2008

International
Marketing
Profit Based Distribution Centres
Case studies on leading bike Manufacturer in India

Vijay R. I Mohan
University of Aberdeen
1/6/2008
Contents
Introduction .................................................................................................................................................. 3
Export: ........................................................................................................................................................... 5
Sales Representatives/Agents:...................................................................................................................... 5
Distributors: .............................................................................................................................................. 5
Foreign Government Buying Agents: ........................................................................................................ 6
Retail Sales: ........................................................................................................................................... 6
Direct Sales to End-Users: ..................................................................................................................... 6
Piggybacking and Counter-trade:.......................................................................................................... 6
Foreign production ................................................................................................................................... 7
Licensing.................................................................................................................................................... 7
Joint ventures............................................................................................................................................ 8
Influences on pricing ............................................................................................................................. 9
Pricing Approaches and strategy .............................................................................................................. 9
• Export Pricing ..................................................................................................................................... 9
• Transfer Pricing – ................................................................................................................................ 9
Standardization versus adaptation ............................................................................................................. 10
Advantages of Standardization ............................................................................................................... 10
International uniformity ..................................................................................................................... 10
Disadvantages of Standardization .......................................................................................................... 10
Advertising in European Marketing ............................................................................................................ 11
REFERENCES: ............................................................................................................................................... 12
Introduction
According to Cunningham (1986), the basic strategies that could be used by firms to enter

a promising new international market revolves around four factors. Primarily, the firm

could use the technical innovation strategy. According this the firm launches a product

which it perceives to be demonstrably superior in comparison to existing market options.

Secondly, the firm could make a market adaptation strategy wherein, it could make a

region or customer specific modifications to existing products. Thirdly, the company

must the company must think about overcoming transport risks by early countering of

perceived risks. Finally, and the most obvious of them all is the pricing strategy used by a

company. During penetration into a new market, lowest pricing is done to overcome

unnecessary competition even if it is at the cost of profitability. The degree of risk

involved, attitudes and the ability to achieve objectives in the target markets are

important facets in the decision on whether to license, joint venture or get involved in

direct investment.

“Bajaj Auto has been a turn around story and is poised to do well under the helm of Rajiv

Bajaj who is quite ambitious and aggressive in his approach and has steered the company

well. From a position where all the two wheelers of the company made a loss around five

years ago today Bajaj has got an operating profit margin of around 15% which is one of

the highest in the automobile industry. The company enjoys a market share of about 30 %

and this enables them to have cash reserves to the tune of Rs. 5000 crores.”

“The worldwide two-wheeler market is estimated to be 50 million vehicles and out of this

90% is accounted for from these regions itself. Bajaj plans to enter these markets through

partnering with global players. Partnering a deal with Kawasaki for instance to gain

access to the distribution network that it enjoys in the Asean region and partnering with

Taiwanese companies to gain access to the Chinese markets. What is very interesting is

that in these partnering deals Bajaj would take the products developed by them in house
and use the physical infrastructure of the partnered companies in terms of plants and

dealerships etc. This shows how confident the company is of its R & D capabilities,

which has played a major role in bringing the company back to the current position. What

is also in the pipeline is to bring in variants of the current offerings like Pulsar and CT

100. The benefits of bringing about variants are one it stimulates sales and two it

segments the market. So that now customers who liked the CT 100 but preferred some

other bike because of some feature missing will also go for it. Bajaj also plans to

introduce the next generation of scooters, which promise to be more stylish and

technologically advanced than what they currently have to offer.

The big opportunity however does remain the international market. If the company can

do well in this front the growth will be tremendous and unprecedented. The stock

currently hovers around Rs. 1120, which translates into a P/E of 16 times its past year

earnings. Considering the growth that the company has shown in the previous fiscal, the

strong turnaround based on solid and sustainable long term steps and the ambitious plans

of the company the stock is attractive and one could consider buying the counter.”

“An organization wishing to "go international" faces three major issues:

i) Marketing - which countries, which segments, how to manage and implement

marketing effort, how to enter - with intermediaries or directly, with what information?

ii) Sourcing - whether to obtain products, make or buy?

iii) Investment and control - joint venture, global partner, acquisition?”

I’d like to focus my discussion on the possibility of taking Bajaj Motors on a global scale.

At present Bajaj is the leader in the Asian Motorcycle market. The products are well

known and regarded for their high fuel efficiency and low cost of manufacture. Another

product advantage is the minimal maintenance that is required for the high end user. The

three main ways in which Bajaj could enter European market are by direct or indirect
export or production in a foreign country.

Export:
“Whilst no direct manufacturing is required in an overseas country, significant

investments in marketing are required. The tendency may be not to obtain as much

detailed marketing information as compared to manufacturing in marketing country;

however, this does not negate the need for a detailed marketing strategy.

Possible advantages:

• Manufacturing is home based thus, it is less risky than overseas based

• Gives an opportunity to "learn" overseas markets before investing.

• Reduces the potential risks of operating overseas.

Possible disadvantages:

Mainly that the company can be at the "mercy" of overseas agents and so the lack of

control has to be weighed against the advantages.”

“Different Approaches to Direct Exporting:

Sales Representatives/Agents:
Representatives or "agents" work on a commission basis to locate buyers for your

product. Your representative most likely will handle several complementary, but noncompeting

product lines. An agent is, generally, a representative with authority to make

commitments on behalf of your firm. The company must be careful, therefore, about

using the terms interchangeably. The agreement should specify whether the agent/rep.

has legal authority to obligate the firm.

Distributors:
Foreign distributors, in comparison, purchase merchandise from the company and re-sell

it at a profit. They maintain an inventory of your product, which allows the buyer to

receive the goods quickly. Distributors often provide after-sales service to the buyer.
Your agreement with any overseas business partner -- whether a representative, agent or

distributor -- should address whether the arrangement is exclusive or non-exclusive, the

territory to be covered, the length of the association, and other issues.

Foreign Government Buying Agents:

Foreign government agencies or quasi-governmental agencies are often responsible for

procurement. In some instances, countries require an in-country agent to access these

procurement opportunities. This can often represent significant export potential for the

company, particularly in markets where Indian auto technology and know-how are

valued.

Retail Sales:
If Bajaj produce consumer goods, you may be able to sell directly to a foreign retailer.

they can either hire a sales representative to travel to your target market with your

product literature and samples and call on retailers, or you can introduce your products to

retailers through direct-mail campaigns. The direct-marketing approach will save

commission fees and travel expenses. You may want to combine trips to your target

markets with exploratory visits to retailers. Such face-to-face meetings will reinforce

your direct marketing.

Direct Sales to End-Users:

The product line will determine whether direct sales to the end-user are a viable option

for your company. A manufacturer of medical equipment, for example, may be able to

sell directly to hospitals. Other major end-users include foreign governments, schools,

businesses and individual consumers.”

Piggybacking and Counter-trade:

“The method means that a company like Bajaj with little exporting skill may use the

services of one that has. Another way of doing this is the purchase of orders by a number

of companies in order to take advantage of bulk buying.”

“Countertrade can take many forms. Basically two separate contracts are involved, one
for the delivery of and payment for the goods supplied and the other for the purchase of

and payment for the goods imported. The performance of one contract is not contingent

on the other although the seller is in effect accepting products and services from the

importing country in partial or total settlement for his exports. There is a broad agreement

that countertrade can take various forms of exchange like barter, counter purchase, switch

trading and compensation (buyback).”

(Source: http://www.fao.org/docrep/w5973e/w5973e0b.htm, accessed on 17/7/08)

Foreign production
Besides exporting, other market entry strategies include licensing, joint ventures, contract

manufacture, ownership and participation in export processing zones or free trade zones.

Licensing
Licensing is defined as "the method of foreign operation whereby a firm in

one country agrees to permit a company in another country to use the manufacturing,

processing, trademark, know-how or some other skill provided by the licensor".

Licensing involves little expense and involvement. The only cost is signing the

agreement and policing its implementation.

Licensing gives the following advantages:

• Good way to start in foreign operations and open the door to low risk manufacturing

relationships

• Linkage of parent and receiving partner interests means both get most out of marketing

effort

• Capital not tied up in foreign operation and

• Options to buy into partner exist or provision to take royalties in stock.

The disadvantages are:

• Limited form of participation - to length of agreement, specific product, process or

trademark
• Potential returns from marketing and manufacturing may be lost

• Partner develops know-how and so licence is short

• Licensees become competitors - overcome by having cross technology transfer deals

and

• Requires considerable fact finding, planning, investigation and interpretation.

Those who decide to license ought to keep the options open for extending market

participation. This can be done through joint ventures with the licensee.

Joint ventures
Joint ventures can be defined as "an enterprise in which two or more investors share

ownership and control over property rights and operation".

Joint ventures are a more extensive form of participation than either exporting or

licensing.

Joint ventures give the following advantages:

• Sharing of risk and ability to combine the local in-depth knowledge with a foreign

partner with know-how in technology or process

• Joint financial strength

• May be only means of entry and

• May be the source of supply for a third country.

They also have disadvantages:

• Partners do not have full control of management

• May be impossible to recover capital if need be

• Disagreement on third party markets to serve and

• Partners may have different views on expected benefits.

If the partners carefully map out in advance what they expect to achieve and how, then

many problems can be overcome.”

Pricing:
Influences on pricing
• The cost of manufacturing, distributing and marketing your product.

• The physical location of production plants might influence price.

• Fluctuations in foreign currencies affect pricing. Fluctuations make it very

difficult for companies like Bajaj to make long-term decisions - such as building

large factories in global markets i.e. costs of production are cheap today, but

could be expensive in the future, impacting upon the price that your business is

forced to charge.

• The price that the international consumer is willing to pay for your product.

• Business objectives will influence price. For example, large international

companies such as Honda may operate at a loss in some locations but still need a

local presence in order to maintain their economies of scale, as well as their

reputation as a global player.

• The price that competitors in international markets are already charging.

• Business environment factors such as government policy and taxation.

Pricing Approaches and strategy

• Export Pricing –

a price can be set for by the home-based marketing managers

for the international market. The pricing approach is based upon a whole series of

factors which are driven by the influences on pricing listed above. Then

mainstream approaches to pricing may be implemented.

• Transfer Pricing –
prices are set in the home market, and goods are effectively

sold to the international subsidiary which then attaches its own margin based upon

the best price that local managers decide that they could achieve.”
Standardization versus adaptation

Advantages of Standardization
International uniformity

This has its own advantages. As people travel the World, they can

be assured that wherever they go the product that they buy from you will be same and

that it will have the same, standard benefits. This could mean the components that they

buy from you in different local markets as they themselves become global.

Standardization reinforces positive consumer perceptions of the product. One of the

payoffs of great quality for a single product category is that the reputation of your

product will help you sell more of it. Positive word-of-mouth pays dividends for brand

owners.

Cost reduction will give economies of scale. Since we are making large quantities or the

same, non-adapted product – we’d benefit from the advantages associated with

manufacturing in bulk. For example, components can be bought in large quantities, which

reduce the cost-per-unit. There are other benefits relating to economies of scale, including

improved research and development, marketing operational costs, lower costs of

investment, and in an age where trade barriers are coming down – standardization is a

plausible product strategy.

Quality is improved since efforts are concentrated upon the single product. Staff can be

trained to enhance the quality of the product and manufacturers will invest in technology

and equipment that can safeguard the quality of the standardized product offering.

Disadvantages of Standardization
Since the product is the same wherever you buy it, it is wholly undifferentiated. It is not

unique in anyway. This leaves the obvious opportunity for a competitor to design a tailormade,

differentiated or branded product that meets the needs of local segments. Of course

products have different uses in different countries (for example cycling is a leisure
activity in some nations, and a form of transport in others). Local markets have local

needs and tastes. Therefore by standardizing, you could leave yourself vulnerable.

Another problem with standardization is that it depends largely upon economies of

scale. With global businesses, your business will manufacture in a number of nations.

However, some countries implement trade barriers. If this is the case, then localization

and the resultant adaptation is inevitable.”

Advertising in European Marketing

Advertising has a number of pros and cons:

• When considering press advertising try to anticipate the levels of literacy within

the nation in question. Where literacy levels are lower, perhaps you could use a

more visual campaign.

• Which language(s) is the press written in?

• What is the split between regional and national press in the target market?

• Which TV channels do our target segments watch?

• Is there space on the suitable TV channels when we want it, or at a price that we

can afford?

• Where visual communication is paramount, are there suitable poster locations?

• What is the behaviour of the target population in relation to cinema? For example,

Cinema is tremendously popular in India it need not be so in all European

countries as well.”
REFERENCES:
ü Cunningham, M.T. "Strategies for International Industrial Marketing". In D.W.

Turnbull and J.P. Valla (eds.) Croom Helm 1986, p 9.

ü Piercy, N. "Company Internationalisation: Active and Reactive Exporting".

European Journal of Marketing, Vol. 15, No. 3, 1982, pp 26-40.

ü Anderson, E. and Coughlan, A.T. "International Market Entry and Expansion via

Independent or Integrated Channels of Distribution". Journal of Marketing, Vol.

51. January 1987, pp 71-82.

ü http://www.taonline.com/entrepages/entreintentry.asp (ACCESSED on 10/7/08)