International Business And Exporting For Smes Commerce Essay

In today`s developing and growing world it is getting harder everday to expand your business internationally. So the importance of choosing right strategic plan has become a factor that needs to be considered and implemented broadly by the companies which want to survive in today`s global market. For the purpose of struggling against some additional difficulties when going internationally, companies have to consider of the importance of international business and being awareness of implementing an effective strategy on an international level .

1.3.1 The Importance of International Business

International business is a process that all business transactions are private and governmental. It involves two or more countries. To understand the importance of going internationally, it would be good to find out the answer of this question; “why is international business important especially for domestic companies?” The simplest answer is that international business has a large and growing portion of the world’s total business. Today, many companies all around the world, large or small, are influenced by global issues and competition because most of them sell output to and/or secure suppliers from foreign countries and/or compete against products and services that come from abroad.

Many companies which engage in some part of international business are involved in exporting and importing than in any other type of business transaction. Many of the international business experts debate that exporting is a logical process with a natural structure, which can be viewed primarily as a method of understanding the target country’s environment, using the appropriate marketing mix, developing a marketing plan based upon the use of the mix, implementing a plan through a strategy and finally, using a control method to ensure the strategy is doable. This exporting process is revised and evaluated regularly and modifications are made to the use of the marketing mix, to take account of market changes affecting upon competitiveness. This view seems to suggest that much of the international business theory related to enterprises, which are internationally based and have global ambitions, does often change depending on the special requirements of each country.

1.3.2 Competing on an International Level

It always seems to be quite difficult for companies to start competing on an international level. To get this, an international marketing strategy has to be developed related to the products and services that the business plans to offer to their customers. It is also important to understand what their long term goals. There is very little point for a company to target their domestic market on a few short term goals. Most firms will be targeting the international markets and to be competitive, so it should be better to target compatible markets firstly and those with greatest cultural differences secondly. This means preferences need to be determinated for all of these markets. This will require a well founded research.

1.4 RESEARCH QUESTIONS

Accordingly, this study will answer the following questions;

What challenges is a Dubai SME (small medium-sized enterprise) likely to be faced when it wants to enter the UK market?

What are the main differences between Dubai domestic market and the UK market? In which level may an effective marketing research contribute the success of Dubai company?

Why is exporting frequently considered the simplest way of entering foreign market and favoured by smaller firms?

What are the alternative entry modes for a Dubai SME to enter the UK market?

1.5 AIM AND OBJECTIVES OF RESEARCH

In the light of identified rational following objectives are set for this study;

To examine the reasons of going international for domestic companies.

To clasify different marketing levels.

To identify international marketing environment.

To analyse environmental influences on international marketing.

To understant the differences and similarities between Dubai and UK markets.

To find out about the hardware market in the UK and how it operates.

To gather the right primary and secondary data to be able to advice for them.

2- LITERATURE REVIEW

2.1- CLASSIFICATION OF DIFFERENT MARKETING LEVELS

2.1.1 Domestic/Home Marketing

It involves the company managing a series of controllable variables such as advertising, price, distribution and the product /service attributes in a largely uncontrollable external environment that is made up of different economic structures, competitors, cultural values and legal infrastructure within specific, political or geographic country boundaries. (Doole, 2008)

2.1.2 International Marketing

As a simple definition, international marketing involves the firm in making one or more marketing mix decisions across national boundaries. As a complex definition, it involves the firm in establishing manufacturing/processing facilities around the world and coordinating marketing strategies across the globe. At one extreme there are some companies that choose international marketing simply by making a distribution agreement with a foreign firm who then takes responsibility for pricing, promotion, distribution and market development. At the other extreme there are massive global companies such as Toyota with an integrated network of manufacturing plants worldwide and who has hundreds of country markets. Thus, its most complex, international marketing becomes a process of managing on a global scale. These different stages/levels can be defined in the following terms (Doole, 2008)

It involves managing operating across number of foreign country markets in which not only do the uncontrollable variables differ significantly between one market and another. But the controllable factors such as cost and price structures, opportunities for advertising and distribute infrastructure are also likely to be different significantly. It is these kinds of differences that lead to the complexities of international marketing. (Doole, 2008)

2.1.3 Global Marketing

This kind of management is a larger and more complex international operation. There is always a company coordinates, integrates and controls a large numbers of marketing programmes into a substantial global effort. The primary objective of the company is to achieve a degree of success in the overall operation so that by taking advantage of different exchange rates, tax rates, skill levels and market opportunities the organisation as a whole will be greater than sum of its parts. (Doole, 2008)

2.2 DIFFERENCES BETWEEN INTERNATIONAL AND DOMESTIC MARKETS

“There are many factors within the international environment which substantialy increase the challenge of international marketing. These can be defined as followings;

Culture: often diverse and multicultural markets.

Markets: wide spread and sometimes fragmented.

Data: difficult to obtain and often expensive.

Politics: regimes varity in stability – political risks become an important variable.

Governments: can be a strong influence in regulating importers and forcing business ventures.

Economies: varying levels of development and varying and sometimes unstable currencies.

Finance: many differing finance systems and regulatory bodies.

Stakeholders: commercial, home country and host country.

Business: diverse rules culturally influenced.

Control: difficult to control and coordinate accross market.” (Doole, 2008)

2.3 COMPARISON AND COMPLEXITIES OF THESE LEVELS

For achievement in all these levels, the core point is to operate a good marketing strategy and being able to analyse and perceive the difficulties of each PESTLE factors (Political, Economic, Sociological, Technological, Legal and Environmental) of the international environment and how they affect a company’s marketing strategies across their international markets.

As in domestic marketing, the successful organization will be the one which is best able to manage the factors of marketing mix within the uncontrollable environment. It follows that the main complexities faced by international researcher is that of coming terms with the details and difficulties of the international environment. (Doole, 2008)

When management gets involved in international area they will face some extra complexities. To sum up, a successful marketing research may be even more important in an international environment because of these extra complexities as well as the additional risks and the consequences of failure.

2.4 ENTERING A FOREIGN MARKET

Before entering international marketing, if we reflect on our perception what marketing means itself, we will face a few important definitions. According to Chartered Institute of Marketing, marketing is a “Management process which is responsible for identifying, predicting and providing customer requirements profitably”. (Lowe R., Doole I., 2001)

Marketing involves;

providing customer needs and wants,

finding out best ways and methods to provide these needs and wants,

orienting the firm towards the process of focusing on that satisfaction,

meeting organizational objectives.

In this way, it becomes important for the company or organization to prepare itself to achieve competitive advantage in the market. The company then needs to work on taking this advantage in the market. The company then needs to work on taking advantage by manipulating controllable functions of marketing, within the uncontrollable marketing environment which is directly affected by SLEPT factors, i.e. Political, Economic, Socio-Cultural, Technological and Legal. (Lowe R., Doole I., 2001)

When domestic and international marketing are compared, it is argued that”what differences there are between these two markets “. Actually, the key elements are still same. The concept is not likely to change to any market degree when a company moves from a domestic market to an international market. However, two main differences can be defined. First, of them, there are different approaching levels depending on international scope, and second, the company will be likely to face complexities and difficulties as the result of international marketing environment factors as it mentioned above. (Lowe R., Doole I., 2001)

2.5 CHALLENGES IN ENTERING A FOREIGN MARKET

When deciding to enter a foreign market, a company may face a significant number of barriers. According to Keren (2002) ‘the comparative disadvantage of transition economies (TEs) in the provision of business services is, by definition, a comparative advantage and a profit generating opportunity for foreign firms to step in’. However it is considered that, ‘the actual ability of foreign investors to step in and make money depends also on the business conditions in the target countries, including objective hurdles and policy-driven barriers to entry and/or to free operation’. Furthermore, ‘given the description of the business environment in the early stages of transition, one may expect objective difficulties for a foreign company to operate’. However, there could be also ‘intentional barriers that reflect interests of domestic monopolistic providers, a bias against “foreigners that may rob the country and dominate its economic policy” and, possibly, remnants of the Marxist view on the `unproductive’ nature of such services’ (Keren et al., 2002, 17).

According to Buckley (1989), SMEs are likely to face some ample barriers when they go internationally because of their small sizes, limited financial and human resources, information constraints, insufficent management experience and market imperfections and regulations.

2.6 THE INTERNATIONAL MARKETING ENVIRONMENT

The key difference between domestic marketing and marketing on international environment is the multidimensional and complexity of the many foreign country markets can operate in an international marketing researcher needs to have a knowledge and awareness of these complexities and implications they have for international marketing research. There are a lot of environmental analysis models that analysis the impact of the complexities faced by international marketing researcher.

For one of the purposes of this assignment, SLEPT approach will be used and various aspects and trends in the international marketing environment will be examined through the social/cultural, legal, economic, political and technological dimensions as it shown in figure 1 (Doole, 2008)

Figure 1. The Environmental Influences on International Marketing (Doole, 2008)

2.6.1 Social/Cultural Environment

The social and cultural environment has a significant impact on international marketing. Variations in social conditions, religion and material culture all influence buyer mind and patterns of buying behaviour. It is this structure that determines the extent to which customer across the globe are either similar or different and so determines the potential for global branding and standardisation. (Doole, 2008)

A failure to understand the social/cultural dimension’s of a market are complex to manage. A good example of this can be shown as Mc Donald’s found in India. Mc Donald had to deal with a market that is 40 percent vegetarian, and also they had an aversion to either beef or pork among meat others and hostility to frozen meat and fish, to make consumer happy. Mc Donalds has discovered it needed to be done more than provide the right burgers. Customers purchasing vegetarian burgers wanted to be sure that these meals were cooked in a separate area in the kitchen and by using separate materials and sauces such as Mc Masala and Mc lmli were developed to satisfy the Indian taste for spice. Interestingly however, these are now innovations they have introduced into other markets.

2.6.2 Cultural Environment

Cultural differences and especially language differences are one of the most effective factors on the way a product may be used in a market, its brand name and advertising campaign. (Doole, 2008)

A large number of examples can be given about how cultural factors affect it dramatically. For instance;

Coca Cola had a big problem in China as coca cola sounded like kooke koula which translates into” a thirsty mouthful of candle wax”. They managed to find a new pronounciation “Kee Kou Keele” which means “joyful tastes and happiness”.

General motors whose brand name is Nova was unsuccessful in Spain, because “no va” means “ne go” in Spanish.

Pepsi Cola had to change its campaign name Come Alive with pepsi in Germany as it means “Come Alive Out if the Grave”

In Japan Mc Donald’s character Ronald Mc Donald was unsuccessful because hic white face was seen as a death mask.

Running effectively internationally requires recognition that there can be significant differences in the different regions. A campaign by a soap company that showed a husband washing his wife’s back in the bathroom was a big success in France but failed in Japan because Japanese women viewed the prospect of a husband sharing sometime as a huge invasion of privacy.

As examples have shown cultural factors has a considerable influence on international marketing.

2.6.3 Social Factors

Growth and movement in populations are significant factor on social changes. Eighty percent of the world’s populations live in developing countries and it is likely to be 85 percent by 2025. 20 percent of people live in India and China. However, while world population is growing dramatically, the growth patterns are not consistent around the world.

There are also visible moves in the population between many countries. By 2010, 50 percent of the world’s population will be likely to live in urban areas. The population of greater Tokyo is soon to be close to 30 million and Mexico City 20 million. In the year 2015, no European city will be in the top 30 and 17 of the world’s mega cities of 10 million plus will be in emerging markets. These cities will be markets in themselves. People will require similar products. (Doole, 2008)

They will demand services, telephones and transportation of all kinds. Customer can communicate with them easily via supermarkets, advertising and other marketing communication tools. Table 1.1 shows the ten urban cities in the world forecast in 2015.

CITY

COUNTRY

POPULATION

( millions )

Tokyo

Japan

26.4

Mumbai

India

26.1

Lagos

Nigeria

23.2

Dhaka

Bangledesh

21.1

Sao Paulo

Brazil

20.4

Karachi

Pakistan

19.2

Mexico City

Mexico

19.2

New York

USA

17.4

Dakarta

Indonesia

17.3

Calcutta

India

17.3

Table 6.1 World`s Ten Mega Cities in 2015

(Doole, 2008)

2.6.4 Legal Environment

Legal systems vary both in content and interpretation. A company is not just bound by the laws of its home country but also by those of its host country.

It is important for the company to know the legal regulations in each of its markets. The legal environment in international marketing is more complicated than in domestic market since it has 3 dimensions:

Local domestic laws

International law

Domestic laws in the home country

Laws directly influence the marketing mix in terms of products, price, distribution and promotional activities. For many company, the legal regulations they face in international markets are almost twice more difficult. Firms often face ethical challenges in deciding how to deal with differing cultural perceptions of legal practices.

2.6.5 Economic Environment

It is very important for an international marketer to understand economic developments and how they affect marketing strategy.

Amongst the 194 countries in the world, economic conditions vary from one to other. Gross national income in the world is not shared equally across the world.

Another key challenge facing companies is about how they can develop an integrated strategy among number of international markets when there are different levels of economic development.

2.7 STRATEGIES FOR ENTRING AND DEVELOPING INTERNATIONAL MARKETS

The process of entering and then developing an international market is a difficult issue, which most companies still define as an Achilles’ heel in their global capabilities. In fundamental terms, penetrating a new country-market is very like a start-up situation, with no sales, no marketing infrastructure in place, and little or no knowledge of the market. Althought this, organizations are most likey to treat that situation as if it was an extension of their business, a source of incremental revenues for existing products and services. Two aspects of the typical approach are particularly striking. First, companies often pursue this new business opportunity with a focus on minimizing risk and investment. The complete opposite of the approach usually advocated for genuine start-up situations. Second, from a marketing view, lots of companies break the founding principle of marketing. That a firm should start by identfying the market, and then, decide on its offer in terms of products, services, and marketing programs. In fact, it is much more common to see international markets as opportunities to raise sales of existing products and so to adopt a “sales push” rather than a market-driven approach. Given this overall approach, it is not a surprise that performance is often disappointing. Profitability in international markets has lagged behind average firm profitability for much of the last two decades (the “foreign investment profitability gap”). The link between this perspective and a view of international sales as incremental business is self-evident. And, after all, a lot of firms penetrate new country-markets through the indirect channel of a local independent distributor or agent, in which case the multinationals will not know their costs and thus their operating profitability in the markets. Although more mature firms are changing the way that they enter and penetrate new international markets, the mixed results in the post-2001 recession demonstrate that this remains a challenging phase of internationalization. (Arnold, 2003)

2.8 THE CONTRIBUTION OF MARKETING INFORMATION TO EXPORT SUCCESS

Despite the agreement that marketing information is the key point for business success in both domestic and international areas, there have been surprisingly few emprical studies which examine the relationship between marketing research and firm performance in international market domain. Various emprical studies have concluded that marketing research is really a significant factor in firm`s success in international area. (Hart and Tzokas, 1999) For instance, Hooley and Lynch (1985) mention that the level of using marketing research has a positive affect on firm`s effectiveness. While Hart (1987) and Baker, Hart and Black (1988) suggest that more successful firms give more importance to research than the others. Especially for small firms, Dollinger (1984) explored a positive relationship between the use of the environmental information and small company`s financial success.

There will be some similarities and differences between Dubai and the UK about international marketing environment that need to be analysed perfectly before Dubai company starts exporting. These similarities and differences are likely to be between these factors (Lancaster, Massingham and Ashford, 2002):

Economic: Population figures, salary levels and distribution, price levels, inflation, resources, economic structure, economic stability.

Market: Size; stages in product life cycle; market penetration level or avarage consumption level per annum; market segmentation; availability of media, services, distribution.

Cultural: Material culture, (for example, role of women); social structure and family relationships; social relationship, religion(s), language.

Political Environment: Incentives for joint venture/wholly owned manufacture (e.g. tax exemptions), protection against competitive imports (tariffs and quotas). Risks of appropriation or domestication of foreign owned manufacturing plant.

Legal: There is no true international law, despite attempts to reconcile different legal practise have been made. For instance, in Spain, The Madrid Convention protects trade marks of signatories in all member countries.

2.9 INTERNATIONAL MARKET PLANING

Entering an international marketing with a developing plan means that your company is entering both a new country as well as a new market. The entry mode (export, contractual or insvestment) determines the level of company`s control over the marketing program in target country. “For instance, indirect exporting and pure licencing allow little or no control over the marketing programme. (Lowe and Doole, 2004)

2.10 WHY DO EXPORTING?

Exporting can be seen as either an opportunity or a threat, especially for a small company. If its aim covers short term or is related to personal idiosyncrasies of executives, or if no country or market examination is carried out, exporting is likely to be a threat. On the other hand, a lot of small firms shy away from exporting believing that they lack resources and expertise or in general terms are not suited to such a risky venture, but in reality, size can not be a hindrance, if the company is competitive and committed.

When a comparison is made with large firms, small firms have a number of advantages (Cannon and Willis, 1985)

The small firm can react quickly to export opportunities.

It might be easier to control the management activities of exports.

The management of a small enterprise is always quite easy. Therefore, foreign consumers may deal with the same people over a period of time getting to know each other and making a business relationship.

As customers have a high level of knowledge, it may come to incentive to deal efficiently with them, something bigger firms can not be noted for.

Although at the first time a SME usually does not have employees with export experience, there are export support organizations in many countries which are able to give support and training about export management.

However, some threats exist, as exporting cannot be suitable for every company and the minarty on small company resources when a costly foreign market failure can be a big problem for the entire future of an enterprise. As it has been suggested by the British Overseas Trade Board (BOTB) in the UK, the unprepared potential exporter may face with the following problems (Financial Times, 1987)

The export opportunity usually appears when a firm struggling within domestic market.

There is usually no correlation between the size and the capability of the firm and the scale of the opportunity.

The larger the opportunity, it is more likely to happenthat the firm is deluded into cosideration that they may win the business.

The closer one gets to the opportunity, the more illusory it becomes.

The key features underlying the comments above are that for the firm to be successful, it has to be committed to exporting and has to be reasonably organised and prepared in its approach to foreign markets.

As it has been mentioned a few times earlier, exporting overseas is a strategy that firms use for at least some of their markets. Since a large number of countries do not offer a large enough occasions to justify local production, exporting may allow a firm to produce its products for several markets, therefore, to obtain considerable revenue. Moreover, since exports provide an additional volume to an already existing manufacturing operation located elsewhere, the marginal profitability of exports tends to be higher. (Hennessey, 2001)

According to (Albaum, Stranskov and Dowd, 1998) it can be assumed that some forces that drive the firm either start exploit export activities are that the firm wants to utilize and improve its resources depending upon its short-term and/or long-run economic objectives are served. As a consequence, export motives will be interrelated to the basic goals of the company. These general export motivational factors are;

growth and profit goals

managerial urge and risk diversification

exploitation of foreign market opportunities

economies of scale

marketing advantages

extending sales of a seasonal product

Excess capacity of resources

seeking unsolicited orders

the existence of a small domestic market

stagnant or declining home market

2.11 WHY FIRMS START TO EXPORT?

Studies on export behaviour have shown that there are varieties of reasons why firms start exporting. Bilkey and other researchers concerned with the initiation of the export process have tended to focus on the effects of change agents, either external to the firm or internal within the firm. (Bilkey, 1978) External change agents include chambers of commerce, industrial associations, banks, government agencies and other firms. The latter appears to be overwhelmingly the most important external agent and includes firms that buy out smaller companies and then encourage them to export, foreign importers and export agents. Studies by Simpson and Kujawa and others have asked companies what first stimulated them to start exporting. (Turnbull and Valla, 1986) In many cases, the firm’s first export order was unsolicited. Hence for a lot of companies the start of their export experience is not planned in any formal way but simply arises, seemingly by chance; and certainly for companies that fail in their export efforts it would seem that quite often a haphazard and ad hoc approach to exporting had continued.

It is also evident from the literature that the internal change agent tends to be a member of the firm’s top management who is interested in and enthusiastic about exporting. Several studies have already identified management characteristics as an important factor in the export initiation process. (Cavusgil and Nevin, 1981) Cavusgil found that export behaviour appears to be explained by four factors, including the expectations of management and the strength of managerial aspirations, concluding that: “variations in export activity can be explained, to a significant extent by organisational and management characteristics. Expansion of export activity among the firms studied is clearly related to management’s expectations concerning the effects exporting will have on firm’s growth, market development and profits: technology orientation of the firm; management attitudes towards risk taking and desire to develop new markets; and the extent of resource allocation to exporting as exemplified by systematic exploration of foreign market opportunities, and the formulation of a fixed export policy.” (Cavusgil, 1984)

Bilkey argued that four factors were related to whether or not management took the initiative in exporting: (Bilkey, 1978)

Management’s impression of the overall attractiveness of exporting as an abstract ideal, independently of whatever particular contribution exporting might make to its own firm. Note the latter cannot be known by management until they explore the feasibility of exporting or gain export experience.

The degree of the firm’s international orientation. Some studies suggest that this is determined by the firm’s background and traditions and by the foreign attitudes of its top managements correlate, in turn, with whether or not they had to studied a foreign language in school; whether or not they had lived abroad sufficiently long to have experienced cultural shock; and whether or not that foreign experience was attractive. The manager’s ages are also relevant, younger ones tending to be more internationally minded than older ones.

Another determinant is management’s confidence in the firm’s competitive advantage. This is measure as a composite involving management’s perception of whether or not the firm’s product have unique qualities; management’s perception of whether or not the firm has technological, marketing, financial or price advantages; whether or not the firm possesses exclusive information about a foreign market or customer; whether or not the firm has a patented product; and whether or not the firm has an efficient distribution network.

A fourth determinant of whether or not management takes the initiative in exporting is adverse home market conditions, causing management to explore exporting as a means of ensuring the firm’s survival. The relationship of this initiative to general economic conditions varies greatly among firms, because of the differential impact of macroeconomic conditions at any given time on particular industries.

3. RESEARCH METODOLOGY

Methodology is the analysis of the principles of methods, rules, and postulates employed by a discipline.

In methodology literature, research is defined as “the systematic collection and interpretation of information with a clear purpose to find things out” (Saunders et al., 2003) and there are two different philosophies in the resea