Global Market Segmentation And Mode Of Entry Strategies Marketing Essay

Global Market Segmentation And Mode Of Entry Strategies Marketing Essay A market can be subdivided or segmented by geographic, demographic, psychographic or behavioral variables (Kotler, 1993, p.54). Market segmentation is the division of a market into distinct groups of buyers who act differently than other groups of buyers but behave homogeneously within their segment (Tynan, 1987, p.327). In 1956, Wendell Smith first introduced the concept of market segmentation, arguing that in place of mass markets, goods would find their markets of maximum potential as a result of recognition of differences in the requirements of market segments (Smith, 1956, p.6). Since that time, market segmentation has become a core concept both in marketing theory and real-world applications (Meadows, 1998, p. 394). In one of his seminal articles entitled The Globalization of Markets, Theodore Levitt a former Harvard professor and one of the leading thinkers of modern day marketing principles, put forward the concept of a homogenized global market, driven in large part by low cost, standardized goods (Levitt, 1983, p. 92). Levitt argued that the multinational corporation focused heavily on localization and adaptation to local market conditions, would be replaced by the global corporation that views the entire world as a single market (Quelch, 2007, p.148). Dr. Levitt popularized the term globalization and asserted that consumers worldwide were becoming more and more alike because of changing technology and communications (Quelch, 2007, p.148). All markets have one great thing in common, he wrote -an overwhelming desire for dependable, world-standard modernity in all things, at aggressively low prices (Levitt, 1983, p. 86). However, export markets cannot be regarded solely as a single entity, nor do the products offered have a universal appeal in many instances (Foedermayr, 2008, p.241). Accordingly, an export market segmentation strategy allows firms to identify both differences and similarities in various export markets and reach export segments that cut across geographically defined markets (Foedermayr, 2008, p.233). Furthermore, by focusing on similarities among export markets, firms can benefit from homogeneity in product, image, marketing tools and advertising message in different export destinations (Foedermayr, 2009, p.61). Tailoring the marketing mix for particular segments leads to better planning and more effective use of marketing resources (Kotler, 1993, p.54). Of the major segmentation criteria, geographic variables while useful are considered by some to be ranked the lowest as a basis for market segmentation (Keegan, 2002, p. 193). Geographic segmentation is segmentation based on geographical attributes such as population density, region, language and weather. For instance, consumers may be segmented by region (Wyner, 2009, p. 6). When companies choose this approach, they might consider an entire continent. Many companies opt to localize their products or services to accommodate the local needs and wants of consumers (Foedermayr, 2008, p.246). Sometimes geographic segmentation may refer to the size of the population. In other instances, population density is a basis of geographical segmentation. In such scenarios, companies classify their consumers on the basis of their rural, urban or suburban preferences. Such an approach is common among a wide range of companies (Kotler, 1993, p.54). Determining which global markets are the largest based upon geographic segmentation depends on the variable you are focused on (Foedermayr, 2008, p.233). Brazil, Russia, India and China (BRIC) are four dominant markets based upon geographic population density segmentation variables (Kilby, 2006, p. 30). With an estimated two billion new consumers entering the global market and a population total in nearing three billion, these emerging markets afford global companies with tremendous long-term opportunities and clearly seem to be the major geographic segment of the global market. Segmentation based upon demographics is when the market is divided along personal characteristics such as age, sex, income, or occupation. These variables are easy to measure, and consumer wants, preferences, and usage rates are often highly associated with demographic variables (Selecting, 1996, p. 21). Finding groups of consumers with strong, homogeneous bonds is the Holy Grail of marketing. When such similarities exist, marketers can offer the same (or very similar) product, to a large number of potential customers who are more likely to respond in the way desired. Efficiency in marketing is realized and marketers and consumers benefit (Schewe, 2004, p. 57). A key demographic market segment appears to be teenagers. This demographic is most appealing for companies looking to adopt a geocentric strategy due to the increasingly homogeneous mature of this demographic (Budeva, 2007). By looking at groups of people based upon age related cohorts, we can easily see similarities among these groups. The Y generation cohert, born after 1977 is the youngest and most tech savvy (Schewe, 2004, p.59). The youngest cohort, it has grown up with the advent of the internet. This has become a defining event for them, and they will be the engine of growth over the next two decades (Schewe, 2004, p.61). Their core value structure seems to be quite different from that of Gen-X. They are more idealistic and social-cause oriented, without the cynical, Whats in it for me? mindset of many Gen-Xers. The internet links them in a way not seen before and provides marketers with a great opportunity to reach this targeted demographic through new media such as social networking modes (Meredith, 2002). In India, there exist more people under the age of 20, then the entire population of The United States (Schewe, 2004, p.66). With one of the youngest populations in the world, those companies looking to target the teenager demographic will certainly need to look at India. Risks and Rewards of Various Entry Mode Strategies Among the myriad of complicated decisions an international business needs to make, entry mode strategies are viewed by some as most important (Driscoll, 1997, p. 66). Apart from deciding on an appropriate market and product combination, an important strategic issue is the choice of a suitable entry mode that makes possible the entry of a companys products, technology, human skills, management or other resources into a foreign country (Root 1982, p.24). The selection of an entry mode has been identified as a crucial decision facing managers (Drakulich, 2009, p. 51). Entry mode decisions are those decisions made by a firm on how best to enter a foreign market (Rasheed, 2005, p. 47). There are several core options available to companies looking to expand into cross-border markets. Franchising, licensing, joint ventures, global strategic partnerships (GSPs), acquisitions, exporting and green field investments are some of the key strategic options available (Mayrhofer, 2004, p. 77). Entering a new market can have substantial risks. In general, political, legal and economic risk factors can and do play a central role in the decision making process of how best to enter a market (Mottner, 2000, p. 178). Historically, these risk factors have caused companies to adopt a cautious approach toward cross-border expansion. Additionally, many countries concerned about loss of national sovereignty put in place barriers designed to limit the level and scope of foreign investment (Kotabe, 1996, p.81). As a result, licensing has become a widely used option for many companies trying to expand into foreign markets (Kotabe, 1996, p.81). International licensing provides a door to global opportunities for a firm that is unwilling or unable to leave its own shores (Mottner, 2000, p. 176). It allows the firm to benefit from the overseas exploitation of its mobile assets while avoiding the greater risks inherent in foreign direct investment. Therefore, international licensing is an attractive option to be employed for a firm seeking to expand into emerging and transitional economies where there may be a higher perception of risk (Driscoll, 1997, p. 81). Among the many risk factors associated with licensing surrounds the potential violation of intellectual property (Drakulich, 2009, p. 51). Consequently, the discussion of international licensing has focused increasingly on issues of intellectual property rights (Takigawi, 2003, p. 893). Intellectual property rights are a major concern for licensors, as they deal not only with more traditional forms of trademarks and patented know-how, but also with the increased availability of copyrighted material, including emerging computer technology (Mottner, 2000, p. 180). Highly developed nations, which produce a large proportion of intellectual property, tend to have stricter laws surrounding its use and violation (Kotabe, 1996, p. 83). Whereas, lesser developed economies whose primary competitive advantage might be labor or resources, tends not to enforce intellectual property rights as effectively (Johnson, 2008, p. 9). According to Glazer (1993), firms are licensing assets that are in the form of information/ideas or knowledge, and that have some characteristics of a commodity. Today these assets may include research and development ideas, inventions, formulas, technological know-how, services, brands, art, music, designs, and trademarks (Glazer, 1993, p. 517). More recently, the role of licensing in international business has been considered part of a firms overall international strategy (Davis, 2000, p. 244). A firms decision to license is based on many different factors. Beyond the normal risks of business in general, and of international business in particular, there are particular risks associated with international licensing (Uhlenbruck, 2006, p. 412). It is evident from a review of the various streams of research in international licensing that the perceptions of seven risk factors have been identified in the literature: (1) suboptimal choice; (2) risk of opportunism; (3) quality risks; (4) production risks; (5) payment risks, (6) contract enforcement risks, and (7) marketing control risks (Mottner, 2000, p. 178). In the music industry for example, the risk of piracy has been a major obstacle to international licensing. In China, western companies have been disinclined to license western pop music to local manufacturers because of the prevalence of pirate CD plants in the southern provinces (Burpee, 1996). Licensing in Japan poses far fewer risks then in developing nations as the government of Japan appears to have focused increased attention toward protecting intellectual property. As Japan has seen its competitive advantage in production slip away to other regional countries in Asia, they have come to recognize the value and importance of innovation (Takigawi, 2003, p. 877). In fact, The World Intellectual Property Organizations Statistics on Patents 2008 puts Japan at the top of the list of all patent grants by country, ahead of the United States, South Korea and Germany(Licensing, 2009, p. 39). Based upon the research, Japan appears to be a good potential market to license a product to. The laws are such that any intellectual property will be protected and the industrial efficiencies of Japan make it an optimal initial market to begin internationalizing the firm. Distinctions Between Global Strategic Partnerships and Joint Ventures Global Strategic Partnerships (GSPs) are those alliances in which two or more companies develop a common, long-term strategy aimed at world leadership as low-cost suppliers, differentiated marketers, or both, in an international arena. Secondarily, the relationship among GSP members is reciprocal. The partners should typically possess specific strengths that they are prepared to share with their colleagues (Perlmutter, 1986, p. 139). A third attribute associated with GSPs is the focus is a global rather than regional one (Inkpen, 2004, p.591). The GSP should be focused on extending beyond a few developed countries to include nations of the newly industrializing, less developed and socialist world (Perlmutter, 1986, p. 137). The GSP model is typically more flexible about ownership and managerial control. It encourages joint decision making, vertical and horizontal planning, and the fusion of competent allies from around the world despite cultural differences (Inkpen, 2004, p. 587). Managers who want to implement GSPs must be ready to make fundamental philosophical changes. Without a new mind-set GSPs are bound to fail (Perlmutter, 1986, p. 133). Finally, the GSP relationship should be highly organized along horizontal, not vertical, lines. Technology exchanges, resource pooling, and other soft forms of combination are the rule. The participating companies retain their national and ideological identities while competing in those markets excluded from the partnership (Grossack, 1986). Increasingly, to be globally competitive, multinational corporations must be globally cooperative. This necessity is reflected in the acceleration of global strategic partnerships (GSPs) among companies large and small (El Kahal, 2001, p.227). GSPs have become an important new strategic option that touches every sector of the world economy, from manufacturing to services. GSPs are not the exclusive domain of large multinational corporations. Enormous companies will frequently combine with smaller ones to exploit their entrepreneurial capabilities and market niches (Perlmutter, 1986, p. 144). This was the case years ago, when IBM teamed up with Microsoft to exploit the latters growing expertise in software for desktop computers. The smaller companies like Microsoft, benefit by gaining access to global markets and the resource strength of their bigger partners (Schlicher, 2006, p. 14). On the other hand, another mode of entry option available to a firm would include Joint Venture Partnerships (JVPs). A JVP is formed when two or more companies combine a portion of their resources to create a separate jointly owned operation (Driscoll, 1997, p. 73). Unlike GSPs, JVPs tend to be more localized within a particular market or region (Inkpen, 1999, p. 38). Typically JVPs will have two primary partners as opposed to GSPs which can have multiple parties involved (Uhlenbruck, 2006, p. 413). The research suggests that companies that have a geocentric view and strategy would be more likely to form GSPs. There certainly are risks associated with both GSPs and JVPs, however, because the risk is shared among more members in a GSP platform, it would seem that this form of partnership tends to mitigate risks more so than JVPs.