Competing In Foreign Markets: A Global Perspective on National Challenges By Dr Michael McDermott Northern Kentucky University

International Marketing Challenges and The National Dimension Objectives of this presentation Identify a framework for examining groups of countries with similar Country-of-Origin effect Examine the international marketing challenges facing these countries The challenge facing the country has a direct bearing upon the challenge facing individual companies

The Domestic Environment Has a major impact upon the international marketing challenges facing the country and its companies This is the Country of Orign effect

Do we agree? Like it or not, the CoO dimension imposes considerable restrictions on corporate strategic options?

Strategy Internationalisation The Company/Organisation The Country of Origin

Developing a Classification of COO Consider the following: –Extent of natural resources –Level of economic development

Country of Origin - Typology Four main groupings can be identified: 1.Resource-poor Undeveloped 2.Resource-rich Undeveloped 3.Emerging Economies 4.Developed Economies

International Marketing Challenges: The Macro-Micro Relationship Economy TypeKey RequirementKey International Marketing Challenge Resource-poor undeveloped economy Attract inward investment Location marketing Resource-rich undeveloped economy Beat the ‘commodity trap’ in primary goods Commodity Marketing Emerging Economy (phase 1) Manufacturing expertise International Subcontracting relationships Emerging Economy (phase 2) As above, plus international marketing Brand development, global distribution Developed EconomyAs above, plus Innovation Attaining and exceeding World class status

World Class Company Effective Efficient World Class Marketer World Class Manufacturer Differentiation Low-Cost

World Class Manufacturing Company Countries that have the lowest costs, often generate world class producers But such countries generally do not offer a positive CoO effect Therefore companies in these countries struggle to become world class marketers They seek to overcome this disadvantage by establishing a presence in lead, developed country markets

World Class Marketing Company Countries that have the highest costs, often generate world class marketers But such countries generally do not offer a competitive, low cost manufacturing location Therefore companies in these countries struggle to remain world class producers They seek to overcome this disadvantage by establishing a presence in lower cost markets

The World Class Company Almost by definition it will be a global company Seeking out locations offering cost advantages And those that offer marketing advantages Compare and contrast companies from Germany and Taiwan Both need to globalise, albeit often for different reasons

Costs Low High CoO Effect Negative Positive Cell 1Cell 2 Cell 3Cell 4 The Relationship Between the Country of Origin Effect and Costs

Costs Low High CoO Effect Negative Positive Low-Cost Non- competitive World Class Differentiation The Relationship Between the Country of Origin Effect and Generic Strategy

Costs Low High CoO Effect Negative Positive The Starting Point Least Competitive Most Competitive The Usual Destination

The Impact of Economic Development Costs will rise with economic development So companies in Cell 1 find themselves heading for the least competitive situation Faced with rising costs, and a low CoO effect What do they do?

The Impact of Economic Development Just consider the changes in international marketing strategy of Asian companies in Japan, South Korea, Taiwan Consider the speed of their change –Many seek to change their strategy, but others to prolong their strategy Now consider the nature of change in China and the strategic response of Chinese companies

Summary The Country-of-Origin effect is a significant issue - for companies in emerging developing and emerging economies It also has implications for companies based in developed country Yet some companies are much better known than their CoO (eg Nokia and Finland)

Summary A period of transition in choice of generic strategy invariably results in: A change in nature of entry mode And also modifications in the four Ps

Country of Origin - Typology Resource-poor Undeveloped Resource-rich Undeveloped Big Emerging Economies Developed Economies

Resource-poor Undeveloped Markets Industry CoO Effect Indigenous Company Target Market(s) End-user attitude Cottage Strongly negative Inefficient Domestic No choice

Marketing Implications Attract export-oriented inward investment - acquisition or greenfield Provides stimuli to local enterprises Creation of relationships with MNEs Fosters exports of labour-intensive products

Marketing Implications needs to focus upon selling the country itself, not products Only through success in the above, are indigenous firms ever likely to succeed in international markets Key skill requirement - location marketing

Resource-rich Undeveloped Economies Industry CoO Effect Indigenous Company Primary sector Often positive Non-competitive

Resource-rich Undeveloped Economies Entry Mode Target Market(s) IM Activities Indirect exporting Buyers in developed countries None - other than relationship with buyers

Implications Poor - because limited value added activities undertaken Positive CoO benefits lost to indigenous interests Indigenous firms have minimal participation in international marketing Poor, so often unattractive target market too

Marketing Implications Extend operations along the value chain Co-operation with local rivals New terms for existing relationships, or New set of relationships Key skills requirement - processing, distribution

Emerging Economies - Phase 1 Industry CoO Effect Company Strategy Target Market(s) Entry Mode Secondary Negative Low cost Developed & open Subcontracting

Emerging Economies - Phase II Industry CoO Effect Company Strategy Target Market(s) Entry Mode Secondary Neutral Value for money Global, protected Direct Exporting, fdi

Emerging Economies - Product Policy Phase I Imitation Lacks brand identity Suspect Quality Minimal R&D Phase II Innovation Create brand Quality Committed to R&D

Emerging Economies - Phase 1 Distribution Promotion Pricing Minimal Industrial selling Aggressive Dumping Low margin

Emerging Economies - Phase II Distribution Promotion Pricing Extensive Advertising Penetration Higher margin

Key Skills Requirements PHASE I Production expertise PHASE II Overcome CoO NPD Brand management Distribution management Creativity

Developed Country Economies Industry CoO Effect Company Strategy Target Market(s) Entry Mode All three Related to product Value driven Regional/Global All - M&A prominent

Developed Country Economies ProductBranding issues NPD Adaptation vs standardisation Customisation

Developed Country Economies Promotion Distribution Pricing One-to-one Buyer power - own labels Build in emerging economies Avoid grey imports Skimming often in BEMs

CoO and Impact upon International Marketing Challenges Considerable diversity in charac- teristics of countries But all share desire/need to increase exports All face hurdles - some more severe than other

Meeting the Challenge Are some economies/companies doomed to become/remain commodity exporters? Can emerging economies create global giants? Can a negative CoO effect be overcome?