International Marketing Strategies

International Marketing Strategies A Case Study on the Companies in Bosnia and Herzegovina 1st Edition

Mersid Poturak Teoman Duman

Sarajevo, 2015

Publication:

International Marketing Strategies A Case Study on the Companies in Bosnia and Herzegovina

Authors:

Mersid Poturak and Teoman Duman

Publisher:

International Burch University

Year of Publication: December, 2015 CIP – Katalogizacija u publikaciji Nacionalna i univerzitetska biblioteka Bosne i Hercegovine, Sarajevo 339.138 POTURAK, Mersid International Marketing Strategies: a Case Study on the Companies in Bosnia and Herzegovina / Mersid Poturak, Teoman Duman – Sarajevo: International Burch University, 2015. – 189 str. : graf. prikazi; 21 cm - (IBU Publications)

Bibliografija: str. 156-181. ISBN 978-9958-834-49-3 1. Duman, Teoman COBISS.BH-ID 22579718

CONTENT

Content ACKNOWLEDGEMENTS ............................................................................ VI LIST OF TABLES ......................................................................................... VII LIST OF FIGURES ......................................................................................... IX LIST OF APPENDENCES ...............................................................................X CHAPTER 1 INTRODUCTION ...................................................................... 1 1.1 INTERNATIONAL MARKETING .................................................................... 1 1.2. IMPORTANCE OF INTERNATIONAL MARKETING IN TODAY‘S MARKETS .... 5 1.3. OBJECTIVES .............................................................................................. 8 1.4. OUTLINE ................................................................................................. 10 CHAPTER 2 INTRODUCTION TO INTERNATIONAL MARKETING STRATEGY ..................................................................................................... 13 2.1. DEFINITION ............................................................................................. 13 2.2. DIFFERENT MODES OF MARKET ENTRY ................................................... 14 2.2.1 Indirect exporting ............................................................................ 16 2.2.2 Direct exporting ............................................................................. 18 2.2.3 Cooperation strategies .................................................................... 19 2.2.4 Direct investment ............................................................................ 20 2.3 ADAPTATION AND STANDARDIZATION STRATEGIES ................................. 20 CHAPTER 3 THEORY OF EXPORT PERFORMANCE .......................... 23 ROLE OF STANDARDIZATION AND ADAPTATION STRATEGIES IN INTERNATIONAL MARKETING............................................................... 23

i

CONTENT 3.1 FACTORS OF EXPORT PERFORMANCE....................................................... 25 3.2 ROLE OF ADAPTATION AND STANDARDIZATION STRATEGIES IN INTERNATIONAL MARKETING ........................................................................ 28 3.3 HISTORICAL TRENDS OF MARKETING MIX STANDARDIZATION AND ADAPTATION BY DECADES ............................................................................ 29 3.4 INTERNATIONAL MARKETING STRATEGY STANDARDIZATION AND ADAPTATION ................................................................................................. 32 3.5 SCHOOLS OF THOUGHT IN STANDARDIZATION/ADAPTATION DEBATE ....... 35 3.6 STANDARDIZATION SCHOOL OF THOUGHT .............................................. 38 3.7 ADAPTATION SCHOOL OF THOUGHT ........................................................ 40 3.8 CONTINGENCY SCHOOL OF THOUGHT...................................................... 42 3.9 STANDARDIZATION/ADAPTATION OF MARKETING-MIX ELEMENTS ........ 44 3.10 STRATEGIES ON SEVEN PS AND SATISFACTION WITH EXPORT PERFORMANCE .............................................................................................. 45 CHAPTER 4 INTERNATIONAL PRODUCT STRATEGIES ................... 49 4.1 BASIC INTERNATIONAL PRODUCT CONCEPTS .......................................... 49 4.2 RESEARCH ON INTERNATIONAL PRODUCT STRATEGIES STANDARDIZATION/ADAPTATION AND SATISFACTION WITH EXPORT PERFORMANCE .............................................................................................. 54 CHAPTER 5 PRICING STRATEGIES FOR INTERNATIONAL MARKETS ....................................................................................................... 57 5.1 BASIC CONCEPTS OF INTERNATIONAL PRICING ....................................... 57 5.2 RESEARCH ON PRICING STRATEGY STANDARDIZATION/ ADAPTATION AND SATISFACTION WITH EXPORT PERFORMANCE ................................................ 62 5.2.1 Extension or Ethnocentric Pricing .................................................. 63 5.2.2 Adaptation or Polycentric Pricing .................................................. 63 5.2.3 Geocentric Pricing .......................................................................... 64

ii

CONTENT CHAPTER 6 INTERNATIONAL COMMUNICATION STRATEGIES .. 65 6.1 BASIC CONCEPTS OF INTERNATIONAL COMMUNICATION ........................ 65 6.2 RESEARCH ON INTERNATIONAL COMMUNICATION STRATEGY STANDARDIZATION/ADAPTATION AND SATISFACTION WITH EXPORT PERFORMANCE .............................................................................................. 71 CHAPTER 7 INTERNATIONAL DISTRIBUTION STRATEGIES ......... 75 7.1 BASIC CONCEPTS OF INTERNATIONAL DISTRIBUTION .............................. 75 7.2 RESEARCH ON PLACE STRATEGY STANDARDIZATION/ADAPTATION AND SATISFACTION WITH EXPORT PERFORMANCE ................................................ 80 CHAPTER 8 INTERNATIONAL SERVICES MANAGEMENT .............. 81 8.1 PEOPLE STRATEGIES ................................................................................ 86 8.1.2 People Strategy Standardization/Adaptation and Satisfaction with Export Performance ................................................................................. 86 8.2 PHYSICAL EVIDENCE STRATEGIES ........................................................... 87 8.2.1 Physical Evidence Strategy Standardization/Adaptation and Satisfaction with Export Performance ..................................................... 87 8.3 PROCESS STRATEGIES .............................................................................. 89 8.3.1 Process Strategy Standardization/Adaptation and Satisfaction with Export Performance ................................................................................. 89 CHAPTER 9 FACTORS AFFECTING INTERNATIONAL MARKETING STRATEGIES.................................................................................................. 91 9.1 INTERNAL COMPANY FACTORS................................................................. 91 9.1.1 Ambition and objectives .................................................................. 93 9.1.2 Growth options and resources ........................................................ 93 9.1.3 Competencies and capabilities ........................................................ 94 9.1.4 Attitudes to risk ............................................................................... 95 9.1.5 Stage of internationalization ........................................................... 95 9.2 MARKET AND INDUSTRY FACTORS ........................................................... 96

iii

CONTENT 9.2.1 Customer base ................................................................................. 97 9.2.2 Supply chain .................................................................................... 97 9.2.3 Competition ..................................................................................... 98 9.3 PUBLIC AND PRIVATE SUPPORT NETWORKS .............................................. 98 9.3.1 Public support networks .................................................................. 99 9.3.2 Private support networks ................................................................ 99 9.4 EXTERNAL ENVIRONMENTAL FACTORS .................................................. 100 9.4.1 Socio-cultural factors .................................................................... 101 9.4.2 Political factors ............................................................................. 103 9.4.3 Legal factors ................................................................................. 103 9.4.4 Economic factors ........................................................................... 104 9.4.5 Technological factors .................................................................... 104 CHAPTER 10 A CASE STUDY ON THE COMPANIES IN BOSNIA AND HERZEGOVINA ........................................................................................... 107 10.1 TARGET POPULATION AND SAMPLE ..................................................... 108 10.2 INSTRUMENTATION AND MEASUREMENT............................................. 110 10.3 DEVELOPMENT OF SURVEY.................................................................. 111 10.4 PRODUCT STRATEGY STANDARDIZATION/ADAPTATION ...................... 113 10.5 PRICE STRATEGY STANDARDIZATION/ADAPTATION ............................ 114 10.6 PROMOTION STRATEGY STANDARDIZATION/ADAPTATION .................. 116 10.7 PLACE STRATEGY STANDARDIZATION/ADAPTATION ........................... 116 10.8 PEOPLE STRATEGY STANDARDIZATION/ADAPTATION ......................... 117 10.9 PHYSICAL EVIDENCE STRATEGY STANDARDIZATION/ADAPTATION .... 118 10.10 PROCESS STRATEGY STANDARDIZATION/ADAPTATION ..................... 119 10.11 SATISFACTION WITH EXPORT PERFORMANCE .................................... 120 10.12 DESCRIPTIVE RESULTS....................................................................... 121 10.13 SAMPLE CHARACTERISTICS ............................................................... 124 10.14 DESCRIPTIVE STATISTICS FOR THE MEASUREMENT ITEMS OF STANDARDIZATION/ADAPTATION PERCEPTIONS ......................................... 133

iv

CONTENT 10.15 DEMOGRAPHIC INFORMATION ABOUT RESPONDENTS ........................ 139 CHAPTER 11 DISCUSSION ....................................................................... 143 CHAPTER 12 CONCLUSION ..................................................................... 151 BIBLIOGRAPHY .......................................................................................... 156

v

ACKNOWLEDGEMENTS

Acknowledgements We dedicate our work to our families, friends in International Burch University and most importantly to those company executives who supported this project with their experiences. We hope that our work serves as a contribution to the business environment in Bosnia and Herzegovina. We believe that hardworking companies of this great country need support from academic community with good quality projects such as the one you will find in this book.

vi

LIST OF TABLES

List of Tables

TABLE 3.1 Schools of Thought in the Standardization vs. Adaptation Debate and Their Proponents ..................................... 36 TABLE 10.1 Univariate Statistics .............................................. 122 TABLE 10.2 Ownership ............................................................. 124 TABLE 10.3 Year of Establishment ........................................... 125 TABLE 10.4 Industry Sector ...................................................... 126 TABLE 10.5 Place ...................................................................... 127 TABLE 10.6 Countries in which Companies Export ................. 130 TABLE 10.7 Firm Size ............................................................... 131 TABLE 10.8 Number of People Employed in International Business Related Divisions (Exporting, Sales, Promotion Etc.) 131 TABLE 10.9 Number of Years Firms Have Been Operating in International Markets .................................................................. 132 TABLE 10.10 Technology Dependence ..................................... 132 TABLE 10.11 Satisfaction with Export Performance ................ 134 TABLE 10.12 Descriptive Statistics of Marketing Mix Constructs Adaptation/Standardization......................................................... 135

vii

LIST OF TABLES TABLE 10.13 Measurement Items of Independent Constructs from Most Standardized to Most Adopted …………………………..135 TABLE 10.14 Environment Similarities……………………….136 TABLE 10.15 Respondents‘ Gender…………………………...137 TABLE 10.16 Education Level of Respondents……………….137 TABLE 10.17 Survey Respondents' Departments of Employment ..................................................................................................... 141 TABLE 10.18 Level of International Marketing Knowledge …139 TABLE 10.19 Knowledge about Main International Markets .. 142

viii

LIST OF FIGURES

List of Figures

Figure 2.1 Risk and Control in Market Entry.…………………...15 Figure 4.1 Elements of a Product...………………………………51 Figure 5.1 Factors of International Marketing Strategies ............ 61 Figure 6.1 Major Promotion Tools of IMC ................................. 67 Figure 7.1 Multichannel Distribution System ............................... 76 Figure 7.2 Number of Channel levels .......................................... 76 Figure 7.3 International Channels of Distribution Alternatives ... 78 Figure 8.1 Standardization and Adaptation of Three Aspects of International Product Offer………………………….……………91 Figure 9.1 Factors Affecting International Marketing Strategy....97 Figure 10.1 Top 10 Exporting Countries .................................... 129

ix

LIST OF APPENDENCES

List of Appendences Appendices 1 Survey - English ................................................... 180 Appendices 2 Survey - Bosnian .................................................. 184

x

CHAPTER 1

INTRODUCTION

CHAPTER 1 Introduction 1.1 International Marketing

F

ive decades ago, the expression ―international marketing‖ was not as popular as it is today. More and more, businesses practice international marketing to fully utilize

their marketable potential (Keegan & Green, 2013). Before 1960s, ―export‖ marketing and ―comparative‖ marketing were mutual concepts that were used to explain international marketing. ―International‖ marketing was established during 1960s and has ever since been defined simply as ―the marketing of goods, services, and information across political boundaries‖ (Albaum & Duerr, 2011, p.11). In order to compete successfully in today‘s competitive environments, large as well as small and medium size enterprises recognize the importance of international presence. The most important aspect of success in reaching global competitive advantage for firms is to propose additional value for international customers by providing them with benefits that are expressively 1

CHAPTER 1

INTRODUCTION

better than those delivered by the competitors. For every business in today‘s totally globalized business environments, going global becomes a must. Different definitions of international marketing are given in Table 1.1.

TABLE 1.1 Selected Definitions of International Marketing in the Literature and ―…marketing activities relevant to products or

Albaum

Peterson (1984, services that directly or indirectly cross national borders.‖

p. 162)

―International marketing means identifying needs and wants of customers in different markets and cultures, providing products, Bradley

(2005,

p. 3)

services, technologies and ideas to give the firm a

competitive

communicating

market information

advantage, about

these

products and services and distributing and exchanging them internationally through one or a combination of foreign market entry modes.‖ Czinkota Ronkainen (2007, p. 4)

and

―The process of planning and conducting transactions across national borders to create exchanges that satisfy the objectives of individuals and organizations.‖

2

CHAPTER 1

INTRODUCTION

―...the multinational process of planning and Onkvisit

and executing the conception, pricing, promotion,

Shaw (2004, p. and distribution of ideas, goods, and services to 3)

create exchanges that satisfy individual and organizational objectives.‖ ―International understanding

marketing of

refers

marketing

to

practices

the in

different countries (comparative descriptions); Sheth (2001, p. its structural determinants anchored to national 5)

differences (comparative explanations); and deployment

of

country-specific

marketing

strategies and operations by multidomestic firms (comparative prescriptions).‖ ―International marketing consists of finding and satisfying global customer needs better than the Terpstra

and competition, both domestic and international,

Sarathy

(2000, and of coordinating marketing activities within

p. 4)

the constraints of the global environment.‖

Source: Adopted from Codita (2011). According to the American Marketing Association, ―Marketing can be defined as the activity, set of institutions, and processes for creating, communicating, and delivering value for customers, clients, partners, and society at large‖ (Keegan & Green, 2013, p. 5). Similarly, Kotler & Armstrong (2011) defines marketing as

3

CHAPTER 1

INTRODUCTION

―the process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return‖ (p. 27). How does international marketing differ from ―domestic‖ marketing? Following the definition of marketing given above, focus in international marketing is on creating value for international customers as opposed to domestic customers with all the activities, institutions and processes involved in the process. The same concepts of marketing - planning and production of goods and services, promotion, distribution, pricing, managing channel

relationships,

managing

consumer

needs,

value,

satisfaction and relationships - can be applied to international marketing context with one fundamental difference being in the scope of activities (Keegan & Green, 2013). Internationalization of marketing activities widens the scope of marketing tasks for a company in such a way that the company has to deal with a number of extra tasks to go global. These tasks may include designing

marketing

activities

according

to

international

regulations, sociological and cultural differences, and conditions in the political and legal environments. Moreover, it is important to highlight that international marketing is naturally more difficult (but at the same time more interesting and challenging) because of ―the differences in culture, consumer tastes and needs, economic

4

CHAPTER 1

INTRODUCTION

levels and structures, market structures, ways of doing business, laws and regulations, etc.‖(Albaum & Duerr, 2011, p.11).

Together with the term international; multinational and global have been familiarized and sometimes used interchangeably, but these terms usually suggest dissimilarities in approaches. ―International marketing is a broad term for any type of marketing across national boundaries‖ (Albaum & Duerr, 2011, p.13). Albaum & Duerr (2011, p.13) state that ―multinational marketing implies a strong commitment to international marketing, and may be taken to mean that the marketer develops differentiated products and marketing strategies for each of its markets. It is associated with adjusting products and practices in each country.‖ The authors further contemplate that in global marketing ―the company tries to standardize products and marketing practices worldwide in order to achieve economies of scale and lower prices‖. 1.2. Importance of International Marketing in Today’s Markets

What is more natural than looking for international markets for a company today? Due to the growing business markets and the developments in transportation and communication technologies, businesses interact more frequently with each other every day.

5

CHAPTER 1

INTRODUCTION

Many forces push companies to go to other countries to conduct business. For example, increasing number of multilateral trade agreements, convergence in consumer needs in many countries due to information revolution, the search for reduced production costs and changes in world economic trends are just some of the reasons that push companies to go global (Keegan & Green, 2011).

Technological advancements and developments in service sectors encourage top supplier countries in the world to enter into other markets around the world. Even though they set extraordinary examples as suppliers and also as markets by themselves, the United States of America (US) and Germany enjoy the development of international marketing opportunities in the world most among all the other nations. The US alone comprises 25% of the world potential as a consumption market, whereas 75% of the marketing potential for the US companies stay outside of the country (Keegan and Green, 2011). Similarly, 94% of the market potential for German companies is in other countries (Keegan and Green, 2011). China has become such a reality in low cost production of goods and services recently that it attracts attention of many companies all over the world.

There are a number of reasons why companies consider to go global. A lot of times companies go global just to put the eggs in different baskets. In other words, spreading risk can be a leading

6

CHAPTER 1

INTRODUCTION

reason to consider other markets to do business. For example, many times companies engage in international marketing to increase sales and profit potential beyond the capacity in domestic markets. Different country markets may serve as safe alternatives for the companies in case they may have difficulties in their own markets. Other times, companies may find out that their products and services very well fit to the other markets‘ needs. For Wall Mart, Exon, Shell, BP, Toyota, McDonalds, Pizza Hut, Dominos, Hilton, Apple, Samsung and all the other similar chain companies, the motivation is similar in that their products and services are demanded well by customers in other countries. Companies may also seek alternative markets both to produce in a low cost manner and also to sell in a more efficient manner. Costs of raw materials and labour may be much less lower in other countries compared to the home country for a company. In many cases, fierce competition in a country forces many companies to seek markets in other countries. Finally, increased government incentives to raise export levels in different countries can motivate companies to go global.

One way or another, international marketing is the fact of modern business life and all the growing businesses face the reality of engaging in international marketing someday. This book aims to present a major strategical consideration in international marketing

7

CHAPTER 1

INTRODUCTION

– using standardization and/or adaptation strategies - by investigating them in specific regional markets in the Balkans.

1.3. Objectives

One of the major decisions for international companies is the adaptation or standardization of their marketing strategies to the international market conditions (Czinkota &Ronkainen, 2013). Companies usually face the decision to choose among one (or more) of the following strategic alternatives when they decide to go global (Czinkota &Ronkainen, 2013, p. 358): (1) Selling the products in the same shape, content and format in the international marketplace, (2) modifying products for different countries, (3) designing

new

products

for

different

markets,

(3)

and

incorporating all the differences into one flexible product design and introducing a global product. To make such an important decision, companies need reliable information about the markets they consider entering in. In this regard, marketing research on similar experiences becomes crucial to make sound decisions for others.

This book presents the role of standardization and adaptation strategies in international marketing with a research conducted in a specific region of the world. The case in point is Bosnia and Herzegovina (BH), a country that lies in the heart of Balkans. BH

8

CHAPTER 1

INTRODUCTION

attracts attention with its strategic location that is very close to European markets.

As a geographic region, the Balkans houses 12 countries (partially or fully) including Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Greece, Kosovo, Macedonia, Montenegro, Romania, Slovenia, Serbia and Turkey (Bideleux & Richard, 1996). Throughout the history, the Balkan region has always caught attention of strategic planners and the business world mainly because of its location being in the passage point from the Eastern markets to the Western markets (Duman, Obralic, Ilgun & Ergun, 2016). Despite the region has lost its location advantage as a passage point (due to the technological advancements in transportation etc.), it still stays as an intriguing territory, which lies in the south eastern part of Europe. Because of many reasons (i.e. political conflicts, territorial difficulties, cultural differences), the region has experienced economic stability problems and had difficulties to resolve its regional development problems (Duman et. al., 2016). One of the difficulties for companies that consider doing business in this region is the lack of data that they can use to make strategic planning before they enter in the markets surrounding the region. The data lack especially for those countries that were part of former Republic of Yugoslavia (Bosnia and Herzegovina, Serbia, Croatia, Slovenia, Macedonia, Montenegro and Kosovo). This book attempts to analyse international

9

CHAPTER 1

INTRODUCTION

marketing strategy decisions of companies that conduct business in BH. Due to the common history of those countries that were part of former Republic of Yugoslavia, business behaviour is very similar in these countries. Companies in the region perform international business activities mostly within the region or with companies surrounding the Balkan region. Europe in this case is an important market for the companies in the region. This book discusses the nature of practicing international marketing in the Balkan region by focusing on companies in BH. The countries in the Balkan region attempt to join European Union one after the other and the importance of the Balkan region in business world will increase in the near future. In this regard, the content of this book is seen as an important contribution to the advancement of international marketing area.

1.4. Outline

This book covers 12 chapters. Overall, the main focus in the book is

on

international

marketing

strategies

(adaptation

and

standardization) with a special attention given to exporting companies. Following the introduction, Chapter 2 explains international marketing strategies and the role of adaptation and standardization strategies in international marketing activities. Chapter 3 outlines the theory of export performance and discusses the background and theoretical development of adaptation and

10

CHAPTER 1

INTRODUCTION

standardization strategies in international marketing. Chapters from 4 to 8 analyse strategies related to seven marketing mix elements in international marketing. Chapter 4 deals with international product strategies as chapters 5, 6 and 7 discuss pricing, communication and distribution strategies consecutively. Chapter 8 identifies the role of international services management strategies on export performance. These strategies include people, physical evidence and process strategies. Chapter 9 presents a number of factors that may have an effect on international marketing

strategies

of

companies

including,

firm

size,

technological intensity of the industry and environmental determinants. Chapter 10 summarizes the findings of a research study that brings evidence from exporting companies in BH regarding their adaption and standardization strategies. Remaining two chapters concludes the book with a discussion and a conclusion section.

11

CHAPTER 2

INTRODUCTION TO INTERNATIONAL MARKETING STRATEGY

CHAPTER 2 Introduction to International Marketing Strategy 2.1. Definition y definition, strategy is ―the pattern of decisions that

B

integrates an organization‘s major goals, policies and action steps into a cohesive whole, and guides the

allocation of an organization‘s resources into a unique and viable posture‖ (Morris, Pitt, & Bromfield, 1994, p. 394). Strategy implies a match between the distinctive competencies of a firm with its external environment. ―Marketing strategy, on the other hand, represents the effective allocation and coordination of marketing resources to accomplish the firm‘s objectives within a specific product market‖ (Walker et al., 1995, p. 13). This author points out further that ―marketing strategy decisions involve specifying the target market segment(s) to be pursued and the 13

CHAPTER 2


product line to be offered‖ (p. 13). Integration between marketing mix elements is necessary to reach competitive advantage. All strategic decisions of the firms should be oriented towards the needs and wants of customers in target segments. International marketing strategy is ―the effective allocation and coordination

of

marketing

resources

to

accomplish

the

organization‘s objectives within a specific product market situated outside the domestic borders‖ (Keegan & Green, 2013).

Marketing strategy allows a firm to identify its target customers (i.e. segmentation and targeting) and the best ways to serve these customers (i.e. positioning and differentiation) with the right marketing mix (product, price, promotion, place, people, physical evidence, and process). A natural result of a properly designed and applied marketing strategy should be creating customer value and profitable relationships (Kotler and Armstrong, 2011, p. 59; Perreault & McCarthy, 1999; 2007, p. 40; Walker, Boyd, & Larreche, 1995; Mullins & Walker, 2013).

2.2. Different Modes of Market Entry

When companies decide to go global, one of the initial decisions they have to make is the mode of entry to a market. There are a number of market entry strategies, which pose different levels of 14

CHAPTER 2


uncertainty and risk for a company. Usually strategies that carry higher levels of risk also offer higher levels of control in marketing activities. Four main levels of entry into foreign markets are available for companies (Doole & Lowe, 2012, p. 220). These are;

1. Indirect exporting 2. Direct exporting 3. Cooperation strategies 4. Direct investment

The level of control a company has on its international marketing operations and the level of risks taken during these operations differ according to the entry mode utilized in international marketing. Figure 2.1 shows the level of control as compared to the level of risk in different market entry modes.

15

CHAPTER 2


Control

Corporate strategies Joint ventures Strategic alliances

Direct Investment Own subsidary Acquisition Assembly

Direct exporting Distributors Agents Direct marketing Franchising Management contracts

Indirect exporting Piggybacking Trading companies Export management companies Domestic purchasing

Risk

Figure 2.1 Risk and control in market entry (Doole & Lowe, 2012, p. 220).

2.2.1 Indirect Exporting

As indicated in the table, indirect exporting poses the lowest level risk but, the company, on the other hand, has the lowest level of control on its operations. Domestic purchasing is the most basic 16

CHAPTER 2


level of entry into a foreign market where the company sells its products to another subsidiary company without any involvement in marketing activities.

Another method of indirect exporting is piggybacking where a company contracts with an established international marketer to market its products in a well working international marketing system.

Working with export management companies is another method of indirect exporting through which the company manage all of its export operations. These companies are specialized companies on export management operations with all the relevant aspects (i.e. legal and managerial). By using this strategy, involvement of the company in the export system is minimal and risks are reduced. In contrast, control over the management of operations is also very limited.

In working with trading companies, the exporting company works with trading companies which trade goods with goods in different markets. Exporting companies, for example, can get raw materials in this way in return for their exported products. It is an efficient and low risk method of entering into different markets.

17

CHAPTER 2


2.2.2 Direct Exporting

Again referring back to Figure 2.1, a higher level risk strategy to enter in foreign markets is direct exporting. As can be seen in the figure, compared to indirect exporting and cooperation strategies, direct exporting carries higher levels of risk but, compared to direct exporting, it carries lower levels of risk. In direct exporting, the company is fully involved in the exporting activity and it carries all (or the most) of the costs (i.e. marketing, distribution, administration) associated with export operations. Here, the company builds an expertise and increase the level of control over its operations. But this strategy is still riskier than other basic forms of exporting.

As part of direct exporting strategy, companies may work with distributers, agents and franchising companies or, they may sign management contracts with these companies. If the company decides to do the exporting activity altogether by itself, in that case, the system is called direct exporting. However, if the company wants to do the exporting through other companies, in this case, the company may sell the products through specialized distributers, or agent companies, both of which distribute the products to different parts of the country under the control of the exporting company.

18

CHAPTER 2


Franchising is a more specialized way of direct export where the company transfers certain rights from its own (i.e. use of logo, expertise, management system etc.) to the franchisee that take over the operation of the business. Franchising is more popular in service industries.

2.2.3 Cooperation Strategies

These strategies give companies more control over their operations in foreign markets compared to exporting but, the risks involved in using this method can be higher. Two famous cooperation strategies are joint ventures and strategic alliances. Joint venture is an internationalization method where a company shares the risks of an investment with an international company. There may be different ways of engaging in joint ventures. In its most basic form, an international company benefits from the distribution network and experiences of a local company but shares all production and distribution costs with the local company. Strategic alliances are more complicated forms of joint ventures where a number of companies get together to form joint ventures in order to benefit from a marketing opportunity.

19

CHAPTER 2


2.2.4 Direct Investment

Direct investment is the highest level entry mode in a global operation where a company takes all the risks and benefits from the investment profits. Here, the company makes a decision to make full investment to enter into a foreign market. One method of direct investment is own subsidiary, in which the company completely carries over its operations to another country. In an acquisition, the company acquires all the rights of operations of a foreign company. This is a similar method of creating own subsidiary. However, in an acquisition, the company gets away from initial investment costs because it takes over an actively operating company. Acquisitions are popular in privatization operations. Finally, some companies create assembly plants to bring the domestically-produced parts together in an international market. Assembly plants are common in automobile industry.

2.3 Adaptation and Standardization Strategies

One of the major decisions for a company that plan to go global markets is whether to adopt or standardize its products and services to the new markets. Unless a company starts a totally new operation in a different oversees market, it has to make a decision on adaptation or standardization of the products and services to the market conditions in the approached market. Both of these 20

CHAPTER 2


strategies have advantages and disadvantages. These advantages and disadvantages will be evaluated by taking many things into consideration, which will be discussed in different sections in this book.

In order to understand the debate on whether to use standardization or adaptation strategy in international marketing, individual elements of marketing mix as well as other basic concepts of international marketing standardization/adaptation strategies are to be defined and put in context well. As Ryans, Griffith & White (2003, p. 592) pointed out, this field of study failed to develop ―a rigorous, consistent conceptualization of marketing strategy as it relates to international standardization/adaptation‖.

International marketing strategies should be based on international marketing programs designed specifically for establishment of product, price, promotion, place, people, physical evidence, and process functions very well. The most important consideration in international marketing strategy is the concept of appropriate degree of standardization or adaptation of these program elements.

Standardization of marketing mix involves selling the same products by using the same marketing approaches worldwide (Kotler & Armstrong, 2011). Adaptation of marketing mix, on the other hand, involves adjusting the marketing mix elements in each 21

CHAPTER 2


target market, bearing more costs but hoping for a larger market share and return on investment (Kotler & Armstrong, 2011).

We

can

find

similar

explanations

on

marketing

mix

standardization/adaptation strategy in earlier studies such as Harris, (1994); Jain, (1989); Sorenson & Wiechmann, (1975). Standardization of marketing-mix is defined as a strategy where the company uses the same or similar products, prices, distribution channels, promotion methods and other elements of marketing mix in international markets. In these studies, adaptation is presented as a strategy where a company makes changes to the marketing-mix elements according to local needs. The term ―adaptation‖ is also used in different forms (synonymously), such as customization and differentiation (Codita, 2011).

22

CHAPTER 3

A THEORY OF EXPORT PERFORMANCE Role of Standardization and Adaptation Strategies in International Marketing

CHAPTER 3 Theory of Export Performance Role of Standardization and Adaptation Strategies in International Marketing

T

his chapter aims to discuss the theory of export performance. An extensive literature is given to discuss export performance and to guide further research on the

topic. In

today‘s

constantly

changing

and

complex

business

environments, export performance is an essential guide for any company in international markets. Measuring export performance is not an easy task, as export performance can be theorised and operationalized in many ways (Lages & Montgomery, 2004).

No uniform definition of export performance is provided by the literature (Cavusgil & Zou, 1994; Sousa, 2004). One that is commonly known and used is the one provided by Lages (2000, 23

CHAPTER 3


p.32): ―Export performance is the relative success or failure of the efforts of a firm or a nation to sell domestically-produced goods and services in other nations. It can be described in objective terms such as sales, profits, or marketing measures or by subjective measures such as distributor or customer satisfaction.‖

Zou & Stan (1998) considered three aspects of export performance: financial, strategic, and performance satisfaction. Absolute volume of export sales or the export intensity is measured by the ―sales‖ category. Absolute measures of overall export profitability are measured by ―profit‖ category. ―Growth‖ measures are more related to changes in export sales or profits over a period of time. Contribution of exports to a firm‘s overall profitability and reputation is measured by the ―success‖ category, while

―satisfaction‖

is

measured

with

managers‘

overall

satisfaction with the company‘s export performance (Evangelista, 1994). ―Achievement of export objectives‖ refers to the managers‘ assessment of performance compared to objectives (Katsikeas, Leonidou & Morgan, 2000).

Export sales and profits are probably the most commonly used measures of export performance, regardless of the latest recommendations for using more perceptual measures of overall export success or success in achieving organizational goals (Aaby & Slater, 1989; Ahamed & Skallerud, 2013; Calantone, Kim, 24

CHAPTER 3


Schmidt, & Cavusgil, 2006; Hultman, Robson, & Katsikeas, 2009; Leonidou et al., 2002).

A significant portion of research studies on export performance have focused on companies operating in the United States of America (USA) (Calantone, Kim, Schmidt, & Cavusgil, 2006; Theodosiou & Leonidou, 2003; Waheeduzzaman & Dube, 2004; Lado, Martínez-Ros, & Valenzuela, 2004; Sousa, Martínez-López, & Coelho, 2008; Sousa, 2004). Consequently, research about firms in Europe and in other parts of the world is still highly needed. BH represents one of the European economic locations that received limited attention in the export performance literature. This book will focus on export performance of companies in BH.

3.1 Factors of Export Performance

International presence became a topic of interest in the eighties for many researchers, who dedicated their time to explain and measure export performance of internationalizing companies (Voerman, 2004). Through the last several decades, increasing research interest on exporting resulted in numerous theoretical frameworks of export performance (Chetty & Hamilton, 1993; Gemünden, 2013; Leonidou, Katsikeas, & Piercy, 1998; Leonidou, Katsikeas, & Samiee, 2002; Madsen, 1987; Miesenbock, 1988; Styles & Ambler, 1994; Zou & Stan, 1998). 25

CHAPTER 3


In a research study, Madsen (1987) analysed seventeen studies published in the period between 1964 and 1985 concerning export performance. After the classification of operationalized variables in these studies, Madsen presented four general categories of variables related to export performance. These are ―the performance of an organization (‗O-performance‘), which is a result of a continuous interaction with other groups of variables, namely its own organizational structure (‗O-structure‘), the structure and performance of its environment (‗E-structure‘), and its own strategies (‗strategy‘).‖ (p. 85). Aaby & Slater (1989) reviewed fifty-five empirical studies on export performance published between 1978 and 1988. This review presented relationships between four independent variables; environment, competencies, firm characteristics (firm size, management

commitment),

and

strategy

(standardization/

adaptation of marketing mix elements), with one dependent variable, overall performance. This review showed that researchers tried to understand the role of environment, firm competencies, firm characteristics and firm strategy as the main factors of export performance. In another study, Gemünden (1991, p. 38) conducted a quantitative meta-analysis on fifty studies published between 1964 and 1987. His aim was to ―identify the key success factors of export marketing, and to assess their influence by means of objective 26

CHAPTER 3


statistical procedures.‖ In his study, more than 700 indicators were identified that were expected to affect the performance of more than 9,000 exporting firms in eighteen different countries. This study was also another comprehensive review that brought together a number of factors indicated export performance. Zou & Stan (1998) built up on the studies of Aaby & Slater (1989), and Chetty & Hamilton (1993), adding the external environment in the research process. Fifty articles were analysed in their study and all of them were published between 1987 and 1997. In their study, authors identified seven categories of export performance measures. Some of these measures were the financial scales for ―profit‖ and ―growth‖, and some others were the non-financial scales such as ―success‖, ―satisfaction‖, and ―goal achievement‖. The determinants were classified into internal (―justified by the resource-based theory‖) versus external (―supported by the industrial organization theory‖), and controllable versus noncontrollable determinants. Leonidou et al., (2002) presented a meta analyses of 36 studies on marketing strategy determinants of export performance published since 1960. As a conclusion in this study, authors found positive associations for export intensity, export sales growth, and export profit level. But, they commented that ―marketing strategy variables were poorly connected with export market share, profit contribution, and sales volume.‖ (p. 98). 27

CHAPTER 3


3.2 Role of Adaptation and Standardization Strategies in International Marketing

In practice, firms achieve competitive advantage by using strategies that are suitable to their capabilities. Using these capabilities in international markets require firms to identify standardization or adaptation of the various marketing elements (Doole & Lowe, 2012). In this sense, the concept of international marketing strategy standardization versus adaptation and its effect on export performance have become a concern for both academics and

practitioners

(Rosenbloom,

Larsen,

&

Mehta,

1997;

Viswanathan & Dickson, 2007; Waheeduzzaman & Dube, 2004). Kahn (1998) sees this topic as one of the most relevant marketing topics for the twenty-first century.

Research studies investigating the influence of standardisation/ adaptation strategy on export performance usually focused on one aspect of the marketing strategy. Great majority considered product (Hult, Keillor, & Hightower, 2000; James & Hill, 1994; Johnson & Arunthanes, 1995; Kreutzer, 1988; Littler & Schlieper, 1995; Sands, 1979; Shoham, 1996b; Szymanski, Bharadwaj, & Varadarajan, 1993) or promotion (Harris, 1994; James & Hill, 1994; Laroche, Kirpalani, Pons, & Zhou, 2001; Onkvisit & Shaw, 1999; Papavassiliou & Stathakopoulos, 1997; Shoham, 1996b; Whitelock & Rey, 1998) while the influence of price (Baalbaki & 28

CHAPTER 3


Malhotra, 1995; Chang, 1995; Jain, 1989; Samli & Jacobs, 1995; Theodosiou & Katsikeas, 2001) and distribution (Dow, 2001; Gielens & Dekimpe, 2001; Lages & Montgomery, 2004; Rosenbloom et al., 1997; Shoham, 1999) standardisation/ adaptation on export performance received less attention. As the traditional four P‘s have received much attention in this research, expanded marketing mix elements have been relatively neglected. In some studies, process was part of

the

standardisation/adaptation debate rather than people and physical evidence (Akaah, 1991; Baalbaki & Malhotra, 1995; Cavusgil & Zou, 1994; Griffith, Hu, & Ryans, 2000; Harvey, 1993; Jain, 1989; O‘Donnell & Jeong, 2000; Ozsomer, Bodur, & Cavusgil, 1991; Schuh, 2000; Wang, 1996).

3.3 Historical Trends of Marketing Mix Standardization and Adaptation by Decades

Standardization vs. adaptation of marketing mix elements has been a topic of research during last fifty years. Initial articles that discussed the issue of marketing mix standardization/adaptation were published in 1960s. Elinder (1965) argued in his study that advertising has to be harmonized to be adapted to the all-European media, and should be directed toward border-crossing tourists, readers, and viewers. In explaining the advertising standardization, 29

CHAPTER 3


he noted that if several national advertising themes are used for the same product, it will bring a loss of efficiency. He showed advertising standardization in the USA as an example for European countries.

In addition to advertising standardization, Buzzell (1968) protracted the debate to cover also other marketing mix elements. He noted that standardizing various elements of the marketing mix tools will bring substantial cost savings and result in more consistent dealings with customers for better planning, control, and development of ideas with universal appeal. Among the articles that were published in 1970s, the one prepared by Sorenson & Wiechmann (1975) received most citations. A few review papers were published in 1980s (Bellur et al., 1985; Boddewyn, Soehl, & Picard, 1986; Walters, 1986) and some theoretical models were developed and tested in this period (Jain, 1989; Rau & Preble, 1987). Comprehensive reviews on the topic were published from 1990s on (Akaah, 1991; Baalbaki & Malhotra, 1993, 1995; Cavusgil, Zou, & Naidu, 1993; Cavusgil & Zou, 1994; Samiee & Roth, 1992; Shoham, 1996a, 1996b, 1999).

Waheeduzzaman & Dube (2004) used content analysis to investigate trends and developments in standardization/adaptation by analysing 130 articles in 26 journals published in the period between 1960 and 2002. Most of the papers that were published in 30

CHAPTER 3


these 26 journals were the papers that were published in the Journal of Global Marketing, International Marketing Review, the Journal of World Business, and the Journal of International Marketing (21, 18, 13, and 11 articles respectively).

These authors also identified five phases of international marketing strategy standardization/adoption research. In phase I (the period from 1961 to 1970), advertising and promotion standardization strategies were mainly investigated, in a sense whether to standardize or to adopt. In phase II (1971-1980), the number of empirical studies increased, and these studies had focused on both promotion and product. Papers published in phase III (1981-1990) continued researching promotion and product by advancing certain theoretical models. Complex theoretical models, comprehensive studies, multiple relationship studies were conducted in phase IV (1991-2000), and all 4P‘s were included. And phase V (2001- ) was

remarked

by publications

of

complex

models

and

comprehensive papers, as a result of increase in knowledge in the area (Waheeduzzaman & Dube, 2004).

31

CHAPTER 3


3.4 International Marketing Strategy Standardization and Adaptation

As we can see in the previous paragraphs, many scholars have discussed whether it is more effective to use a standardized or an adapted marketing strategy in international markets. These authors also

questioned

the

standardization/adaptation.

conditions This

and

continuing

the

degree

of

standardization/

adaptation debate in the field of international marketing resulted in three main schools of thought: the standardization school of thought, the adaptation school of thought, and the contingency school of thought (e.g. Cavusgil et al., 1993, p.

481-483;

Theodosiou and Leonidou, 2003, p. 142).

Many researchers in international marketing field focused on adaptation and standardization of one marketing mix element. Promotion element of the marketing mix received the highest degree of attention in different studies especially in 80s and 90s of previous century (Colvin et al., 1980; Greer & Thompson, 1985; Harris, 1994; James & Hill, 1994; Laroche et al., 2001; Onkvisit & Shaw, 1999; Papavassiliou & Stathakopoulos, 1997; Shoham, 1996b; Whitelock & Rey, 1998).

Also product element of the marketing mix received significant attention in regard to standardization/adaptation debate in many 32

CHAPTER 3


studies (Akaah, 1991; Dawar & Parker, 1994; Du Preez et al., 1994; Hougan et al., 2000; Hult et al., 2000; James & Hill, 1994; Johnson & Arunthanes, 1995; Littler & Schlieper, 1995; Shoham, 1996b; Szymanski et al., 1993; Wind, 1986). Other two elements of marketing mix (4 P‘s) (price and place) were rather considered as part of overall strategy, where price was explored in very few studies as an individual element in standardization/adaptation debate (Baalbaki & Malhotra, 1995; Bellur et al., 1985; Botschen & Hemetsberger, 1998; Brandt & Hulbert, 1977; Chang, 1995; Jain, 1989; Samli & Jacobs, 1995; Theodosiou & Katsikeas, 2001) in addition to distribution (Dow, 2001; Gielens & Dekimpe, 2001; Lages & Montgomery, 2004; Rosenbloom et al., 1997; Shoham, 1999).

Also, some other studies investigated standardization/adaptation strategies for all elements of marketing mix together (4P‘s) without giving any specific advantage to an individual element (Agrawal, 1995; Birnik & Bowman, 2007; Boddewyn & Grosse, 1995; Boddewyn, Soehl, & Picard, 1986; Botschen & Hemetsberger, 1998; Cheon, Cho, & Sutherland, 2007; Chung, 2003; Hise & Choi, 2011; Jain, 1989; Katsikeas et al., 2006; Kustin, 2004; Larimo & Kontkanen, 2008; Michell, Lynch, & Alabdali, 1998; Ryans Jr et al., 2003; Schilke, Reimann, & Thomas, 2009; Schmid

33

CHAPTER 3


& Kotulla, 2011; Schuh, 2000; Shoham, 1996a, 1996b; Solberg, 2000; Szymanski et al., 1993; Wang, 1996; Zou et al., 1997). As mentioned previously, in addition to traditional four P‘s, expanded marketing mix elements (process, people and physical evidence) were explored in some other research studies (Vrontis, 2003).

Most of the studies investigating standardization/adaptation strategies analysed companies from the US (Chung, 2003, p. 50; Theodosiou and Leonidou, 2003, p. 147). Chung (2003; 2005; 2007), in a series of studies, investigated the experience of Australian and New Zealand firms and a very small number of studies considered companies from Europe (Codita, 2011).

In most of the studies mentioned above, manufacturing firms dominated the selected sample. Non-manufacturing firms received little attention in this discussion (Chung, 2003, p. 50). In some studies, we can hardly identify the type of industry that was the subject of investigation (Theodosiou and Leonidou, 2003, p. 147).

Ryans et al., (2003, p.589) presented limitations, weaknesses and boundaries of previous studies on standardization/adaptation strategies by listing them as; ―the lack of a theoretical grounding of the proposed relationships, the inability to substantiate some of the 34

CHAPTER 3


key underlying assumptions regarding the value of standardization, lack of empirical verification of earlier findings, the replicative nature of empirical research, concluding that all these failures brought the field to a state of stagnation in thought and action.‖

3.5 Schools of Thought in Standardization/Adaptation Debate

When we talk about schools of thought in standardization and adaptation debate there are many studies that contributed to individual schools. In Table 3.1 we can see the schools of thought in the standardization/adaptation debate.

35

CHAPTER 3


TABLE 3.1 The Schools of Thought in the Standardization vs. Adaptation Debate Author(s) S

C

A Selected statement(s)

Elinder

Standardized advertising is desirable and

(1961, p. X

feasible.

27) Fatt

An international advertising campaign

(1964, p. X

with a truly universal appeal can be

61)

effective in any market.

Buzzell

Great

(1968, p.

differences

between

nations

X necessitate taking them into consideration by planning a firm‘s marketing strategy.

113)

The

Britt (1974, p.

X

39)

potential

for

advertising

standardization with regard to products which are culture-bound or affected by psycho-social aspects is limited.

Levitt

Only global companies will achieve long-

(1983, p. X

term success by focusing on homogeneous

92)

needs and wants.

Quelch and Hoff (1986, p.

X

X Standardization is a matter of degree.

59) Douglas and

X

A standardization of world brands with common product features, names and 36

CHAPTER 3


Wind

advertising is a special case and not a

(1987, p.

strategy that is totally appropriate for

19)

many situations.

Onkvisit

―without

and Shaw

X

(1987, p.

X

71)

standardization is nothing more than a quixotic effort in search of an impossible

product/market

situation

examined

terms

in

should of

be

long-term

advantage.

Harvey

Some elements of the advertising process X

62)

may be standardized while other elements need to be localized. The fact is not whether standardization

Harris (1994, p.

global

The degree of standardization in a

Jain

(1993, p.

refinements,

dream‖.

54)

(1989, p.

needed

X

26)

should be practiced or not, the fact is to what extent standardization should be practiced.

Papavass

The international advertising decisions

iliou and

can be viewed on a bipolar continuum

Stathako polous

X

with the one end being standardization of creative advertising strategy and tactics

(1997, p.

and the other end being adaptation of

505)

creative advertising strategy and tactics. 37

CHAPTER 3


Marketers could benefit from targeting Ganesh

clusters of cross-country and regional

(1998, p.

X

45)

segments with similar demographic and lifestyle patterns that are receptive to panEuropean or global products.

Michell et

al.

(1998, p.

A X

standardization

of

the

complete

marketing-mix without any variations is practically impossible.

631-632) Shoham

Firms should be selective in setting

(1999, p. 46)

X

strategies concerning standardization or adaptation.

Source: Adopted from Codita (2011); S-Standardization, CContingency, A-Adaptation

3.6 Standardization School of Thought

Three decades ago, researchers such as Theodore Levitt and Philip Kotler

have

discussed

whether

global

markets

demand

standardized products or not. Theodore Levitt‘s article ―The Globalization of Markets‖ published in 1983 brought many arguments on the marketing program standardization and with this article he enhanced discussion towards standardization. In his study, he stated that ―truly global companies alone will be able to achieve long-term success, as their focus on homogeneous needs 38

CHAPTER 3


and wants enables them to sell high quality products at low prices‖ (Levitt, 1983, p. 92). Today, many companies base their strategies on the concept ―think local, act global‖, which led formerly local or national industries to transform into global ones. This is a part of an economic process called globalization, which is defined as follows (Bhagwati, 2007, p.3): ―Economic globalization constitutes integration of national economies into the international economy through trade, direct foreign investment (by corporations and multinationals), shortterm capital flows, international flows of workers and humanity generally, and flows of technology.‖

There are many drivers of globalization but the primary driver is ―homogenization of consumers‘ needs and wants over the world markets‖ (Codita, 2011, p. 25). This resulted in more standardized marketing programs offered to the global segments of consumers. Other drivers of globalization are: ―globalization of market access, market opportunities, industry standards, sourcing, technology, competition,

cooperation,

distribution,

communication

and

information‖ (Doole & Lowe, 2012, p. 182). A similar explanation of globalization and its drivers are provided in some other studies

39

CHAPTER 3


(Czinkota & Ronkainen, 2012; Keegan & Green, 2013, p.6; Lee & Carter, 2012; Levitt, 1993; Trompenaars & Woolliams, 2004).

Advantages of standardization are presented in different studies (Boddewyn et al., 1986; Cheon et al., 2007; Elinder, 1965; Keegan, 1969; Levitt, 1993). Some of the most important advantages of standardization that are mentioned in those studies are ―the achievement of economic benefits, especially economies of scale and cost savings in production, improvements in research and development and progress in marketing‖ (e.g. Keegan, 1969, p.

59).

Moreover,

a

number

of

scholars

argued

that

―standardization supports effective planning and control and provides more consistency in product offerings for the customers as well as more consistent corporate brand images‖ (Buzzell, 1968, p. 105; Papavassiliou and Stathakopoulos, 1997, p. 504; Quelch and Hoff, 1986, p. 60; Taylor and Okazaki, 2006, p. 98; Theodosiou and Leonidou, 2003, p. 142).

3.7 Adaptation School of Thought

Emergence of the adaptation school of thought has mainly happened as a response to the claims of the standardization advocates (Theodosiou and Katsikeas, 2001, p. 3). Supporters of adaptation (Britt, 1974; Buzzell, 1968; Douglas, 1986; Harris, 1994; Harvey, 1993; James & Hill, 1994; Onkvisit & Shaw, 1999; 40

CHAPTER 3


Papavassiliou & Stathakopoulos, 1997; Shoham, 1999) claimed that distinctions between countries with respect to ―culture, language, economic development, political and legal system, marketing infrastructure, customer behaviour, usage patterns, and competitive situation‖, necessitate the adjustment of the firm‘s marketing strategy to the local market conditions (Codita, 2011).

Buzzell (1968, p. 108) gave a comprehensive summary of factors limiting standardization. In his study, he emphasized that a pure, comprehensive standardization of the marketing-mix is impossible. Specifically for ―culture-bound products‖, a partial standardization strategy can be expected (e.g. Britt, 1974, p. 39; Quelch and Hoff, 1986, p. 60). Moreover, characteristics of consumers such as consumer literacy and education level force companies to adapt their products and other elements of the marketing-mix to the hostmarket (Hill and Still, 1984, p. 100).

Researchers that support the adaptation school of thought argue that marketing program is not a global but rather a local issue. According to their perspective, the best product strategy should differ from market to market (e.g. Hill and Still, 1984, p. 101). ―Adaptation of the marketing program strengthens the product‘s competitive position in the marketplace‖ (Cavusgil et al., 1993, p. 481. Finally, the advocates of the adaptation school of thought criticize the standardization school of thought as a ―new kind of 41

CHAPTER 3


marketing myopia‖ or ―oversimplification of the reality‖ (Theodosiou and Leonidou, 2003, p. 142).

3.8 Contingency School of Thought

The contingency school of thought has been developed as result of the perspective that standardization and adaptation should not be seen in isolation from each other, but rather as two ends of the same continuum (e.g. Baalbaki and Malhotra, 1993, p. 19; Jain, 1989, p. 71; Papavassiliou and Stathakopoulos, 1997, p. 505; Quelch and Hoff, 1986, p. 59; Theodosiou and Leonidou, 2003, p. 143; Vrontis, 2003, p. 285). Jain (1989, p. 76) stated that appropriateness of the contingency strategy is to be evaluated on the basis of its impact on the company performance.

Michell et al. (1998, p. 618) argued that there are two groups of contingency school of thought: ―Middle of the Roaders‖ and ―Clusterers‖. Those that support ―Middle of the Roader‖ (e.g. Vrontis, 2003, p. 297) are conscious of the benefits and weaknesses of international marketing strategy standardization and adaptation, and prefer an adopted international marketing concept. In those studies that support ―Clusterers‖ (e.g. Boddewyn et al., 1986, p. 71; Ganesh, 1998, p. 45) international marketing strategy standardization across identifiable transnational market clusters is favoured. In the mentioned studies in the context of international 42

CHAPTER 3


marketing strategy standardization, some researchers propose clustering countries based on their cultures and economic similarity. For example, in Sriram & Gopalakrishna (1991, p. 141142) six groups out of 40 countries are identified and authors argued that ―advertising standardization could be attempted within each group by employing similar advertising messages‖.

Jain (1989) provided a framework for defining international marketing strategy standardization. This article has placed the conceptual bases for future studies in the contingency perspective. He

claimed

in

his

study

that

international

marketing

standardization/adaptation consists of five factors: target market, market position, nature of product, environment, and organization. All of these individual factors affect standardization/adaptation of international marketing strategy. Many authors such as Cavusgil et al. (1993, p. 484-485), Johnson and Arunthanes (1995, p. 37), Theodosiou and Katsikeas (2001, p.

5-6), Theodosiou and

Leonidou (2003, p. 143) were inspired by this article to investigate the contingencies of standardization.

43

CHAPTER 3


3.9 Standardization/Adaptation of Marketing-Mix Elements

Majority of studies in the field of international marketing strategy (marketing mix) standardization focus on catching the degree of standardization/adaptation of individual marketing-mix elements, where potential interrelationships are neglected (Michell et al., 1998, p. 618; Özsomer and Simonin, 2004, p. 398; Theodosiou and Leonidou, 2003, p. 167). In the comprehensive literature review written by Theodosiou and Leonidou (2003, p. 167), it was critically highlighted that compared to other elements of international marketing strategies, product and promotion were more investigated elements. Also Jain (1989, p. 70) mentioned unbalanced concentration of researchers on individual elements of marketing mix standardization/adaptation. Even twenty years later, there is no difference in discussion where we have only a few contributions addressing all elements of the marketing-mix (e.g. Myers et al., 2002; Theodosiou and Katsikeas, 2001; Samiee, 1993; Solberg et al., 2006; Soham, 1999; Szymanski et al., 1993).

Among the marketing-mix variables, the product and its branding aspect display the highest degree of standardization (Boddewyn et al., 1986, p. 72-73; Michell et al., 1998, p. 632; Quelch and Hoff, 1986, p. 61; Yip, 1997, p. 158), whereas price, advertising, promotion, distribution and elements of extended marketing mix are standardized to a far slighter extent (Michell et al., 1998, p. 44

CHAPTER 3


621). Nevertheless, results are different depending on the explicit research settings (see e.g. Vrontis, 2003, p. 294; Yip, 1997, p. 161).

3.10 Strategies on Seven Ps and Satisfaction with Export Performance

The crucial success factor in achieving global competitive advantage is to offer added value for global customers by providing them with benefits that are expressively superior to those provided by the competitors. In practice, firms manage to be successful in this requirement by using strategies that are suitable to their own situation. Also different degrees of standardization or adaptation of the various marketing mix elements should be taken into consideration and to a certain extent they should be balanced (Doole & Lowe, 2012).

The first marketing mix element that brings the most challenges and opportunities to global companies today is product. Product and brand policies have to be developed by management in a way that they are sensitive to market needs, competition, and the company‘s ambitions and resources on a global scale. Modern global marketing advocates claim that companies have to find balance between ―the payoff from extensively adapting products and brands to local market preferences and the benefits that come 45

CHAPTER 3


from concentrating company resources on relatively standardized global products and brands.‖ (Keegan & Green, 2013, p. 285).

Globalization of the markets brings out the fact that all customers in the world can get the best products available for the best price. Considering this fact, global marketers have developed pricing strategies and policies that are identified according to price floors, price ceilings, and optimum prices. Also, a firm‘s pricing strategies and policies have to be either standardized or adopted with other uniquely

global

opportunities

and

constraints

taken

into

consideration. Today‘s consumers can access information about prices for many products by using the internet. The way how pricing strategy for a particular product is developed may vary from country to country; in some countries a product may be positioned as a low-priced product whereas in others it can be positioned as a premium-priced product (Czinkota, 2011). Creating utility for customers is the marketing channels‘ responsibility. Selecting a channel strategy is one of the crucial policy decisions management must make if it wants to use this utility as a base for competitive advantage. It is also an important element of the firm‘s overall value proposition (Keegan & Green, 2013).

46

CHAPTER 3


Marketing communications programs and strategies vary from country to country. Global advertising may be defined as ―messages whose art, copy, headlines, photographs, taglines, and other elements have been developed expressly for their worldwide suitability‖ (Keegan & Green, 2013, p. 384.). Many global companies have an opportunity to successfully transform a domestic advertising campaign into a worldwide one by implementing standardization communication strategy or it can create a new global campaign from the ground up by implementing adaptation communication strategy (Ghauri & Cateora, 2014). For international marketing mix, three more P‘s in addition to the classic 4 P‘s can be effective. These are people, process and physical evidence. These 3 P‘s are added and they play an important role in standardization/adaptation strategies decisions. People, process and physical evidence are especially important parts of service companies such as hotels, restaurants, travel companies etc.

People strategies include all actions of employees that are involved in service delivery. In order to make customer satisfied, employees have to be well trained and motivated, especially in international market place. Whether employees can maintain the same standards at every country location, or they will have different attitudes to

47

CHAPTER 3


service, represent one of the important decisions (Doole & Lowe, 2012).

The overall customer satisfaction also depends on a well-designed delivery process. Customer expectations of different process standards vary from country to country with different cultures. This is the reason that standardization of process elements of marketing mix is difficult in many varied contexts (Doole & Lowe, 2012).

Finally, the physical evidence element includes all of the tangible representations of the services such as brochures, letterhead, business cards, report formats, signage and equipment (Doole & Lowe, 2012). Standardization/adaptation decision of process element of marketing mix is extremely important especially in international marketplace.

48

CHAPTER 4

INTERNATIONAL PRODUCT STRATEGIES

CHAPTER 4 International Product Strategies 4.1 Basic International Product Concepts

S

trategic marketing planning begins with product decisions. Extending product sales to the international markets is a major decision for a company because a number of newer

considerations will arise with respect to acceptance of products in international markets. Overall, a product is ―anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a need or want‖ (Kotler & Armstrong, 2011, p. 224). Similarly, ―products include physical objects, services, events, persons, places, organizations, ideas, or mixes of these entities‖ (Kotler & Armstrong, 2011, p. 224).

All goods and services that satisfy human needs, wants and desires can be considered under the umbrella term ―product‖. More recent 49

CHAPTER 4


conceptualizations of the product element in marketing mix is the term ―offering‖, which is used to identify the whole value package (including all tangible and intangible aspects of the purchase), the consumer receives by acquiring the product (Kerin and Peterson, 2007).

Companies that have international operations should be aware of the fact that product has the strongest implications for a firm‘s competitive success internationally (Czinkota & Ronkainen, 2006, p. 248). This is the reason why this element of marketing mix received the most attention in international marketing literature.

A product with its visible features (i.e. physical product) such as its brand name, quality, packaging and aesthetics (style and design) delivers the benefits to the final consumers to meet their expectations. Every product has a central offer (i.e. core benefit) to its buyers. Anything beyond this core benefit is a supplementary aspect for the central offer. Figure 4.1 illustrates the layers of benefits and features a product offer has for its markets. As shown in the figure, what is a must for a product is the core benefits that it offers to its customers. A good night sleep with relaxation is the core benefit for a hotel service, for example.

50

CHAPTER 4


Figure 4.1 Elements of a product Czinkota and Ronkainen (2013) Other layers surrounding the core benefits are tangible product features, intangible product features and augmented product features. Overall, product features are the product attributes that can be used for product differentiation (Kotler and Armstrong, 2014, p. 254). Product features can be internal or external features (Zeithaml, 1988). Internal attributes are related to the product content whereas external attributes are part of its visual characteristics. Branding is an external attribute of a product but, content quality is a part of its internal characteristic. Other external characteristics include product style, design, packaging and labelling.

Tangible product features such as brand name, quality, packaging and aesthetics are the visual attributes that are used by the

51

CHAPTER 4


consumers during the search and adaptation process. These attributes make recognizing, buying and using the product easier.

Branding is a very powerful marketing tool that adds value to the product and helps to create a specific image in consumers‘ minds. A brand can be ―a name, term, symbol, sign, design, or a combination of these that identifies the maker or seller of a product and distinguishes the product from competitive offerings‖ (Czinkota and Ronkainen, 2007, p. 338; Kotler and Armstrong, 2014, p. 255).

Quality is one of the most important features of a product because it represents the promise of a producer to the consumer. Quality is the product‘s ability to fulfil customers‘ expectations of excellence (Kotler and Armstrong, 2014, p. 253-254). Objective quality is its engineering quality, whereas subjective quality is the perception of quality in consumers‘ minds.

Historically, packaging has been viewed as a product feature that is used to contain, store, transport and protect it. In today‘s business practice, the primary function of packaging includes not only the mentioned core features but also the other important marketing functions, from attracting attention, describing the product, to ultimately making the sale (Backhaus et al., 2005, p. 150; Kotler and Armstrong, 2014, p. 256). Packaging is part of the 52

CHAPTER 4


communication strategy that will contribute strongly to the ultimate brand image. Labelling is integrally connected to packaging as it refers to ―any graphical or text elements applied on the package in order to identify the product or brand, describe it in terms of producer, location of production, date of manufacturing, date of expiry, its contents/ingredients, usage instructions etc. as well as to promote it, for example, through attractive graphics‖ (Kotler and Armstrong, 2014, p. 256).

Product style and design concern the appearance of a product. Style is mostly related to aesthetics and exclusivity; and, design is mostly related to the product‘s functionality or usefulness (Kotler and Armstrong, 2014, p. 254). These aspects are usually the artistic sides of the product design.

Intangible product attributes are not visual but consumers sense and evaluate them when they consider buying the product. Overall positioning (i.e. image) and country of origin effects are part of intangible aspects of a product. Products with strong tangible qualities need to be supported by strong intangible features to stay strong in the markets.

53

CHAPTER 4


Augmented products features add value to the product entirety and they can be as important as the other features. Delivery and credit, installation, warranties, and after sale services are part of augmented product features. Products with strong core benefits can fail due to the weak augmented features. However, most competitors work on these augmented features heavily to solve customer problems.

Considering the fact that product strategy includes making harmonized decisions on individual products, product lines, and product mixes, the same line of thought should be kept when making international marketing decisions.

4.2

Research

on

International

Product

Strategies

Standardization/Adaptation and Satisfaction with Export Performance

During the past four decades, the field of international marketing has paid specific attention to the forces that drive adaptation or standardization of particular marketing mix elements. Following this context, numerous studies (Theodosiou & Leonidou, 2003) have concentrated on the reasons that influence the level of product adaptation (Hultman, Robson, & Katsikeas, 2009). There are many studies that provide a positive relationship between the adaptation of products to the local markets and levels of export 54

CHAPTER 4


performance (Calantone, Kim, Schmidt, & Cavusgil, 2006; Cavusgil & Zou, 1994; Lee & Griffith, 2004; Shoham, 1999). On the other hand, some scholars argued in their studies that standardized products are more successful (Christensen, Da Rocha, & Gertner, 1987; Zou, Andrus, & Norvell, 1997).

In their detailed analyses of 36 empirical studies, Theodosiou & Leonidou (2003) found that product element of the marketing mix appears to be the most standardized marketing mix element. Beyond this study, Michell, Lynch, & Alabdali (1998) found that the degree of standardization of product-related variables was greater than the other marketing mix elements of UK firms exporting to the six Gulf States. Similar results could be found in Quester & Conduit's (1996) study. This study investigated standardization of products, based on a mail survey of some 200 Australian subsidiaries of MNCs1. And, findings enabled the researchers to conclude that standardisation is usually consistent across products and services within any one firm.

Studies that were recently published (Doole & Lowe, 2012; Katsikeas, Samiee, & Theodosiou, 2006; Siraliova & Angelis, 2006; Vrontis, 2003), again supported the claim that companies standardize most product elements in their marketing mix.

1

MNCs – Multy National Companies

55

CHAPTER 4


Theodosiou & Leonidou (2003) provided several potential reasons for the higher degree of standardization of the product element that can offer a number of benefits, like: a) the greater motivation to gain the benefits from economies of scale in research and development and production, b) the wish for fast dispersal of new products in the market, particularly following the fact that product lifecycles are increasingly becoming shorter, and c) the necessity to accomplish better harmonization through the application of more constant internal production controls and quality standards.

Also, product adaptation has been widely studied by researchers and generally positively correlated with export performance, but there are also other studies obtained insignificant results or even negative correlations.

56

CHAPTER 5

PRICING STRATEGIES FOR INTERNATIONAL MARKETS

CHAPTER 5 Pricing Strategies for International Markets 5.1 Basic Concepts of International Pricing

P

ricing is the ―only element in the marketing mix that produces revenue; all other elements represent costs‖ (Kotler & Armstrong, 2011, p. 313). Therefore, pricing

decisions have to be made with caution to be profitable. Kotler & Armstrong proposed that (2011, p.313), in the narrowest sense, ―price is the amount of money charged for a product or service‖. More broadly, ―price is the sum of all the values that consumers exchange for the benefits of having or using the product or service‖ (p. 313-314). Since price is the amount of money charged for a product or service, it serves as a means of communication with the buyers and can directly affect value exchange with them. But, on the same time, it can be used as a competitive tool in the market that will help company to compete close with rivals and substitutes (Czinkota and Ronkainen, 2007, p. 354).

57

CHAPTER 5


This marketing mix element is also one of the most flexible ones with the highest degree of adaptation in international marketing. Managers can identify up to the minute pricing revisions with the help of current technologies. Decisions on pricing strategy standardization or adaptation are of big importance for companies that have operations in multiple national markets. A comparison is necessary to identify the differences between domestic prices and export prices. Whether the price of a product in one foreign market should be the same, lower, or higher in other foreign markets is an important concern for international marketing managers (Albaum & Duerr, 2011, p. 469).

Pricing decisions play an important role to the sustainability of any company in international markets. Designing relevant pricing strategies for international markets is a complex process and many internal and external factors (such as company‘s goals and objectives, development, production, and marketing costs, nature of product and industry, customer, regulatory, and competitive characteristics of the target markets) have to be considered when making pricing decisions (Czinkota & Ronkainen, 2007, p. 356357; Solberg et al., 2006, p. 27). Therefore, price decisions are becoming more critical than ever before (Albaum & Duerr, 2011, p. 469). International pricing strategies and the factors affecting these strategies are given in Figure 5.1. (Jeannet & Hennessey, 2001). 58

CHAPTER 5


There are two main pricing strategies companies use in all markets when they enter the markets with new products. These are market penetration and market skimming strategies. These strategies are especially relevant for those companies that go to the new international markets the first time. In a penetration strategy, the purpose is to set prices low enough to capture most market share, whereas in a skimming strategy, the purpose is to set prices high enough to reach desired profit levels to cover product development and marketing costs. Market penetration is viable when the product has a lot competitors and the company needs market share to enter into the market. Market skimming is valid in situations where the product is new and providing a lot of unique benefits. Considering differences in business environments in different countries, the pricing strategy for a specific product possibly will vary from country to country. A product can be positioned as a low-priced product in one country as part of a market penetration pricing strategy, or a premium-priced in others as part of market skimming pricing strategy (Keegan and Green, 2012).

Another major decision to be made when going global is to use standardization or adaptation pricing strategies for different markets. These two strategies are identified as uniform or market by market pricing strategies as illustrated in Figure 3. In most cases, companies have to modify their prices (at least some) to keep up with the country conditions. When setting prices the first 59

CHAPTER 5


time in international markets, companies take desired profitability levels, transportation costs, tariffs, taxes, production costs and channel costs into consideration as given on the upper parts of Figure 5.1, but they also have to take market and environmental factors into consideration to modify prices. Market and environmental conditions are difficult to control but they are the factors used to set the minimums and maximums in identifying price levels. In some markets, market and environmental conditions limit companies due to unbalanced income levels, competition structures, economic and legal conditions that are related to pricing. Managers have to find ways to combat these extraordinary situations. One strategy Japanese companies have frequently used to set prices according to the local market conditions is target costing (Keegan and Green, 2011). In target costing, Japanese firms produced products according to the desired quality and price levels of the market. The costs of production were identified not only based on desired quality levels, but also based on customer expectations on prices. These companies found ways to satisfy pricing expectations of international customers without giving up from the quality levels.

The factors given in lower parts of Figure 5.1 are concerned with managerial issues in international pricing. When setting prices, managers should evaluate the costs added by transfer pricing operations (costs added by within company transfers), foreign 60

CHAPTER 5


currency differences, parallel imports, and price escalations from local or global conditions. Also, they have to take risks, financing options (by the customer or supplier) and funding source effects into consideration when setting prices.

Figure 5.1 Factors of International Marketing Strategies

61

CHAPTER 5


5.2 Research on Pricing Strategy Standardization/ Adaptation and Satisfaction with Export Performance

Overall, research lacks about price standardisation/adaptation in international marketing literature (Lages, 2000). Also, the research findings about the relationship between pricing and export performance are mixed (Shoham, 1996). There are numerous studies that recognised a positive relationship between price strategy adoption and export performance (Das, 1994; Lee & Griffith, 2004; Shoham, 1996). Leonidou, Katsikeas, & Samiee (2002) showed that a strong positive relationship exists between price adjustment and export performance. Alternatively, there are other studies that indicated negative relationship between price adaptation and export performance (Lages & Montgomery, 2005; Ozsomer, Bodur & Cavusgil, 1991; Shoham, 1999; Sousa & Bradley, 2008). Studies about price standardization/adaptation have showed diverse results. While Shoham & Albaum, (1994) described in their study that price adaptation enhanced export performance, later on stated a negative impact with another study (Shoham, 1996). In the same way, it was presented in Koh & Robicheaux

study (1988) that price adaptation enhanced

performance, but only when adopted prices were higher than domestic prices; it harmed it otherwise.

62

CHAPTER 5


According to Keegan and Green (2012), a company has three positions it can take on worldwide pricing: extension or ethnocentric pricing, adaptation or polycentric pricing, and geocentric pricing. 5.2.1 Extension or Ethnocentric Pricing

As Keegan and Green (2012, p. 336) noted, extension or ethnocentric pricing ―calls for the per-unit price of an item to be the same no matter where in the world the buyer is located‖. A company that implements this policy is responsible for freight and import duties. The ethnocentric approach has its own advantages and disadvantages. One of the advantages is that this policy does not require information on competition or market conditions for implementation. But, on the other hand, it is more difficult to react to the competitive and market conditions fast enough.

5.2.2 Adaptation or Polycentric Pricing

A company that implements this policy transfers the responsibility to the subsidiary or affiliate managers or independent distributors to price their own products according to individual market conditions. How managers in each country set their own prices depends, in part, on local factors such as competition, wages, taxes, and advertising rates (Keegan and Green, 2012, p.337). 63

CHAPTER 5


5.2.3 Geocentric Pricing

Geocentric pricing, is more effective and practical than the other two. A company using geocentric pricing neither totally standardize pricing strategy nor totally adopt it. It means that the company neither fixes a single price worldwide, nor allows subsidiaries or local distributors to make independent pricing decisions. Instead, the geocentric pricing policy characterises a midway course of action. In geocentric pricing, unique local market factors such as local costs, income levels, competition, and the local marketing strategy are taken into consideration in making final pricing decisions in addition to the initial costs set by the company production policies (Keegan and Green, 2013, p.337).

64

CHAPTER 6

INTERNATIONAL COMMUNICATION STRATEGIES

CHAPTER 6 International Communication Strategies 6.1 Basic Concepts of International Communication

C

ommunication is one of the crucial legs of marketing mix because reaching the customers with right messages and developing a strong brand image can be achieved

with this function. Sometimes affordable and good quality products with proper distribution systems can fail because of the lack of an effective communication strategy. Companies must communicate with their customers to create awareness and positive attitudes

toward

their

market

offerings.

Well-designed

communication strategies will have an influence on customers‘ expectations, satisfaction and value perceptions.

The challenge of successful communication with customers in different countries is one of the reasons why companies are in the search of an integrated marketing communications strategy (IMC). Advocates of an IMC model are clearly aware that the number of 65

CHAPTER 6


elements in a company‘s communication strategy must be cautiously synchronized. Integrated marketing communication model uses advertising, sales promotion, public relations, personal selling

and

direct

marketing

to

achieve

the

company‘s

communication objectives. Major promotion tools are presented in Figure 6.1.

Effective use of communication strategies is important in any market. But, for entering in and staying long term in an overseas market, these strategies become even more important (Keegan & Green, 2011). One reason why communication is so crucial in an international market is the fact that an initial awareness and positive attitude should be developed on both retailers and customers. Initial response to anything new for a market can be negative unless it is changed with right messages. Another reason is the fact that frequently-purchased low-cost products need continues advertising support to stay alive in a market (Keegan & Green, 2011). Consumers should constantly be reminded of the existence and new benefits of these products in the market. Finally, more focus should be given on communication strategies in international markets because of the difficulties they create in reaching the target groups with right messages. A few reasons why communication messages may not be effective in an international market are (Keegan & Green, 2011, p.433-434); identification of incorrect or misunderstood target group for communication 66

CHAPTER 6


activities, difficulties experienced in encoding the messages by the target groups, low levels of message effectiveness due to weaker purchase levels and changing noise levels during communication.

Figure 6.1 Major Promotion Tools of IMC Adopted from Kotler and Armstrong (2011) One of the strongest elements in communication strategy is advertising. ―Advertising is any paid form of non-personal presentation and promotion of ideas, goods, or services by an identified sponsor‖ (Kotler & Armstrong, 2011, p. 408). Use of advertising in international marketing is different in some ways. Domestically, companies usually have a clear understanding of

67

CHAPTER 6


their customers and their cultures. Furthermore, they generally build strong expertise on the types of available media channels they can use in their local markets. Many larger companies have their own advertising units or agencies that constantly keep contact with customers.

On the other hand, managing advertising process is much more difficult in international markets due to the lack of mentioned advantages of domestic markets. A lot of times, cultural barriers and level of technology use in the new markets can create difficulties for international companies. To eliminate the difficulties, companies prefer to use standardized messages especially when the products offer standard features (i.e. technological products and visually appealing products) (Keegan & Green, 2011, p. 435). Also, larger companies prefer to work with the same advertising agencies that have special expertise in the local markets to extend their brand images overseas.

Sales promotions are another method in communication strategy. ―Sales promotions are short-term incentives to encourage the purchase or sale of a product or service‖ (Kotler & Armstrong, 2011, p. 408). Using sampling, couponing, sweepstakes and rebates are some methods of sales promotions. These methods can be very effective in international marketing. To have a touch on the product can break many barriers for both retailers and final 68

CHAPTER 6


consumers. It has to be noted that in some countries, using sales promotions may be very difficult due to the legal conditions or business environments. In others, it may be a very effective method because country conditions may be supporting the use of such methods. For example, in geographically dispersed countries, it may be very difficult (or costly) to reach consumers with product samples.

Another communication method is personal selling. By definition, personal selling is ―personal presentation of the product by the firm‘s sales force for the purpose of making sales and building customer relationships‖ (Kotler & Armstrong, 2011, p. 408). Even though personal selling is a very effective communication tool, it may not be the right tool for some international markets. In some countries door to door selling is banned (i.e. China) (Keegan & Green, 2011). In others, it may be very difficult to set up an experienced sales force that can push the products to the markets with proper sales methodologies. Before using personal selling as a communication tool, the company has to recognize the realities of the international market and be well-prepared for any further actions. If there are any professional contractors (i.e. marketing agencies), the company may want to work with them to benefit from their experiences.

69

CHAPTER 6


Another communication tool that has gained increasing attention is public relations. ―Public relations is building good relations with the company‘s various publics by obtaining favourable publicity, building up a good corporate image, and handling or heading off unfavourable rumours, stories, and events‖ (Kotler & Armstrong, 2011, p. 408). Public relations is necessary when the company intends to stay in the market for some time and build up a strong brand image that will last for long years. Public relations usually goes hand in hand with advertising since it needs certain media support to be effective. Public relations activities necessitate contacts with power groups and non-profit organizations with strong community involvement. Nowadays, conflicts are on the rise between countries, therefore, building trust through good business practices and conveying the messages of proper business applications are very necessary for international companies.

A final method of marketing communication to be mentioned here is direct marketing. ―Direct marketing includes direct connections with carefully targeted individual consumers to both obtain an immediate response and to cultivate lasting customer relationships — using telephone, mail, fax, e-mail, the Internet, and other tools to communicate directly with specific customers‖ (Kotler & Armstrong, 2011, p. 408). Direct marketing is on the rise as a communication tool especially due to the advancements in internet technologies. Although social media advertising is considered as a 70

CHAPTER 6


separate method of communication today, it can be considered as a direct communication method due to its power to reach final consumers without mediators. Disintermediation is one reality today in business markets where retailers are slowly eliminated by the direct methods of reaching consumers (Kotler & Keller, 2006). Direct methods of reaching consumers are becoming more prevalent in developing and underdeveloped markets as the use of online technologies become more common wide.

6.2 Research on International Communication Strategy Standardization/Adaptation and Satisfaction with Export Performance

Some studies report that adaptation of communication strategies creates improvements in export performance (Cavusgil, Zou & Naidu, 1993; Poulis & Poulis, 2011; Shoham, 1996; 1999). In the same way, adaptation of communication strategies may help reach overall company performance (Leonidou, Katsikeas, & Samiee, 2002).

Cavusgil & Zou (1994) argued that competitive pressure in the export markets leads to promotion adaptation even though adaptation may not be the best alternative in every oversees market. Research findings about the effects of communication standardization/adaptation on export performance are usually 71

CHAPTER 6


mixed (Lages, 2000; O‘Cass & Julian, 2003; Samiee & Roth, 1992).

In general, supporters of standardization argue that world has become one village and, through internet technologies, consumers understand other cultures much better than before. They argue that sometimes, use of same or very similar communication messages can give more powerful images to the consumers since these messages can be supported by social media. Opponents of standardization, however, argue that cultural differences and local conditions will always have an effect on communication efforts. Use of either strategy depends very much on the nature of products and marketing objectives.

The extent of standardization or adaptation of communication strategies will mainly depend on cost and effectiveness (Codita, 2011). Because of the significant differences among nations in language, culture, competitive and economic context, media availability, and legislation, some promotion elements may produce better results if they are adapted to local conditions (Theodosiou and Leonidou, 2003, p. 162).

Among other elements of communication mix, advertising is often most influenced by cultural dissimilarities. If a company wants to design an effective advertising, then, emotional appeals, symbols, 72

CHAPTER 6 persuasive


approaches,

and

other

characteristics

of

the

advertisement should be based on the cultural norms of the target audience (Codita, 2011, p. 44). Not only cultural aspects should be considered when designing advertising messages for international markets, but also factors such as availability of advertising media, media costs, media coverage, availability of market data, spread of international print media and levels of access to internet should be taken into consideration. When a company decides to adapt advertising on international markets, potential risks have to be carefully weighed against the potential benefits (Ghauri & Cateora, 2010).

Research about sales promotion standardization/adaptation indicate that adaptation is a more effective strategy for this element promotion mix (e.g. Akaah, 1991, p. 50; Chhabra, 1996, p. 62; Özsomer et al., 1991, p. 59). Using sampling, couponing, sweepstakes, rebates and other methods poses different challenges for different countries. In some countries, such marketing methods are used very infrequently and marketers may try to establish a system of using sales promotions whereas in other countries use of these methods may be very prevalent that marketers can use very creative ways to benefit from these methods.

Similar conditions apply to standardization/adaptation of public relations methods in international markets. Factors such as cultural 73

CHAPTER 6 traditions,

social


and

political

contexts,

and

economic

environments bring out challenges for standardization of public relations practices (Keegan & Schlegelmilch, 2001, p. 481).

Finally, for direct marketing practices, standardization/adaptation depends on the available communications channels. For example, direct mailing might not be possible in less developed, geographically dispersed countries (Czinkota and Ronkainen, 2007, p. 398-399). Also internet infrastructure is a major concern for direct marketing applications.

74

CHAPTER 7

INTERNATIONAL DISTRIBUTION STRATEGIES

CHAPTER 7 International Distribution Strategies 7.1 Basic Concepts of International Distribution

D

istribution of goods and services is among the main marketing functions. Companies constantly look for best ways to transport their products and services to

their customers. In defining distribution strategy, Kotler & Armstrong (2011, p. 338) stated that it refers to ―the set of independent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user.‖

There are two options that companies can consider regarding channel strategy: sell directly to customers through their own sales force, electronic-commerce, and/or own/franchised retail stores, or use indirect forms, such as independent agents, distributors, wholesalers, and retailers (see figures 7.1 and 7.2) (Codita, 2011, p. 50). Very important aspects such as channel design (i.e. length 75

CHAPTER 7


and width of employed channels), screening and selection of intermediaries, and management of channel relationships, have to be worked well while planning a distribution system (Czinkota, 2011).

Figure 7.1 Multichannel Distribution System

Figure 7.2 Number of channel levels 76

CHAPTER 7


Whether distribution is done directly or by using different channels, what is important in the end is the value produced to the consumer. The whole distribution system is part of a complete value chain (Mooradian, Matzler, & Ring, 2014, p. 311). Members of the whole distribution system attempt to provide four main functions; making the product available at the place, time, in proper form and with necessary information desired by the consumer (Keegan and Green, 2011). Distribution decisions are one of the most complex decisions that firms face during marketing operations.

A company that exports its products to foreign markets can apply two types of channels, one in the home-country and one in the foreign market country. In the home country, the company can either sell directly through its own sales force or through export management companies. Many companies also work with wholesalers to open up other markets (See, Figure 7.3, Codita, 2011, p. 51). In a foreign country, main tasks include choosing and managing distribution channels that will deliver the product to the end user. The arrows in Figure 7.3 show some of the possible channels of distribution alternatives. Some companies can reach their final customers directly, or they may work with foreign agents, wholesalers or retailers to reach final customers.

77

CHAPTER 7


Figure 7.3 International Channel of Distribution Alternatives adopted from (Codita, 2011, p. 51) Because distribution channels are difficult establish and very costly to change in short time, internationalizing companies need to consider channel decisions as decisions that will have long-term, serious consequences. Channel members should have control over the product distribution system rather than channel members should have control over the company actions (Arnold, 2000). Companies that make easy channelling decisions should be ready to pay a high price since consequences of wrong channel decisions are usually very costly. Similarly, especially those international companies that use more risky international market entry options should have a good grasp of information and the data of the facts related to the distribution systems in the approached markets. 78

CHAPTER 7


One of the trends in international business is the rise of retailing industry. International companies may have to work with strong retailers that are already established in different markets. In this regard, choosing right retailers and entering into long-term relationships with these retailers become so important to reach success in distribution operations.

There are a number of considerations regarding the distribution of tangible goods. Logistics is one area that exporting companies have to deal with during their international operations. Parts of a logistics system are transportation management, warehousing and inventory management.

Distribution of services is totally different compared to that of tangible goods in that services are intangible and they have to be consumed at the place of production. Nowadays, service delivery is done mostly through online systems and the production is done at the place service is offered to the final consumer. In certain sectors such as travel and hospitality, larger operators control distribution of services usually with online services (i.e. Expedia, Travelocity).

79

CHAPTER 7


7.2 Research on Place Strategy Standardization/Adaptation and Satisfaction with Export Performance

Distribution as a marketing mix element received particularly little attention in the context of standardisation versus adaptation debate as compared to other marketing mix functions (Rosenbloom et al., 1997; Shoham, Brencic, Virant, & Ruvio, 2008; Zou & Stan, 1998). Leonidou et al. (2002) stated in their study that very few number of research studies analysed distribution standardization/ adaptation strategy. General conclusion of the studies on this subject is that the exporting companies‘ channel designs should be adjusted to the approached markets. Also, in their comprehensive review, Leonidou et al., (2002) revealed a strong positive relationship

between

distribution

adaptation

and

export

performance, which is measured as export intensity and export profit level.

Similar findings are available in other studies. Shoham (1996) for example found positive influence of distribution adaptation on export performance. Rosenbloom et al., (1997) reached the same conclusion in their study, arguing that high standardization of export distribution strategy might not bring profit to organization and might even be infeasible. Therefore,

researchers propose

adaptation as a more efficient strategy for distribution of products in export markets (Shoham et al., 2008). 80

CHAPTER 8

INTERNATIONAL SERVICES MANAGEMENT

CHAPTER 8 International Services Management

I

n this chapter, we will discuss about the other three elements of marketing mix, namely; the people, the physical evidence and the process. These three aspects of marketing mix are

usually associated with service products but they also apply to physical products as will be explained in the following sections.

In international marketing, establishment of a global image for a product is very important. Customers in different parts of the world are motivated to buy foreign products especially because of the reputation these products gain in their home markets. This is particularly true for service products

that are marketed

internationally based on standards built in home markets through people, physical evidence and process. In the hotel industry, for example, people (employees) who give service in the hotel, visual signals (physical evidence) that appeal the customers and the way the service is provided (process) are major parts of the marketing

81

CHAPTER 8


process that all three have direct influence on the success of the international operations.

Similar way of thinking can be applied to all other types of products offered to international markets in that bringing the product to the market with right people, presenting the product with a proper image and, offering (and servicing) the product to the market without hassles (with best business processes) are among the success requirements in international operations. For example, an automobile is a tangible product and people buy it mostly for its functional benefits (i.e. transportation benefits, comfort, reliability etc.). Similar to services, mentioned three marketing mix elements (i.e. people, physical evidence and process) are also so important for marketing of an automobile because all these three aspects add value to the product as much the product itself. Approaches of sales people to the customers, visual appearance and presentation of the product in the dealer (physical appearance) and how the after-service processes are handled to solve customer problems will affect customer decisions as much as other marketing aspects.

Proper applications of standardization and/or adaptation strategies with respect to people, physical evidence and process become more and more important for companies that go global. The internet technology has made everything so visible that the way 82

CHAPTER 8


products are presented in different media channels is easily noticed by all the customers in a short time all over the world. Shortly after the market introduction of a new product, potential customers all around the world can easily reach all the physical aspects of this new product (at least visually) and contact the company to learn more about it if they consider buying the product in their locality.

There are three major features of an international product offer (Kotler, 2002; Doole & Lowe, 2012). These are:

1. Product benefits: Benefits refer to those aspects that will meet customers‘ needs and solve their problems. Consumers usually consider product benefits as the value they get from the product.

2. Product attributes: These are external or internal attributes of a product that consumers can feel and taste. Product features, specifications, style, branding and packaging are parts of product attributes (Doole & Lowe, 2012).

3.

Marketing

support

services:

These

services

are

the

complementary aspects of product sale and service processes. All guarantees provided and after sale services are parts of support services.

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Companies that have international marketing operations are in constant struggle with their standardization and/or adaptation decisions for their product offers. For example, McDonald‘s, as such a standardized service, is always looking for alternative ways to adapt its food and beverage offerings to the local tastes in different countries (Membe & Doriza Loukakou, 2012).

A visual illustration of the three aspects of international product offer and the degree to which they can be adapted or standardized is shown in Figure 8.1. The aspects that are shown from top to bottom and from left to right are the ones that are more difficult to adopt as shown in the figure.

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Standardization Adaptation

The core product benefits or services Image

Benefits

Perceived value

Performance

Quality Features

Brand name Adaptation

Attributes Design

Packaging Size and color variants After sale services

Guarantees

Marketing support services

Instalation

Delivery

Figure 8.1 Standardization and adaptation of three aspects of international product offer (Doole and Lowe, 2012, p. 253.)

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8.1 People Strategies

Any employee in a company that comes into contact with customers will make an impression, and can have either positive or negative effect on customer satisfaction. Therefore, people strategy represents an important element of marketing mix.

Grönroos

(2001, p.25) defines people strategy as an aspect of business service that ―involves all human actors who play a part in service delivery, namely the firms‘ personnel and customers‖.

8.1.2

People

Strategy

Standardization/Adaptation

and

Satisfaction with Export Performance

Having the right (reliable) people in a company (from workers in the plant, people in the front line-sales to the top management) is an essential part of running successful business. Experience shows that neglecting people element in a company will influence every single decision and policy in a specific way. Thus, ability of a company ―to select, recruit, hire and retain the proper people, with the skills and abilities to do the job is more important than everything else put together‖ (Collins, 2001, p.17). People aspect is crucial for every type of business, however, this aspect becomes much more important for service businesses. Services by their nature are inseparable – meaning that every offering is one package with its tangible and intangible aspects and its production 86

CHAPTER 8


and consumption cannot be separated from each other (Kotler & Armstrong, 2011).

Many times adaptation of people strategy makes more sense in international operations. The main reason for avoiding absolute standardization of people strategy is because of the heterogeneity of cultures in different countries.

8.2 Physical Evidence Strategies

Visual attractiveness of products can make a big difference on the user experience. All tangible aspects of product offerings are parts of physical evidence strategies. ―The physical evidence includes all of the tangible representations of the services such as facility design and layout, brochures, letterhead, business cards, report formats, signage and equipment.‖(Zeithalm, Bitner, & Gremler, 2012, p. 26).

8.2.1 Physical Evidence Strategy Standardization/Adaptation and Satisfaction with Export Performance

The physical evidence strategy plays an important role in positioning. Tangible representations of

identity such as

brochures, letterhead, business cards, report formats, facility

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CHAPTER 8


signage and equipment will give customers some initial idea from whom and what they will be buying .

Especially when consumers have little in front of them to judge the actual quality of products, they will rely on above-mentioned cues. ―Physical evidence cues provide excellent opportunities for the firm to send consistent and strong messages regarding the organization's purpose, the intended market segments and the nature of the service‖(Zeithalm et al., 2012, p.25).

Apart from using appropriate artefacts to generate the right atmosphere, constant reminders of the firm‘s corporate identity will help to build customer awareness and loyalty (Doole & Lowe, 2012).

When a company has operations in foreign markets, physical evidence strategy standardization/adaptation decisions effectively influence overall decision making. On one hand, "global uniformity and image" can lead companies to apply physical evidence standardization in international marketing, diversity of markets and consumers‘ characteristics in different markets, on the other hand, can lead companies to physical evidence adaptation.

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8.3 Process Strategies

The actual steps of delivery of a tangible product or service also give customers evidence to judge the companies‘ offerings. Zeithalm, Bitner, & Gremler (2012) defined process as ―the actual procedures, mechanisms, and flow of activities by which the service is delivered - the service delivery and operating systems.‖

8.3.1 Process Strategy Standardization/Adaptation

and

Satisfaction with Export Performance

Special attention on the process element of the marketing mix is needed to ensure a balance between customization and standardization. Martin (2014, p. 5) suggests that ―product/service offering process should ensure the same level of service delivery to every customer, at any time of day, on any day; as within this process, there should be defined areas where a customer preference can be accommodated to provide a unique experience‖. Similar to those reported in the literature (O‘Cass and Julian, 2003; Cavusgil et al., 1993), findings in Chung (2007) show that firms tend to adapt their marketing management processes when the host market environment is different from that of the home market. The same author proposed three items that he used in his study for measuring

process

element

standardization 89

and

adoption:

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marketing planning process, budgeting and control system, and marketing philosophy/orientation. International companies may prefer to adopt process strategies to the target market conditions if they see big differences in service production and delivery processes in the target markets.

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FACTORS AFFECTING INTERNATIONAL MARKETING STRATEGIES

CHAPTER 9 Factors Affecting International Marketing Strategies

T

here are a lot of factors that shape international marketing strategy. These factors can be internal or external to the internationalizing companies. Overall,

these factors are categorized into four main subheadings (Doole and Law, 2008; Tang, 2011) which are illustrated in Figure 9.1.

9.1 Internal Company Factors

Internal company factors are to a large extent under the control of the company. These factors are ambition and objectives, growth options and resources, competencies and capabilities, attitudes to risk, and stage of internationalization (Figure 9.1).

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Ambition and Objectives


Growth options and Resources

Competencies and Capabilities

Attitudes to Risk

Stage of Internationalization

Internal Company Factors

Supply Chain

Government Support

Government Support

Market and Industry Factors

International Marketing Strategy Development

Public and Private Support Networks

System Support

Government Support

External Environmental Factors

Socio-Cultural

Political

Legal

Economic

Technological

Figure 9.1 Factors affecting international marketing strategy

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9.1.1 Ambition and Objectives

These factors refer to the aims of a company by going global. When going global, some companies may want to broaden the market boundaries whereas some others may just want to enter in a specific market. A lot of times companies go global just to be in international arena and by this way, they can spread the risks of operations in a single market. Another main aim may be to reach out low cost markets. International marketing activities will be different according to the ambitions and objectives of a company where, for example, the ambition is to get international presence, the company may start internationalization with low risk export strategies; or where the ambition is to benefit from low cost production advantages in a growing market, the company may start joint venture production operations in that market (Tang, 2011).

9.1.2 Growth Options and Resources Companies‘ own resources and growth potentials are also important considerations when they decide to go global. Those companies - especially the technology-intense companies that conduct business in high growth business areas - may, in a short time, consider going global because they may want to benefit from the market growth potentials. The rise of famous cell phone producers like Apple, Samsung, and all others in consumer 93

CHAPTER 9


electronics want to be present in many different markets to benefit from the high demand for such products. Sometimes a company‘s own resource base may allow the company to go global. Many small and medium size enterprises consider going global because they have good resource bases and they want to benefit from markets in other countries with these resource bases (Doole and Law, 2008).

International marketing strategies vary considerably across industries. Technology intensiveness in an industry is one factor of standardization/adaptation of marketing strategy (Jain, 1989). It is suggested in literature that technology orientation is negatively related to the international marketing strategy adaptation (Cavusgil et al., 1993; Cavusgil & Zou, 1994; Jain, 1989). International marketing strategies are more standardized in technology-intensive industries such as computers, aircraft, medical equipment, or photocopy machine industries than in low-tech industries such as clothing, food, or household apparel (Cavusgil et al., 1993).

9.1.3 Competencies and Capabilities Another internal factor is the company‘s competencies and capabilities. How advance a company is to produce high-end competitive products is a motivation by itself to use this capacity in other markets. Some companies are strong because of their 94

CHAPTER 9


strong history and culture of production of well-branded products in their markets. All famous brands may be considered in this category. For example, Gillette has such an advanced competency in producing state of the art razors that the company wants to offer these high end products all over the world for consumers (Keegan & Green, 2013).

9.1.4 Attitudes to Risk Risk propensity of a company may limit or open a company‘s willingness to go global. Those companies that have single ownership style may be affected much from this factor that if the owner(s) are too much risk averse, then the company will be unwilling to go global. This factor is also related to the risk taking culture under which the company is operating (internally or externally). Companies that operate in healthy economies and advanced markets may have more positive attitudes toward taking risk whereas companies that operate in risky environments may have negative attitudes toward taking risks in opening to other markets (Doole and Law, 2008).

9.1.5 Stage of Internationalization

Another factor of international marketing strategy is the experience a company has in international markets (Albaum & Duerr, 2011). 95

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Those companies that have high resource base and a long history of international operations are more likely to benefit from oversees opportunities. Experienced firms may have their own departments that handle international operations. Those truly global firms like Coca Cola, Exxon, Shell, Pizza Hut, Toyota etc. may handle almost every aspect of their international operations with a separate unit because of the fact these firms have extensive operations that can support for such level of management .

Stage of internationalization is closely related to the size of the firm. Many previous studies indicate that firm size affects the standardisation/adaptation of the marketing mix elements (Chung, 2008, 2009; Sousa & Bradley, 2008). Larger firms that have competitive advantage over local and international competitors are more likely to implement a universal marketing strategy (Sorenson & Wiechmann, 1975) and usually these firms take advantage of marketing mix standardisation (Soares, Farhangmeher, & Shoham, 2003). In Chung (2003), it was found that firm size is negatively associated with adaptation of price, place, and process strategies. In other words, larger firms prefer to standardise their marketing programs in the markets they operate.

9.2 Market and Industry Factors These factors concern international business market conditions. Those companies that have strong customer bases but having a lot 96

CHAPTER 9


of competitive reaction in their own markets may consider broadening their customer base in international markets. Similarly, companies that have long tradition of working with international suppliers may want to extend their marketing activities to other country markets (Doole and Law, 2008).

9.2.1 Customer Base

Companies with strong customer bases in their home countries may be more likely go global because these companies are usually large and experienced firms with capacity to go global. Similarly, these companies will tend to benefit international markets based on the advantages they build in their home markets with their customer bases (Tang, 2011).

9.2.2 Supply Chain

Companies with strong networks in supply of raw materials and intermediate goods may be more likely to internationalize due to the fact that they already have expertise in international buying behaviour. Famous producers like Nike and Adidas and retailers like Wallmart and Tesco extend their international operations through their suppliers and distribution networks. Supply chains offer the advantage of developing an expertise in international markets for those companies that buy from them. Supply chain 97

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relationships are usually long term relationships and open up possibilities for partners (Keegan & Green, 2013).

9.2.3 Competition

Competitive threats and reactions are important reasons for many companies to consider when entering into international operations. In highly saturated markets where companies have hard time to reach more diversified segments due to heavy competition, propensity to look for opportunities in international markets can be higher. In some markets, competition becomes so intense that such a competitive environment may force companies to consider other markets that offer more space for growth. Currently, competition motivates many companies to consider business opportunities in high growth markets like China, India, Brazil and Mexico (Barnes, 2015).

9.3 Public and Private Support Networks

International marketing strategy selection and implementation may be encouraged by public and private support networks. Public support networks are the units in governmental systems to stimulate export levels in a country. Private support networks are profit or non-profit companies and organizations to assist

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companies conducting international business (Doole and Law, 2008). . 9.3.1 Public Support Networks

Almost every country has a special unit (or more) to help companies to do international business. The US commercial service, for example, has offices in 100 US cities and 75 countries to support US companies to start exporting. Through the public systems, countries support their businesses by supplying information, putting them in contact with other businesses in other countries through embassies, giving them legal support and so on (Doole and Law, 2008).

9.3.2 Private Support Networks

Non-governmental companies (for-profit) and organizations (nonprofit) are considered private support networks, whose aims are to give specific services and systems support to international businesses. Businessman associations, for example, are nongovernmental organizations that form special units to assist international businesses. Some organizations are set up just for this purpose and assist especially newly starting businesses to conduct international

operations.

For-profit

companies

that

serve

international businesses are many in category. Some give 99

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services

as

some

others

give

individualized

operational support for international companies (Doole and Law, 2008).

9.4 External Environmental Factors

In business, external environmental factors are factors that are almost impossible to control but they offer opportunities for future growth. Starting from the initial consideration to go global to the much further stages of internationalization, external environmental factors have to be seriously studied and potential effects of these factors should be identified (Chung, 2008, 2009; Sousa & Bradley, 2008).

For example, in strategy selection, the probability of a firm to implement a more standardised or a more adapted international marketing strategy depends highly upon the environmental determinants. Especially in economic environments where social, cultural, political, legal, economic and technological forces are very similar, companies may prefer to use standardization approach in marketing operations. In dissimilar environments, it can be expected that companies may prefer adaptation approaches for their marketing mix implementations (Cavusgil et al., 1993; Jain, 1989; L. Lages & Jap, 2002).

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A number of previous studies discussed the role of environmental factors on international

marketing strategy selection and

implementation (Calantone et al., 2006; Cavusgil et al., 1993; Cavusgil & Zou, 1994; Chung, 2005; Chung, 2007; Jain, 1989; Lages & Montgomery, 2004; Leonidou et al., 2002; Sorenson & Wiechmann, 1975; Sousa & Bradley, 2008; Viswanathan & Dickson, 2007; Zou et al., 1997).

Precisely, previous studies have acknowledged that marketing environment factors such as political, legal, economic, marketing infrastructure, socio-cultural and consumer related characteristics are

key

factors

for

the

choice

of

marketing

standardisation/adaptation strategies (Akaah, 1991; Jain, 1989; O‘Cass & Julian, 2003; Theodosiou & Leonidou, 2003; Whitelock & Rey, 1998).

A brief discussion is provided on the major external environmental sources in the following section.

9.4.1 Socio-Cultural Factors

No matter whether a company is an experienced or an inexperienced company in international business, it has to take socio-cultural

factors

into

consideration

when

identifying

international marketing strategies. These factors directly affect the 101

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way a company conducts business in an international marketing environment. Social factors include all those shifts in population dynamics. Demographic characteristics of a population, age structures, generational differences, ethnic structures, education systems, population characteristics pertaining to age, household patterns and geographical shifts in the population are all part of social considerations in a country market. Companies need to be aware of the effects of their strategies on the consumers that usually share similar social characteristics. One simple example of a demographic effect is the global youth population, who shows similar consumption patterns all around the world due to the effects of internet technologies (O‘Cass & Julian, 2003).

Similarly, culture is another factor by itself that has profound impact on international marketing strategy selection and adaption (Keegan &Green, 2013). Culture is a shared value system that has deep roots in history of a population. Companies that aim to show presence in international arena have to understand well the lifestyles, values, perceptions of major cultures and subcultures in a country. Many international companies standardize or adopt their offerings according to the acceptance they get from their target markets. The case in point in this book is the markets surrounding BH, which share similar social characteristics with a lot of differences in cultural dynamics. Further discussion on this point is given in other sections of the book. 102

CHAPTER 9


9.4.2 Political Factors

Some of the main political effects in international marketing strategy selection include the governance systems, role of pressure groups, and organization and operation of public services. The political systems and the governance culture created in a market has a direct influence in international marketing strategy selection. In those countries (i.e. the ones in underdeveloped parts of the world), political structures create such a market environment that the market may be under immense control of certain interest groups. In these kinds of market environments companies will have difficulties to identify proper strategies. In such market environments, companies usually select direct or indirect exporting as an international marketing strategy (Keegan &Green, 2013).

9.4.3 Legal Factors

Legal concerns in international marketing strategy selection are laws, regulations, and other special rules of doing business identified by the governments and the government-supported units. Government laws and regulations may limit or may create opportunities for international companies for their strategy selections. Some country markets limit doing international business, for example, due to heavy tax burdens, whereas some other country markets may provide many opportunities for certain 103

CHAPTER 9


goods (i.e. due to special incentives) and direct investment (Chung, 2007).

9.4.4 Economic Factors

Economic factors of international business may be one of the most effective ones in strategy selection mostly due to the fact that these factors will identify the business potential in the international markets. Both macro and micro economic indicators are concerns for international businesses. Income distribution, savings, debt, credit availability are all economic concerns when entering into (or doing business in) an international market. Some of the markets may be economically ready to pay higher prices for adopted products whereas some others may not be ready to accept these modified products with higher prices (Sousa & Bradley, 2008).

9.4.5 Technological Factors

A final external environmental factor in international marketing is the effect of technology. Technology has an influence on every aspect of any business today. Both services and tangible products are shaped with high technology solutions that solve customer problems in a much efficient way. Technological readiness and adaptability of a country market is a factor that needs to be taken into consideration before strategy selection (Doole & Law, 2008). 104

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Countries like Japan, South Korea and England (just to name a few) house populations that are already familiar with latest technology solutions and consumers in these markets may be more easily reached and convinced for new products through online technologies. In such markets, for example, international companies can effectively use both adaptation and standardization strategies effectively based on the nature of product. Culture in every market is a major concern in standardization/adaptation strategy selection, however, technology by itself makes many things easier for international companies to do business in consideration with different marketing mix elements. For instance, for product strategies, technology may have an effect on offering the new benefits developed through new technologies. For pricing strategies, technology can make adaptation strategies easier due to the fast technological solutions used to modify prices according to the market conditions. For communication strategies, technology can ease conveying the messages through different channels of communication adapted or standardized for the markets. For distribution strategies, adapting distribution methods to the country conditions can be easier with current advanced distribution technologies.

Finally, service strategies of people, physical

evidence and process can be modified or standardized with the use of different technologies. For example, customer and support services can be standardized by using the same technologies in the

105

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new markets. Similarly, all physical set ups and procedures can be redesigned with new technologies (Keegan & Green, 2013).

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A CASE STUDY ON THE COMPANIES IN BOSNIA AND HERZEGOVINA

CHAPTER 10 A Case Study on the Companies in Bosnia and Herzegovina

T

his chapter will present a case study on companies in BH that have exporting operations in foreign countries. In the first part of this chapter, target population and sample of

companies will be presented. The aim of research with this case study is to gain information about managerial satisfaction with export performance as well as to understand the extent to which each element of marketing mix is standardized or adopted for these companies. Initial information was obtained by conducting indepth interviews with managers or persons in charge in exporting departments in the firms. Moreover, objective and subjective determinants of export performance were discussed and developed during interviews. Based on the helpful advices received from the interviewed export managers, it was decided that, profitability, sales growth, market share and other financial items were to be subjectively measured by the use of a satisfaction measurement 107

CHAPTER 10


scale in order to avoid high item non-response rates in quantitative part of data collection. After interviews, data were collected through survey methodology.

10.1 Target Population and Sample

The research population consisted of three hundred companies from BH (Federation and Serb Republic) that have the largest overall export share. According to Strategy for Export Growth 2012-2015, prepared by the Export Council of BH2 together with the Foreign Trade Chamber of BH3, 70% of overall export share is achieved by 100 companies. Thus, there are clear indications that only a small number of companies out of mentioned 100 companies is doing progressive export. In fact, many companies are passive opportunistic exporters and they rather have a business relationship with only one (or a few) supplier(s), instead of actively implementing the strategy of export growth. Following 2

The Export Council of Bosnia and Herzegovina is established by The Council of Ministers, and the main purpose of The Exporting Council is to serve as a forum of stakeholders involved in the export activities for harmonization of strategies and policies, and providing advice to The Government in terms of priorities. 3

The Foreign Trade Chamber is an independent, non-profit public legal association of business entities and business associations from the territory of Bosnia and Herzegovina, with functions aimed at development and improvement of economic relations between foreign countries and BH, including partnership and representing members' interests with the competent authorities of BH and appropriate associations abroad. The Ministry of Foreign Trade and Economic Relations and The Ministry of Foreign Affairs represent the key government actors at the state level for export related issues.

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this logic, 300 companies that have more than 90% of overall export share were selected as population for this case study research.

Business magazine (2014), in cooperation with TEC Agency for the Financial and Business Consulting and Services4, processed the publicly available data from Agency for Financial, IT and Mediation Services5 database called bon.ba6, and ranked 100 large, 100 medium and 100 small companies according to total income, net income, exports and investments. These lists of 100 large, 100 medium and 100 small companies were used as the population of companies for this case study. All 300 companies were included in the survey mailings. Therefore, no sampling method was used in the study.

According to European Commission definition (2005, p.12), large, medium and small companies are defined as follows:

1. A micro-enterprise is defined as an enterprise with less than 10 employees and with annual sales and/or total annual balance sheet not exceeding 2 million €.

4

TEC Agency for the Financial and Business Consulting and Services http://www.bon.ba/o-nama/ 5 Agency for Financial, IT and Mediation Services http://www.afip.ba/ 6 http://www.bon.ba/bon-ba/

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2. A small enterprise is defined as an enterprise with less than 50 employees and with total annual sales and/or total annual balance sheet not exceeding 10 million €.

3. Medium-sized companies are defined as companies with less than 250 employees, with annual sales not exceeding 50 million €, and with total annual balance sheet not exceeding 43 million €.

4. And finally, those companies that have 250 employees or more are considered as large companies.

10.2 Instrumentation and Measurement

Data collection instrument for this study was a four-page questionnaire. It consisted of seven parts and 46 questions in total (see the appendix). The first part of the questionnaire consisted of questions about the company (company name, ownership, year of establishment, place, number of employees, key foreign markets where the company has its operations etc.). Part 2 and Part 3 included questions about the industry (sector, technology intensity of the sector, etc.) and basic information about the type of products exported (industrial or consumer products). The fourth part of the questionnaire listed items measuring the extent to which marketing mix elements (7p‘s) were standardized or adopted in their foreign 110

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markets in comparison to the domestic market. This was the longest part of the questionnaire and it consisted of 29 questions. Part 5 consisted of questions related to the market environments (cultural environment, political, legal, economic, technology and competitive environment). The sixth part of the questionnaire measured satisfaction with export performance with seven questions about sales, profit, market share and overall export objectives. Final section included questions about demographics of respondents.

10.3 Development of Survey

The questionnaire used in this study was designed to capture relevant information on managerial satisfaction with export performance as well as the extent to which marketing mix elements were standardized or adopted. Deductive approach in scale development process was used for 4 P‘s (product, price, promotion, distribution), by drawing on the existing extended theoretical base, while the scale development process for three additional marketing mix elements (people, physical evidence, and process) was approached both deductively, and inductively, through exploratory research. Steps of scale development process were according to Netemeyer, Bearden, & Sharma's (2003) study.

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The first step of extended marketing mix scale development was: ―Defining the construct‘s domain‖. In this step, basic definition of the constructs were identified (Churchill Jr, 1979, p. 67). In the second step, ―Generating an initial item pool‖, there were two considerations: first, ―Identification of potential indicators in the literature‖ and the second, ―identification potential indicators through expert interviews‖.

Identification of Potential Indicators in the Literature. Considering literature review, a group of 22 items for extended marketing mix elements (people: 7 items; physical evidence: 8 items; process: 7 items) were extracted from different studies. The main aim of this stage was to use smaller number of items to eliminate monotony, costs, and response bias (Netemeyer et al., 2003, p. 57). Drolet & Morrison (2001, p. 201) claimed that ―an increase in the number of items encourages inappropriate response behaviour and gives rise to

positively

correlated

error

term

across

items

within

respondents‖.

Identifying Potential Indicators through Expert Interviews. To identify potential indicators of three additional P's from inductive perspective, interviews with different experts (5 managers of the companies and three experts from academia) were conducted. In this stage the number of items were reduced to 12 (people: 4 items, physical evidence: 4, and process: 4 items). In the last stage, scale 112

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was finalized together with other constructs of the study during the pilot study.

The seven marketing mix components were measured by using five point scale. The respondents had to indicate the extent to which marketing mix elements (product, price, promotion, place, people, physical evidence, and process) were standardized/adapted (―totally standardized‖ = 1; ―totally adapted‖ = 5) in the chosen export markets in comparison to their domestic market.

10.4 Product Strategy Standardization/Adaptation

There are many studies on product strategy standardization/ adaptation and most of the studies used same or slightly different items to measure the extent to which product element of marketing mix is standardized/adopted. The items used to measure product element

standardization/adaptation were retrieved and adapted

from Zou, Andrus, and Norvell (1997) and Chung, (2007). In Zou et al.'s study (1997), the questionnaire was developed inductively, through exploratory research. Process consisted of seven distinct stages and in the initial stage, a detailed list of variables was compiled based on the traditional marketing literature (Kotler & Armstrong, 1994; Pride & Ferrell, 1995) . The following items were used for product strategy standardization/adaptation in Zou et al.'s study: product core, number of product lines, product 113

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packaging design, product brand names, product features and product warranties. In Chung (2007), the research instrument was formulated based on the practices of past studies (e.g. those outlined

in

comprehensive

review

of

marketing

strategy

standardization literature in Theodosiou and Leonidou, 2003). Similar to those adopted in the prior research (Cavusgil et al., 1993; Jain, 1989; Sorenson & Wiechmann, 1975), Chung (2007) examined both the marketing programme and process elements in his research framework. In the current study, the items related to product element standardization/ adaptation such as characteristics of product, brand name of product, product packaging, product design and product positioning were used based on Chung‘s (2007) research. After the adaptation of items in the mentioned studies, the

following

items

were

used

in

product

element

standardization/adaptation section of the questionnaire for this study: product brand, product design, product packaging and product content.

10.5 Price Strategy Standardization/Adaptation

Price strategy standardization/adaptation was measured by using four items: discount policy, pricing methods, wholesale price of the product and finally retail price of the product. Many of the mentioned items were used in different studies (Bellur et al., 1985; Chung, 2008; Michell et al., 1998; Sousa, Lengler, & Martínez114

CHAPTER 10


López, 2013; Šuštar, 2007). In their review of 40 years‘ debate in international marketing strategy standardization, Theodosiou and Leonidou (2003) analysed 36 different studies where they summarized main findings and methodologies used in those studies. Theodosiou and Leonidou (2003, p.161) claimed that pricing strategy standardization or adaptation was centred on five major areas: (a) pricing methods/strategies, adopting a skimming or penetration strategy, depending on variations in market size, consumer sensitivity to prices, and competitors‘ actions or reactions across markets; (b) wholesale prices/margins, resulting from differences in the role of wholesalers in the distribution trade of a foreign country, as well as the mark-ups charged; (c) retail prices/margins, as a result of variations in size, type, and services provided by retail outlets abroad, which largely determine the retail margins charged; (d) the end user prices/margins, usually identified by the demand variations caused by the differences in customer numbers, purchasing power, and economic conditions; and finally, (e) sales/payment terms, as a result of variations in the company‘s entry mode, degree of involvement, and response to competitors in overseas markets.

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Summarizing and clarifying the Theodosiou and Leonidou (2003) review, Chung (2007) used four items to measure the extent to which price strategy is standardized/adapted in a foreign market compared to the domestic one. This study followed Chung (2007) in using mentioned items at the beginning of this section namely discount policy, pricing methods, wholesale price of the product and finally the retail price of the product.

10.6 Promotion Strategy Standardization/Adaptation

The

four

items

used

to

measure

promotion

strategy

standardization/adaptation in this study were promotion objectives (reach, frequency), promotion budget, media channels and advertising copy, which were retrieved and adopted from Zou, Andrus, and Norvell (1997) and Chung (2007).

10.7 Place Strategy Standardization/Adaptation

The extent to which place element of marketing mix was standardized or adapted by the participating companies was measured by the following three studies: Chung, 2007; Shoham, 1999, and 2003. These three studies also used ―Global marketing channels

and

the

standardization

controversy‖

study

by

Rosenbloom et al. (1997) as a base for their measurements. In Rosenbloom et al.'s (1997) study, findings showed that high 116

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standardization of export distribution strategy might be infeasible. This item (distribution strategy) was also used in the present study. The other three items such as distribution budget, distribution channels (direct, wholesale, retail, etc.) and types of retail outlets were also adopted from mentioned studies.

10.8 People Strategy Standardization/Adaptation

People strategy standardization/adaptation received almost no attention in the context of standardisation versus adaptation controversy. Therefore, reliable measures of this concept is still lacking in the literature. Doole & Lowe (2012) explained in their book that company personnel often respond differently in their attitudes to the speed of service, punctuality and other aspects of service in different countries mainly due to cultural differences. Thus, strategies in employee recruiting, trainings and motivation may differ from country to country. From this claim, employee recruiting, trainings and motivation were used as items in measuring people elements in this study.

Grönroos (2001, p. 24) pointed out that people element is composed of ―all human actors who play a part in service delivery, namely the firms‘ personnel and customers‖. According to Grönroos (2001, p. 24-25), ―how these people are recruited, trained and motivated (rewards, sales quotas, positive incentives), and 117

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their attitudes and behaviours, all influence the customers perceptions of the service‖.

Based on given literature, the items used in this study to measure the extent to which people strategies were standardized or adopted were as follows: employee recruiting strategies, employees trainings, employee motivation strategies (rewards, sales quotas, positive incentives) and finally leadership approach (sensitivity to culture, religion, beliefs, etc.).

10.9 Physical Evidence Strategy Standardization/Adaptation

In order to measure physical evidence strategy standardization/ adaptation, four items were used. These items were retrieved and adopted from the following traditional marketing literature (Buzzell, 1968; Czinkota, 2011; Dawar & Parker, 1994; Doole & Lowe, 2012; Grönroos, 2001; Kotler & Armstrong, 2010; Pride & Ferrell, 1995). According to Grönroos, (2001), the physical evidence includes all of the tangible representations of the services such as brochures, letterheads, business cards, report formats, signage and equipment. Also, together with these tangible representations, the physical facility (its design, layout, even the dress code within the facility) comprise the tangible representation of the service (Grönroos, 2001). Based on the literature, the following items were used to measure physical evidence strategy 118

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standardization/adaptation: facility design, facility layout, printed material design (reports, business cards…) and staff appearance (dress code).

10.10 Process Strategy Standardization/Adaptation

In order to measure the process strategy standardization/ adaptation, four items were used. Process element of marketing mix received more attention from many researchers (Akaah, 1991; Baalbaki & Malhotra, 1995; Cavusgil & Zou, 1994; Griffith et al., 2000; Harvey, 1993; Jain, 1989; O‘Donnell & Jeong, 2000; Ozsomer et al., 1991; Schuh, 2000; Wang, 1996).

Items used previously and in this study to measure process standardization/adaptation included planning process, control system, operating procedures and mechanisms and the flow of activities from production to sales. Most of these items were adopted from Grönroos (2001) who defined process as ―the actual procedures, mechanisms and flow of activities by which service is delivered – the service delivery and operating systems‖ (p. 24). Moreover marketing planning process item was retrieved from Chung (2001) who used the same item plus two additional items to measure international marketing standardization.

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10.11 Satisfaction with Export Performance

Managerial satisfaction with export performance was measured based on subjective evaluations of performance. Objective measures of export performance could not be used since interviews with the practitioners revealed negative interest of the respondents when they were asked to provide financial information regarding export performance in their companies. Therefore, based on the practical advice received from the export managers interviewed, it was decided to use subjective satisfaction measures.

Selected items that were included in the measurement of satisfaction with export performance were derived from several scales of prior studies (Dhanaraj & Beamish, 2003; Lages & Mongomery, 2004; Shoham, 1998; 1999; Zou, Taylor, & Osland, 1998). Five-point scale (―very unsatisfied‖ = 1; ―very satisfied‖ = 5) was used to measure satisfaction. More precisely, respondents were asked to self-evaluate their satisfaction with the following items: growth of overseas sales in the main markets, growth of overseas sales in total, market share in the main markets, total growth of market share overseas, results in the main markets as compared to the main competitors, overall achievement of the export objectives, and overall export profitability.

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10.12 Descriptive Results

In order to replace missing values before the analysis of scale items, a missing value analysis was conducted. In Table 10.1 we can see that out of 155 cases, one variable had 15 and another variable had 7 missing cases, as the rest had 4 or a fewer number of missing cases. In other words, all variables had around 2% or fewer number of missing cases. These missing cases were replaced with Expectation Maximization (EM) Technique. Expectation Maximization (EM) results showed that missing data were randomly distributed (Sig. = .975).

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TABLE 10.1 Univariate Statistics N Mean

Product Type Product Brand Product Design Product Packaging Product Content Price Discounts Pricing Methods Wholesale Price Retail Price Promotion Objectives Promotion Budget Promotion Media Channels Advertising Theme Advertising Copy Distribution Strategy Distribution Budget Distribution Channels Distribution Outlets People Recruiting People Training People Motivation People Leadership Approach Facility Design Printed Material Design Facility Layout Staff Appearance Marketing Planning Process

155 153 153 151 152 155 154 148 140 153 151

2.23 2.22 2.39 2.44 2.22 3.17 3.05 3.25 3.31 3.11 3.25

Std. Missing No. of Deviatio Extremes n Count Percent Low High .788 0 .0 0 0 1.446 2 1.3 0 0 1.470 2 1.3 0 0 1.393 4 2.6 0 0 1.428 3 1.9 0 0 1.410 0 .0 0 0 1.432 1 .6 0 0 1.404 7 4.5 0 0 1.429 15 9.7 0 0 1.379 2 1.3 0 0 1.460 4 2.6 0 0

151 3.17

1.407

4

2.6

0

0

152 152 154 152 151 152 154 153 153

2.88 3.03 2.86 3.07 3.06 3.05 2.64 2.50 2.49

1.437 1.416 1.526 1.427 1.475 1.489 1.436 1.377 1.424

3 3 1 3 4 3 1 2 2

1.9 1.9 .6 1.9 2.6 1.9 .6 1.3 1.3

0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0

152 2.61

1.396

3

1.9

0

0

153 152 151 153

2.44 2.12 2.28 2.27

1.332 1.297 1.267 1.348

2 3 4 2

1.3 1.9 2.6 1.3

0 0 0 0

0 0 0 0

151 2.66

1.410

4

2.6

0

0

122

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Control System Operating Procedures Mechanisms and Activities Flow Cultural Environment Political Environment Legal Environment Economic Environment Technological Environment Competitive Environment Sales growth in main international markets Sales growth in all international markets Market share in main markets Total market share growth in all international markets Overall results in main markets in compering to main competitors Overall export objectives Overall Profitability Gender Education Position Department Years working in the firm Experience Knowledge about International Marketing

153 2.21 151 2.27

1.321 1.341

2 4

1.3 2.6

0 0

0 0

150 2.28

1.337

5

3.2

0

0

154 153 153 153

3.64 4.01 3.78 4.05

1.303 1.219 1.287 1.146

1 2 2 2

.6 1.3 1.3 1.3

0 24 0 22

0 0 0 0

152 3.68

1.268

3

1.9

0

0

153 3.67

1.256

2

1.3

0

0

155 3.68

1.156

0

.0

11

0

154 3.53

1.092

1

.6

11

0

153 3.37

1.196

2

1.3

16

0

153 3.29

1.139

2

1.3

14

0

153 3.42

1.068

2

1.3

9

0

154 155 155 155 155 155

3.49 3.61 1.28 2.97 2.16 2.68

1.156 1.009 .449 .629 1.102 1.805

1 0 0 0 0 0

.6 .0 .0 .0 .0 .0

14 6 0 . 0 0

0 0 0 . 0 0

155 11.04

8.352

0

.0

0

4

155 14.23

9.582

0

.0

0

0

154 3.38

.871

1

.6

5

0

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Knowledge about main International Markets

155 3.71

.822

0

.0

2

0

a. Number of cases outside the range (Q1 – 1.5*IQR, Q3 + 1.5*IQR). b. Indicates that the inter-quartile range (IQR) is zero. Little‘s MCAR test: Chi-Square = 2090.937, DF = 2220, Sig. = .975

Overall, results in the table show that price and environment related items show some degree of adaptation while others show some degree of standardization.

10.13 Sample Characteristics

Three hundred questionnaires were posted and addressed to the decision makers in charge of the export activity (Director or owner of the company for small and medium enterprises), together with recommendation letter from Foreign Trade Chamber of BH. After three phases of contacting the companies in the period of nine months, a total 155 surveys were obtained, and all of them were used in the study, representing 51.6% response rate. In the following tables, company and industry profiles are presented.

TABLE 10.2 Ownership Ownership Private Government Private and government Total

Frequency 144 7 4 155 124

Percent 92.9 4.5 2.6 100.0

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In Table 10.2 we can see that majority of companies in the study were private companies, representing 92.9 % of the sample. The small number of companies was representing government or shared (government and private) ownership with 4.5 % and 2.6 %.

TABLE 10.3 Year of Establishment Years Range

Frequency

Percent

Valid Percent

1880 - 1990

42

27.1

27.1

1991 - 2000

71

45.8

45.8

2001 - 2010

34

21.9

21.9

2011 - 2015

8

5.2

5.2

Total

155

100.0

100.0

In Table 10.3, it can be seen that one half of the companies were established in the period between 1991 and 2000 (45.8 %) while 27.1 % and 21.9 % of the companies were established in the periods between 1880 and 1990, and 2001 and 2010. Only 8 companies, representing 5.2 % were established in the recent period from 2011 to 2015. In Table 10.4, the sample companies‘ main industry sectors are presented

according

to

the

Statistical

Agency

of

FBH

classification. We can see that 21 different industry sectors were covered and majority of companies are representing manufacturing industry sector with 30 companies from metal, 36 from both wood 125

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and furniture and 17 from food products, beverages and tobacco manufacturing sector. TABLE 10.4 Industry Sector Code

Industry sector

Freq.

%

DJ

Manufacturing (metal)

30

3.9

DD

Manufacturing (wood)

18

.6

DN

Manufacturing (furniture)

18

11.0

DA

Manufacture (food products, beverages and tobacco)

17

5.2

F

Construction

10

3.2

DB

Manufacturing (textile)

8

11.6

G

Trade

8

.6

A

Agriculture

6

2.6

DH

Manufacturing of rubber and plastic

6

.6

I

Transport, storage and communication

6

3.9

DC

Manufacturing (leather)

5

.6

DG

Manufacture of chemicals, chemical products and artificial fibres

5

1.9

DM

Manufacturing (automotive industry)

4

19.4

4

1.3

3

1.3

2

2.6

E DI DK

Production and supply of electric energy, gas and water Manufacturing (of other non-metallic minerals) Manufacturing of machinery and equipment, 126

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DL

Manufacture of electrical and optical equipment

2

11.7

C

Mining and Quarrying

1

2.6

DF

Manufacturing of coke, petroleum and nuclear fuel

1

6.5

DI

Manufacturing (glass)

1

3.9

155

100.0

Total

Table 10.5 summarizes the cities where the companies are located. We can see that majority of companies are from Sarajevo (14.8 % or 23). Altogether, 155 sample companies are located in 68 cities of BH.

TABLE 10.5 Company locations No 1 2 3 4 5 6 7 8 9 10 11 12 13

City Sarajevo Visoko Tesanj Gracanica Tuzla Ilijas Zenica Banja Luka Posusje Travnik BHac Gorazde Gradacac

Frq. % No. City Frq. % 23 14.8 35 Bosanska Krupa 1 0.6 8 5.2 36 Breza 1 0.6 7 4.5 37 Brijesnica Velika 1 0.6 6 3.9 38 Cazin 1 0.6 6 3.9 39 Donji Vakuf 1 0.6 5 3.2 40 Drvar 1 0.6 5 3.2 41 Garesnica 1 0.6 4 2.6 42 Grude 1 0.6 4 2.6 43 Ilidza 1 0.6 4 2.6 44 Jablanica 1 0.6 3 1.9 45 Jelah 1 0.6 3 1.9 46 Kiseljak 1 0.6 3 1.9 47 Kljuc 1 0.6

127

CHAPTER 10 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33


Jajce Zavidovici Bosanski Petrovac Bugojno Gornji Vakuf Hadzici Kakanj Konjic Kresevo Laktasi Livno Mostar Odzak Orasje Prijedor Siroki Brijeg Velika Kladusa Vlasenica Banovici Bijeljina

Total

3 3

1.9 1.9

48 49

Kotor Varos Kupres

1 1

0.6 0.6

2

1.3

50

Ljubuski

1

0.6

2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 1 1

1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 0.6 0.6

51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68

Lukavac Modrica Novi Travnik Olovo Pale Paoca-Citluk Petrovo Prnjavor Samac Sanski Most Sarajevo.Hadzici Srebrenik Trebinje Trn Laktasi Varazdin Vitez Vlakovo Zvornik

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6

155

155 companies export to more than 40 countries all around the globe (see Table 10.6).

In Figure 10.1 top ten countries where sample companies conduct international operations are presented. Almost all of the companies from this study export to Croatia, Serbia, Germany, and Slovenia. 128

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We can see from the table and the figure that companies from BH mostly export to neighbouring countries such as Croatia, Serbia, Montenegro and Slovenia as well as to some countries of Europe such as Germany, Austria and Italy. Also Switzerland, Turkey and Macedonia play important role in BH export.

Figure 10.11 Top 10 Exporting Countries

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TABLE 10.6 Countries in which Companies Export Exporting Countries

Number of Exporting Companies Countries

Number of Companies

Croatia Serbia Germany Slovenia Austria Montenegro Italy Turkey Switzerland Macedonia Netherland Hungary Romania Poland Bulgaria France Greece Sweden Libya UAE Denmark Spain

105 96 93 93 80 76 67 43 42 41 29 28 26 24 23 15 14 13 12 11 10 10

10 10 10 8 8 7 6 6 6 6 6 6 5 5 5 5 4 4 4 3 2 2

Malaysia China SAD Japan England Kosovo Argentina Qatar Portugal Belgium Iran Check Republic Vietnam Israel Uruguay Singapore Chile Egypt Byelorussia Kazakhstan Ecuador Caribbean

As stated above, 300 companies were targeted with the first mailing, equally distributed as 100 small, 100 medium and 100 large size companies. Final survey sample was comprised of 126

130

CHAPTER 10


small and medium size companies (81.2%) and 29 large companies (18.7 %) (Table 10.7).

TABLE 10.7 Firm Size Number of Employees 250 - 5000 50 – 249 1 – 49 Total

Frequency Percent Valid Percent Cumulative Percent 29 18.7 18.7 18.7 63 40.6 40.6 59.4 63 40.6 40.6 100.0 155 100.0 100.0

In Table 10.8, the number of people employed in international business related divisions (exporting, sales, promotion etc.) of the sample companies are presented. 42.6 % of companies have 1 to 3 employees in international business related divisions, 43 and 17 companies have 4 to 6 and 7 to 9 employees in international business related divisions, while 29 companies employ more than 10 people in international business related divisions.

TABLE 10.8 Number of People Employed in International Business Related Divisions (Exporting, Sales, Promotion Etc.) Number of employees 1-3 4-6 7-9 10Total

Frequency 66 43 17 29 155

131

Percent 42.6 27.7 11.0 18.7 100.0

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From Table 10.9, it can be concluded that companies are very well experienced in foreign operations. Majority of the companies are present in the foreign markets more than 10 years.

TABLE 10.9 Number of Years Firms Have Been Operating in International Markets Frequency 18 18 24 95 155

Years 1-3 4-6 7-9 10Total

Percent 11.6 11.6 15.5 61.3 100.0

Table 10.10 shows technology dependence levels of sample companies. We can see that vast majority of the companies are technology dependent (mean=4.1) and they are operating in high technology dependent industries.

TABLE 10.10 Technology Dependence N Minimum Maximum Mean Technology dependence

155

1

132

5

4.10

Std. Deviation .920

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10.14 Descriptive Statistics for the Measurement Items of Standardization/Adaptation Perceptions

In measuring satisfaction with export performance, seven items were used. All items were measured on a five point scale, where 1 represented ―very unsatisfied‖ and 5 represented ―very satisfied‖. These items are: growth of the overseas sales in the main markets, overall export profitability, growth of the overseas sales in total, overall achievement of the export objectives, results in the main markets as compared to the main competitors, market share in the main markets, and total growth of market share overseas.

Table 10.11 summarizes means and standard deviations as well as one - sample t test of satisfaction items. Considering responses on these items, we can say that respondents were reasonably satisfied with their export activities, mostly with the growth of the overseas sales in the main markets and overall export profitability.

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TABLE 10.11 Satisfaction with Export Performance Satisfaction with Export Performance Growth of the Overseas Sales in the Main Markets

N

Min Max Mean

Std. Dev.

t

p

155

1

5

3.68 1.15 7.29 .00

Overall Export Profitability 155

1

5

3.61 1.00 7.56 .00

155

1

5

3.52 1.09 5.95 .00

155

1

5

3.48 1.15 5.22 0.00

155

1

5

3.44 1.07 5.07 0.00

155

1

5

3.37 1.19 3.89 .00

155

1

5

3.29 1.13 3.13 0.00

Growth of the Overseas Sales in Total Overall Achievement of the Export Objectives Results in the Main Markets as Compared to the Main Competitors Market Share in the Main Markets Total Growth of Market Share Overseas

Table 10.12 summarizes the means and one sample t-test results based on 7Ps standardization/adaptation perceptions. To conduct this analysis, index values were created with mean values of the items that make up related 7P dimensions and one sample t tests were run to analyse mean differences between the scale midpoints. As shown in the table, product, people, physical evidence and process elements are reasonable standardized (p