Approaches to the International Market – SS3 Marketing Lesson Note (First Term)

Approaches to international marketing are the ways a company can enter foreign markets to sell its goods and services. There are five main approaches: exports (indirect and direct), a global web strategy, licensing and franchising, joint ventures and direct investment. They differ in how directly the company is involved abroad.

Behavioural objectives

By the end of the lesson, students should be able to:

1. list the approaches a company can use to enter the international market;
2. distinguish between indirect and direct exports;
3. describe how a company can use a global web strategy;
4. differentiate between licensing and franchising;
5. explain joint ventures and direct investment.

What is international marketing?

International marketing is the selling of a company’s goods and services to customers in other countries.

• Domestic company: the company based in the home country that wants to sell abroad.
• Foreign market: customers and businesses in another country.
• Export: goods or services sold to another country.
• Market entry approach: the method a company chooses to reach a foreign market.

What are the approaches to international marketing?

There are five approaches to international marketing: exports, global web strategy, licensing and franchising, joint ventures and direct investment.

1. Exports: selling goods and services abroad, either through others or by the company itself.
2. Global web strategy: using the internet to reach and serve customers worldwide.
3. Licensing and franchising: allowing a foreign company to use the domestic company’s rights or business system.
4. Joint ventures: working together with a company based in another country.
5. Direct investment: setting up or buying business facilities abroad.

What are exports?

Exports are the easiest way to enter a foreign market, and they can be indirect or direct.

What are indirect exports?

Indirect exports are sales abroad made through trading companies that buy and sell goods and services abroad on behalf of the companies.

• Who sells abroad: an outside trading company, not the producer.
• Company’s work: it only supplies the goods to the trading company.
• Advantage: low cost and low risk, since the company needs little knowledge of foreign markets.
• Disadvantage: the company has little control over how its goods are sold abroad.

What are direct exports?

Direct exports are sales abroad made by the company itself. It can do this in one of the following ways:

• Export department: a domestic-based department that works as an independent entity.
• Overseas sales branch: it carries out promotional activities and handles sales and distribution.
• Travelling sales representatives: staff who travel abroad to sell the products.
• Distributors or agents abroad: they work exclusively on behalf of the company.

• Advantage: the company keeps more control and builds its own contact with customers.
• Disadvantage: it costs more and needs staff who understand foreign markets.

What is the difference between indirect and direct exports?

What is a global web strategy?

A global web strategy is the use of the internet to create awareness of products among customers worldwide and to take orders from them.

• No trade shows needed: companies no longer need to attend international trade shows to display their products.
• Product information: customers read detailed information on the company website.
• Different languages: the information is often written in different languages.
• Online ordering: customers can order directly from the website.
• Advantage: it reaches many countries at a low cost.

What are licensing and franchising?

Licensing and franchising are approaches in which a foreign company is allowed to use the domestic company’s rights or business system.

What is licensing?

Licensing is an arrangement in which the domestic company issues a licence to a foreign company.

• Licensor: the domestic company that gives the licence.
• Licensee: the foreign company that receives the licence.
• What the licensee may use: the manufacturing process, trademark, patent or name of the domestic company.
• Licensee’s role: it handles the sales.
• Control: the domestic company has less control over the licensee.

What is franchising?

Franchising is an arrangement in which a foreign business operates on behalf of the domestic company, under the company’s terms and conditions.

• Franchisor: the domestic company that owns the business system.
• Franchisee: the foreign operator who runs the business.
• Control: the domestic company has more control, because the franchisee must follow its rules.

What is the difference between licensing and franchising?

What are joint ventures?

A joint venture is an arrangement in which a company joins hands with a company based in another country to do business there.

• Aim: to make use of the foreign partner’s existing relationships with local customers.
• Foreign partner’s part: it brings knowledge of the local market and its customers.
• Domestic company’s part: it brings its products, skills or money.
• Advantage: the partners share the cost and the risk.
• Disadvantage: the partners must agree on decisions, and disagreements can slow the business.

What is direct investment?

Direct investment is the setting up of a firm’s own business facilities abroad, or the buying of part of a local company, to support the sale of its goods and services.

• Own facilities: the firm builds its own factory, office or shop abroad.
• Part ownership: the firm buys a share of a local company.
• Advantage: the firm has the most control over its foreign business.
• Disadvantage: it needs the most money and carries the highest risk.

How do the approaches compare?

The approaches can be arranged by how much the company is involved abroad.

What should a company consider when choosing an approach?

• Cost: how much money the company can spend abroad.
• Risk: how much loss the company can bear if the venture fails.
• Control: how much say the company wants over sales and quality.
• Market knowledge: how well the company understands the foreign customers.

Evaluation

1. List and explain the approaches a company can use to enter the international market.
2. State the difference between indirect and direct exports.
3. Differentiate between licensing and franchising.
4. Describe how a company can use a global web strategy to sell abroad.
5. Explain joint ventures and direct investment.

Assignment

Describe any three ways in which a company can sell directly abroad through direct exports.