Economics

G.Pazylkhairova

JSC “Ordabasy Corporation”, Kazakhstan

Strategies and methods of a company entry into the foreign market

Annotation: When a company enters international market it must have a developed strategy which meets the needs of the present market. Success, duration and profitableness will depend upon it.

Key words: international marketing strategy, fundamental strategies, confrontation strategies, cooperation strategies, innovation strategies.

I.Introduction: Each company when developing an international marketing strategy should mind the whole complex of issues connected with entry to external market: aim, applied strategy, ways and methods of entry.

II. Statement of problem: Penetration of Kazakhstani companies into international market will be more effective under the condition of studying theoretic basis of international marketing strategies, foreign experience and development of own vision.

III. Results: International marketing strategy – general, long term enough, adapting or intellectual programme of development of conformity of goods and services to international price market and then satisfaction both companies’ objectives and needs of the buyers on these markets by means of thorough component building corresponding to international marketing mix goods, prices, distribution and communication which are formalized in the sub – programmes form of the general programme.

Well-known are two generic strategies of international marketing:

- where one kind supposes geographic determination of expansion (international, regional, multinational, global);

- goods market determination (narrow goods row/local niche – wide goods row/global market segment).

International strategy becomes more rare phenomenon in the epoch of general internationalization of world economy connections, big markets (like USA or Russia) make exceptions.

Globalization process has avalanche character, TNC reveal and form standardized needs and establish global demands and global goods. Further less big companies get involved into this process.

Key indicators which might offer to international companies competitive advantages:

Interdependence of market positions. For example, demonstration of successful activity in USA serves the strengthening of company market positions in other countries.

Identical staff of consumers. The main distinctive feature of global strategy is to offer to its clients required services in any place, where it is necessary, so the clients become constant which promotes work effectiveness rise.

Identical staff of competitors. Globalization of market strategy allows to have wide information about the competitors’ activity and react to this activity more flexibly and economically.

Similarity of market factors. Complex market characteristics allow to get gain from globalization, concluded, in particular, on saving on marketing expenditures.

Existence of market leaders. Experience, obtained when working for the market leader allows to correct management work and to reach positive result.

Goods market determination. None of the companies may sell everything and everywhere. The reason is objective finiteness or limitation of resources or factors of production and exchange.

Japanese economist introduced a term key factors of success. It is necessary for any company which strives to competition on the world scale to combine necessary competitive advantage and perfect possession of key factors of success in interrelationship between target market and distinctive competence of a company.

Competitive advantage may consist , for example, in absolute or relative advantage of innovation technology or innovation product.

Key factor of success may refer to achievements in the field of marketing on the whole, scientific – research works, decrease of production expenses. Distinctive competence of accompany is ensured by accumulated experience which corresponds to intellectual nature of international. Company in an ideal case must have all these three components on each target market.

International marketing strategies may be classified in the following way: Fundamental strategies, Confrontation strategies, Cooperation strategies, Innovation strategies.Fundamental strategies. 1. A big international company, already dominating on the market, possessing enough resources (personnel, technology, capital), follows usually global strategy of main share of the market. This strategy is available to international companies - giants. Organizational structure of these companies allows to save at the account of production scale obtained marketing experience. Condition of the present strategy already exists and occupied big enough market share and high degree of goods standardization. To decrease expenses risks companies often practice strategic partnership and organization of joint – venture companies. Small participants of such type of strategic alliance may also win from being included into strategy of giant.

One should not think that present strategy is absolutely non differentiated, on the contrary, resource possibilities of companies of such type allow to consider market peculiarities and limitations imposed by tariffs, quotes and etc.

2. local strategies of main share of the market allow to escape direct competition with dominating local companies. Mechanism of output and development of such strategy considers possible competitive company advantages on the basis of definite national internal market. Usually such companies refer on national barriers, existing for their competitors, besides, for example, national customs preferences and better knowledge of local business environment may compile the basis of their local competitive advantages.

3.Strategy of global niche - this is concentrated or focused marketing strategy in the frame of which the company tries to please special peculiarities of the market, concentrating on that narrow sphere in which it possesses advantage of distinctive competence. Market niche itself consists of geographically moved away, but “marketingly close” market segments.

Confrontation strategies are presented by flank attack and frontal attack

Flank attack is concentrated marketing strategy, often used by such companies which either objectively weaker than their competitors and do not have resources for forehead attack or simply do not want extra expenses:

А) geographical flank attack. On the markets, where main competitors are represented weakly or are not represented at all, the company offers goods, analogous or alike to competitive. The company saves on marketing using not openly competitors’ experience;

B) segmented flank attack is entry to that segment of the market which is not served by the competitors. The main thing is to discover not served demand before his strong competitor. Meanwhile the size of chosen segment should be big enough cover the companies’ expenses on its development, but not too large, not to attract in a hurried way more stronger competitors.

Frontal attack may be in several types:

- true frontal attack – international company is targeted at consumers of the same geographical markets that of their main competitors, with the aim to show the best variant of marketing mix, limited by frontal attack;

- price frontal attack – realization of goods with characteristics analogous to the competitors goods, periodically relatively low prices; value frontal attack is based on consumer differences of the goods “attacking” company from competitors goods. These differences are decisive argument at purchasing at equal or higher price. Market environment is attack at all possible directions – proposal of all available goods rows on all segments of being developed target market.

Evasion strategy is attractive for relatively small companies:

Goods evasion is development of fully new version of traditional goods or services; geographical evasion is efforts concentration on secondary markets.

Cooperation strategies: the present strategy is used by small and average companies which have intentions and potential possibilities to become global which often have unique and perspective know-how, but their weakness is in the absence of necessary flank and sometimes production and personnel resources. The present strategy is concluded in establishment of strategic alliances.

Innovation strategies have in the basis exploitation of competitive advantages of international companies based on the principal new technology, goods or combination, or idea.

Meanwhile there a single universal, “the best” strategy of entering foreign market does not exist. One may speak only about “situational best” or temporary optimal strategy, as a choice of entry technique of international market depends from many changing at times factors. Means of entry international markets depends from characteristics of a definite field of goods – market situation. It may be represented in form of matrix:

Remote goods	Competitive (strategic alliance)	Activization /direct foreign investments	Activization /direct foreign investments
Similar markets	Export development	Competitive (strategic alliance)	Activization /direct foreign investments
Existing markets	Development of existing goods/markets	Development of new goods	Competitive (strategic alliance)
	Existing goods	Similar goods	New goods

Existing methods of entry into foreign markets may be classified in the following way:

Direct export: transfer of goods to transport – dispatcher company; use of foreign experience; goods are sold to foreign distributor, sometimes with giving exclusive rights; consortium of independent companies; foreign trade office.

Indirect export: export house, buying goods on the spot at own expense or at the expense of a foreign partner; trade company with appointed abroad distributor; sale to companies, possessing channels of distribution of related goods abroad.

Transference of production abroad: organization of production process due to the license (patents, know-how); agreement on transferring know –how for professional education and production process; contract joint enterprise or strategic business –alliance; joint-stock enterprise; private foreign sister company.

Sale services abroad: franchising (including the right for brand – name and logo, as well as often plus managerial); managerial contract; contract joint – stock enterprise or strategic business alliance, established for limited time; action joint enterprise, capital investments for non-limited time; private foreign sister company.

Comparative characteristics of alternatives of entry into foreign market:

1 group – commercial movement of goods. Export is the most traditional decision. 1. direct export – if resources allow companies then it carries out export operations independently without mediators. In this case an international company concludes direct agreements with foreign buyers: final buyers; wholesaler of a foreign market, including a distributor, purchasing the good at own account for further resale; a company buying the goods of production purpose or industrial goods. Sometimes here the role of original and necessary mediator is played by engineering company, which acts as a general contractor gathering (often in different countries) subcontractors to carry out significant project; government or municipality; nets of retail trade; hotels and restaurants, buying quickly spoiling delicacy; companies implementing national trade by post and people using services of international trade by catalogue; use of transport – forwarder company acting on the name of producer. It volunteers for the duty of all or most of export formalities and supply of goods to the buyer.

In some cases small and middle sized companies to get economy on expenditures on organizing export and join export experience, establish export consortium, retaining companies independence.

To establish private trade company abroad, branch or trade office it is necessary to be confident in fulfilling some criteria: specific trade expenditures per product unit thee must be less than margin of distributor or commission agent; there must be increase of turnover; control of a company over marketing activity increases; information about market increases and its quality increases; before selling and after selling goods service improves.

2. indirect export is carried out via mediators of international trade ( agents, distributors). Distributor – good owner, agent –not. Distributor gets a reward in the form of margin, agent – commission. Entry into foreign market via channels of distribution, established by other company.

Conditions of realization of such practice – related or adding character of exported goods of both companies, forming strategic business - alliance. Indirect export has advantages which included in the following: instant receipt of profit for producer into force of experience of use and connections which mediator has available at a foreign target market; release from necessity to finance export deal and carry risk of crediting; release from routine work, connected with fulfilling of circulation of documents export. Shortage of indirect export is included in the fact that producer does not get control over market and therefore does not accumulate marketing experience; mediator seldom is limited by one client, and it is sometimes may cause insufficient attention to the work with producer’s good that brings to decrease of volume of its export; mediator, as a rule, ignores deals demanding complicated and laborious work, that intervenes occupation by goods of producer potentially possible portion of the market.

2 group – commercial movement or transfer of knowledge or intellectual property. Sale of intellectual property is not defined only by state protectionism,but reflects,on the one part, general and global process of spreading “innovation waves” and on the other side, is defined by technological specialization of companies – “innovation leaders” in the field of science – intensive technologies. International licensing – possible and/or stipulated transference of the right to use intellectual property, belonging to seller from one country and to buyer from another country during a definite time and on a definite conditions. Usually it is addition to export or organization of production abroad. Technology gives other advantages in a competitive fight. Under technology we understand totality of means, methods and ways of transformation of initial material into useful thing, service, information. Technology may be interpreted in another way – as a method of solving enterprise’s objectives, ways of conducting entrepreneur activity. It is good if at enterprise disposal there are own developments or independent improvements. And if there are not any, then one will have to refer to the market of technologies. How is technology obtained? It may be obtained in a “tied type” – together with new machines, equipment and etc. It may be obtained in a pure form – when inventions, developments, improvements, models.

3 group - different forms of production organization or rendering services abroad. One of the widespread forms is foreign production on contract. Up to economic essence foreign production on contract presents by itself something between entry targeted foreign market in the frame of licensing agreement and direct foreign investments. Such production has its advantages and disadvantages. To the first refer: minimal foreign investments and risks of their losses at possible nationalization or expropriation; retaining control at the market and possibility of getting initial information about market; risks absence at the account of change of currency rate in the countries on contract, establishment of positive image and goodwill at the foreign target market, possibility of production expenditures decrease. To the most essential disadvantages refer: difficulties of search of joint partner; overcoming technological, managerial, language and other barriers, which have place in different countries; danger in training partners; possibility of complication with control over the quality of production.

To get the result at the target market the company must manage marketing variables. This theory is called concept of marketing – mix in environment of international business. Marketing environment is majority of controlled and non- controlled marketing environments, resource characteristics of the company, system of direct and return connection with external for the company business environment.

Environment of marketing – mix has some sections:

1. economic section which may be defined by three main indicators: settlement,economic structure and income distribution. The size and population placement density at other equal conditions makes its markets more attractive for the exporter. Economic structure of the countries F.Kotler [1] may be presented as:

а) surviving economics, the large part of the population is occupied in primitive production, almost all that is produced is consumed; the remaining parts are changed for simple goods and services. Perspectives for the exporters are very little;

б) economics exporting raw. Such economics are rich by one or several natural resources, but poor in other relations. Their income depends strongly upon export of these resources. These countries present good market for the export of mining equipment, tools, trucks;

c) industrializing economics. 10-20% of GNP (gross national product) of these countries is ensured at the account of manufacturing industry. Conditions for export into these countries of textile, steel, heavy machinery and equipment widen; possibilities for export of final production of textile industry, paper – clean goods and even cars (production or assembly on the territory of these countries) decreases. Export of new types of quality goods increases. We may refer India, Egypt, Philippines to such countries;

d) industrial economics. These countries present rather cultivated and particular market for exporters with good purchasing power. The main buyer of imported goods is middle class. Five types of countries depending on the type of income distribution structure are differentiated: a very low income; mainly low income; very low+ very high income; low – middle – high income; mainly middle income.

Approximate information content, which is recommended to use for initial analysis of environment economic section analyzed target foreign market: general level of development is integral quality characteristics; economic growth: growth rates of GNP divided on main sections; meaning and content of external trade in the economics of the country; currency characteristics, indicator of inflation, regulating legislation, exchange rate stability; balance of payments; per head income and income distribution picture; disposable income (including family) and structure characteristics of expenditures; amount, density and population growth rates; main climate and weather characteristics; distance and means of delivery; presence of natural resources; development degree of physical nets and communications; maps with indication of main characteristics of towns and rural area.

2. socio cultural section is pointed out to define выделяется ancestral and specific features of the main bearer of purchasing power and investor of any economics – population of a definite foreign market. History of each nation development has made for itself its own system of values, customs, habits, relations, believes, prohibitions, laws, traditions. There exists culture of each nation, regional culture, subculture. Initial acquaintance with socio cultural section of foreign target market may be limited by the following list of issues: population literacy indicator, level and portion of the ones who has got education; life and number of middle class, resemblance and differences regarding internal market; language and other consideration of cultural character; some demographic characteristics of population. Knowledge of environment culture has a very great importance. Cultural environment is specifically mastered norms, based on social arrangements, values and persuasions, that exist in each society. Specialists on international marketing must be able to estimate cultural environment of each market. Culture is passed from one generation to another, differs in different countries and continents and it is not easy to change it. The most important elements of cultural environment are: language (about 2/3 of business correspondence and negotiations is done in English); customs ( taken from the past form of activity and relation of people, that is unwritten conduct rule), traditions these are elements of social and cultural heritage, religion, punctuality, authority, conduct, ethics and others.

3. pоlicy - legal section. There is not a single decision in the sphere of external economic activity that has not fallen under regular state organizations activity both in the country of a seller and in the country of a buyer. They are also regulated by international legislation (Vienna and Hague convention, World Trade Organization and others).

The main factors of influence on international business on the part of policy legal section should be pointed out: national relation to international purchase; political stability and continuity; national rules of currency regulation; state of government bureaucracy; ideological direction, relation to foreign business (trade limits, tariffs, agreements…); government involvement into business and communication.

International legal environment is one the most complicated to study elements of international marketing environment. Study of legal environment of the interested state is fulfilled in the following way:

1. legal structure of a foreign state: tariffs on imported goods, limitations regarding export to any markets, whether an attractive production for subsidy exists; whether antidumping legislation act; if there is a legislation in the field of costs; what the conditions for foreign investments are; if national companies have advantages at the market; presence of any import/export licenses is necessary; if antimonopoly legislation acts; tax legislation and dissemination of its norms on foreign companies; if norms in the field of defense of authors rights exist; how effectively legal system works; if norms against bribery predicted.

2. legal environment in the country of company origin: what laws touch activity abroad; if assistance to export predicted; if any conventions of UNO are used; what guarantees of private property defense exist; if any agreements with governments of interested countries exist and others.

Besides studied above marketing parameters standing aside because of their significance indicator of good’s competitiveness stands. It should be kept in mind that good’s competitiveness is always definite: it definitely tied to market demands specifics, level of competition, ways of payment and etc. It must kept in mind that market must capacious enough to the expenses on mastering in the result of obtained income, and it is also desirable for the market to have dissatisfied demands. In order to spend little force and time to forming demand.

IV. Conclusion: We see that development and realization of the strategy of a company entry into an international market is many – sided and complicated process. When making a decision in favour of this or that strategy we should take into consideration time, country, internal and external environment.

References:

1. Kotler Philip and Armstrong Gary. Marketing: An Introduction. - М.: «Vilyms», 2007.