Chapter 06fd_Entering Global Markets

8/10/2019 Chapter 06fd_Entering Global Markets

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CHAPTER 6Entering Global Markets

The multinational corporation knows a lot about a great many countries and congenially adapts to supposed differences..... By contrast, the global corporation knows everything about one great thing. It knows about the absolute need to be competitive on a worldwide basis as well as nationally and seeksconstantly to drive down prices by standardising what it sells and how it operates. It treats the world ascomposed of a few standardised markets rather than many customised markets.

Theodre Levitt 1

IntroductionCompanies may enter overseas markets for various reasons. These include saturated and intenselycompetitive domestic markets, diversification of risk on a geographical basis, opportunity to realiseeconomies of scale and scope, entry of competitors into overseas markets, the need to follow customersgoing abroad and the desire to compete and learn in a market with sophisticated consumer tastes. Thischapter focuses on how global companies enter different markets across the world. We will take up howcompanies operate in global markets in the next chapter and global branding in Chapter as these topicsdeserve a separate treatment.

Key issues in global marketing:Typically, marketing includes the following activities! "

#arket research.Concept $ idea generation.%roduct design.%rototype development $ test marketing&election of packaging material, si'e and labelling%ositioning

Choice of brand nameChoice of advertising agency(evelopment of advertisement copy)xecution of advertisements*ecruitment and posting of sales force%ricing&ales %romotion&election and management of distribution channels.

&ome of these activities are amenable to a uniform global approach. +thers involve a great degree of customisation. gain, within a broadly defined activity, some sub activities can be more easily globalised

while others cannot. -or instance, product development may be customised to suit the needs of differentmarkets but basic research may be conducted on a global basis. /n Chapter 0, we have already covered howglobal companies manage *$( .

global marketing strategy typically evolves over a period of time. /n the initial phase, the main concernfor a global company is to decide which market s to enter. Then comes choosing the mode of entry. related decision is whether to expand across several markets, simultaneously or one at a time. With growingoverseas presence, global companies have to resolve issues such as customisation of the marketing mix for 1 2arvard 3usiness *eview, #ay"4une, 15 6.


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local markets and in some cases, development of completely new products. /n the final phase, globalcompanies examine their product portfolio across countries, strive for higher levels of coordination andintegration and attempt to strike the right balance between scale efficiencies and local customisation. smentioned earlier, in this chapter, we focus on entry strategies. +ther issues relating to global marketing arecovered in Chapter 7 and Chapter .

E !ibit 6"#$nderstanding o%erseas markets: T!e #& C Analysis Mode l

%hillips, (oole and Lowe have suggested a model to help companies identify the information to be collected whileentering an overseas market. The 18 Cs of this model are!

Country! 9eneral information, environmental factorsChoices! Competition, strengths and weaknesses of competitorsConcentration! &tructure of market segments, geographical spread.Culture! #a:or characteristics, consumer behaviour, decision making style.Consumption! )xisting and future demand, growth potential.Capacity to pay! %ricing, prevailing payment terms.Currency! %resence of exchange controls, degree of convertibility.Channels! 9eneral behaviour, distribution costs and existing distribution infrastructure.Commitment! #arket access, tariff and non"tariff barriers.Communication! )xisting media infrastructure, commonly used promotional techni;ues.Contractual obligations! 3usiness practices, insurance, legal obligationsCaveats! &pecial precautions to be taken

'ealing (it! cultural issues3efore entering a new market, companies must carefully understand the cultural environment, and avoidcommon pitfalls. Cultural anthropologist, 4 Lee has used the term, Self eference !riterion to describe thetendency of people to be biased by their own cultural experience and value systems while interpreting a

business situation in an overseas environment. #anagers must look at the business problem both in terms of

the home country and host country cultures to minimi'e the cultural bias. They must avoid ethnocentricism ,the tendency to view the home culture as being superior to the host culture. t the same time, culturaldifferences should not be overestimated. &ometimes it is the & while #exicans washed clothes inrivers. Conse;uently the product failed to click. Later, %$9 not only modified the chemical composition butalso packed it in smaller si'es using plastic bags instead of cardboard to keep the detergent dry. /n contrast,the leading toy maker, #attel decided to customi'e its 3arbie doll for the 4apanese market. -or eight years,sales did not pick up momentum. +nly when #attel reintroduced 3arbie with more western looks, did sales

take off.

/n his book,


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ride. Culture can also affect the distribution strategy. -or example, in some cultures, direct selling is lookeddown upon. von, for example, had to reorient its direct selling approach in countries like China andTaiwan. Last but not the least, culture has a ma:or influence on the communication strategy. dvertisingcampaigns that are highly effective in one culture may be counter productive in another.

t the same time, global companies should always watch out for commonalities across cultures. nuniversal is a mode of behavior which spans cultures. -or example, music as an art form is applicable acrosscultures. &o the musical song type commercial can be used across cultures. 2owever, the type of music usedmay have to be varied across cultures. 3ecause of greater travel and better means of communication such assatellite television and the /nternet, trends in categories such as clothing and beverages are converging.9lobal marketers must look for universals so that they can standardise some elements of the marketing mixto cut costs and keep the price affordable to customers.

To conclude this section, global companies, based on the cultural issues, can group markets logically andaccordingly formulate their entry strategy. They can prioriti'e markets, decide which markets to enter simultaneously, which to enter se;uentially and which not to enter at all. /n some cases, it may also makesense to identify a beach head market, i.e., a small market which is similar to a bigger market. This way, therisks can be minimi'ed and the learning from operating in the beachhead, applied to the larger market.

E !ibit 6"&)undaram and *lack+s t!ree ste, -rame(ork -or ,olitical risk analysis"

Step "# (etermine the critical economic@business issues relevant to the firm. ssess the relative importance of these issues.

Step $# (etermine the relevant political events. (etermine the probability of their occurrence. (etermine the cause and effect relationships. ssess the government?s ability and willingness to respond.

Step %# (etermine the initial impact of probable scenarios. (etermine possible responses to the initial impact. (etermine initial and ultimate political risk.

$nderstanding ne( marketsWhile choosing new markets, global companies must consider various macro and micro factors. #acro levelissues include the political@regulatory environment, financial@economic environment, socio cultural issuesand technological infrastructure. t a micro level, competitive considerations, availability of manpower,local infrastructure such as transportation $ logistics network and sophistication of mass media for

advertising are important. /t usually makes sense to do a preliminary screening on the basis of differentcriteria and then do an in"depth analysis of the selected countries. The factors which need to be examinedcarefully, include legal and religious restrictions, political stability, economic stability, income distribution,literacy rate, education, age distribution, life expectancy and penetration of television sets in homes.%olitical risks, especially the attitude of the local government and political parties need to be evaluatedcarefully, &ee )xhibits! A.8, A.6, A.B, A.0, A.A. .

Let us examine some of these factors with reference to /ndia. /ndia has attracted a lot of attention in recentyears as the offshoring hub of the world. 3ut /ndia is also a very attractive market with millions of

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consumers with a pent up demand for goods and services which were not available in the country tillrecently. ccording to a study conducted by the #c insey 9lobal /nstitute 8, private spending in /ndiaamounted to *s. 17 trillion D678 billion at the then exchange rate of *s. B0.7@D . #c insey expects thisnumber to go up to *s. 7E trillion by 8E80. s incomes increase and population grows, marketers can look forward to some mouthwatering opportunities.

E !ibit 6".T!e Economist -rame(ork -or measuring ,olitical risk /#0162

Politics /34 ,oints2 %roximity to superpower or trouble maker 6 uthoritarianism 7 Longevity of regime 0 /llegitimacy of regime 5 9enerals in power A War@armed insurrection 8EEconomics /.. ,oints2 9(% per capita

/nflation 0 Capital -light B -oreign debt as a proportion of 9(% A -ood production per capita B 2igh proportion of exports, accounted for by raw materials A

Society (17 points) %ace of urbanisation 6 /slamic fundamentalism B Corruption A )thnic tension B

/n the last 8E years, /ndia has come a long way. /n 15 0, 56F of the population lived on D1 per day. 3y8EE0, that number had come down to 0BF. )xtreme poverty in rural areas declined from 5BF in 15 0 toA1F in 8EE0. #c insey expects the country?s urban population to expand from 61 million today to 086million in 8E80. 3esides growing urbani'ation, another trend which will enthuse global marketers is thegrowth of the middle class segment with an income of *s. 8EE,EEE to *s. 1,EEE,EEE per year. This segmentcurrently in 8EE7 makes up 0F of the population. #c insey expects that by 8E80, this segment may makeup B1F of the population. nd for luxury goods marketers too, opportunities might open up as the segmentearning more than *s. 1,EEE,EEE, making up about E.8F of the population today will grow to 8F by 8E80GThat segment of 8B million people will be larger than the population of ustralia by 8E80. Thesedemographic trends would seem to indicate that while spending on necessities such as food will decline inrelative importance, that in discretionary areas such as health care, education, personal transportationvehicles and various fashion@luxury goods will increase.

While all these are indeed exciting opportunities, global marketers must also take note of the variouschallenges involved while operating in /ndia. To start with, there are regional disparities. The south and thewest are doing well while the north with the exception of 2aryana, 2imachal %radesh and %un:ab and theeast are lagging behind. /ndia?s urbani'ation is proceeding slowly &ome 85F of /ndians live in citiescompared to BEF in case of China and B F in case of /ndonesia . 3ut even this modest growth has started

8 )ric ( 3einhocker, (iana -arrell, dil & Hainulbhai,


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putting pressure on infrastructure. #umbai?s infrastructure problems are legendary and 3angalore and2yderabad seem to be headed in the same direction. #eanwhile growing competition may put pressure onmargins as more and more #JCs enter the country.

&tar TK illustrates some of the key challenges involved while entering new markets. *upert #urdoch took over the satellite network in 1550. #urdoch was attracted by &tar?s focus on an elite segment of cosmopolitan sians who seemed to be having a strong appetite for recycled )nglish language

programming. +nly later, #urdoch reali'ed that many sian viewers despite knowing )nglish, preferredlocal language content. #urdoch also failed to take into account the political dynamics in China. +ne of hisstatements, that satellite TK would be an unambiguous threat to totalitarian regimes everywhere backfired.The Chinese government promptly imposed ma:or restrictions on the operation of foreign satellite TKservices in China.

E !ibit 6"5T!e *usiness En%ironment Risk Intelligence /*ERI2 -rame(ork /#0 12

Internal !auses

-ractionalisation of the political spectrum

-ractionalisation by language, ethnic and religious groupsCoercive measures used to retain power #entality xenophobia, nationalism, corruption, nepotism, willingness to compromise.&ocial conditions, including population density and wealth distribution+rganisation and strength of forces for a radical left government.

&'ternal !auses

(ependence on and@or importance to a hostile ma:or power Jegative influences of regional political forces.

Symptoms

&ocietal conflicts demonstrations, strikes, street violence/nstability non constitutional changes, assassinations, guerilla wars.

Entering ne( marketsCompanies have to choose between simultaneous and incremental(se)uential entry into different markets.&imultaneous entry involves high risk and high return. /t enables a firm to build learning curve advantages;uickly and pre"empt competitors. +n the other hand, this strategy consumes more resources, needs strongmanagerial capabilities and is inherently more risky.

/n contrast, incremental entry involves less risk, less resources and a steady and systematic process of gaining international experience. The main drawbacks with this method are that competitors have time tocatch up and retaliate. Within a given market too, companies have to decide on incremental or phased

expansion. gain, let us take the case of /ndia. &etting up a national presence can take some doing. 3ut thetask looks easier when certain practical realities are kept in mind. While /ndia is huge, much of the targetsegment for many global marketers lies in the mega cities of (elhi, #umbai and the six largest urbanagglomerations olkata, Chennai, 2yderabad, 3angalore, hmedabad and %une. 3y focusing on theseareas, ;uicker results can be obtained more cost effectively.

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E !ibit 6"3T!e Political Risk )er%ices /PR)2 -rame(ork

The %*& framework considers various variables to estimate the probability of a ma:or loss due to political risk. #ost of

the variables are related to direct government actions. These variables are!

);uity restrictions )xchange controls -iscal@monetary expansion -oreign currency debt burden Labour cost expansion Tariffs Jon"tariff barriers %ayment delays /nterference in matters such as personnel, recruitments, etc. %olitical turmoil *estrictions on repatriation of dividends or capital (iscriminatory taxation

Timing is another important issue while entering new markets. n early entrant can develop a strongcustomer franchise, exploit the most profitable segments and establish formidable barriers to entry. +n theother hand, an early entrant may have to invest heavily to stimulate demand and build the distributioninfrastructure, especially in developing economies. Competitors who enter the market later, may be able tomarket their wares incurring relatively low promotional expenditure.

The key ;uestions while entering overseas markets 6 include!Which product line@lines should be used as the launch vehicle for globali'ationMWhich markets should be entered firstMWhat would be the optimal mode of market entryM2ow rapidly should the company expand globallyM

+ne of the best examples of a company which entered the right overseas market at the right time is &u'uki#otor of 4apan. &u'uki looks well positioned today in emerging markets, even though it is small comparedto Toyota, 9eneral #otors and -ord, thanks to the bold strategy pursued by Chairman, +samu &u'uki.&u'uki chose to go to /ndia instead of Jorth merica or )urope, at a time when /ndia was still a dyog Ltd is the unchallenged leader in the /ndian auto industry.

C!oosing t!e mode o- entryWhile entering new markets, a company has various options. These include contract manufacturing ,licensing, franchising , *oint ventures, strategic alliances and wholly owned subsidiaries .

Contract manu-acturing local partner can be appointed to manufacture the product. Contract manufacturing avoids the need for heavy investments and facilitates a ;uick entry with a lot of flexibility. 3ut, there can be supply bottlenecks6 nil 9upta, Ki:ay 9ovindara:an,


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in such arrangements if the partner does not make the necessary investments and production does not keep pace with demand. /t may also be difficult to maintain the desired ;uality levels, if the partner does not havethe re;uired expertise@commitment.

7icensingLicensing confers the right on a local partner to utili'e a specific asset such as patent, trademark, copyright,

product or process for a fee over a specified period of time. Licensing is particularly advantageous for companies that lack the resources and expertise to invest in foreign facilities. Licensing not only allows acompany to get around import barriers but also lowers exposure to political@economic stability in the foreignmarket. )xcept for the fluctuations in royalty income, all the other risks are absorbed by the local partner.

Licensing of course comes with some disadvantages. *evenues from licensing may cannibali'e those whichwere getting generated by exports earlier. /t is ;uite possible that the licensee may not be fully committed tothe agreement, especially in the long run. /f the commitment@enthusiasm of the licensee is half baked, therevenues generated will be well below their potential. /f a trademark is involved, any wrong or short termopportunistic moves by the licensee will end up tarnishing the trade mark. Licensing builds up a futurecompetitor if licensees decide to part ways and restricts future market development. Iuality control is alsoa source of worry in licensing.

E !ibit 6"6Integrati%e and de-ensi%e strategies to manage ,olitical risk

Integrative approaches (evelop good communication channels with the host government. #ake expatriates familiar with the language, customs and culture of the host country. #ake extensive use of locals to run the operations. 3e prepared to renegotiate the contract, if the local government considers it to be unfair. /nvest in pro:ects of local importance, such as education. >se :oint ventures to make the locals feel a part of the firm. -ollow fair, open and accurate financial reporting practices.

Defensive approaches &ource key components from outside to ensure continued dependence on the firm. >se as few host"country nationals as possible in key positions. &elect :oint venture partners from more than one country. The host government may be reluctant to offend many

governments simultaneously. #ake full use of intellectual property rights such as patents and copyrights to protect proprietary technology. *aise as much e;uity and debt as possible from the host country /nsist on host government guarantees wherever possible. eep local retained earnings to the minimum.

Source ! 2odgett $ Luthans,


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pool distribution assets. lliances can be a useful tool to defend the existing market position, catch up withcompetitors and in some cases restructure. lliances are not easy to manage. +ften they collapse after a

period of time. The ones which do well are characteri'ed by top management commitment, clear ob:ectivesand cultural similarities among the companies involved. dynamic approach is desirable as the scope of analliance often tends to change over time. lliances are covered in more detail in Chapter 5 .

T!e P ; G < Godre= s,lit

/n late 1558, the merican -#C9 -ast #oving Consumer 9oods giant, %rocter $ 9amble % $ 9 and a leading/ndian business group, 9odre: set up a marketing :oint venture, %$9 "9odre: %99 in which %$9 held a 01F stakeand 9odre: the remaining B5F. (avid Thomas, %$9Ns country manager in /ndia was appointed as C)+ while di9odre:, the head of the /ndian company, became the chairman.

%$9 paid 9odre: roughly *s 0E crores to ac;uire its detergent brands, Trilo, ey and )'ee. 9odre: became the solesupplier to the :oint venture on a cost plus basis. %$9, on its part, gave a commitment that it would utilise 9odre:Nssoap making capacity of E,EEE tonnes per annum. 9odre: was allowed to complete its existing manufacturingcontracts for two other #JCs, 4ohnson $ 4ohnson and *eckitt $ Coleman, but could not take up any new contracts.%$9, on its part, would not appoint any other supplier until 9odre:Ns soap making capacity had been fully utilised.9odre: transferred BEE of its sales people to the :oint venture.

-or both sides, the :oint venture seemed to make a lot of sense. %$9 got immediate access to 9odre:Ns soap makingfacilities. /t would have taken %$9 at least a couple of years to implement a greenfield pro:ect. 9odre: also hadexpertise in vegetable oil technology for making soaps. This expertise was useful in a country like /ndia, where beef tallow could not be used and soap manufacturers had to depend on vegetable oil such as palm oil and rice bran oil.%$9 also gained immediate access to a well connected distribution network consisting of some two million outlets.)ven though %$9 had been around in /ndia for some time, its /ndian operations were essentially those of the erstwhile*ichardson 2industan, which dealt primarily in pharmaceutical products such as Kicks. The non"pharma distributionnetwork of 9odre:, acted as a fine complement to %$9Ns existing pharma network. 9odre:, on the other hand, wasstruggling with unutilised capacity. 9odre: also hoped to pick up useful knowledge from %$9, in areas such asmanufacturing, brand management and surfactant 0 technology. /n short, it looked as though the :oint venture hadcreated a win"win situation, with tremendous learning opportunities, for both partners.

The %$9 9odre: alliance became operational in pril 1556. round this time, %$9 increased its stake in its /ndiansubsidiary %$9 /ndia from 01F to A0F, while 9odre:, after having operated for several years as a private company,went public. %$9 engineers introduced new systems such as 9ood #anufacturing %ractices and #aterial *esources%lanning in 9odre: plants. The two companies seemed to show a considerable amount of sensitivity to the culturaldifferences between them. -or about a year, it looked as though things were going fine. Thereafter, elements of distrust began to surface and the two companies found the differences in management styles too significant to be

brushed aside. 3y (ecember, 155B, rumours were rife that %$9 and 9odre: did not see eye to eye on many key issues.

+ne of the main problems that the :oint venture faced was that performance did not match up to expectations. /n 1558,9odre: had sold 85,EEE tonnes of soap. fter increasing to BA,EEE in 155B the figure declined sharply to 6 ,EEE tonnesin 1550. While sales volumes did not pick up as expected, costs began to rise. (ue to the cost plus agreement, 9odre:had little incentive to cut costs. /nformed sources felt that 9odre: was charging *s 1E,EEE more per tonne than theaccepted processing costs. 9odre:, on its part, was unhappy that %$9 was not doing enough to promote brands likeey and Trilo that it had nurtured over the years. /t was also uncomfortable with %$9Ns methodical and analyticalapproach as opposed to its own instinctive method of launching brands at breakneck speed. %$9, on its part, felt thatthere was little logic or coordination in 9odre:Ns brand building exercises. /ts multinational, worldwide policy set itsown priorities, as explained by a %$9 executive A! OWe believe in introducing long"term brands with sustainableconsumer propositions. Without that, we :ust donNt know how to sell.O 3y mid 155B, sharp differences had developed

0 &urfactant is a key chemical ingredient in soaps and detergents to facilitate the cleansing action.A


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between %$9 and 9odre:. senior 9odre: executive, 2. . %ress, on deputation to the :oint venture, was ;uietly easedout and sent back to a 9odre: group company.

report in a leading /ndian maga'ine 7 aptly summed up the situation! O/n an atmosphere of fraying trust, theadvantages of the alliance faded into the background.= %$9 reali'ed it had gained distribution strengths but founditself locked into an unsustainable manufacturing agreement and a loss making :oint venture. 9odre: felt let down on

two counts. !olly o(ned subsidiaries wholly owned subsidiary gives a global company full control over the operations. #arketing, operations,and sourcing can all be planned and executed exactly the way the company would like it to be. 3y setting upa subsidiary, the company also indicates its strong commitment to the local market. 3ut the risks of thisapproach are also high. The company will have to bear the full burden of losses if things go wrong.#oreover, heavy resource commitments will have to be made in terms of management time and attention.&ubstantial political risks may also be involved. 3ut in some cases, wholly owned subsidiaries may beunavoidable. /ndeed, they may make a lot of business sense. -or example, many global banks are setting upPcaptive? off shoring centres in /ndia. +ne of the key reasons for not using third party vendors isconfidentiality of client data. Whenever there is a danger of leakage of proprietary knowledge, whollyowned subsidiaries may be the route to take.

E !ibit 6">!en local ,roduction is more a,,ro,riate 0

The local market is larger than the minimum efficient scale of production.&hipping and tariff costs associated with exporting to the target market are high.The need for local customi'ation of the product design is high.Local content re;uirements are strong.The company is short of capital.The physical, linguistic and cultural distance between the host and home country is great.

The subsidiary needs to have low operational integration with the rest of the multinational corporations.9overnment regulations re;uire local e;uity participation.

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Green-ield %entures %s Ac?uisitions9reenfield pro:ects are time consuming and delay market access. They also involve big investments. +n theother hand, the delay may be worth its while as greenfield pro:ects can be designed exactly the way thecompany wants and can incorporate state of the art technology and features which maximise efficiency andflexibility. 9reenfield pro:ects can be structured as :oint ventures or wholly owned subsidiaries.

c;uisitions are a faster way of entering a market, compared to setting up greenfield operations. 3yac;uiring the >& based 9eneral Chemical /ndustrial products for D1 billion, and earlier the > based3runner #ond 9roup, /ndia?s Tata Chemicals has become the world?s second largest soda ash manufacturer.c;uisitions can give ;uick access to distribution channels, management talent and established brand names.c;uisitions can also help companies consolidate an industry and thereby increase profitability as a result of greater bargaining power vis"a"vis buyers and suppliers. Lakshmi #ittal?s /spat group is probably the bestexample. The group has masterminded ac;uisitions across the world leading not only to a global presence

but also higher profitability for the industry as a whole. 3ut ac;uisitions involve heavy risk. The valuation of the ac;uired company may be too high in relation to the benefits reali'ed. c;uisitions also involve theintegration of the ac;uired entity. Karious factors especially the cultural issues can undermine the integration

process. >nlike greenfield operations, ac;uisitions do not offer much flexibility in areas such as humanresources, logistics, plant layout and manufacturing. This is probably why the share price of Tata Chemicalsfell after the ac;uisition of 9eneral chemical was announced.

The cement industry is a good example of how global companies are expanding their presence in emergingmarkets by ac;uisitions 1E. /n recent years, the big four cement manufacturers, Lafarge -rance , 2olcim&wit'erland , Cemex #exico and 2eidelberg 9ermany have been involved in 18 takeovers. 2olcimalone has been involved in six. /ndia has been one of the main scenes of action. Lafarge has ac;uired thecement division of Tata &teel as also *aymond Cement, while 2eidelberg has taken over #ysore cement.2olcim has taken over CC and 9u:arat mbu:a. These ac;uisitions have helped the global cementcompanies to establish themselves ;uickly in a market without adding to the domestic capacity and therebylowering cement prices which has been growing at about F in the recent past and is expected to grow evenfaster in the coming years, thanks to strong infrastructure spending. /ndeed, /ndia is the second largestconsumer of cement in the world after China. #eanwhile, for these global companies, markets back homeare increasingly saturated. 3ut one challenge for the global companies is making these ac;uisitions

profitable. 2olcim has paid a substantial premium for its stake in mbu:a Cements which it has purchased intranches. (oubts remain whether enough value will be created to :ustify this premium.

Market Researc!#arket research can help a global company to reduce its exposure to risk, identify the markets to enter andthe mode of entry. /n an existing market, research can help arrive at the optimal marketing mix. The basic

principles of marketing research do not change when we move from domestic to international marketing.3ut the ob:ectives in case of international marketing research tend to be more complex because of thevarious dimensions involved. t the same time, the implementation poses various challenges. (ue to localcultural, economic, social and political factors, the research design cannot be standardised across markets.

&urvey methods may vary depending on literacy levels and the kind of communications media available.

Clearly, an optimal balance must be struck between centralisation which would facilitate easier coordinationand control and decentrali'ation which would mean greater adaptation to different local@regionalenvironments. key decision here is whether to use a large international research firm or several smallresearch firms. #oreover, the research activities have to be carefully designed and organi'ed, depending onwhether it is necessary to examine the some market segment across many countries, a particular geographicregion or specific sectors within particular countries.1E #ahesh Jayak,


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The research design must take into account cultural differences across regions. &ome elements such as thesample to population ratio and the information to be collected for each product category can bestandardised. 2owever, ;uestionnaires have to be carefully designed, taking into account the sensitivity of

both the local government and the local people. /n particular, personal and embarrassing ;uestions have to be avoided in certain countries. Jotwithstanding these difficulties, opportunities to globalise should not beoverlooked. -or example, clusters of countries might need the same ;uestionnaire.

Acer+s $) -oray runs into troublecer, the Taiwanese computer maker illustrates the challenges faced by companies based in emerging markets whileentering developed markets. fter developing a strong presence in south east sia and Latin merica, cer decided totarget the >& market with its popular spire 2ome %C. cer soon found itself being outmaneuvered by stronger rivalssuch as (ell with superior marketing capabilities. s the spire line began to pile up losses, cer announced that itwould concentrate on its %ower %Cs, backed by a D1E million marketing campaign to target small and medium

businesses. cer also indicated that it might launch low cost computer appliances called QCs priced D8EE or lower once they were established in sia. 3ut cer?s market share slipped from 0.BF late 1550 to 6.8F late 155 and it

began to make losses in the >& market.

%art of the problems arose because customers for cer?s contract manufacturing arm worried about spill over of business secrets to and cross subsidi'ation of cer?s offerings under its own brand name. /n 8EEE, /3# cancelled ama:or order, reducing its share of contract manufacturing in cer?s revenues from 06F in the first ;uarter of 8EEE toonly 8AF in the second ;uarter of 8EE1.

-ounder &tan &hih had once told his executives that a strong presence in merica was vital to the development of aglobal brand 11! &, in 1555, cer began to retreat from the >& consumer market.

cer decided to target developed countries with contract manufacturing and offer its own brands in the sian region.The contract manufacturing activities were spun off into a separate arm called Wistron. *ecently, cer has made a boldmove by announcing it will buy leading %C maker, 9ateway for D71E million. This will not only significantly,strengthen cer?s presence in the >&, taking its market share from about 0.8F to 1E. F but also make it the world?s

third largest %C maker ahead of China?s Lenovo. fter the ac;uisition is completed, cer will generate sales of morethan D10 billion and ship over 8E million %Cs every year. 3ut cer will continue to trail well behind the market leadersin the >&, (ell 8 .BF and 2ewlett %ackard 86.AF 18.

There are six steps in conducting global market research!

(efining the research problem s .(eveloping the research design.(etermining information needs.Collecting the data secondary and primary .nalysing the data and interpreting the results.*eporting and presenting the findings of the study.

3efore beginning the research, a global company must ask some basic ;uestions!

What information do we needM What will we do with the information when we get itMWhere can we get this informationM /s it available in files, in a library, or online from a databaseMWhy do we need this informationM

11 3usiness Week, +ctober 18, 155 , p 86.18 ccording to /(C.

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When do we need the informationMWhat is this information worth to usMWhat would be the cost of not getting the informationM

/t is always useful to start with desk research as it simple, fast and cost effective. Then information readilyavailable from overseas sources can be tapped. The more developed the country, the greater the informationavailable and better the ;uality of databases. fter identifying the right source, the information must becollected and analysed. Common sense and logic must be used to evaluate the comparability and accuracy of the information obtained from overseas sources.

There are two broad categories of information. &econdary sources provide information already collected bysomeone. %rimary research means starting from scratch and collecting data specifically for the pro:ect or assignment being conceptuali'ed. /n most cases, a combination of primary and secondary research isinvolved.

3asic approaches to marketing research can vary across countries #. . -or example, 4apanese marketresearchers rely far less on statistical tools than their counterparts in the >&. The 4apanese are somewhatcynical about retailer seems to be following a similar approach in the >&. The retailer has spent years doing painstaking marketresearch in the >&. Tesco?s representatives have spent time with merican families looking into their kitchencupboards, watching them cook and following them as they shop.

#any marketers are realising that market research has to go beyond the obvious to the underlying

subconscious mind which is at work all the time whether people realise it or not. s a senior executive of Jokia recently mentioned 1B,


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people don?t buy :ust for rational reasons.= &imilarly, a top official of RahooG recently remarked 10,


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Chapter 06fd_Entering Global Markets

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