factors need to match to each other in order to conclude the right entry mode.

The internationalisation behaviour of firms also differs significantly between LSEs and SMEs. In this case, COMPANY is a small enterprise. First of all, this means that the absence of standardization and the prevalence of loose and informal relationships would make the company more flexible to environmental changes, hence more likely to survive in turbulent environments. However, being a small firm, COMPANY is probably also limited in resources it possesses and has access to; lack of market knowledge and insufficient finances can also be significant barriers. After examining the firm factors, an analysis of the Chinese market is also crucial. Within China, rapidly changing demographics, rising incomes, increased consumer spending and an increasingly open business environment have all helped to make the Chinese market very attractive to Western businesses across a variety of industries. However, with a population that exceeds 1.3 billion people and a land mass larger than the United States, China’s sheer size and scale presents challenges uniquely distinct from any other market. Understanding government policy and regulations, for example, is critical to success in Chinese markets. Although China’s entry to the WTO in 2001 helped to liberalise China’s trade environment to some extent, many industries remain heavily regulated. It is, in fact, very important to determine straight from the beginning the official status of the industry sector COMPANY falls into; hence, referring to the so-called “Catalogues” where industries are categorized as encouraged, permitted, restricted and prohibited to foreign investment. For instance, certain industries under the “restricted” categories are exclusively open to joint venture enterprises; whereas “encouraged” industries may sometimes benefit of tax incentives, cheaper land costs and simplified approval procedures. To my knowledge, xx industry falls into the xx category, which is certainly a positive factor for COMPANY. Moreover, the market demand and growth for the product should be high blabla, which is another good reason for COMPANY to enter the market. A further element that must be taken into consideration is the so-called psychic distance, which can be defined as the sum of factors preventing the flow of information between the firm and the host market (Johanson & Vahlne, 1977). For instance, China and UK differ significantly in history, culture, social system and values; they are at different stages of development and have different views on many concerns. COMPANY must be aware of China’s large psychic distance when implementing its internationalisation strategy. Once firm factors and the Chinese market have been evaluated, an appropriate entry mode can be selected. As such, advantages and disadvantages of various entry methods will be discussed as follow. According to Masum and Fernandez (2008), the most common entry mode used by SMEs/firms starting to go international is exporting, followed by joint ventures and wholly owned subsidiaries. This fits perfectly with the Uppsala model idea of internationalisation as a four sequential stages process: Stage 1: no regular export activities Stage 2: export via independent representation (agent) Stage 3: sales subsidiary

Stage 4: production/manufacturing. In other words, a firm would first commit to a low degree of resources during the initial stages of their internationalisation process (eg. Through exporting) and gradually increase the level of commitment. 1. Exporting Exporting is in fact the simplest way of going international, since the levels of commitment, investment and risks are reduced. For a small sized company like COMPANY, starting with a low equity entry mode like exporting could be a wise choice. However, if selling their goods directly to foreign customers, COMPANY will have the responsibility for doing their own market research and carrying out all the necessary administrative requirements. As such, a particular form of exporting could be used – indirect export, which is performed by selling through an intermediary. Advantages: For example, setting up a representative office (RO), would be a fast and less expensive way for COMPANY to set up in China. By acting as a coordinator and engaging in eg. research or promotional activities, the RO would allow the company to gain experience and a better understanding of China before deciding to fully engage in the market. Disadvantages: Nonetheless, while an RO is relatively easy to establish and maintain, they are fairly limited in terms of operational scope since they are not allowed to issue invoices, sign contracts or engaging in any other profit-seeking activity. Violations may result in fines or even closure of the office. 2. Licensing Another option for COMPANY would be licensing, which can be defined as a business arrangement in which an exclusive owner of Intellectual Property Rights gives permission to another party to use such IPR on agreed terms and conditions. Advantages: In this way, COMPANY would still continue to retain ownership of the IPR and increase revenue, without the costly start-up investment; hence, it would be a safe way to minimize risk and expand the business. Disadvantages: However, one of the widespread disadvantages with licensing is that the original company has very low level of control, meaning that the host government can influence the actions or operation of the subsidiary. COMPANY would then risk that its IPR are infringed; also, it would have no contact with end customers. For these reasons, setting up locally could generate better profits in the long run. 3. Joint Venture In this regard, strategic alliances, such as the creation of a foreign subsidiary jointly controlled by COMPANY and a foreign partner, can be another opportunity for entering the Chinese market. There are two options for setting up a joint venture in China: equity joint venture, with limited liability on the equity (foreign share cannot be lower than 25%), and cooperative or contractual

joint venture, which is more flexible and partners may agree a share of the profits different from their share in the equity. Advantages: If partnering with the right local partner with the right amount of resources and expertise, joint ventures could benefit COMPANY with a greater access to the big market and distribution network as well as the opportunity to share all the risks and expenses with a partner. Disadvantages: However, in addition to high entry costs, miscommunication between partners and conflicting management styles may also occur, resulting in costly business decisions and disparity within the company. Decision in the case of SME: Considering the size of COMPANY, the time and resources available, the nature of the product sold, and the business conditions and regulations in China, it is adviced for COMPANY to develop a gradual approach to internationalisation as it would be less risky in terms of both operational cost and invested capital Although exporting would require considerable time investment, it is a good option for COMPANY to avoid the costs of setting up in China completely. The RO, for example, is one of the most inexpensive and useful business vehicles through which COMPANY could establish their first China presence; indeed, there is no capital requirement and it is relatively simple and quick to set it up. Moreover, a RO offers the possibility to become familiar with the Chinese market before committing to a larger investment. This way COMPANY can test local demand for their products or services and devise a strategy on how to meet the specific needs of prospective consumers.

INTERNATIONAL MARCOM – STANDARDISING VS ADAPTING CAMPAIGNS Fourth and final decision in a global marketing program, communication is considered a major part of international marketing activities. In fact, it is not enough to produce goods and make available a product or service; it is also necessary to provide information that buyers need in order to make purchasing decisions.

The role of communication in global marketing is similar to that in domestic operations; in fact, International Marketing Communications (IMC) can be essentially defined as the coordination and integration of all marketing communication tools, avenues, and sources within a company into a seamless program that maximizes the impact on consumer and other end users at a minimal cost (Clow and Baack, 2004). According to Cheney’s communication model (2011), two common elements in every communication exchange are the sender and the receiver. The sender initiates the communication by encoding the idea through words, symbols or gestures; the receiver is the individual to whom the message is sent and decodes the received message into meaningful information. Another element taken into consideration is the so-called noise – anything that distorts the message. Different perceptions of the message, language barriers, interruptions, emotions and attitudes are examples of noise. Finally, feedback occurs when the receiver responds to the sender’s message and allows the sender to determine whether the message has been received and understood. The elements in the communication process determine the quality of communication; a problem in any of these elements can reduce communication effectiveness. For this reason, selection of the particular medium for transmitting the message as well as understanding the purpose of the message and audience to be reached are critical to communicate in an effective way. The options that are available for a generic marketing communications strategy centre on the extent to which a push or pull strategy should be adopted. A push strategy means promoting the product or service to retailers and wholesalers in order to force the product or service down the distribution challenge; this approach uses promotional methods such as personal selling, discounts and special deals. A pull strategy means communicating with the final consumer and attract them to the retailer or distributor to purchase the product; in this case, mass advertising and sales promotions are the most obvious promotional methods. Communication tools can therefore be classified from mass communication tools (one-way) to a very personal and close approach tools (two-way communication tools). One-way tools include advertising, public relations and sales promotions whereas two way communication tools include direct marketing and personal selling. Within the arena of international marketing, an essential decision a company has to make when developing a communication strategy is whether to: 1. Adopt a uniform strategy all over the world – standardisation strategy 2. Adjusting strategies to local circumstances – adaptation strategy The major debate supporting the standardization approach is the view that the world is becoming more and more homogenous. In a standardized marketing strategy, companies assume, in fact, that customers all over the world share the same tastes and desires. There are various positive aspects supporting this method such as: -

Minimisation of total costs Reduced message confusion for consumers who travel in different areas Uniform and consistent global brand image

Nevertheless, standardised communication messages may not always be suitable for foreign markets. The international marketer must in fact deal with differences among countries such as language differences, economic differences, sociocultural differences, legal and regulatory differences, competitive differences. Each one of these factors may render a company’s international approach to marketing ineffective and counterproductive in the foreign market. For example: high-context cultures such as Asia have consumers who are more likely to be influenced with advertising messages that are in transformational style, visual cues and have major information networks among family and friends; whereas low context cultures such as North America and North Europe prefer an informational style, are more analytical/action-oriented and adopt fewer personal networks (Krolikowska & Kuenzel, 2008). Consequently, many companies focus on identifying how they should alter and adjust their strategy in order to meet new market needs and suit local tastes. This approach is commonly referred to as adaptation of the marketing strategy and present lots of advantages such as: - enabling a company to succeed in individual markets by developing a thourough understanding of local requirements - bringing out easy connection and acceptability by consumers - increasing positive response to marketing communication messages - expediting local business development However, adaptation strategies also come with their limitations including: - increased operating costs - limited control and co-ordination - limited extent to which a uniform global image can be achieved In other words, the global/local marketing challenge can be separated into two parts – the creative challenge and the implementation challenge. The creative challenge refers to the problem associated with creating a global campaign concept that meets the global brand aims and is adaptable for local market needs. More specifically, it concerns elements such as humour, colours, language, metaphors, which all differ from country to country. For instance, Eg. The interpretation of humour by Swedish consumers have been categorized as laughter, happiness or unforeseen situations, while studies imply that in Chinese consumers have a negative attitude toward humour and tend to devalue it. On the other hand, the implementation challenge considers the planning and managing of the project from inception to the launch and concern four main elements to consider when implementing a global campaign: 1. 2. 3. 4.

Roles and accountabilities Defined budgets Global creative brief encompassing the company’s vision and mission Clear project management and communications

In CONCLUSION, there are limits in many factors that influence the international strategy of a company and, in my opinion, the extreme adoption of one strategy or the other is not easy or even not possible. In fact, I believe a simultaneous adoption of both strategies is usually a good solution to the standardization/adaptation dilemma as brands can then take advantages of both approaches to develop a successful international marketing communication strategy....