DEVELOPING GLOBAL MARKET STRATEGY: AN EXAMPLE Decisions related to foreign market entry, expansion, and conversion as well as to phasing out of foreign markets call for systematic effort. Illustrated here is one method of developing a global market strategy. The method consists of three phases:

1. Appropriate national markets are selected by quickly screening the full range of options without regard to any preconceived notions.

2. Specific strategic approaches are devised for each country or group of countries based on the company’s specific product technologies.

3. Marketing plans for each country or group of countries are developed, reviewed, revised, and incorporated into the overall corporate concept without regard to conventional wisdom or stereotypes.

Phase 1: Selecting National Markets There are over 132 countries in the world; of these, the majority may appear to present entry opportunities. Many countries go out of their way to attract foreign investment by offering lures ranging from tax exemptions to low-paid, amply skilled labor. These inducements, valid as they may be in individual cases, have repeatedly led to hasty foreign market entry. A good basis for selecting national markets is arrived at through a comparative analysis of different countries, with long-term economic environment having the greatest weight. First, certain countries, because of their political situations (e.g., Libya under Qaddafi), should be considered unsuitable for market entry. It might help to consult a political index that rates different countries for business attractiveness. The final choice should be based on the company’s own assessment and risk preference. Further, markets that are either too small in terms of population and per capita income or that are economically too weak should be eliminated. For example, a number of countries with populations of less than 20 million and with annual per capita incomes below $2,000 are of little interest to many companies because of limited demand potential. The markets surviving this screening should then be assessed for strategic attractiveness. Abattery of criteria should be developed to fit the specific requirements of the corporation. Basically, the criteria should focus on the following five factors (industry/product characteristics may require slight modification):

1. Future demand and economic potential.

2. Distribution of purchasing power by population groups or market segments.

3. Country-specific technical product standards.

4. Spillover from the national market (e.g., the Andes Pact provides for low-duty exports from Colombia to Peru).

5. Access to vital resources (qualified labor force, raw materials sources, suppliers). There is no reason to expand the list because additional criteria are rarely significant enough to result in useful new insights. Rather, management should concentrate on developing truly meaningful and practical parameters for each of the five criteria listed above so that the selection process does not become unnecessarily costly and the results are fully relevant to the company concerned. For example, a German flooring manufacturer, selling principally to the building industry, selected the following yardsticks:

1. Economic potential New housing needs and GNP growth.

2. Wealth Per capita income, per capita market size for institutional building or private dwellings (the higher the per capita income, market volume, and share of institutional buildings, the more attractive the market).

3. Technical product standards Price level of similar products, for example, price per square meter for floor coverings (the higher the price level, the more attractive the market tends to be for a technically advanced producer).

4. Spillover Area in which the same building standards (especially fire safety standards) apply (e.g., the U.S. National Electrical Manufacturers’ Association standards are widely applicable in Latin America; British standards apply in most Commonwealth countries).

5. Resource availability Annual production volume of PVC (an important raw material for the company). Through these criteria, the analysis of economic potential was based on two factors: housing needs and economic base. In specifying these criteria, the company deliberately confined itself to measures that (a) could readily be developed from existing sources of macroeconomic data, (b) would show trends as well as current positions, and (c) matched the company’s particular characteristics as closely as possible. Since German producers of floor covering employ a highly sophisticated technology, it would have been senseless to give a high ranking to a country with only rudimentary production technology in this particular facet. Companies in other industries, of course, would consider other factors auto registrations per 1,000 population, percentage of households with telephones, density of household appliance installations, and the like. The resulting values are rated for each criterion on a scale of one to five so that, by weighting the criteria on a percentage basis, each country can be assigned an index number indicating its overall attractiveness. In this particular case, the result was that, out of the 49 countries surviving the initial screening, 16 were ultimately judged attractive enough on the basis of market potential, per capita market size, level of technical sophistication, prevailing regulations, and resource availability to warrant serious attention. Interestingly, the traditionally German-favored markets of Austria and Belgium emerged with low rankings from this strategically based assessment because the level of potential demand was judged to be insufficient. Some new markets, Egypt and Pakistan, for example, were also downgraded because of inadequate economic base. Likewise, even such high-potential markets as Italy and Indonesia were eliminated for objective reasons (in the latter case, the low technical standard of most products).

Phase 2: Determining Marketing Strategy After a short list of attractive foreign markets has been compiled, the next step is to group these countries according to their respective stages of economic development. Here the criterion of classification is not per capita income but the degree of market penetration by the generic product in question. For example, the floor covering manufacturer grouped countries into three categories developing, takeoff, and mature as defined by these factors:

1. Accessibility of markets Crucial for the choice between export and import production.

2. Local competitive situation Crucial for the choice between independent construction, joint venture, and acquisition.

3. Customer structure Crucial for sales and distribution strategy.

4. Re-import potential Crucial for international product/market strategy. The established development phases and their defining criteria must be very closely geared to the company situation because it is these factors, not the apparent attractiveness of markets, that will make or break the company’s strategic thrust into a given country. This being the case, for each country or group of countries on the short list, management should formulate a generic marketing strategy with respect to investment, risk, product, and pricing policies; that is, a unified strategic framework applicable to all the countries in each stage of development should be prepared. This step should yield a clear understanding of what the respective stages of economic development of each country entail for the company’s marketing strategies. Companies are too often inclined to regard “overseas” as a single market or at least to differentiate very little among individual overseas markets. Another common error is the assumption that product or service concepts suited to a highly developed consumer economy work as well in any foreign market. This is rarely true: different markets demand different approaches. Across-the-board strategic approaches typically result in ill-advised and inappropriate allocation of resources. In less-developed markets that could be perfectly well served by a few distributors, companies have in some cases established production facilities that are doomed to permanent unprofitability. In markets already at the takeoff point, companies have failed to build the necessary local plants and instead have complained about declining exports only to finally abandon the field to competitors. In markets already approaching saturation, companies have often sought to impose domestic technical standards where adequate standards and knowledge already exist or have tried to operate like mini replicas of parent corporations, marketing too many product lines with too few salespeople. Again and again, product line offerings are weighted toward either cheaper- or higher-quality products than the local market will accept. Clearly, the best insurance against such errors is to select strategies appropriate to the country.

Phase 3: Developing Marketing Plans In developing detailed marketing plans, it is first necessary to determine which product lines fit which local markets as well as the appropriate allocation of resources. A rough analysis of potential international business, global sales, and profit targets based on the estimates worked out in Phase 1 help in assigning product lines. A framework for resource allocation can then be mapped according to rough comparative figures for investment quotas, management needs, and skilled labor requirements. This framework should be supplemented by company-specific examples of standard marketing strategies for each group of countries. Different product lines are assigned to different country groups, and for each country category, different strategic approaches for example, support on large-scale products, establishment of local production facilities, cooperation with local manufacturers are specified. The level of detail in this resource allocation decision framework depends on a number of factors: company history and philosophy, business policy objectives, scope and variety of product lines, and the number of countries to be served. Working within this decision framework, each product division should analyze its own market in terms of size, growth, and competitive situations; assess its profitability prospects, opportunities, and risks; and identify its own current strategic position on the basis of market share, profit situation, and vulnerability to local risks. Each product division is then in a position to develop country-specific marketing alternatives for servicing each national market. Top management’s role throughout is to coordinate marketing strategy development efforts of various divisions and continually to monitor the strategic decision framework. The three-phase approach illustrated above exhibits a number of advantages:

• It allows management to set up, with a minimum of planning effort, a strategic framework that gives clear priority to market selection decisions, thus making it much easier for divisions to work out effective product line strategies unhampered by the usual chicken-or-egg problem.

• Division managers can foresee at a fairly early stage what reallocations of management, labor, and capital resources are needed and what adjustments may need to be imposed from the top due to inadequate resources.

• The company’s future risk profile can be worked out in terms of resource commitment by country group and type of investment.

• The usual plethora of “exceptional” (and mostly opportunistic) product/market situations is sharply reduced. Only the really unique opportunities pass through the filter; exceptions are no longer the rule.

• The dazzling-in-theory but unrealistic-in-practice concept of establishing production bases in low-wage countries, buying from the world’s lowest-cost sources, and selling products wherever best prices can be had is replaced by a realistic country-by-country market evaluation.

• Issues of organization, personnel assignment, and integration of overseas operations into corporate planning and control systems reach management’s attention only after the fundamental strategic aspects of the company’s overseas involvement have been thoroughly prepared. In brief, the three-phase approach enables management to profitably concentrate resources and attention on a handful of really attractive countries instead of dissipating its efforts in vain attempts to serve the entire world.

Internationalization of business has become a fact of life. Company after company finds that decisions made elsewhere in the world have a deep impact on its business. Although many firms have long been engaged in foreign business ventures, the real impetus to overseas expansion came after World War II. The globalization of business is accounted for by such forces as (a) growing similarity of countries (e.g., commonality of infrastructure and channels of distribution); (b) falling tariff barriers; and (c) technological developments that, for example, permit the development of compact, easy-to-ship products. Traditionally, major U.S. business activities overseas have been concentrated in developed countries. In recent years, developing countries have provided additional opportunities for U.S. corporations, especially in more politically stable countries. Yet although an individual developing country may not provide adequate potential for U.S. companies, developing countries as a group constitute a major market. The emerging markets in developing countries can help many U.S. corporations counter the results of matured markets in Western nations. A firm aspiring to enter the international market may choose among various entry modes exporting, contractual agreement, joint venture, or manufacturing. Each entry mode provides different opportunities and risks.

The differentiation of global and domestic marketing largely revolves around the nature of environmental forces impinging on the formulation of strategy. International marketers must be sensitive to the environmental influences operating in overseas markets. The principal components of the international marketing environment include cultural, political, legal, commercial, and economic forces. Each of these forces represents informational inputs that must be factored into the decision-making process. An important question that global marketers need to answer is whether the same product, price, distribution, and promotion approach is adequate in foreign markets. In other words, a decision must be made about which is the more appropriate of two marketing strategies: localization or standardization. On the one hand, environmental differences between nations suggest using localization. On the other hand, there are potential gains to consider in standardizing market strategy. International marketers must examine all criteria in order to decide the extent to which marketing perspectives should vary from country to country. International marketing plays three important roles in global business strategy. These are configuration of marketing activities (i.e., where different marketing activities should be performed), coordination (i.e., how international marketing activities dispersed in different countries should be coordinated), and the linkage of international marketing with other functions of the business. The article ended with a framework for designing global market strategy. The framework consists of three steps: (a) selecting national markets, (b) determining marketing strategy, and (c) developing marketing plans.