International Marketing

1.Introduction

This paper focuses on how Safe & Healthy Company (S&H) enters the foreign market, with a particular concentration on environment analysis and market entry methods. It considers the comparable environment of 5 foreign markets, such as South Korea, Japan, Malaysia, Saudi Arabia and Turkey and the factors affecting entry method selection.

 

Now, S&H Company is based in Shanghai. It is a medium-sized food company with producing, packaging and distribution of own label milk powder to major Chinese food market. The major product is baby milk powder. Recently, changes in the competitive environment of the retail sector are expected to reduce prices in the major market areas. S&H has forecasted that it will lead to reduce profits in the short-medium term (up to five years).

 

Facing the serious situation, S&H plans to expand its business abroad to survive and develop. And S&H wishes to continue supplying own label products in the foreign market. Due to limited resources of S&H, it wishes to select one country from South Korea, Japan, Malaysia, Saudi Arabia and Turkey to expand its existing business without any radical change of current operations.

 

So, it is very important thing to S&H that it should select which country and which entry method. The following content is about economic, socio-cultural, political-legal and technology analysis on these fie countries. After comparing, S&H will select one country and discuss market entry method and the reasons of making decisions.

2.Environmental Analysis

The first task is to analyze environmental analysis before an enterprise decides to enter a foreign market. S&H Company will analyze four aspects, which are economic, technology, socio-cultural and political-legal environments to select which is the best foreign country to enter from Malaysia, Japan, South Korea, Turkey and Saudi Arabia.

2.1 Economic Analysis

To international marketers, they face the traditional task of economic analysis for foreign market, which they plan to enter. They can know main problems: first, how big is the baby milk powder market? Second, what is the baby milk powder market like? The results of the analysis can help international marketers to know the potential market and measure the feasibilities of the marketing task.

 

Now, S&H Company will analyze the size of five country’s markets and economy through population information and some standards. (See Table 1)

 

Table 1
Population Information
	Malaysia	Japan	South Korea	Turkey	Saudi Arabia
Population growth rate (2002)	1.91%	0.15%	0.85%	1.20%	3.27%
Birth rate (births/1,000 population) (2002)	24.22	10.03	14.55	17.95	37.25
Infant mortality rate (deaths/1,000 live births)	19.66	3.84	7.58	45.77	49.59
Total fertility (children born/woman) (2002)	3.18	1.42	1.72	2.07	6.15
Source: Geographyiq.com, 2004

 

This diagram unfolds a clear comparison between Malaysia, Japan, South Korea, Turkey and Saudi Arabia as a whole in four aspects, namely, population growth rate, birth rate, infant mortality rate and total fertility in 2002.

Although the birth rate of Saudi Arabia is the highest among five countries, its infant mortality rate is also the highest. The data is respectively 37.25 and 49.59. It shows Saudi Arabia isn’t a steady baby milk powder. Similarly, the infant mortality rate of Turkey is 45.77, but its birthrate is less two times than its infant mortality rate. So the market is not stable. The marketer even feels there is not a big market in Turkey. In contrast, the birthrates of Malaysia, Japan and South Korea are very low but the birthrates are sharply higher than their infant mortality rate, especially Japan and South Korea. In addition, the fertilities of Malaysia, Japan and South Korea are higher than Turkey and Saudi Arabia. These indicate that there are big and stable sizes of baby milk powder markets in Malaysia, Japan and South Korea.

 

The following standards can indicate the economy situation. (See Table 2)

Table 2
Economy Information
	Malaysia	Japan	South Korea	Turkey	Saudi Arabia
GDP-per capita (purchasing power parity) (2002)	$8,800	$28,700	$19,600	$7,300	$11,400
Unemployment rate (2002)	3.80%	5.40%	3.10%	10.80%	25%
Import-partners: China	7.30%	18.30%	11.40%	NA	NA
Import (billion f.o.b.)(2002)	$76.80	$292.10	$148.40	$50.80	$39.50
Household income or consumption by percentage share (Highest)	10%: 38.4%	10%: 21.7%	10%: 24.8%	10%: 32.3%	10%: NA
Source: Geographyiq.com, 2004

 

Indicators of economic conditions in five countries, in 2002, reflect the great differences that exist between wealthier and poorer nations. The purchasing power of Japan, South Korea and Saudi Arabia is stronger than that of Malaysia and Turkey. Of course, pricing and product types will affect purchasing power. And unemployment rate can indicate their expenditure level. Although household income or consumption of Japan and South Korea is not very higher than other three countries, their unemployment rates are lower than others.

On the other hand, China isn’t a main import partner for Turkey and Saudi Arabia. So Chinese companies aren’t familiar with import and trade condition of them. Contrarily, China is a main import partner for others, especially Japan and South Korea. Their trading relationships with China are closer than others. It is beneficial to export for Chinese companies.

Final evaluation about economic environment of five countries (See Table 3)

Table 3
Evaluation Economic Environment
	Very good	Good	Medium	Poor	Very poor
Malaysia			√
Japan		√
South Korea		√
Turkey					√
Saudi Arabia				√

 

2.2Technology Analysis

Good basic infrastructures will directly affect company’s distribution in the foreign market. One aspect is the economic infrastructure is, transportation and communications. Good infrastructures are beneficial to transportation. In addition, perfect TV net, Internet and Radio net are helpful to send product information to customers and provide promotion information in time. (See Table 4)

 

 

 

 

 

 

 

 

 

 

 

Table 4
Infrastructure (Communication & Transportation)
	Malaysia	Japan	South Korea	Turkey	Saudi Arabia
Telephones-main lines in use (million)	4.6	60.381	24	19.5	3.9
Telephones-mobile cellular (million)	5	63.88	28	17.1	2.9
Radios (million)	10.9	120.5	47.5	11.3	6.25
Televisions (million)	10.8	86.5	15.9	20.9	5.1
Internet users (million)	5.7	56	25.6	2.5	1.453
Internet service providers (ISPs)	7	73	11	50	22
Waterways (km)	7,296	1,770	1,609	1,200	NA
Airports	114	172	102	120	209
Ports & Harbors	19	21	10	9	11
Railways total (km)	2,418	23,168	3,125	8,607	1,392
Highways (paved) (km)	49,935	534,471	64,808	131,226	45,592
Source: Geographyiq.com, 2004

 

Firstly, Telephone coverage in Japan and South Korea is wider than other three countries. The number of Internet, Radio and TV user in Japan and South Korea are more than other three countries. If the company enters Japan and South Korea, it is easily to communicate with local customers and send product information. It is helpful to promote and distribute. The table shows the qualities of airport and port in South Korea are not the largest among five countries. As a whole, the resources of these aspects are balance. Malaysia is same to South Korea. Although the qualities of airport and port in Turkey and Saudi Arabia are comparatively large, the transportation of milk powder is not suitable to use plane. Waterway is better than other ways. Japan and South Korea is closer to China than Turkey and Saudi Arabia, so the expenditure of transportation is low. It is important to transport milk powder in internal country after entering the market. Combined with these factors, the transportation resources of Japan and South Korea are beneficial to S&H. 

Final evaluation about technology environment of five countries (See Table 5)

Table 5
Evaluation Technology Environment
	Very good	Good	Medium	Poor	Very poor
Malaysia				√
Japan	√
South Korea		√
Turkey			√
Saudi Arabia					√

 

2.3 Socio-cultural Analysis

Terpstra, V. and Sarathy, R mention (2000, p90) that only in recent years, have socio-cultural influences been identified as determinants of marketing behavior, revealing marketing as a cultural as well as economic phenomenon.

 

Firstly, literacy can affect a firm to communicate with local customers. (See Figure 1)

 

Figure 1

Generally speaking, the opportunity of buying baby milk powder by mother is more than by father. So the literacy of mother will affect the firm’s marketing activities. If consumers are largely illiterate, advertising programs and package labels need to be adapted.

 

The figure displays the literacy of male and female in Japan and South Korea are stronger than other three countries. The literacy of female in Saudi Arabia and Turkey is relatively low. If the company exports milk powder to Turkey, Malaysia and Saudi Arabia, it should use easy words as advertisement. Otherwise, it will bring sales difficulties. Contrarily, entering Japan and South Korea is helpful to promote and distribute.

 

In addition, ethnic group and language will have great effect on promotion in foreign market. (See Table 6)

Table 6
Socio-cultural Information
	Malaysia	Japan	South Korea	Turkey	Saudi Arabia
Ethnic groups	Malay and other indigenous 58%(A)	Japanese 99%(B)	Homogeneous (C)	Turkish 80%, Kurdish 20% (estimated)	Arab 90%, Afro-Asian 10%
Languages	Bahasa Melayu (official), English, Chinese dialects	Japanese	Korean (D)	Turkish (official), Kurdish, Arabic, Armenian, Greek	Arabic
Note:
(A)Chinese 24%, Indian 8%, others 10%
(B)Others: 1% (Korean 511,262, Chinese 244,241, Brazilian 182,232, Filipino 89,851, other 237,914)
(C)Except for about 20,000 Chinese
(D)English widely taught in junior high and high school
Source: Geographyiq.com, 2004

 

Firstly, there is a single ethnic group in Japan and South Korea, but there are various ethnic groups in other three countries, especially Malaysia. The company should only consider single culture if entering Japan or South Korea and aren’t afraid to have a loss due to various cultures and taboo. Secondly, Chinese companies are not familiar with Arabic culture because of less culture communication and there are many languages in Turkey. It will have barriers to company’s promotion. Compared to Turkey and Saudi Arabia, in fact, China has more chances to communicate with Japan and South Korea because of their short distance. They only use single language, which are respectively Japanese and Korean. In addition, in South Korea, English widely taught in junior high and high school. And people even use Chinese, it is helpful to promote for the company. If the company uses English to send their product information in Japan, South Korea and Malaysia, it doesn’t bring tremendous language barriers.

Final evaluation about socio-cultural environment of five countries (See Table 7)

Table 7
Evaluation Socio-cultural Environment
	Very good	Good	Medium	Poor	Very poor
Malaysia			√
Japan		√
South Korea		√
Turkey			√
Saudi Arabia					√

 

2.4 Political-legal Analysis

The process and expenditure of import product inspection are complicated and expensive in Japan. It doesn’t waste much time on registering process in South Korea. And the polities about import of Saudi Arabia are strict. The regulation about milk powder is that the foreign company must get special license from government department. (My.mofvom.gov.cn, 2004) In addition, Japanese government strictly controls import and discrimination. The law and regulation of Turkey are not healthiness and there is serious protectionism. And the society isn’t safe in Turkey. There are no quota requirements and tariff barriers in Saudi Arabia.

 

Final evaluation about political-legal environment of five countries (See Table 8)

Table 8
Evaluation Political-legal Environment
	Very good	Good	Medium	Poor	Very poor
Malaysia			√
Japan				√
South Korea	√
Turkey					√
Saudi Arabia		√

 

3. Selection Country

According to above analysis, S&H selects South Korea as foreign market through measuring the following standards. (See Figure 2)

 

	Market Attraction
		High	Middle	Low
Competition Advantage	High				Low	Risk
	Middle	South Korea
	Low	Japan	Malaysia
	High				High
	Middle
	Low		Saudi Arabia	Turkey

Figure 2

 

According to figure 2, there are three main indicatiors, which may influence on S&H entry strategy, including competition advantage, market attraction and risk. It is obvious that South Korea with middle competition advantage, high market attraction and low risk is the best choice. And the rest four countries have more or less disadvantages. In contrast to South Korea, Japan is in all square, however, the relative laws are very strict in particular to China. And there is serious discrimination, especially to China. Hence, the first choice for S&H is South Korea.

 

4. Selection “Produce at home” or “Produce overseas”

When the company determines to produce at home or produce overseas, in fact, the company is to select the entry method between Export and Foreign Direct Investment. S&H Company should select export, namely, producing at home. There are some reasons in the following.

 

The main advantages of export is that the company can gain extra income and profit through putting its precuts into more markets. It is particularly important to a company, which has a little market share in the home market because of facing the competitive price and quality of imports. If it directly sells its product to the foreign market, the company can highly control researching, designing and making decision about key technology and facilitate the development of new product. In addition, export can help the company manufacture scales at home or continue use of production resource at home even though its key customers are overseas.

 

Compared to export, foreign direct Investment has some advantages. First, if the company adopt wholly owned foreign production, it owns whole manufacturing equipment and 100% ownership will provide it full freedom. And it indicates that the company will get 100% profits. Second, it is a good chance to select the best location of factory according to maintenance of the basic infrastructures, tax policy and local regulations. (Meidenbaum M. & S.James H., 2000) Its obvious disadvantage is that the company needs large capital to produce overseas.

 

Although export has some disadvantages, such that it is mainly that the company must deal with diverse barriers when they enter the foreign market, such as tariff and quotas. But capital is a big problem to a medium-sized company. The limited capital and production capacity restrict the probability of producing overseas because S&H is a medium-sized company. If it produces at home, then exports to foreign country, the method is more feasible than producing overseas. So producing overseas is not suitable for S&H Company.

 

5. Selection Market Entry Method

If S&H selects Export Management Company, it is better than other indirect export methods, such as piggyback.

Terpstra, V. and Sarathy, R mention (2000, p380) the company will get the potential advantages of using an EMC:

l        The producer gains instant foreign-market knowledge and contacts through the operations and experience of the EMC.

l        The manufacturer is spared the burden of developing in-house expertise in exporting, a significant cost saving, because the EMC’s costs are spread over the sales of several manufacturers.

l        Consolidated shipments offer freight savings to the EMC’s client.

l        A line of complementary products can get better foreign representation than the products of just one manufacturer.

 

Although the benefits of Piggyback are similar to those offered by the EMC. S&H Company must to know as Terpstra, V. and Sarathy, R mention (2000, p385) mentioned how meets the needs of geographic diversification and market coverage, economies of scale in exporting, testing foreign markets, and learning international marketing if S&H company uses Piggyback. In fact, S&H Company doesn’t have enough abilities to accomplish these tasks according to its background and present status. So Piggyback is not suitable to S&H Company.

6. Details about EMC

After the company has determined to use EMC to enter the market, it should consider the following factors to select EMC to cooperate with it in Shanghai.

 

l        Whether the EMC has long export experience or not?

l        What is size of EMC?

l        Does EMC have a good reputation in the foreign market?

l        How to reduce the container cost? Etc.

 

According to these factors, S&H select Shanghai Foodstuffs Import and Export Corp (Refer to Appendix) to cooperate with it enter South Korea. 

 

7. Distribution

S&H Company accepts foreign distribution offered to it by Shanghai Foodstuffs Import and Export Corp.

8. Conclusion

Every country has their advantages and disadvantages through analyzing four environments. And there isn’t a perfect country in the world. After measuring several factors, as a whole, South Korea is more attractive to enter for S&H than others. Although Japan is better than South Korea in some aspects, there is serious discrimination, especially to China. S&H adopts EMC to export into South Korea, and it accords with company real background. So S&H selects South Korea.