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International Marketing

attractiveness are: high market growth potential, low
political risk, favorable attitudes to foreign investment, Five international product and promotion strategies
and favorable competitive environment. Once a final Product
decision is made about a country to enter, companies have
Do not change Adapt Develop new
several entry options. The entry modes are classified into product product product
export, contractual, and investment entry modes. Do not change Straight Product
Promotion promotion extension adaptation Product
Exporting. The export entry mode is either indirect or Adapt Communication Dual invention
direct. With indirect exporting a company may use promotion adaptation adaptation
domestic or international intermediaries, such as domes-
tic-based export merchants or agents, trading companies,
brokers, local wholesalers, and retailers. Indirect exporting Table 1
is perhaps the lowest risk type of international marketing.
The main drawback of indirect marketing, especially
through domestic-based export merchants, is that the entry strategy involves setting up a production subsidiary
company relinquishes most of its international marketing in a foreign country. Joint ventures involve a joint-owner-
activities to the merchants. Companies eventually may ship arrangement between a U.S. company, for example,
decide to handle their own export activities. and one in the host country to produce and market goods
With direct exporting a company also has several in a foreign market.
options. For example, it may establish a domestic-based The ultimate form of international involvement is
export department or division to handle export activities. direct ownership of foreign-based assembly or manufac-
The company may also establish an overseas sales branch. turing facilities. If a company wants full control (and prof-
Finally, the company may use foreign-based distributors its), it may choose this mode of entry. Companies new to
who buy and sell the goods on behalf of the company. In
international operations would be well advised to avoid
direct exporting, the investment level and risk factors are
this scale of participation because direct investment entails
somewhat greater, but so is the potential return.
the highest risk. Among potential risks a firm may face are
currency devaluation, worsening markets, or expropria-
Contractual Entry. Contractual entry modes include tion.
licensing, turnkey construction contracts, and manage-
ment contracts. Foreign licensing is a simple way of get-
ting involved in international marketing. In licensing ADAPTATION STRATEGIES
arrangements, a firm offers the right to use its intangible Once a decision for a market entry mode has been made,
assets (manufacturing process, trade secrets, patents, com- a firm must decide how much, if any, to adapt its market-
pany name, trademarks, or other items of value) to a ing mix—product, promotion, price, and distribution—
licensee in exchange for royalties or some other form of to a foreign market. Warren J. Keegan (1995)
payment. The licensor gains entry at little risk; the distinguished five adaptation strategies of product and
licensee gains production expertise or a well-known prod- communication to a foreign market (see Table 1). These
uct or brand name. The major drawbacks of licensing are: strategies are discussed briefly below.
(1) it is less flexible than exporting; (2) the firm has less
control over a licensee than over its own exporting or Straight Extension. In straight extension the same prod-
manufacturing abroad; and (3) if sales are higher than uct is marketed to all countries (a “world” product),
expected, the licensor’s profits are limited by the licensing except for labeling and language used in the product man-
agreement. uals. The assumption behind this strategy is that con-
A turnkey construction contract is a mode of entry sumer needs are essentially the same across national
that requires that the contractor make the project opera- boundaries. Straight extension can be successful when
tional before releasing it to the owner. Management con- products are not culture sensitive and economies of scale
tracts give a company the right to manage the day-to-day are present. The Philip Morris USA tobacco company
operations of a local company. Here the domestic firm used this strategy successfully with its Marlboro brand cig-
supplies the management know-how to a foreign com- arette. The strategy has also been successful with cameras,
pany that supplies the capital. consumer electronics, and many machine tools.

Investment Entry. Investment entry modes include sole Product Modification. A product modification strategy
ownership and joint ventures. Sole ownership investment keeps the physical product essentially the same; modifica-

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 417