Multinational Company Maha

8/8/2019 Multinational Company Maha

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The business environment today, however, is vastly different. Because of the competition

between MNCs (and national firms) made possible by the dismantling of entry barriers (andfreeing of technology imports by national firms and added thrust on R&D by them) technologicaledge is an important determinant of success. The evolution of the motorcar market in India, for example, gives come indication of this. In a competitive environment, a firm can survive only if itis efficient. Companies all around world, including many large multinationals, have been cuttingdown the size of their human resources as one of the means of achieving cost efficiency. Theproblem of over-manning is very severe in the developing countries. Unless these firms get ridof the surplus labour, they can hardly be competitive and successful. That means, theliberalisation can succeed only if the economy grows very fast to absorb, the displaced labour and the new addition to the -laoour force. The developing countries, in general, have beendisadvantaged by the international trading system. The adverse term of trade led to economicloss for the developing countries, in general. The least developed countries have been the mostdeprived. It may, however, be noted that one of the reason for the adverse terms of trade of thedeveloping countries is the demandsupply factor. It is also estimated that the least developedcountries stand to lose up to $600 million a year and sub- Saharan Africa $ 1.2 billion as a resultof the Uruguay Round Agreement, while the developed countries are expected to gain verysubstantially.

Multilateral trade liberalisations were mostly in respect of goods traded between industrialeconomies and those exported from developing to the developed nations did not benefit somuch. While developing countries as a group now face tariffs 10 per cent higher than the globalaverage, the least developed countries face tariffs 30 per cent higher, because tariffs remainhigh on the goods with greatest potential for the poorest countries, such as textiles, leather andagricultural commodities. It should, however, be noted that a number of developing countrieshave improved their export performance substantially and several of them figure in the list of thetop 20 exporters. Despite the different problems and discriminations, there are chances of developing countries benefiting from trade. Basic trade theory argues that poor people gain fromtrade liberalization. Developing countries have a comparative advantage, in-abundant, low -

cost, unskilled labour. If they concentrate on goods whose production is simple and labour intensive, greater integration into global markets should increase their exports and output,raising the demand for unskilled labour and raising the income of the poor relative to those of the non-poor. Moreover, countries move up the trade ladder, exporting more sophisticatedproducts, leaving space on the ladder below for later-industrializing countries. All this helpsreduce poverty. The countries on the higher rungs benefit most, but even those on the lower rugs should see poverty fall. And free trade should also help poor consumers-without tradeprotection, local prices should fall to world prices. There should also be benefits for employmentfrom a liberal financial regime.

Removing restrictions on capital flows should attract more FDI, creating more jobs for thepoor by integrating them into international systems of production. It is criticized that developed

nations receive most of the FDI. A vary small number of the developing countries, which are therelatively developed or large or fast growing in the developing world account for the lions shareof the FDI flows to this category. What the critics do not appreciate is that, as foreign investmentflows are based one economic rational, it is unrealistic to export the pattern of flow to bedifferent. Another criticism is that the liberalisation increases the economic inequality.


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Even in China, the liberalisation has created many island of affluence. If inequalityincreases because of the worsening of the living conditions of the poor, it certainly isunjustifiable. But, if the increase in inequality is the result of improving the economic conditionsof a section, while there is no economic deterioration of any section, or because of thedisproportionate benefits, the question is whether the economic progress of some sectionsshould be curbed so that there will not be a widening of the inequality. The liberalisation mayincrease inequality. Further, several sectors and sections may not directly and immediatelybenefit from mere liberalisation. There may also be shocks and other adverse effects on theweaker sections. It is, therefore, necessary that there should be real socioeconomic reformsrather than mere liberalisation.

Targeted poverty eradication programmes and social safety net are very important. Thefast growth and overall development resulting from liberalisation could have a major impact onpoverty. Naisbitt points out that there were an estimated 200 to 270 million Chinese living inabsolute poverty in 1978 (the year in which the liberalisation began) and their number camedown to 100 million by 1985. Foreign capital has significantly boosted investment and economicgrowth in China. China has leaped forward on the export front too. Foreign funded enterprisescontribute a substantial chunk of the exports from China.

Other countries which, carry out proper reforms in real earnest should also be expected toreap such gains in varying degrees. But, half-hearted and confused measures andimplementation problems may create more problems than they solve. Although the MNCs, bythe virtue of their size and resources, have certain advantages they may also have limitations or disadvantages in certain spheres or aspects of business. Small and medium firms often havesome edge over the very large ones in respects of standardized products or technologies likegreater flexibility and adaptability, lower overheads, intimacy with the customers, etc. Low costsis a great advantage which firms from developing countries enjoy. It may be noted that themajor component of growth of several India pharmaceutical firms is the foreign market. They are

relying mostly on bulk drugs and. generics. What is often ignored while discussing the impact of the product patent is that patented drugs account for only about 15 per cent of the India drugmarket. There are several more products, which would go off patent in the coming years whichcan also be taken up the India firms.

The new patent regime should be expected help the Indian industry by prompting it togive added thrust to R&D and thereby enabling Indian firms also to develop patented products.Positive signs are already there on the horizon. There are also many evidences of the better technology brought in by the MNCs inducing or provoking Indian firms to absorb similar technology leading to their enhanced competitiveness and market expansion.


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Global MarketingGlobal marketing offers a way for companies of all sizes to grow by expanding their

customer base beyond the domestic market. However, the complexities of global marketingdemand careful planning and proper implementation.

This study has been conducted to gain knowledge about the potential strength of Stainless Steel exports of China. The supply demand scenario, domestic steel industry and thepresent and possible role of India was analyzed in case of China.

To start with the Indian and the world Iron and steel Industry is studied and comparativestudy of the performance of Exporting Countries and Indian industry is analyzed.

Indias positioning in the global perspective will depend upon cost competitiveness of theIndian. Besides the continuous emphasis is to given on new technology/process/productsdeveloped, productivity improvement, quality improvement. The Chinese steel market is one of the most active markets in the world. China is a country with a dynamic economy whose annualgrowth rate has stayed at 7-8 percent in the last five years.

After this China Customer are segmented, and the most attractive segments for IndianExporters are selected as target markets. The company studied is Jindal Steel Ltd. JindalStainless is among the top twelve stainless steel producers in the world along with Arcelor, KTS,

Acerinox, Avesta Polarit, and POSCO etc. The company itself has two offices in China and is awell-known brand in the Chinese Stainless Steel Industry. It is a pioneer in the production of Chrome Manganese Stainless Steel and last year 90% of Jindal Stainless' exports were toChina.

OBJ ECTIVES O F THE STU DY

Indian business firms are facing problems on the international marketing front and the possiblestrategies the can employ for going global and maintain their stride with global scenario


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IntroductionM arketing M ix of Global M arketing

Marketing planning helps us decide what products or services are required in our market, then

how to sell them and what price to put on them. So focus on the seven Ps of marketing people, planning, product, positioning, pricing, place and promotion.

People

The personal, cultural, social and psychological attitudes of our customers are important. If weare going to meet their needs; do some basic market research.

Planning

Our market research needs to be analyzed and evaluated. We can then start to predict therequirements of our customers.

Product (or service)

What makes our product different from that of our competitor? Can we develop any brandvalues for our product? Decide what our unique selling point is and work out how the customer will benefit from our product or service.

Positioning

Differentiate our product from that of our competitors. Look for the gap in the market for our product; work out why this gap exists. How big is this market? Does it have short and/or long

term growth potential? Decide who our competitors are and how they will react to our plans.What makes our product special? How will we develop and exploit competitive advantage; workout the best time to launch our product.

Pricing

What people feel about a product is reflected in what they are prepared to pay for it. Identifywhat value our customers place on your product. Then decide which market segment we willattack e.g. premium or budget. What discount structure (if any) will offer for volume. What will beour pricing policy for agents, wholesalers and retailers?

Place

We may need to work out how our goods will move from where they are produced to where theyare sold. We may want to use wholesalers, retailers or our own premises. Or will use directmarketing, telemarketing, or e-commerce via the Internet?


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Promotion

This is the most visible aspect of marketing. It pulls together various communication elements-Corporate identity; Branding; Advertising strategy; Public relations, internal and external; Directmarketing; Sales promotion and merchandising; Sales and sales management; Exhibitions.

Developing M arket Strategies

a. Positioning and differentiating the market offerings through the product lifecycleb. Developing new market offeringsc. Designing global market offerings

This study will also be conducted to gain knowledge about the potential strength of StainlessSteel exports of China. The supply demand scenario, domestic steel industry and the presentand possible role of India was analyzed in case of China.

To start with the Indian and the world Iron and steel Industry is studied and comparative study of

the performance of Exporting Countries and Indian industry is analyzed.In the next step, the environmental analysis of China is done. The environments selectedincluded macro-micro economic environment, legal environment, social environment, andbusiness environment, of China. Indias positioning in the global perspective will depend uponcost competitiveness of the Indian. Besides the continuous emphasis is to given on newtechnology/process/products developed, productivity improvement, quality improvement. TheChinese steel market is one of the most active markets in the world. China is a country with adynamic economy whose annual growth rate has stayed at 7-8 percent in the last five years.The Iron and Steel Industry is one of the major foreign exchange earners, despite of importantrole it plays in balancing Indias international trade. Steel has pervaded our daily lives from thekitchen to hospital and industry. Because of its ability to withstand corrosion, steel has found an

indispensable slot even in the medical world. Extensively used, steel is sudden in a wideassortment of container industry, galvanizing units, engineering industry electrical industry, re-rolling industry and heavy industry. Hence we can say that:

There is a little bit of steel in everyones life

Iron containing less than 2% carbon and less than 1-% silicon and not more than a trace of phosphorus is what is usually termed steel. Carbon is the principal hardening element in steel.The increment of carbon % within steel increases the hardness of steel. The hardness becomescorrespondingly less in steel containing more than 85% carbon than low carbon ranges.


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PR OD UCTI O N PR O CESS

There are two primary methods of making steel, differing in terms of the process and rawmaterials used : the blast furnace route (BF) and the electric arc furnace (EAF) route. In the BFprocess, the iron is first reduced with coke in a blast furnace and then refined to produce moltensteel, while in the EAF process a mix of scrap and sponge iron is melted using electricity in anelectric are furnace to produce long and flat products. Stainless steel is gaining recognition andit is considered as the friendly and sustainable material because of its corrosive resistance andfor its easy to clean / hygienic surfaces. Its versatility, durability and its supraliminal qualitymakes stainless steel the exceptional material of a choice for the new millennium. Initiallystainless steel found its applicability in cutlery and gradually into textile, chemical and other engineering industries. Today its application has created wonders in the Architecture, Buildingand Construction (ABC) and Automobile, Railways and Transportation (ART). Stainless steelusage in the building and construction sector would increase in the coming years. If the potentialof the market is fully realized in terms of the prospective end use sectors mentioned abovealong with the continuing growth of the utensil market, the future growth rate of stainless steelcan even be higher than witnessed in the last decade.

IND IAN STEEL IN D USTR Y

Indian Steel Industry is now going through a speedy growth path. In the global scenario,China remains the worlds largest crude steel producer in 2008. Chinas steel sector has beenfollowing an upward trend, with sale of steel product reaching their highest levels in recentyears. Increased imports and decreased export have combined to bring great pressure to bear upon chinas steel market. The Antidumping Measure taken by the United States against ChinaHR Plates has seriously helped up Chinas export.

In china the volatile Nickel price create uncertainty in the stainless steel market. ChinasMetal Sector has been enjoying a period of astonishing growth. Trend of production andconsumption are further elaborated with respect to category of products like cold rolled flat,bars, wire rods and pipes. Stainless steel world has a department specialized in research andintelligence to help meet the markets increasing need for the resolution of complextechnological and informational problem.

Stainless steel production in India is speedily increasing since the last three decades.Initially India had to depend on foreign markets to meet its requirement of stainless steel. TodayIndia is self sufficient enough to make stainless steel of all grades, shapes & sizes and is also amajor exporter of stainless steel of utensil grade. In the Public Sector, the special steel plants of Steel Authority of India Limited (SAIL) at Durgapur and Salem have made significantcontribution for the growth of this industry. Mukand Limited, Panchmahal Steel Limited, Shah

Alloys Industries Ltd., Jindal Strips Limited have also contributed significantly in making Indiaself-sufficient in stainless steel production.


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Most (around 75%) of the Indian stainless steel market is still in the kitchen segment.Indian Railways is switching over to manufacture their passenger coaches which will require 15mt stainless steel per coach in coming 5 years. The Indian government is using Ferric coldrolled stainless steel strips for making coins. The main focus of Indian stainless steel industry isChina which still imports 90% of stainless steel.

EXP O RTS FR O M IND IA

Iron and steel exports from India started after 1964, the first time Indias supply dominatedher domestic needs. Though the Indian exports are quite vulnerable to domestic demandconditions, the export market has been doing reasonably well in the past few years, with FY03seeing an increase of more than 100% over the previous year. The increase in exports to Asia(approx. 227%) and America (105%) has contributed to this massive growth. The abundantavailability of raw materials like iron ore and cheap manpower in India provide tremendouspotential for the iron and steel sector to grow.

STATEMENT O F THE PR OB LEM

The study is intended to find the export potential of Stainless steel to Chinese market, toreveal present pattern and possible future developments of supply, demand and consumption inrelevant product specific markets. Jindal Strips Limited is the largest integrated producer of stainless steel in India. It is Flagship Company of Jindal Group set up in 1970 under thevisionary of Mr. O.P.Jindal. Jindal Organization is ranked fourth amongst the top IndianBusiness houses.

The company initiates developing new market for its stainless steel products around four to five years back and has been able to achieve compounded average growth. Jindal is theleader in domestic market of stainless steel and it is trying to become a major player ininternational market. With a market share of 50% in India, it also exports to various countriesacross the globe. Jindal stainless is the only company in India which has the composite

stainless steel plant for the manufacture of Slabs, Blooms, Hot rolled and Cold Rolled Coils.This study is carried out keeping in the interests of Jindal Strips Limited and hence it becomesimportant to have an insight of the domestic market and export potential in the Chinese market.


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Global Industry A global industry is an industry in which the strategic positions of competitors in major

geographic or national markets are fundamentally affected by their overall global positions. Aglobal firm is a firm that operates in more than one country and captures R&D, production,logistical, marketing, a financial advantages in its costs and reputation that are not available topurely domestic competitors. Global firms plan, operate, and coordinate their activities on aworldwide basis. Fords world truck has a European-made cab and a North American- builtchassis, is assembled n Brazil, and is imported into the United States for sale. Otis Elevator gets its door systems from France, small geared parts from Spain, electronics from Germany,and special motor drivers from Japan; it uses the United States for systems integration. Acompany need not be large to sell globally.

D eveloping an International Marketing Strategy

An international marketing strategy involves developing and maintaining a strategic fitbetween the international company's objectives, competencies, and resources and thechallenges presented by its international market or markets. As such, the international strategicplan forges a link between the company's resources and its international goals and objectives ina complex, continuously changing international environment. Given the changing nature of theenvironment, the international company's strategic plan cannot afford a typical long-term focus(a five- or ten-year plan); rather, the planning process must be systematic and continuous, and itmust re-evaluate objectives in light of new opportunities and potential threats. Another dimension of international marketing strategy is linked to the company's commitment to itsinternational markets. Some companies use international marketing only to test the waters or tounload overproduction. This approach to international marketing, although it might openlongterm opportunities to the company, does not indicate a substantial commitment tointernationalization and is not a premise for success in the long term in international markets. Along-term international commitment that entails substantial investment in terms of resources andpersonnel is likely to bring the company the greatest rewards in the long run. Such a strategywill make the company a stronger competitor in the world market, as well as at home.International strategic planning takes place at different levels:

At the corporate level, the strategic plan allocates resources and establishes objectivesfor the whole enterprise, worldwide. The corporate plan has a long-term focus andinvolves the highest levels of management. PepsiCo Beverages headquarters (includingits international headquarters) are located in Purchase, New York, USA. The company'scorporate plan is developed here.

At the division level the strategic plan allocates funds to each business unit based ondivision goals and objectives. In the PepsiCo example, its division for Eastern Europe islocated in Vienna, Austria. From there, the company coordinates all local (country-level)operations. At this point, Pepsi may use various portfolio analysis tools to decide whichbrands to harvest, to invest in, or to divest, and plan its resources accordingly.


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At the business unit level, within each country, decisions are made regarding whichconsumer segments to target. At this level, Pepsi develops a strategic plan.

At the product level (line, brand), a marketing plan is developed for achieving objectives.PepsiCo's marketing plan for Poland, for example, might include increasing theconsumption of Pepsi and Pepsi Light and launching Pepsi Max beyond the cities of Warsaw, Krakow, Wroclaw, and Poznan.

D EVEL O PING AN INTERNATI O NAL MARKETING PLAN

At this stage of the planning process, the international company develops a marketingplan. Assuming that the company has already analyzed its marketingopportunities and researched and selected the target market, it must now:

Develop marketing strategies for the target market, deciding on the product mix for thelocal target market, as well as on the other components of the marketing mixdistribution, promotion, and pricing.

Plan the international marketing programs.

Manage (organize, implement, and control) the marketing effort.

The decision on which elements of the marketing mix to use in a particular target marketis closely linked to the product's life cycle and to the market entry strategy selected: A product inthe early stages of its life cycle, such as the Palm Pilot, will most likely be sold to consumers inhighly industrialized countries for a high price, accompanied by heavy promotion. A product willmost likely be manufactured in a developed country and exported to the rest of the world.

Alternatively, a product in the later stages of its life cycle, such as a videocassette recorder, willbe sold to consumers worldwide, regardless of country development level. The company sellingthe product will heavily compete on price and, thus, most likely manufacture the product in a

developing country where labor is inexpensive, to sell all over the world. Most likely, thecompany will have at least one subsidiary located in the country of product manufacture.Insights into the marketing strategies that companies use to target international markets revealthat marketing mix decisions are complex and based on extensive research. Kraft Foods(www.kraftfoods.com), for example, has made interesting product mix decisions: It sells coffeeproducts and confectionery products that cover the spectrum of target consumersand thebrands often cannibalize.

Among the many brands of coffee Kraft Foods offers are:

J acobs coffee : This product sells mainly in Central and Eastern Europe. Jacobs coffeeis popularly known as a quality German brand. Because con summers in Central and

Eastern Europe have traditionally had frequent interaction with German consumers andhave acquired a taste and prefer hence for German brands, marketing the Jacobs brandin this region was appropriate. Had Kraft brought the product to the United States, itwould have had to challenge quality perceptions of bulk coffee associated withdeveloping countries in Latin America (Colombia and Guatemala, in particular) and

Africa (Kenya, especially) and value perceptions held by store brands and other low-priced national brands such as Folgers and Kraft's own Maxwell House.


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D ecisions in International marketingD ECI D ING O N THE INTERNATI O NAL ENTR Y MOD E

The company control over operations and overall risk increase from the export mode tothe wholly owned subsidiary entry mode. In general, companies tend to use the export mode intheir first attempt to expand internationally and in environments that present substantial risk, andcompanies tend to approach markets that offer promise and lower risk by engaging in someform of foreign direct investment. There are, however, many exceptions to these statements:Companies that have been present for decades in attractive international markets, such as

Airbus Industries and Caterpillar, continue to export to those markets, rather than manufactureabroad. Similarly, many new small businesses find that they can manufacture products cheaplyabroad and distribute them in those markets without making a penny in their home country; thisis increasingly becoming a possibility for companies selling on the World Wide Web.

Indirect Exporting

Indirect exporting means that the company sells its products to intermediaries in thecompany's home country who, in turn, sell the product overseas. A company engaging inindirect exporting can use middlemen such as export management companies, tradingcompanies, or agents/brokers to distribute its products overseas. Alternatively, the company canuse cooperative exporting, also referred to as "piggybacking" or "mother henning." Withcooperative exporting, companies use the distribution system of exporters with establishedsystems of selling abroad who agree to handle the export function of a no competing (but notnecessarily unrelated) company on a contractual basis. Such companies are paid oncommission or are charged a discount price for the product; they are larger companies withextensive experience in and knowledge of the target international market.

Using indirect exporting does not require market expertise, nor a long-term commitmentto the international market. The company's risk also is minimal; at most, it can lose a productshipment. Among disadvantages are lack of control over the marketing of its products - whichcould ultimately lead to lost sales and a loss of-good will that might ultimately affect theperception of the company and its brands in other markets where it has a greater commitment.Some companies use indirect exporting as a first step toward a greater degree of involvement.

After a sufficient consumer franchise is secured and the market is tested with the initialshipment, a company might commit resources for additional investment in the market. It shouldbe mentioned, however, that indirect exporting in the long term does not necessarily mean thatthe company is not committed to the market; it simply means either that the company does nothave the resources for greater involvement or that other markets are performing better andneed more company resources. One of Europe's leading car makers, Germany's Volkswagen,operates through independent importers and distributors in Belgium, the Netherlands,Switzerland, and Austria, while in France, Germany, Italy, and Spain, which together account for 83 percent of European sales, it controls its wholesale operations directly.


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D irect Exporting

Companies engaging in direct exporting have their own in-house exporting expertise,usually in the form of an exporting department. Such companies have more control over themarketing mix in the target market: They can make sure that wholesalers and retailers observethe company's marketing policies, charging the suggested sale price, offering the appropriatepromotions, and handling customer requests promptly and satisfactorily.

More control, however, is expensive. Companies carry the cost of their export departmentstaff, and the costs involved in selecting and monitoring the different middlemen involved in thedistribution processfreight forwarders, shipping lines, insurers, merchant middlemen, andretailersas well as other marketing service providers, such as consultants, marketingresearchers, and advertising companies.

One venue that opens new opportunities for direct exporting is the Internet. With a well-developed web site, companies now can reach directly to customers overseas and processsales online. And many companies do: Catalog retailers and dot-corn companies, such asLands' End and Amazon, respectively, long ago made their first international incursions byexporting their products to consumers abroad and are rapidly expanding their internationaloperations. The challenges for companies using the Internet to export their products involvesecuring the appropriate credit in environments where credit cards and personal checks areuncommon and, finally, having sufficient sales to warrant staff expenditures needed to processand handle the international sale.

Licensing

A popular international entry mode, licensing presents more risks to the company but alsooffers it more control than exporting. Licensing involves a licensor and a licensee. The licensor offers know-how, shares technology, and often shares a brand name with the licensee. Thelicensee, in turn, pays royalties. The two approaches to licensing are licensing without the name

and licensing with the name.

Licensing without the Name

A licensor is very selective when choosing a licensee, ensuring that productsmanufactured under license are of the highest quality. When quality cannot be guaranteed,either because the licensee does not allow the licensor sufficient control and scrutiny, or because the licensee cannot guarantee quality, it is preferable for the products produced under license not to carry the licensor's brand name. In the early 1970s, Italy's Fiat granted a licenseto Avto VAZ, Russia's largest automobile manufacturer, to manufacture Lada, Russia's mostpopular automobile, and an important export to neighboring and other developing countries.Under a similar arrangement, France's Renault granted a license to build Dacia brand

automobiles in Romania in the 1960s. Today, the automobile, which continues to sell under theDacia name, is as popular as ever, and, in 1999, Renault acquired a 51 percent stake in thecompany.


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Licensing with the Name

Licensors can decide to adapt the names of their products when they have a greater confidence in the capability of the licensee's workforce. One example is Poland's Polski Fiat.Fiat was confident of the reliability of Polish manufacturing and did not require the use of adifferent name for the product. Today, Fiat no longer licenses the Fiat name to Polishmanufacturers; it has set up a subsidiary with multiple operations, Fiat SpA, which manufacturesmany of the Fiats sold in Eastern Europe under the Fiat brand name (primarily lower-pricedmodels, such as Fiat Punto and Seicento J.

Licensing is a lower-risk entry mode that allows a company to manufacture aproduct all over the world for global distribution. Beverly Hills Polo Club, for example, conductsbusiness in approximately 85 countries around the globe, producing apparel licensed under itsown name, all licensed apparel for Harvard University, as well as Hype, Karl Kani, and BlancBleua line that sells in upscale European retailers.

Licensing permits the company access to markets that may be closed or that may havehigh entry barriers. In the examples in the "Licensing without the Name" section, Lada, Dacia,and Polski Fiat were sold in the countries of manufacture at low prices, with few taxes, whileautomobile imports were charged tariffs at rates ranging from 50 to 100 percent.

Companies that engage in licensing agreements also limit their exposure to economic,financial, and political instability. In the event of a national disaster or a government takeover,the licensor licensing without the name incurs only theloss of royalties. The licensor that permitsthe use of the name may suffer a loss of reputation in the short term if the products aremanufactured without licensor supervision and/or if they do not uphold the licensor's standard.In the latter case, the licensor has some control, at least in international markets. For example, itcan bring to the attention of international trade bodies the sale of products that are illegally usingits brand name, assuming the company has international trademark protection; in most markets,it also can sue the former licensee. A downside of licensing is that it can produce a viable

competitor in the licensee, who is well equipped to competently compete with the licenser.Simply training locals in company operations, particularly technology, can lead to thedevelopment of skills for future competitors.

Franchising

Franchising is a means of marketing goods and services in which the franchiser grantsthe legal right to use branding, trade marks and products, and the method of operation istransferred to a third party the franchisee in return for a franchise fee. The franchiser provides assistance, training and help with sourcing components, and exercises significantcontrol over the franchisees method of operation. It is considered to be a relatively less riskybusiness start up for the franchisee but still harnesses the motivation, time and energy of the

people who are investing their own capital in the business. For a franchiser it has a largenumber of advantages including the opportunity to build greater market coverage and obtain asteady, predictable stream of income without requiring excessive investment.


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Franchising (or business format franchising, to be accurate) is the permission given byone person, the franchisor, to another person, the franchisee, to use the franchisors tradename, trade marks and business system, in return for an initial payment and further regular payments Having satisfied himself that franchisee would be suited to running his own businessand that he will accept the restrictions laid down by the franchiser, franchisee will choose thetype of business in which he would like to work and be happy that it is in a market with goodpotential.

Franchisee now need to choose the franchiser. If he has picked a category in which thereare only one or two franchisers, it would be wise to select a second category to avoid having toosmall a choice. This will also give him a wider selection of territories.

Obtain a list of the franchises, which are available in the business category franchiseehas chosen. Which is best for him? Although this is the last stage of your assessment process,it is, of course, the most important. He may be right for franchising and the market he haschosen may be full of promise, but this will not make up for an ineffective franchiser.

There are many questions that can be asked to assess the quality of a franchiser, butmost falls into the following fields. Has the franchise been sufficiently tested and are itsfranchisees successful? Do the initial fee and continuing fees (or product mark up) representgood value for money? Do the on-going fees (or product mark up) still leave the product or service competitive in the market place and provide sufficient profit for the franchiser andfranchisee to make the business worthwhile? Have the franchiser sufficient financial andmanagement resources to do what they say they will do to make our business succeed? Arethey fair and ethical in their business conduct? Are they a member of the British Franchise

Association, whose members are required to abide by a code of business practice? In the eventof the franchisers failure are there alternative suppliers?

J oint Ventures

Joint ventures involve a foreign company joining with a local company, sharing capital,equity, and labor, among others, to set up a new corporate entity. Joint ventures are a preferredinternational entry mode for emerging markets. In developing countries, joint ventures typicallytake place between an international firm and a state-owned enterprise; in this case, thecompany's partner is the local government. As such, the company is assured instant localaccess and preferential treatment. Many developing countries welcome this type of investmentas a way to encourage the development of local expertise, of the local market, and of thecountry's balance of tradeassuming the resultant production will be exported abroad. In mostdeveloping countries, the international firm will typically provide expertise, know-how, most of the capital, the brand name reputation, and a trademark that is internationally protected, amongothers. The local partner will provide the labor, the physical infrastructure (such as the factoryand access to the factory), local market expertise and relationships, as well as connections to

government decision-making bodies. It is typical for the local government of the developingcountry to limit the joint venture ownership of international firms to less than 50 percent. It isalso typical for the local government to encourage the reinvestment of profits into the firm, rather than the repatriation of profits by the international firm. As such, the government, in effect, leadsthe international firm to engage in transfer pricing, a method whereby the parent company of theinternational joint-venture partner charges the joint venture for equipment and expertise, for instance, above cost.


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Joint ventures could constitute a successful approach to a greater involvement in themarket, which is likely to result in higher control, better performance, and higher profits for thecompany. Successful joint ventures abound. In one example, British Petroleum PLCestablished a joint venture in Russia, under the name Petrol Complex, with ST, a powerful localpartner with close ties to the Moscow city government. The company owns 30 BP gas stations,each of which sells an average of 3.5 million gallons of gasoline a year, four times the averageof a gas station in Europe. BP offers Russian drivers good service (a rare commodity in thismarket), as well as minimarkets with espresso bars and a wide selection of wines; this is in starkcontrast to the Russian gasoline stations where customers pay for gasoline by stuffing cashthrough a tinted window and where they communicate with the salesperson through amicrophone. The joint-venture entry mode is not limited to developing countries. Numerous jointventures are operating throughout Europe, and they are increasingly coming under the scrutinyof the European Commission, which assesses their impact on competition. Typically, theCommission appoints a taskforce to investigate the impact of the joint venture on competitionand then issues a statement of objections within six to eight weeks, giving the companiesinvolved a chance to respond and request a hearing before the Commission makes its finaldecision with regard to the joint venture; whenever no such statement is issued, the deal isassumed to be on its way for approval, One joint venture that the European Commission hasexamined involves the diamond giant De Beers Centenary AG (the world's largest diamond-mining company) and the French luxury goods company LVMH Moet Hennessy Louis VuittonSA (which owns, among others, Christian Dior, Moe't & Chandon, Louis Vuitton, and DonnaKaran); the company wants to produce De Beers-branded jewelry and open a network of exclusive shops all over the world.

Overall, 70 percent of all joint ventures break up within 3.5 years, and international jointventures have an even slimmer chance for success. Companies can, to a certain extent, controltheir chances for success by carefully selecting the joint-venture partner; a poor choice can bevery costly to the company. Other factors that will increase the success of the international jointventure are the firm's previous experience with international investment and the proximitybetween the culture of the international firm and that of the host country; a greater distance

erodes the applicability of the parent's competencies.

Reasons for the failure of joint ventures are numerous. The failure of a partner can lead tothe failure of the joint venturefor example, the joint venture between a mid-size company, BirdCorp. of Dedham, Massachusetts, and conglomerate Sulzer Escher Wyss Inc., a subsidiary of Sulzer Brothers Ltd. of Switzerland. Although the joint venture performed well, Bird Corp.experienced serious problems, with unsteady revenues and slim profits, leading to the failure of the joint venture. Even a natural disaster or the weather could lead to failure: Zap-ata, a $93million Houston, Texas, company involved in natural gas exploration, took a 49 percent share ina joint venture with Mexican investors with the goal of fishing on Mexico's Pacific coast for anchovies, processing them, and selling them as cattle and poultry feed The weather system ElNino caused the anchovies to vanish, leading to the failure of the joint venture.


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Like licensing and franchising, joint-venture partners can turn into viable competitors thatknow the firm's operations and competitive strategies. In this case, the local partner willundoubtedly become a formidable competitor locally, where the firm will be protected by thegovernment. Internationally, however, the international firm has some capability to combat thenew competitors through controls and agreements with the supply chain and distributors that willprevent access to equipment or to markets, for example.

Strategic alliances

In analyzing the results of joint ventures in China, I observes that joint ventures are hardto sustain in stable environments and concludes that more direct investment will be whollyowned offering Johnson and Johnsons oral-care, baby and feminine hygiene products businessas a success story. Whilst all market entry methods essentially involve alliances of some kind,during the1980s the term strategic alliance started to be used without being precisely defined tocover a variety of contra contractual arrangements which are intended to be strategicallybeneficial to both parties and which cannot be defined as clearly as licensing or joint ventures.Defined strategic alliances in terms of at least two companies combining value chain activitiesfor the purpose of competitive advantage. Perhaps one of the most significant aspects of strategic alliances has been that it has frequently involved cooperation between partners whomight in other circumstances be competitors. Some examples of the bases of alliances are:

Technology swapsR&D exchangesDistribution relationshipsMarketing relationshipsManufacturer supplier relationshipsCross-licensing

There are a number of driving forces for the formation and operation of strategicalliances. Insufficient resources: the central argument is that no organization alone has sufficientresources to realize the full global potential of its existing and particularly its new products,competitors will exploit the opportunities which arise and become stronger. In order to remaincompetitive, powerful and independent companies need to cooperate. Pace of innovation andmarket diffusion: the rate of change of technology and consequent shorter product life cyclesmean that new products must be exploited quickly by effective diffusion out into the market. Thisrequires not only effective promotion and efficient physical distribution but also needs goodchannel manager, especially when other members of the channel are powerful, and so, for example the strength of alliances within the recorded music industry including artists, recordinglabels and retailers has a powerful effect on the success of individual new hardwire productssuch as the Sony compact disc and Philips digital compact cassette. High research anddevelopment costs: as technology becomes more complex and genuinely new products becomerarer, so the costs of R&D become higher. For example, Olivetti and Canon set up an alliance to

develop copiers and image. In order to recover these costs and still remain competitive,companies need to achieve higher sales levels of the product.


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The pharmaceutical company Glaxos success in marketing Zantac, its nulcer drug, wasachieved by using a network of alliances the most effective of which was including Roche in theUS. Concentration of firms in mature industries: many industries have used alliances to managethe problem of excess production capacity in mature markets. There have been a number of alliances in the car and airline business, some of which have lead ultimately to full joint venturesor take\over. Government cooperation: as the trend towards rationalization continues, sogovernments are more prepared to cooperate on high cost projects rather than try to go it alone.There have been a number of alliances in Europe- for example, the European airbus has beendeveloped to challenge Boeing, and the Euro fighter aircraft project has been developed byBritain, Germany, Italy and Spain. Self-protection: a number of alliances have been formed inthe belief that they might afford protection against competition in the form of individualcompanies or newly formed alliances. This is particularly the case in the emerging global hightechnology sectors such as information technology, telecommunications, media andentertainment.

Market access: strategic alliances have been used by companies to gain access todifficult markets, for instance, Caterpillar used an alliance with Mitsubishi to enter the Japanesemarket. In light of the fact that two thirds of alliances experience severe leadership andfinancing problems during the first two years, emphasize the need to consider carefully theapproach adopted for the development of alliances. They have stressed the need to analyze thesituation, identify the opportunities for cooperation and evaluate shareholder contributions haveidentified some guidelines for success in forming alliances. There needs to be a clear understanding of whether the alliance has been formed as a short-term stop gap or as a longterm strategy. It is, therefore, important that each understands the other partners motivationsand objectives, as the alliance might expose a weakness in one partner which the other mightlater exploit. It is apparent that many strategic alliances are a step towards a more permanentrelationship, but the consequences of a potential breakup must always be borne in mind whensetting up the alliance. Glaxo appears to have changed its strategy resulting in the take-over of Welcome. More recently it announced a proposed, merger with Smith Kline Beecham but at thefirst attempt it failed, apparently because of a clash of personalities of the top executives. As

with all entry strategies, success with strategic alliances depends on: effective management,good planning, adequate research, accountability and monitoring. It is also important torecognize the limitations of this as an entry method. Companies need to be aware of thedangers of becoming drawn into activities for which it is not designed.

The magnitude of the advantages and disadvantages associated with each entry mode isdetermined by number of factors, including transportation costs, trade barriers, political risks,economic risks, costs and firm strategy. The optimal entry mode varies by situation, dependingon these factors. Thus, whereas some firms may best serve a given market by exporting, other firm may better serve the market by setting up a new wholly owned subsidiary or by acquiringan established enterprise. In the opening case Tesco has primarily entered foreign marketsthrough acquisition of established players in those markets. Strategic alliance are cooperative

agreements between actual or potential competitors. The term strategic alliances is often usedto embrace a variety of arrangements between actual or potential competitors including crossshareholding deals, licensing arrangements, formal joint ventures, and informal cooperativearrangements. Strategic alliances have advantages and disadvantages, and Tesco must weighthese carefully before deciding danger is that the firm will give away more to its ally than itreceives.


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D eciding which markets top enter

In deciding to go abroad, the company needs to define its marketing objectives andpolicies. What proportion of foreign to total sales will it seek? Most companies start small whenthey venture abroad. Some plan to stay small; others have bigger plans. Going abroad on theinternet poses special challenges.

Product

Straight extension means introducing the product in the foreign market without anychange. Straight extension has been successful with cameras, consumer electronics, and manymachine tools. In other cases it has been a disaster. General foods introduced its standardpowered jell-O in the British market only to find that British consumers prefer the solid wafer or cake form. Campbell Soup Company lost an estimated $30 million in introducing its condensedsoups in England; consumers saw expensive small-sized cans and did not realize that water needed to be added. Straight extension is tempting because it involves no additional R&Dexpense, manufacturing retooling, or promotional modification; but it can be costly in the longrun.

Product D evelopment

Product development is a critical activity for all TNCs. A globally standardised productcan be made efficiently and priced low but may end up pleasing few customers. On the other hand, excessive customisation for different markets across the world may be too expensive.The trick, as in the case of other value chain activities, is to identify those elements of theproduct which can be standardised across markets and those which need to be customised.Thus, a standard core can be developed, around which customised features can be built to suitthe requirements of different segments.

Japanese companies such as Sony and Matsushita have been quite successful in

marketing standardised versions of their consumer electronics products. These companies, hadlimited resources during their early days of globalisation, and cleverly identified features, whichwere universally popular among customers across the world. Global economies of scale helpedthem to price their products competitively. At the same time, they laid great emphasis on quality.Consequently, their products, even without frills, began to appeal to customers. Many of Sonysconsumer electronics products are highly standardised except for components that have to bedesigned according to national electrical standards. This is also the case with Matsushita.

Canon offers an interesting example of a Japanese company that took into accountglobal considerations at the cost of domestic requirements while developing a new product. Inits domestic market, customer requirements were quite different, photocopiers being expectedto copy all sizes of paper. Canon felt that to emerge as a global player, the design had to be

built around the requirements of the US, the largest market for photocopiers in the world. In theprocess, the company deliberately overlooked some of the features required by Japanesecustomers, to keep its development costs under control.


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Accord: Hondas Global Car

Hondas approach to the development of its well known car model, Accord is a classicexample of how transnational companies attempt to strike the optimum balance betweenstandardisation and customisation. The trigger point in Honda's product development efforts

came during President Nobunhiko Kawamotos visit to the US in 1994. When US customerscomplained that the Accord was too small, Honda responded by making efforts to lengthen itsnose and bulk up its rear end. Though Honda incurred substantial expenditure, the move paidoff and the Accord almost overtook Fords popular model, Taurus. Unfortunately, the new modeldid not find acceptance among Japanese customers. Honda realised that a truly global car hadto gain popularity not only in the US but also in Japan and Europe. At the same time, designingseparate models for each market would be prohibitively expensive.

Soon, Honda began coordinated efforts to develop a platform which could be shrunk,stretched or bent to offer different shapes of the overlying car for different markets. Thedevelopment efforts were closely monitored by Kawamoto, who wanted different models for different markets but within a tight budget. Chief Engineer Takefumi Hirematsu, who was made

in charge of the project, realised the need for a fresh approach. His solution was to developradically different vehicles based on a single frame. Hiramatsu decided to move the cars gastank back between the rear tires, so that he could design a series of special brackets that wouldallow him to hook the wheels to the cars more flexible inner subframe. These brackets allowedHonda to push the wheels together or pull them apart, easily and cheaply.

Hondas flexible global platform resulted in three Accords which cost 20% less todevelop compared to the single Accord model it had developed four years back. Honda savedapproximately $1200 per car enabling it to take on competing models, Camry (Toyota) andTaurus (Ford). For the US market, the Accord was 189 inches long and 70 inches wide with ahigher roof, and a roomy interior consistent with its positioning as a family car. For the Japanesemarket, the model not only had a lower roof compared to the US model, but was also six inchesshorter and four inches thinner and incorporated high tech accessories in line with the tastes of

Japanese customers. For the European market, the model had a short narrow body for easynavigation on narrower roads and aimed to provide a stiffer, sportier ride.

In the case of industrial products, standardization may become unavoidable if customers coordinate globally their purchases. This seems to be true in the PC industry.Companies such as Dell are taking full advantage of this trend, which is likely to strengthenfurther, as companies increasingly feel the need to integrate corporate information systemsacross their global network. MNCs often choose to replicate the computer system in their headquarters across their worldwide network to minimize training and software developmentcosts.

In industries characterized by high product development costs (as in thepharmaceuticals industry) and great risk of obsolescence(as in the case of fashion goods),

there is a great motivation for developing globally standardized products and services. Byserving large markets, costs can be quickly recovered. Even in the food industry, where tastesare largely local, companies are looking for opportunities to standardize as developing differentproducts for individual markets can be prohibitively expensive. Though identical offeringscannot be made in different markets, companies are developing a core product with minor customization, (like a different blend of coffee), to appeal to local tastes.


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In their enthusiasm to reduce costs by offering standard products, MNCs need to avoidsome pitfalls. Customer preferences vary across countries. A product developed on the basis of some average preference may well end up pleasing no one. As Kenichi Ohmae hasremarked*: When it comes to product strategy, managing in a borderless economy doesntmean managing by averages. It doesnt mean that all tastes run together into one amorphousmass of universal appeal. And it doesnt mean that the appeal of operating globally removes theobligation to localize products. The lure of a universal product is a false allure.

Some products tend to be more global than the others. These include cameras,watches, pocket calculators, premium fashion goods and luxury automobiles. In the case of many industrial products, since purchase decisions are normally taken on the basis of performance characteristics, considerable scope exists for global standardization. However,even here, local customization may be required in engineering, installation, sales, service andfinancing schemes. In the same industry, different segments may have different characteristics.Institutional financial services, tend to be more global than retail ones. Ethical (prescription)medicines tend to be more global than OTC drugs.

Within a given product, some features lend themselves to global standardisation.Consider a product like cars. Traditionally, car manufacturers have developed hundreds of models to meet the needs of different markets without exploring the scope for standardisation.This has resulted in unused capacities and inefficiencies. Faced with excess capacity, car manufacturers have been looking for ways to cut costs. One approach has been to build modelsof different shapes for different markets around standardised platforms. The idea here is that thebasic functionality of a car can be extended globally while features and shape are customised toappeal to varying consumer tastes in different parts of the world. Ford, Honda (See Box

Product positioning

International positioning is far more complicated than positioning in the domesticmarket. The degree and nature of segmentation can vary across countries. Brands may not beperceived the same way in different regions. The importance of product attributes may vary frommarket to market. A TNCs ability to convey an identical positioning across countries may also

be constrained by the different degrees of sophistication in the local marketing infrastructure.Well-entrenched local brands can also cause problems by creating competitive pressures thatdemand a different positioning. Having said that, opportunities for global positioning areexpanding due to the convergence of tastes. Global communication media and frequent travelbetween countries are creating a degree of homogeneity in consumer tastes. In the case of industrial products, organizational linkages created by professional organizations areaccentuating this trend.

In general, a global positioning is recommended when similar customer segments existacross countries, similar means of reaching such segments are available, the product isevaluated in a similar way by different segments, and competitive forces are comparable. Onthe other hand, differing usage patterns, buying motives and competitive pressures across

countries result in the need for positioning products uniquely to suit the needs of individualmarkets.

Global positioning ensures that money is spent efficiently on building the same set of attributes and features into products. Global positioning can also reduce advertising costs.However, as mentioned earlier, uniform positioning without taking into account the sensitivitiesof local markets can result in product failures.


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For a long time, Citibank has been serving the premium segment in India. To open asavings bank account, the minimum deposit required is Rs. 3 lakhs. While this may soundreasonable in dollar terms ($7000) it is obviously beyond the reach of the Indian middle class.Citibank has probably realized that targeting the mass market is a Herculean task in a vast,predominantly rural country like India where there are also several restrictions on the expansionof foreign banks. Hence its decision to limit itself to Indias major cities and target wealthyindividuals and blue chip corporate. Citibanks up market positioning as a consumer financecompany, rather than a commercial bank, needs to be appreciated in this context. Now Citibankseems to have realized the need for offering products and services for the mass market. Its newSuvidha scheme is in line with the changed philosophy.

Global positioning of products often evolves over time. Ford offers some useful insights inthis context. The automobile giants Escort model was launched individually in differentcountries. Each country not only came up with its own positioning but also developed its ownadvertising messages using local agencies. In some countries, the product was positioned as alimousine and in others as a sports car. Compared to the Escort, Fords new compact, Focus isa classic example of global positioning. The Focus is being launched across different marketsas a car with a lot of design flair, plenty of space, great fuel efficiency and special engineeringfeatures to enhance safety. Ford has employed only one advertising agency for the launch of the Focus.

Nestle uses positioning documents for its global, as well as, important regional brands.These documents are prepared by the respective strategic business units in consultation withmarketing personnel from different parts of the world and are approved by the generalmanagement. In the late 1990s, roughly 40% of Nestles total sales was generated by productscovered by the Nestle corporate brand. For some products such as pet foods and mineral water,Nestle has chosen to keep the brands as distant as possible from the corporate brand. NestleCEO Peter Letmathe* explains: We felt that people buying water are looking for the purity of the source whereas our seal is that of a manufacturer. So we set up a special institute, Perrier Vittel, which puts its own guarantee on mineral water.

The choice of brand name is an important issue in global marketing. Companies suchas Coca-Cola have used the same brand name around the world for their flagship products.Others have used different names to convey the same meaning in different languages acrossthe world. Volkswagen has chosen the same brand name across various countries for manymodels but there have been some exceptions. It has a series of model names denoting Wind -Golf (gulf wind), Sirocco (hot wind in North Africa) and Passaat (trade wind). Golf is one of Europe's most popular cars. For the US market, however, Volkswagen renamed the Golf asRabbit to project a youthful image. Japanese car maker Nissan's experience offers usefullessons. When Nissan started exporting cars to the US, it chose the name Datsun. After establishing the brand over a period of time, it decided to revert back to Nissan. Sales however plummeted, with the name change possibly playing a major role in the decline.


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Advertising

In general, advertising is more difficult to standardise, than product development. Dueto language differences, chances of being misunderstood are great, especially in the case of idiomatic expressions. Besides, cultural differences can result in different interpretations of thesame advertisement in different countries. Differences in media infrastructure also play animportant role. In many emerging markets, due to a low penetration of TV sets in rural areas,film based advertising is ruled out. Differences in government regulations also stand in the wayof developing a standardised approach to advertising. In Germany, comparative advertising isnot permitted. Commercials showing children eating snacks are not allowed in Italy. Manycountries impose restrictions on the advertising of alcohol and cigarettes. Due to all thesefactors, advertising copy content may have to be modified suitably. Yet, some advertisingactivities can be rationalised, to do away with inefficiencies resulting from excessivecustomisation.

Consider the choice of advertising agency. A totally decentralised approach would meanselection of different agencies for different countries. While local agencies are often in the bestposition to understand the needs of the local markets, no global company can afford a totallyuncoordinated approach towards advertising. Nestle once employed over a hundred differentagencies. As the company looked for global branding opportunities, coordinating the activities of multiple agencies became a major problem. Nestle decided to retain only a few agencies McCann Ericsson, Lintas, Ogilvy & Mather, JWT, Publicis / FCB and Dentsu.

Pricing in emerging markets: Forgetting the ground reality

Pricing very often has to take into account local factors, especially in the case of consumer goods. Indians are among the worlds most price sensitive customers. Yet, many MNCsoperating in India have ignored the mass market and launched products for the upper end of themarket. Consequently, their ability to build volumes has been threatened. Consider the

following.y When Levi S trauss entered India in June 1995, it was expected to do well, as it had theadvantage of owning one of the leading brands in the world. By mid 1998, Levi had realisedthat it was going nowhere. Teenagers perceived Levi's products, priced over Rs 2,000, tobe too expensive, forcing the company to tone down its premium image.

y N ike 1 started marketing its brands in India in 1995. Till April 1999, however, Nike did notoffer any product priced below Rs 2500. Needless to say, volumes did not pick up. In July,1999, Nike was forced to introduce sneakers priced at Rs 999 to meet the general purposeneeds of entry level sports enthusiasts.

y H einz recently launched a ketchup in India and claimed 2: "We're bringing real ketchup toIndia." A 500 gm bottle was priced at Rs 65, 20% more than market leader, Maggi. Heinzfeels that Indian customers will be willing to pay a premium as Indian taste buds are

sophisticated enough to distinguish the superior taste.y G illette has decided to focus on the premium segment in the urban areas of India. Zubair Ahmed, Gillette's country manager explained recently 3: "While most of the blade sales are inthe rural markets, these constitute low cost blades. That's not a game that Gillette wouldlike to get involved in since our game plan is to increase value." Even Gillette's newlaunches in the flat blades segment are priced four to five times higher than those of competitors.

y D aewoo 4 is a relatively small player in the global automobile industry and is known for itsaggressive pricing strategies. Yet, when it launched its small car, Matiz in India in


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November, 1998, Daewoo announced a price of Rs. 3.55 lakhs, substantially higher than thecountry's best selling car, Maruti 800. Daewoo's price was also higher compared tocompetitors like Hyundai (Santro) and the Tatas (Indica). Subsequently, Daewoo cut pricesto boost sales.

Nestle CEO Peter Letmathe has explained the role of an advertising agency in thecompanys globalisation efforts 5: To us, the most important thing is to have dedicated teams.Mc Cann for instance has 10 people working only with Nestle. I see them as an extended arm of my communications team. They visit every six weeks to tell us what they are doing around theworld. Nestle subsidiaries have encouraged their local agencies to tie up with the companysglobal agencies. The rationalisation of worldwide communications efforts has helped Nestle cutadvertising in the case of products such as coffee, ice creams and chocolates.

Nestle has also made attempts to transfer advertising content across countries, but thereare obvious limits, as Letmathe explains through an example 1: Some time ago, Chile producedan outstanding Nescafe commercial. In a little house by a lake, a man gets up early and tries towake his son (who prefers to stay in bed) to go fishing. We see the disappointed father sitting inthe morning mist at the lake. Then the son reconsiders the decision, gets up and makes a cupof coffee and brings it to his father for a moment of spontaneous renewal. Their wholerelationship is built up through coffee. Now, the same commercial, projected in a differentmarket can bring completely different connotations. In Paris, you might even provoke ecologicalfeelings that look almost like an environmental statement. The same images are perceivedtotally differently.

Pricing

When it comes to pricing, both global and local approaches can be used, depending onthe specific situations. Consider the virtual bookstore Amazon.com , which sells books -essentially branded products. Customers typically have a distinct preference for a particular book. For Amazon. com, global pricing makes sense except in cases where cheaper reprintsare available for developing countries. On the other hand, in the car industry, pricing has to takeinto account local factors. Companies such as Ford 2 and General Motors are realising that their Indian customers are unwilling to pay Rs. 8-9 lakhs (based on an exchange rate of Rs. 45/$) for the same models which cost $15 18,000 in the US and Western Europe. This is puttingpressure on them to look for ways to cut costs, indigenise and offer cheaper models. Fiatssuccess in Brazil has been largely due to its ability to design and offer value for money cars.Sometimes, global pricing becomes difficult because of different levels of competition in differentmarkets. A company like GE which follows global pricing for its jet engines, makes suitableadjustments to take into account local competitive factors. Using a uniform price relative tocompetitors appears to make sense in many cases as it protects market share while maintaininga consistent positioning. A point which MNCs should appreciate is that multiplying the homecountry price by exchange rate to arrive at the price in the overseas market may not always beappropriate. Very often, there is a significant difference between the market exchange rate andthe exchange rate calculated on the basis of the relative purchasing power of the twocurrencies.


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Sales & D istribution

Approaches to personal selling can vary from country to country. In some markets,door to door selling is very popular while in others, people prefer to shop at retail stores.Telemarketing is quite popular in the US but not so in many Third World countries. Yetopportunities to standardise should not be ignored. Dell Computer has replicated its directselling practices across the world. To be closer to overseas customers in Europe and Asia, Dellhas a plant in Limerick, Ireland and another in Penang, Malaysia. In Ireland, Dells facilities arevery close to the plants of its suppliers such as Intel (microprocessors), Maxtor (hard drive) andSelectron (motherboard). Such arrangements facilitate the smooth execution of Dells directselling, build to order, just in time model. Dells sales persons directly target large institutionalaccounts. Retail customers can dial toll free one of its call centres in Europe and Asia. If acustomer in Portugal makes a local call, it is automatically forwarded to the call center in Francewhere a Portuguese speaking sales representative answers the customers questions.

International distribution has to take into account local factors. Strategies can vary fromcountry to country owing to different buying habits. In some societies, mom and pop storesproliferate, while in others large departmental stores carrying several items under one roof arepopular. In some countries, intermediaries handle credit sales, while in others, cash transactionsare the norm. Even within developed countries, significant differences exist in the channels of distribution. (See Note: Distribution in Japan at the end of the chapter). The rapid emergence of the Internet is however changing the old paradigm. Many companies are seriously looking atthe potential of the Net as a global distribution vehicle, an excellent example being

Amazon.com.


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Global Steel Industry All types of steel products will be required to support the ongoing industrial growth in the

country. Because there is a little bit of steel in everybodys life starting from pin to construction,automobile, railways and engineering. In short, promotion of steel usage today has gained somuch of importance both at national and international levels. But one needs to be very selectivewell in advance today in deciding the product mix that should be able to meet users demand indomestic international market.

Successful operation of highly sophisticated iron and steel industry depends to a greatextent or technical and commercial information, particularly, the information in respect of variousoptions of plants and equipments, their availability, range of investment, selection of sites, useor users of the product, availability and demand for the product in market (present and future)prospective competitors, various tariff and non tariff barriers, price trends in domestic andinternational markets are some of the essential information which an entrepreneur must know atleast broadly before entering into steel industry.

However, Indias positioning in the global perspective will depend upon costcompetitiveness of the Indian. Besides the continuous emphasis is to given on newtechnology/process/products developed, productivity improvement, quality improvement.However, Indias positioning in the global perspective will depend upon cost competitiveness of the Indian. Besides the continuous emphasis is to given on new technology/process/productsdeveloped, productivity improvement, quality improvement.

MAJO R D EMAN D D RIVERS F O R STEEL IN D USTR Y IN IND IA

Higher infrastructure spending - It is an unquestionable fact that the infrastructuresituation in India is poor. If the Indian economy has to maintain its growth rates, theinfrastructure situation has definitely got to improve. Spending on infrastructure will definitelylead to a higher demand for steel.

Higher standard of living The standard of living is expected to go up in the comingdecade. This will in turn push up the demand for consumer durable and automobiles.Percentage of the demand for flat products comes from these industries. Hence, any pickup inthese sectors should lead to a higher demand for flat products.

Steel Products can be categorized as:

Semi-finished : These are intermediate products cast from liquid steel for further rolling intofinished products. These are often sold by Integrated Blast Furnace Producers (IBFPs) to smallmini mills and rolling mills to be rolled into finished steel. They include billets, blooms, rods,which are rolled into long products or slabs which are rolled into flat products. While somecountries export semis (e.g. Russia), India uses them in the domestic industry as inputs for higher value added long and flat products.


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Long products : These include bars, rounds, angles and structural and are mainly used inconstruction, infrastructure and heavy engineering. These products require lesser capacities.Long products are the largest steel category produced in India accounting for around 50% of total production.

Flat products : These include sheets, coils and plates and are mainly used in automobiles andconsumer durable. The technology for the manufacture of flats is critical and it requires larger capacities for manufacturing. These are high value products and enjoy higher margins. Thesecan be hot rolled, cold rolled, galvanized or coated. This category, usually the largest productcategory in developed countries is small in India accounting for about 44%.

Pipes : These include seamless pipes and welded pipes. Stainless steel is the generic name for a number of different steels used primarily for their resistance to corrosion. The one key elementthey all share is a certain minimum percentage (by mass) of chromium: 10.5%. Although other elements, particularly nickel and molybdenum, are added to improve corrosion resistance,chromium is always the deciding factor. The vast majority of steel produced in the world iscarbon and alloy steel, with the more expensive stainless steels representing a small, butvaluable niche market.

International steel trade

Pricing and D istribution

Price regulation of Iron and steel was abolished on 16.1.1992. The government removed the distribution controls on iron & steel except five priority sectorsi.e. Railways, Defense, Small Scale Industries Corporations,


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Engineering Goods Exporters and North Eastern Region. Government has no restriction over prices of iron and steel products Price increases have taken place mainly in long products than flat products.

Imports of Iron and Steel

Least potential items are ERW and seamless pipes and tubes, since their imports arecontrolled. India has been importing around 1.5 Million Tones of steel yearly.

Iron and Steel Exports Advance Licensing Scheme allows duty free import of raw materials for exports. Duty Exemption Pass Book Scheme also facilitates exports. Indian steel exports have been subject to anti-dumping/anti-subsidy duties actions by thestronger economies over the last few years.

China has imposed safeguard measures on import of various items of steel products by fixingtariff quotas. However, these measures do not apply to India. The rising trend in Indian steelexports that was being witnessed in the last couple of years was halted due to these antidumping actions initiated by the advanced, developed nations of the world, which led to the lossof major markets for the Indian steel exporters. Despite the initial setbacks Indian exports haverecovered - largely due to the ability to find out alternative export markets where selling steelhas been profitable. ( www.steel.gov.in/annual.htm )

FUTURE PR O SPECTS IN D IAN STAINLESS STEEL IN D USTR Y

The Indian steel industry has a bright future with 75% of market of stainless steel is inkitchen segment. 95% of the gas stove market uses only stainless steel. India has emerged asthe largest manufacturer of 200 series low nickel stainless steel in the world. Railways will usedto manufacture of passenger coaches requiring 15 mt stainless steel per coach in next 5 years.The Delhi Metro Rail Corporation tendered for 200 all stainless steel coaches. The government

of India is using ferric cold rolled stainless steel strips for making coins.(www.steel.gov.in/annual.htm) The usage in industrial and other segments is still very low whichwill be expected increase in future.

Global trends and its affect on Indian markets

The transport and automotive sector accounts for nearly 14% and the construction sector takes around 12% stainless steel. In India at present consumption in these two segments puttogether is just l%. This gives clear picture of future prospects in both building and transportsectors in India. The automobile companies also will be demanding the use of stainless steel inincreasing amounts for the production of fume exhaust and catalytic converter applications. Themajor international fast food joints are investing in India for the consumption of stainless steel.

Fast food joints using good quantity of stainless steel for making kitchen equipments, servicearea and furniture. The major steel exporting companies aimed on China because it still imports70% of its total demand of 1.5 million tons. The large potential exists in value added productslike pipes, tubes and kitchen utensils. Also India also good production environment for stainlesssteel long products like bar, rod and wires which has good markets in Europe, South East Asianregion and USA.


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SummaryHaving done all the preparatory planning work (no mean task in itself!), the prospective

global marketer has then to decide on a market entry strategy and a marketing mix. These are

two main ways of foreign market entry either by entering from a home market base, via direct or indirect exporting, or by foreign based production. Within these two possibilities, marketers canadopt an "aggressive" or "passive" export path.

Entry from the home base (direct) includes the use of agents, distributors, Governmentand overseas subsidiaries and (indirect) includes the use of trading companies, exportmanagement companies, piggybacking or countertrade. Entry from a foreign base includeslicensing, joint ventures, contract manufacture, ownership and export processing zones. Eachmethod has its peculiar advantages and disadvantages which the marketer must carefullyconsider before making a choice.

Global marketing strategies have to respond to the twin needs of global standardisation

and local customisation. In their quest to maximise local responsiveness, companies should notoverlook opportunities to standardise and cut costs. On the other hand, an excessive emphasison generating efficiencies through a standard marketing mix may result in the loss of flexibility.The challenge for global marketers is to identify the features which can be standardised andbuild a core product. Then customised offerings can be designed around the core product for different markets. In real life, striking the right balance between standardisation andcustomisation can be extremely challenging.

A classic example is Volkswagen, which faced major problems while trying to market itsbest selling model, Golf in the US. CEO, Carl Hahn, who had been leading the company'sglobalisation efforts admitted* "Our basic mistake was to trust the design adaptation of the Golf to American thinking: too much attention to outward appearances, too little to engineering detail.

We were not true to our heritage. We gave American customers a car that had all the handlingcharacteristics - one might say the smell - of a US car. We should have restricted ourselves toour traditional appeal, aiming at customers, who were looking not for American style but for aEuropean feel. Instead, we gave them plush, colour coordinated carpeting on the door andtook away the utility pocket. We gave them seats that matched the door but were not verycomfortable."


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References

1. Cunningham, M.T. "Strategies for International Industrial Marketing". In D.W. Turnbull andJ.P. Valla (eds.) Croom Helm 1986, p 9.

2. Pavord and Bogart. "Quoted in The Export Marketing Decision" S.A. Hara in S. Carter (Ed)"Export Procedures", Network and Centre for Agricultural Marketing Training in Eastern andSouthern Africa 1991.

3. Piercy, N. "Company Internationalisation: Active and Reactive Exporting". E uropean Journal of Marketing, Vol. 15, No. 3, 1982, pp 26-40.

4. Collett, W.E. "International Transport and Handling of Horticultural Produce" in S. Carter (ed.)"Horticultural Marketing". Network and Centre for Agricultural Marketing Training in Eastern and

Southern Africa, 1991.

5. Korey, G. "Multilateral Perspectives in International Marketing Dynamics". E uropean Journal of Marketing, Vol. 20, No. 7, 1986, pp 34-42.

6. Khoury, S.J "Countertrade: Forms, Motives, Pitfalls and Negotiation Requisites". Journal of B usiness Research, Vol. 12, 1984, pp 257-270.

7. Shipley, D.D. and Neale, C.W. "Successful Countertrading. Management Decision", Vol. 26,No. 1, pp 49-52.

8. Anderson, E. and Coughlan, A.T. "International Market Entry and Expansion via Independentor Integrated Channels of Distribution". Journal of Marketing, Vol. 51. January 1987, pp 71-82.

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