Write an essay on International Marketing Management.
In this report an analysis has been done on the market entry strategies and emphasis has been given on the licensing strategy. Tesco has been selected as the chosen organization for this study. The company is trying to expand its market and has selected India. The advantage of licensing is that in this process, a licensor will sell its expertise right to the licensee for a limited amount of time. There are various factors such as geographic location and political issues which can affect the business operation of Tesco. The company also has to face different non tariff barriers in India as well. They have to take help of local firms for this purpose. Depending on the cultural differences, the company needs to change stages of product life cycle.
Tesco is one of the most popular retail organizations of UK that was founded by Jack Cohen as a group of market stalls in the year of 1919 (Brannen et al. 2013). The name Tesco was introduced in the year of 1924 when Cohen bought a shipment from Stockwell. He used the first two letters of Stockwell’s name which are T and E and then added first two letters of his surname to develop the name Tesco. The first Tesco store was opened in the year of 1929 in Burnt Oak, Barnet (Tesco 2016). After gaining immense success in the UK market, the authority of Tesco has decided to focus on the Asian markets especially in India (Tesco 2016). India is a country where the demands of retail products are increasing day by day. On the other hand, there is no such company present in the market that could give Tesco a minimum competition. With that much high prospective and no competition, India was considered as the best place to start Tesco’s venture in Asia.
Licensing strategy as a market entry mode and its advantages, disadvantages
Tesco is one of the leading retailer organizations of UK who is planning to spread their business in Asian countries. For each country, there are different rules and regulation along with different customer demands and buying behaviour. Based on those aspects, it is difficult to choose a proper market entry mode to start a business venture in India (Samiee 2013). There are several market entry strategies that Tesco can follow while making their entry to India. However, according to Andersen (2014), International Licensing Agreement is the best possible market entry mode that Tesco can adopt in order to make their way into the Indian market.
Licensing allows involving a licensee and licensor together in an agreement that will provide benefits for both the sides while conducting a business in any country. In this process, a licensor will sell its expertise right to the licensee for a limited amount of time. This process also refers to intangible properties such as patents, inventions, formulas designs, trademark and copyrights. In this process, the licensee will have to pay the royalty fee to continue the contract with the licensor. According to Bond and Saggi (2014), more than 60 percent people in India are under 35 years old and more than 50 percent people are under the age of 25. The demand of brand conscious consumers, especially the young, has unbeatably accelerated the growth signal for the business of brand licensing India. In near future, it is expected that this demand will reach to the great heights where proportionate steps will be taken into account. As mentioned by Ji and Dimitratos (2013), the size of consumer product licensed merchandise market in India was estimated at $135 million where the sales are expected to raise over $500 million in the next five year (Stevens and Dykes 2013).
The entry mode for a licensing market is similar to that of a franchise operation in which Coca Cola has set a perfect example. In countries such as Zimbabwe, United Bottlers have the license to make Coke (Alegre and Berbegal 2015). As a result, the main organization has little involvement and expenses in the country while they can still make the sales out of it. Some of the advantages of Licensing are mentioned below:
Licensing is considered as the best way to start new operations. As it helps to develop a low risk manufacturing relationship, the entrepreneurs can easily gain competitive advantage over the existing market rivals who have undertaken a different entry mode (Stevens and Dykes 2013).
It requires a lot of effort in order to get something out of the market in a foreign country. If Tesco can implement a successful licensing strategy with an experienced licensor who is already well recognized in the Indian market, then they can gain greater market share in no time. Besides, as Tesco already has a vast experience in several foreign markets, linkage between parent and receiving partner would help both the parties to get most out of marketing effort (Parola 2013). On the other hand, as capital is not tied up in foreign market because of licensing strategy, Tesco will have an advantage. Another advantage of licensing is that very little investment is required on the part of licensor. Consequently, this makes it easier for the licensor, Tesco in this case, to gain greater share of the return on investments (ROI).. However, as the licensee produces and markets the product, potential returns from manufacturing and marketing activities may be lost.
According to Alegre and Berbegal (2015), licensing has some disadvantages too that might affect the marketing strategies and objectives of Tesco. Some of the disadvantages of Licensing and franchising market-entry mode strategy are minimum amount of control, legal and regulatory environment including IP and contract law. Besides, the chances are high that the licensee may become a competitor (Hovhannisyan and Keller 2015). It is true that in India, licensing and franchising strategy is vastly adapted by the foreign organizations; however, some issues also exist in the Indian market, which must be dealt by Tesco at the first place. There is no specific law pertaining to licensing in India, licensing as a business touches upon several business laws and specific industry laws within India.
|
Licensing |
Strategic alliance |
Joint ventures |
Exporting |
|
· It includes turnkey contracts, franchising and manufacturing contract · In this case, Tesco will charge a fee or royalty for the use of its technology, brand and expertise. · In franchising, franchiser organization will provide branding; concepts and other important things that are needed to operate in an international market to the franchisee. Franchiser controls the management in this case. Some examples are Dominos Pizza, Coffee Republic and McDonald’s Restaurants. |
· Strategic alliance is a whole series of different relationships between companies that operates in international market. · Strategic alliances are non-equity based agreements where companies remain independent and separate. · For example, iPhone was initially marketed by O2 in the United Kingdom market. |
· This process is equity based where a new organization will share hands with parties that own a proportion of the new business. · In joint venture, one company will have the access to technology and management skills of other company. For example, Honda’s relationship with Rover in the year of 1980. · Access to channels of distribution, manufacturing and R&D. |
· Two ways of exporting are present which are direct and indirect. · For example, piggybacking whereby the new product uses current distribution and logistics of other businesses. |
The Licensing framework and legal issues of India can be found from appendix 1 and 2.
History and Geography of a country helps the marketing management of an international business to gain a better view on the market. Especially in India, where diversity is bigger in terms of geography and history, Tesco will have to understand the difference between India and UK.
Understanding the history of India will help Tesco ascertain the nation’s mission such as how it perceives its neighbours and how its sees its place in the world. History of India will also help Tesco understand how people in India negotiate in terms of business, their strategies to conduct business, their attitude towards foreign investment and legal systems of India. India and the UK shares great cultural differences which can easily cause misunderstandings and mistakes while choosing proper marketing and product strategies. Tesco cannot change the buying behaviour of Indian customers. They will have to react as per the demands of Indian customers, which they will be able to derive after precisely evaluating the historical perspectives of those customers. Moreover, understanding this aspect will also help understand the role the Government plays in international business, relation of managers and subordinates and management authority sources.
According to Almadani (2014), understanding the history of India will help Tesco to find out, explain and realize the image of Indian people, their fundamental attitude and unconscious fear that reflects their view on foreign cultures. Understanding the culture of India will also help understand the differences between the previous and present culture.
Besides history, geographical diversity of India will also put an impact on the business and marketing of Tesco. Geography in marketing is considered as a physical characteristic of a specific region that includes climate, topography and population. These factors are the primary determinants of India’s customs, products, needs and methods of deciding which product will gain popularity in which region (Kumar and Pattnaik 2014).
Marketing of Tesco totally targets to meet the needs of people and that is why it is important for them to understand what those needs of the customers are. The authority of the organization will have to become familiar enough with the geography of the country to understand the various causal factors of the people (Laurent and Jean 2014). They will have to implement proper researches to evaluate various climates and topologies that exist in the country. Based on those conditions, the authority of Tesco will have to shape their marketing plans in India. The same aspects will also affect the manufacturing unit of Tesco. For example, some areas of India are highly hot and humid. If Tesco develops their manufacturing units in those areas, then they will have to take extra precautions so that the machineries can run safely (Niu 2013). On the other hand, warehouses where the products will be stored might also be located in one of those hot and humid areas. The organization will have to implement proper artificial technologies so that products can be kept safe.
There are some major challenges that Tesco may face while conducting their business in India. Those challenges can affect the future growth of Tesco and India’s retail market industry. Some of those challenges are hereby mentioned below:
IBM’s eight diversity task forces were responsible for gathering data on personnel trends as well as customer market and labour market for their groups. The diversity initiatives that are described in figure 4 helped the organization to shape the employees to think about possible business and development opportunities.
Critically evaluate the commonly held belief that there is no single market entry strategy which is appropriate in all circumstances. Answer with reference to business format Licensing operations.
As Holtbrügge and Baron (2013) mentioned that there are various market entry strategies used by various organizations to enter the foreign markets. They are such as direct exporting, licensing, franchising, partnering and joint venture and Greenfield investments. As Leonidou et al. (2013) stated that various factors influence strategy selection. These factors include tariff rate of the foreign country, adoption required for a specific product, transportation and marketing cost and cultural variation.
Direct exporting is the strategy to sell products directly into the market by using own resources of the organization. Once a company is established in a foreign market, they select various sales programs to convert distributors into agents. These agents represent the organization and become the face of the organization in the foreign market (Chang et al. 2013). There is another strategy named as licensing, where the firm transfers the right of using a product or service to another organization. As Arora et al. (2013) mentioned that, licensing is effective on those situations where the purchasing company has larger market share in the foreign company.
As Leonidou et al. (2013) mentions that depending on the cultural variation and geographic location, market entry strategy also varies. For example, it has been found that in North America, a marketing strategy named as franchising is used to deal with rapid market expansion. As argued by Bagur-Femenias et al. (2013) franchising model is appropriate for those organizations which have a rapid business model. In this case, a company must has a unique business model or the company needs to have strong brand recognition, which can be in international market.
On the other hand, in order to enter in majority of the foreign countries of Asia, partnering can be used. As stated by José Martínez-Jurado et al. (2013) , partnering can also vary from simple co-marketing arrangement to a sophisticated strategies alliance with other companies. According to Fletcher and Crawford (2013) partnering can be an effective market entering strategy for those companies which have different cultures and business strategies from the target foreign market. For example, in case of Tesco, the company can use partnering strategy to enter in the market of India. As stated by Germann et al. (2013) , taking the help of local organizations can bring local market knowledge in business operation. Moreover, Tan and Sousa (2013) stated that Joint venture is a type of partnering, where two companies join together to develop a new organization to operate in a foreign market. Hence, it has been found that depending on the market condition of a foreign market, a company needs to change its market entry strategy
According to Magnusson et al. (2013), in most of the cases it has been found that a company is able to expand its market into one new country or one new culture. The first major challenge that a company has to face is related to selection of target market for expansion. For this reason, the management of an organization needs to develop lists in which the company is working successfully. As stated by Tan and Sousa (2013), after identification of the target market, a company needs to conduct a market research to determine where to expand their business. As Leonidou et al. (2013) stated that, for this purpose, a company needs to consider the needs and desires of customers and the difference between cultures. The relative differences between different cultures around the world can be found from appendix 6.
As Tan and Sousa (2013) stated that there is another way to take appropriate decision about market entry. It is to narrow down the expansion of choices to target countries with appropriate clusters. As Austria (2013), stated that, clusters are the geographically focused hubs of organizations in related fields. According to Germann et al. (2013), a cluster can serve as a source of new customers. According to Tan and Sousa (2013), when the company is trying to enter a new market, it needs to adopt or standardize its marketing mix. In order to make an appropriate marketing decision, a marketer needs to understand that marketing mix is not only adopted or standardized. The continuum of adoption and standardization for a specific product can be analyzed from appendix-7.
According to Tan and Sousa (2013), the essence of global marketing is to find out the balanced localized approach of marketing mix and standardized approach of marketing mix. In case of market entry strategy, the necessary decisions that managers have to make is the degree to which a company should standardize or adopt a global marketing strategy.
The most appropriate marketing strategy that can be applied in the Indian market is given below:
The time scale of the applicable marketing strategy is given in Appendix-8.
Critically discuss what strategic options are open to marketing firms when attempting to deal with the problems of non-tariff barriers in developing and economically developed and industrialised countries? Choose at least one industrialised country and one developing country to illustrate the points made. Answer with reference to business format Licensing operations
According to Austria (2013), non-tariff barriers are those obstacles that restrict the import or export of services and goods from one country to another without the simple imposition of tariffs. For example, the retail company of UK, Tesco, has to face various non-tariff barriers in industrialised countries such as China. These barriers include import licensing, variation of rules, rules of origin and pre-shipment inspection. There are various other factors such as lack of cultural understandings, differential VAT values, corruption, counter fitting, complex certification system, and transportation system can affect the business operation of Tesco in China. Different types of Non-Tariff barriers that Tesco has to face in industrialised countries like China can be found from appendix-9.
In order to deal with these Non-Tariff barriers (NTB) pertaining to the business of Tesco in China, marketers need to understand how distribution channels work in economically developed countries such as China or Australia. As stated by Germann et al. (2013), companies need to understand that good quality of products and services can help them to attract good distributors in countries like India. It will help them to overcome various NTBs such as corruptions, customs and transpirations. There are some practical strategies, which this company can implement to overcome NTBs like corruption. They include IP protection of the company and investing in technical advancements in order to deal with counterfeiting.
From the Appendix-10, the evolution of non-tariff barriers in developing countries like India has been given. According to Fletcher and Crawford (2013), the company needs to make polite refusals or use efficient distributors to deal with corruption in India. As argued by Leonidou et al. (2013), it has been found in majority of the cases in developing countries like India; companies avoid “Whistle Blowing”, due to the fear of destroying the business relationship within these countries. In these cases, they can hire local employees or staffs and develop their physical presence in these developing countries. As Leonidou et al. (2013) mentioned that, it will help them to deal with NTBs. There are various other ways, in which NTBs can be managed. For example, the UK government agency needs to pursue the Indian government to develop laws and regulations that will help to eliminate NTBs that the company is facing.
In addition, companies need to adopt appropriate marketing strategies to meet the market needs of the foreign countries. In case of India, Tesco needs to concentrate on quality of products rather than market penetration strategy. As Holtbrügge and Baron (2013) mentions t, with the increase of globalization in business, it has become more challenging to develop effective and efficient marketing strategies for business operations.
With the emphasis of globalization, it has become necessary for organizations to formulate their global marketing strategy in accordance to the needs of foreign countries (Leonidou et al. 2013). As Fletcher and Crawford (2013) stated, there are two major reasons for undertaking product adoption. They are such as:
For example, in order to make product adoption, the company Tesco needs to add additional warnings on the labels of goods as required by laws of Indian government to meet up with the additional safety features. According to Fletcher and Crawford (2013), there are three types of product or marketing adoption can be used and they are tangible adaption, intangible adaption and promotional adoption. In case of tangible adaption, physical aspects of products such as taste, size, ingredients and packaging of products according to the desire of foreign customers are considered. For example, ‘spicy’ is a relative term. The meaning of Spicy is different in Suburban areas of UK and US from what is spicy in India (Fletcher and Crawford 2013). Hence, the company needs to make tangible adoption in order to meet the needs of Indian customers. On the other hand, intangible modification in the foreign market is changing the brand name and positioning. As Tesco is a renowned company, it does not require changing its brand name while expanding its market in India.
Critically evaluate the concept of the product life cycle as a strategic marketing tool in international markets. Use examples and a diagram or figure to illustrate the points made. Answer with reference to business format Licensing operations.
The concept of product life cycle (PLC) theory was first introduced in the year of 1950s to analyse the expected life cycle of products from design to obsolescence. As Koellner et al. (2013) stated, product phases can be divided as introduction, growth of products, maturity of products and declination. While conducting business in foreign market, PLC can work as a useful tool that can maximise the value of products and profitability of each stage. There is a chart given in appendix-11, which discusses about the concept of International PLC.
This PLC diagram is helpful to discuss different stages of the product life cycle. While entering into a new market, such as India, Tesco needs to implement five distinct decisions in the introduction stage of product life cycle. They are idea validation, conceptualization and specification of design, prototype testing (Yue et al. 2013). In the introduction stage, Tesco needs to build awareness about products among potential customers of India. The company needs to develop appropriate advertising strategies depending on the market situation. There are various market entry strategies which can be used by the company Tesco, to gain higher an amount of market share in India such as penetration strategy or skimming strategy.
At the growth stage, Tesco needs to decide whether, it wants to increase its market share in India or profitability. At this stage, the company will increase its production which will decrease the unit costs. As Dhillon (2013) states, in this stage, the major goal of the company is to increase brand loyalty among new buyers. By providing offers, discounts and developing an effective advertising strategy can help to grow the market of Tesco in India. A typical product life model has been provided in appendix-12. For example, 3D televisions received considerable investment from broadcasters and technology companies. Then it was possible to make the product available for the home. This is a good example of Growth stage. In case for drinks products, currently in India 7up is one of the most popular drinks product which is gaining growth in the market.
In the maturity stage, it is expected that sales growth will slow down for Tesco and an inevitable decline will begin. In this situation, authority of the organization will have to defend their market position at that time. More and more competitors will come forward at this stage to challenge Tesco and they will implement more strategies to give a tough competition to the organization (Xuegong et al. 2013). Some of the organizations will also start giving away products at a comparatively low price. This cycle is known as the longest of the other three cycles, in the entire product cycle. It is also seen that many products remain in this stage for decades (Dhillon 2013). For example, blue ray players with advanced technology are delivering the very best viewing experience and that is why it is experiencing steady growth. However, with the arrival of 3D television, it is expected that their growth rate will slow down sooner. Organizations such as Coca-cola are living in maturity stage from a long time in India. Many companies are coming forward to challenge Coca-Cola and that is the reason the organization has reduced its prices.
Right after the maturity stage, decline stage will come when Tesco will experience a downward slide in sales. Revenues will go down drastically to a stage from where it will not be useful to continue making that product. In this situation, either Tesco will have to decide whether they will continue with the product or will sell it to other organizations (Dhillon 2013). However, it would be better if they sell it as they will not gain any further profits in the future. Tesco can implement another strategy in this situation, which is effective but rare. In this scenario, Tesco can discontinue that product and can allow the stocks to dwindle to zero. However, the company may also sell the rights of supporting the product to another organization. Then that organization will maintain the product. For example, if Tesco is selling a special type of sports shoe in India, they can sell the rights to maintain and support the product to Khadims, which is a popular shoe manufacturing organization in India. Video recorders are still available in the market but are in decline stage as in spite of its cheap prices, customers are switching to new technologies and trends. Mirinda is the biggest example of decline stage in Indian market. The product has already reached to its limits and the chances are almost nil that the company will gain any profit from it in the near future.
Conclusion
In this assignment, a marketing plan has been discussed for the company Tesco, which is trying to enter the market of India. In this case scenario, licensing is used as appropriate market entry method. It has been found that there is no one single market entry strategy is appropriate for all circumstances. Different types of market entry strategies can be used by business organization in accordance to the cultural differences of various countries. They include partnering, licensing, and franchising. It has been found that licensing is one of the common ways of entering foreign markets. The advantage and disadvantage of licensing has been analysed in comparison with other marketing strategies. In order to develop marketing in India, Tesco needs to understand the history and geography of the foreign country. The company needs to change its product life cycle depending on the cultural needs of the country. There are various strategies have been discussed in this assignment, those can help the company to deal with non-tariff barriers in industrialised countries like China and developing countries like India.
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