International Business Strategy Guide

Posted on Jun 20, 2024 in Economy

Product Strategy

Universal Product Strategy

Uses the domestic market’s original product with minimal adjustments to enter new markets that share similar preferences and characteristics.

Modified Product Strategy

Combines global standardization of the product with specific local adaptations. Adjusts the design, features, or functionalities of the product to meet regional preferences without compromising the brand’s global coherence.

Adapted Product Strategy

Implements extensive and profound changes to align the product completely with local needs, tastes, and preferences. Aims to foster deep consumer connection and loyalty by making significant adjustments to ingredients, design, functionalities, packaging, and other aspects of the product.

Incoterms

Predefined set of terms by the International Chamber of Commerce (ICC) that outlines buyer and seller responsibilities in international transactions.

Example: FOB (Free On Board)

  • Seller’s Responsibility: Deliver the machinery on board the ship at the port of Shanghai.
  • Buyer’s Responsibility: Cover costs and risks from the moment the machinery is on board the ship until it reaches Spain, including maritime transportation.

Pricing Strategy

Pricing is crucial and needs constant reevaluation due to changing costs, competition, demand, and macroeconomic factors. It affects consumer perception and market penetration.

When to Use:

  • Rapid Market Penetration: Aggressive pricing to quickly gain market share without losses.
  • Market Skimming: High initial price for new products, adjusting based on demand and competition.
  • International Markets: Balance perceived quality and value, considering reference prices.

Key Factors:

  • Market competition
  • Product novelty
  • Regulations and laws
  • Bargaining power
  • Product life cycle

Market Entry

Market entry strategies are methods that companies use to expand internationally.

Methods:

  • Export: Sell products from the country of origin to international markets.
    • Advantages: Easy to implement and low risk.
    • Disadvantages: Less flexible and competitive in markets with currency fluctuations.
  • Foreign Direct Investment (FDI): Invest in productive assets abroad.
    • Advantages: Full control over operations.
    • Disadvantages: High risk and legal complexity.
  • Licensing, Joint Ventures, Acquisitions, Strategic Alliances
  • Greenfield: New operations from scratch in another country.

Entry Barriers:

  • Regulations and Norms: Laws, tariffs, and quality requirements.
  • Local Competition: Established companies and preference for local products.
  • Entry Costs: Initial investment and product adaptation.
  • Consumer Culture and Preferences: Cultural differences and loyalty to local brands.
  • Economic Barriers: Exchange rate fluctuations and economic stability.
  • Technological Barriers: Differences in technological infrastructure.

Intermediaries:

  • Foreign Distributors: Have exclusive rights to distribute in a region, buying and selling goods at a discount.
  • Foreign Retailers: Connect manufacturers with consumers through various channels.
  • State-Controlled Trading Companies: Monopolize the buying and selling of goods, influenced by governmental policies.

Distribution Channels:

  • Direct Channel: Manufacturer controls the customer experience; requires significant resources.
  • Short Channel: Few intermediaries, enhances product variety and convenience.
  • Long Channel: Multiple intermediaries in fragmented markets to optimize distribution.
  • Direct and Indirect Sales: Through domestic intermediaries or directly in foreign markets, respectively.

Product Life Cycle

  • Introduction: Low sales, high marketing investments. Objective: Establish a consumer base.
  • Growth: Rapid increase in sales and profits. Objective: Expand market and reinvest profits.
  • Maturity: Stable sales and profits, high competition. Objective: Differentiation and customer retention.
  • Decline: Decrease in sales and profits. Objective: Decide whether to reposition or withdraw the product.

EPRG Framework

Categorizes a company’s international business approach into four orientations:

  • Ethnocentric: Focus on the home country, minimal adaptation for exports.
  • Polycentric: Emphasis on host countries, tailored strategies, and local management.
  • Regiocentric: Focus on regions (e.g., Europe, Asia), with coordinated strategies within regions.
  • Geocentric: Global approach, treats the world as a single market, balances global standardization and local adaptation.

Countertrade

Countertrade involves commercial transactions where goods and services are exchanged without using money.

Types:

  • Barter: Direct exchange of goods.
  • Compensation Deal: Payment through a combination of goods and money.
  • Counterpurchase: Exchange of goods of equivalent value between two parties.
  • Product Buy-Backs: Seller accepts products as part of the payment.
  • Offsets: Buyer invests in the seller’s production process.

Countertrade is beneficial in countries with weak economies or unstable currencies, providing a more secure and flexible method of conducting transactions.

Market Segmentation

Segmentation divides a large market into smaller, more homogeneous groups, allowing for precise strategy adaptation and better response to customer needs.

Importance of Segmentation:

  • Better understanding of the target audience.
  • Optimizing resources by focusing on profitable segments.
  • Designing effective strategies tailored to each segment.
  • Improving customer satisfaction by offering suitable products.

Types of Segmentation:

  • Geographic: Divides by location (countries, regions).
  • Demographic: Based on age, gender, income, education.
  • Psychographic: Focuses on lifestyle, personality, values.
  • Behavioral: Analyzes usage, brand loyalty, benefits sought.

Piggybacking

A smaller company uses the resources and market presence of a larger company to enter new markets and reach more customers without major investments.

Pull Marketing

The company directs its efforts towards attracting consumers directly to its products or services. Communication emphasizes creating demand from the end consumer through consumer-targeted advertising, digital marketing, public relations, and promotional activities to raise awareness and generate interest.

Push Marketing

The company focuses its communication efforts on intermediaries like retailers, distributors, and sales agents. The objective is to push products into distribution channels and ultimately reach end consumers. Activities typically include sales promotions, intermediary discounts, and distributor presentations.

Price Skimming

Initially sets a high price for a new, innovative, or high-quality product to attract early adopters willing to pay a premium. The aim is to maximize profits initially before gradually reducing the price as competition increases or demand decreases.

Adoption Life Cycle

  • Innovators: Early adopters, adventurous and willing to take risks.
  • Early Adopters: They adopt soon after the innovators, they will influence others, curious and opinion leaders.
  • Early Majority: More cautious, adopt after the product is tested, need to see clear benefits.
  • Late Majority: Skeptical and reticent, they adopt when the product is already widely accepted.
  • Stragglers: Late adopters, prefer the traditional, resistant to change.

Case Study: NKT Hamamatsu

Motivation and Strategy

NKT Hamamatsu aims to achieve long-term growth and differentiate itself in the market through innovation and international expansion. Their internationalization strategy includes both product internationalization and new product development, adapting them according to local needs to maximize consumer acceptance and loyalty. The company balances cost efficiency with adaptation to local markets, employing strategies that combine standardization with specific modifications tailored to the target market.

Segmentation

  • Industry: Photonics and Optics, Electronics, Environmental Monitoring
  • Role: Researchers, Engineers, Managers, Marketing
  • By Interest:
    • Sensors: Innovations and applications
    • Quantum: Advancements and applications
  • Specific Needs: New Products, Optimization, New Opportunities
  • Program: Pilot Lines Service, Networking, Photon Fair, Quantum Technology