PESTEL Analysis PESTEL Analysis A PESTEL analysis is sometimes called a PEST or PESTLE analysis. It is a tool that scans a company's macro-environment, and enables it to identify, analyze, and monitor the political, economic, social, technology, legal, and environmental factors that may impact its operations (Frue, 2017). PESTEL analyses are used in industry and business to determine organizational situation, direction, and potential; as well as strategic planning (Lin, 2013). Political Factors What is the government's involvement in the business environment, and the degree of that involvement? Some examples of political factors are labor laws, taxation policies, tariff and nontariff barriers, and environmental regulations. Political factors may also include the services and goods that a government provides. Changes in the priorities of government spending may have a profound impact on policy, strategy, management, and process issues (Halik, 2012; Lin, 2013; Thomas, 2007). Economic Factors Economic factors include the general economic climate, fiscal and monetary policies, economic trends, economic growth, employment levels, government funding, and consumer confidence, and so forth (Halik, 2012; Lin, 2013; Thomas, 2007). Social Factors Social factors relate to demographics such as age and population growth, behavior, lifestyle changes, diversity, education, and career attitudes, among others. Trends in social factors may influence the demand for a company's products and services, and may also affect how that company operates and adapts (Halik, 2012; Lin, 2013; Thomas, 2007). Technological Factors Technological factors include advances in technology, communications, and information technology, as well as innovation and research and development (R&D). These factors may impact how knowledge is shared and distributed, and the speed at which this knowledge is disseminated. In addition, advances in technology and communication may influence how people communicate and socialize (Chao, Peng, & Nunes, 2007; Halik, 2012; Lin, 2013; Thomas, 2007). Environmenal Factors Environmental factors include all those that impact, or are influenced by, the surrounding environment. Environmental factors play a crucial role in certain industries, such as agriculture, tourism, and recreation. These factors include geographical location, weather, climate, global climate change, and environmental offsets (PESTLE Analysis, 2017). Legal Factors Legal factors have both external and internal aspects. Certain laws and regulations may impact the business environment in a country, while corporate policies may influence how a company operates. Legal analysis takes into account both of these aspects, and then lays out the strategies accordingly. Examples of laws and regulations include labor laws, safety standards, and consumer laws (PESTLE Analysis, 2017). References BBA 3331, Introduction to E-commerce 1 Course Learning Outcomes for Unit VI Upon completion of thi ...

1. PESTEL Analysis
PESTEL Analysis
A PESTEL analysis is sometimes called a PEST or PESTLE
analysis. It is a tool that scans a company's macro-environment,
and enables it to identify, analyze, and monitor the political,
economic, social, technology, legal, and environmental factors
that may impact its operations (Frue, 2017). PESTEL analyses
are used in industry and business to determine organizational
situation, direction, and potential; as well as strategic planning
(Lin, 2013).
Political Factors
What is the government's involvement in the business
environment, and the degree of that involvement? Some
examples of political factors are labor laws, taxation policies,
tariff and nontariff barriers, and environmental regulations.
Political factors may also include the services and goods that a
government provides. Changes in the priorities of government
spending may have a profound impact on policy, strategy,
management, and process issues (Halik, 2012; Lin, 2013;
Thomas, 2007).
Economic Factors
Economic factors include the general economic climate, fiscal
and monetary policies, economic trends, economic growth,
employment levels, government funding, and consumer
confidence, and so forth (Halik, 2012; Lin, 2013; Thomas,
2007).
Social Factors
Social factors relate to demographics such as age and
population growth, behavior, lifestyle changes, diversity,
education, and career attitudes, among others. Trends in social
factors may influence the demand for a company's products and
services, and may also affect how that company operates and
adapts (Halik, 2012; Lin, 2013; Thomas, 2007).

2. Technological Factors
Technological factors include advances in technology,
communications, and information technology, as well as
innovation and research and development (R&D). These factors
may impact how knowledge is shared and distributed, and the
speed at which this knowledge is disseminated. In addition,
advances in technology and communication may influence how
people communicate and socialize (Chao, Peng, & Nunes, 2007;
Halik, 2012; Lin, 2013; Thomas, 2007).
Environmenal Factors
Environmental factors include all those that impact, or are
influenced by, the surrounding environment. Environmental
factors play a crucial role in certain industries, such as
agriculture, tourism, and recreation. These factors include
geographical location, weather, climate, global climate change,
and environmental offsets (PESTLE Analysis, 2017).
Legal Factors
Legal factors have both external and internal aspects. Certain
laws and regulations may impact the business environment in a
country, while corporate policies may influence how a company
operates. Legal analysis takes into account both of these
aspects, and then lays out the strategies accordingly. Examples
of laws and regulations include labor laws, safety standards, and
consumer laws (PESTLE Analysis, 2017).
References
BBA 3331, Introduction to E-commerce 1
Course Learning Outcomes for Unit VI
Upon completion of this unit, students should be able to:

3. 4. Explain the four infrastructures influencing e-commerce
strategy.
4.1 Identify basic digital commerce marketing and advertising
strategies.
7. Analyze the impact of e-commerce on businesses.
7.1 Determine the challenges and benefits of online marketing
communications.
Course/Unit
Learning Outcomes
Learning Activity
4.1
Unit Lesson
Chapter 6, pp. 335–386
Unit VI Essay
7.1
Unit Lesson
Chapter 6, pp. 335–386
Unit VI Essay
Reading Assignment
Chapter 6: E-commerce Marketing and Advertising Concepts,
pp. 335–386
To access the following resource, click the link below.

4. Carmichael, E. (2015, April 18). Jeff Bezos’s top 10 rules for
success [Video file]. Retrieved from
https://www.youtube.com/watch?v=pAdjNuE6EZQ
Click here to access a transcript of the video above.
Unit Lesson
In the last unit, we overviewed security and the types of
challenges e-commerce entrepreneurs must
overcome to maintain their customers’ information and
company trade secrets, but the challenges do not end
there. An e-commerce enterprise must build a brand name and
presence on the Internet as mentioned in Unit
IV. Branding speaks to design, colors, logos, and graphics.
There are many companies out there that are spending a lot of
money on getting customers’ attention. A
regular customer is exposed to about 4,000-plus ads per day
(Marshall, 2015). From TV news, drive-time
radio, TV, the Internet, and social media, Americans are
exposed to an average of 294 ads per hour (see
Table 1 for a breakdown). Other studies have speculated that
exposure to ads ranges from 3,000 to 20,000
exposures per day. These numbers also include brands while
visiting a grocery store (Johnson, 2014). This is
a considerable increase in brand exposures compared to 2,000
messages a day just 30 years ago.
UNIT VI STUDY GUIDE

5. Business Concepts in E-commerce
https://www.youtube.com/watch?v=pAdjNuE6EZQ
https://online.columbiasouthern.edu/bbcswebdav/xid-
62407880_1
BBA 3331, Introduction to E-commerce 2
UNIT x STUDY GUIDE
Title
Source Average Number
of Ads Per Hour
TV News 48
Drive-Time Radio 20
TV Other 30
Internet Surfing 16
Internet Applications 45
Social Media 5
Billboards 130
Total Ads Per Hour 294
Table 1: Total consumer ad exposure per hour
(Sanders, 2017)

6. How does a company go about building its brand on the
Internet? E-commerce businesses are still using the
same approach that traditional advertisers used—getting the
message to the target audience by any means
possible. Branding cannot be seen and is not a logo or a fancy
name. Branding can only be felt. Think of
Apple products. Consumers experience a state of excitement or
bliss when they get their Apple devices. A
great brand mixes emotion, engagement, and expectation. E-
commerce entrepreneurs know that building a
powerful brand is hard and important work. How do we
differentiate between a good brand and a bad brand?
The answer is simple. Make your brand consumer-centric. Let’s
not forget that the power of choice has shifted
to the consumer. Always remember that the entrepreneur builds
the business for the customer.
There are many stories on the Internet that detail how e-
commerce businesses have succeeded because of
their branding, including Amazon (amazon.com). People get
attached to brands with emotional stories, and
Jeff Bezos certainly has an emotive story (see Required Reading
for this unit). With Jeff’s story, Amazon
became one of the most successful e-commerce sites in the
world.
Core concepts
Developing a Brand Strategy
When you have a cold, you may ask someone to

7. pass you a Kleenex, not a tissue. In many
countries, people refer to a vacuum cleaner as a
Hoover. Think of the Nike logo (as shown in the
image). There are no words or slogans to remind
you of the company name; there is just a swoosh
emblem, which reminds you of Nike. It is
branding at its best.
If you notice in the aforementioned examples, it
is the brand name and not the product that sells.
Most people buy products and use services
because of an emotional connection to the
brand. For e-commerce enterprises, building a
strong customer base starts with a good
branding strategy.
A branding strategy defines how your customers
perceive and see your product and overall business (Schreiber,
2015). A strong e-commerce brand name
helps the enterprise stand out from the competition, regardless
of the price of products and services.
CORE CONCEPTS
Branding cannot be seen and is not a logo or a fancy name.
Branding can only
be felt. Branding is an indicator that your e-commerce company
is doing
something right.
Sneaker showing Nike logo
(Pexels, 2016)

8. BBA 3331, Introduction to E-commerce 3
UNIT x STUDY GUIDE
Title
According to Schreiber (2015), building a brand strategy
requires understanding the business, performing
market research, and identifying a customer base while being
able to determine the elements below.
1. Value proposition of the company: A value proposition is a
unique selling point that distinguishes your
product or service from the competition. In other words, what
makes your product unique? It is the
first step in a company’s branding strategy.
2. Brand quality: Many companies are built on quality. As an
example, the Maytag commercials are
branded on the quality and durability of their products. Quality
is an effective way to build brand
loyalty.
3. Dynamic branding rules: If a product or service is unique,
branding should be around the uniqueness
or quirkiness of the product. Taking risks in branding can
benefit the enterprise.
4. Customer experience personalization: As noted in Unit II,
personalization goes a long way in building
your company’s brand name. Amazon is a great example of
personalization. The site matches the

9. user’s browsing and purchase history to provide products and
pricing to align with the customer’s
choices.
5. Giving back to customers: E-commerce enterprises can
benefit from branding their business with the
spirit of giving. As an example of giving, Amazon has their
Smile program where every purchase
supports the customer’s charity of choice or the American Red
Cross. Sharing gratitude with
customers positions your brand as thankful, and, at the same
time, it retains customers for life.
Building a Brand
How does a company build a brand and effectively execute its
branding strategy? It is contextual to the e-
commerce product or service, but a common approach is to let
your potential customer base know that they
need your product or service. In other words, use online
methods (e.g., social media) to deliver the message.
Another common trend is to use social media analytics to track
potential customers’ historical online data for
targeting purposes.
Digital branding has surfaced to assist online businesses to
leverage the different online channels to
communicate a company’s brand. Digital marketing
organizations or agencies specialize in digital branding.
Digital marketing companies are always searching for new
methods of analyzing collected data and how they
can use it to generate new leads. Given the growth of Internet
usage, the potential market has increased
exponentially. As of 2017, there are roughly 3.8 billion Internet
users, although the number is constantly

10. changing (Internet Live Stats, n.d.-c). Although the rate of
Internet user growth has slowed down from around
30% in the early days of the Internet to about 2%, the figure is
still significant (Laudon & Traver, 2018). E-
commerce enterprises can leverage this growth to find and
identify their specific demographics for their
products and services. As an example, Google analyzes an
Internet user’s search criteria to target the user
with relevant ads based on the user’s search phrases. Google,
the major search engine used on the Internet,
processes over 40,000 searches every second, about 3.5 billion
searches per day, and over 1.2 trillion
searches a year globally (Internet Live Stats, n.d.-b).
Additionally, there are over 2 billion active Facebook
users (Internet Live Stats, n.d.-a). Lastly, to get an indication of
the extent of the online competition, as of Fall
2017, there were over 1.2 billion active websites on the Internet
(Internet Live Stats, n.d.-d).
BBA 3331, Introduction to E-commerce 4
UNIT x STUDY GUIDE
Title
Branding requires different forms of delivery. Digital media
companies are always coming up with new and
inventive ways of ad delivery to potential customers. The
availability of the Internet offers new options for
content delivery. Furthermore, with the

11. pervasiveness of smartphones, the mobile
user segment has become more accessible
to marketers. Because of the ubiquity of the
Internet, video has become a preferred form
of advertisement. A clear example is
Google’s YouTube, where 400 hours of
video content is uploaded every minute, and
1 billion hours of video content are
consumed every day worldwide (Statista,
n.d.). The 15- to 30-second video ads
attached to viral videos could generate an
exponential rate of click-through hits. A
published study concluded that the average
citizen consumes about 5.5 hours of online
video every day (“US Adults Spend,” 2015).
Video advertisement is a lucrative business,
and it seems to be working. Weiss (2016)
noted that YouTube estimates to have ad
revenues of $27-plus billion by the year
2020, which is on par with Facebook’s ad
revenue of around $26 billion.
E-commerce entrepreneurs can significantly benefit from video
advertisement. Web analytics are used to
specifically target potential customers on both Facebook and
YouTube. An e-commerce company can
precisely reach the audience who would be interested in the
company’s products and services. Depending on
the desired target demographic, a company can choose many
modalities for advertisement (e.g., desktop or
mobile users, the time of day, geographical region).
Again, the idea is to reach the right audience with the right
branding message through as many different
channels as possible. If one strategy does not work, the
company can try another until the proper audience

12. responds to the message. Another approach worth mentioning is
that Google Analytics coupled with Google
AdWords. This service, for a fee, tracks user searches to narrow
down interested potential customers by
region and, depending on the data available, other user
characteristics such as shopping habits and past
purchase history.
Conclusion
The evolution of communication networks and, specifically, the
Internet has enabled e-commerce
entrepreneurs to have the same opportunities of advertisement
as large companies. The global presence and
scalability of digital media affords e-commerce businesses the
ability to build brands and deliver their
message efficiently and cost effectively around the world.
Remember, successful e-commerce companies
build great brands by creating close relationships with their
customers and are open to investing time in
cultivating that brand so that, at the end, the company’s
message evolves to be more than a brand but, rather,
is a part of the customer’s identity.
References
Internet Live Stats. (n.d.-a). Facebook active users. Retrieved
from
http://www.Internetlivestats.com/watch/facebook-users/
Internet Live Stats. (n.d.-b). Google search statistics. Retrieved
from http://www.Internetlivestats.com/google-

13. search-statistics/
Internet Live Stats. (n.d.-c). Internet users. Retrieved from
http://www.Internetlivestats.com/internet-users/
YouTube website layout
(JuralMin, 2016)
BBA 3331, Introduction to E-commerce 5
UNIT x STUDY GUIDE
Title
Internet Live Stats. (n.d.-d). Total number of websites.
Retrieved from http://www.Internetlivestats.com/total-
number-of-websites/
Johnson, S. (2014, September 29). New research sheds light on
daily ad exposures [Blog post]. Retrieved
from http://sjinsights.net/2014/09/29/new-research-sheds-light-
on-daily-ad-exposures/
JuralMin. (2016). Youtube-website-page-layout-template-
internet-web [Image]. Retrieved from
https://pixabay.com/en/youtube-website-page-layout-1684601/

14. Laudon, K. C., & Traver, C. G. (2018). E-Commerce 2017:
Business, technology, society (13th ed.). Boston,
MA: Pearson Education.
Marshall, R. (2015, September 10). How many ads do you see in
one day? Retrieved from
https://www.redcrowmarketing.com/2015/09/10/many-ads-see-
one-day/
Pexels. (2016). Feet-footwear-Nike-shoes-sneakers-white
[Photograph]. Retrieved from
https://pixabay.com/en/feet-footwear-nike-shoes-sneakers-
1840619/
Sanders, B. (2017). Do we really see 4,000 ads a day? Retrieved
from
https://www.bizjournals.com/bizjournals/how-
to/marketing/2017/09/do-we-really-see-4-000-ads-a-
day.html
Schreiber, T. (2015, January 15). 5 brand strategies to uniquely
position your ecommerce business above the
competition [Blog post]. Retrieved from
https://www.shopify.com/blog/16692816-5-brand-strategies-
to-uniquely-position-your-ecommerce-business-above-the-
competition
Statista. (n.d.). YouTube - Statistics & facts. Retrieved from
https://www.statista.com/topics/2019/youtube/

15. US adults spend 5.5 hours with video content each day. (2015).
Retrieved from
http://www.emarketer.com/Article/US-Adults-Spend-55-Hours-
with-Video-Content-Each-Day/1012362
Weiss, G. (2016). Analyst: YouTube estimated to have revenues
of $27 billion in 2020. Retrieved from
http://www.tubefilter.com/2016/04/15/youtube-estimated-
revenues-27-billion-2020/
International Strategy
Companies operating in global markets choose from among
three basic international strategies: (1) multidomestic, (2)
global, and (3) transnational. Each of these strategies responds
to the local markets and business efficiency in different ways.
A multidomestic strategy emphasizes local needs rather than
pushing products and services from the company’s home
country. For example, the television show Master
Chef customizes the programming that is shown in different
countries.
A global strategy emphasizes operational efficiency to benefit
from economies of scale. It offers the same products in different
locations. Examples include Microsoft and Intel, where local
preferences do not dominate. Consumer goods makers such as
Levi’s and L’oreal develop global brands to gain efficiency.
A transnational strategy emphasizes balance between local
country preferences and the efficiency of standard products. For
example, McDonald’s relies on its brand name but adjusts its
offerings in different countries. It does not serve beef in India
and it sells wine with food in France.
The three types of international strategies are compared in the

16. figure below.
Types of International Strategies
Approaches to International Strategy
Whichever international strategy is chosen, the entry strategy
for international markets needs to present a comprehensive plan
that sets goals, allocates resources, and establishes policies to
guide international operations over a period long enough to
achieve sustainable growth in world markets, often three to five
years.
Without a well-integrated entry strategy, there is only a sales
approach to international markets. The sales and entry strategy
approaches are contrasted in the table below.
Sales Approach versus Entry Strategy Approach
Aspect
Sales approach
Entry strategy approach
Entry mode
No systematic choice. Take opportunities as they come
Systematic choice of most appropriate mode
Target markets
No systematic selection
Selection based on analysis of market/sales potential
Dominant objective
Immediate sales
Build market position
Resource commitment
Only enough to get immediate sales
Whatever is necessary to gain market position
Time horizons
Short run
Long run (say, 3 to 5 years)
New-product development
Exclusively for home market
For both home and foreign markets
Product adaptation

17. Only mandatory adaptations (to meet legal/technical
requirements) of domestic products
Adaptation of domestic tests and services to foreign preferences
Channels
No effort to control
Implement control to support market objectives
Price
Determined by domestic costs with some adjustments to specific
sales situations
Determined by demand, competition, objectives, and other
marketing policies, as well as costs
Promotion
Mainly confirmed to personal selling
Advertising and sales promotion
While the sales approach may be justified as a first attempt, a
prolonged adherence to this approach would not be sustainable
in the long run.
Choosing a Market and Entry Modes
The assessment and choice of target markets would include the
following tasks:
· define the market—Consider the demographics, location, and
common interests or needs of your target customers.
· perform market analysis—Gain an understanding of market
growth rates, forecasted demand, competitors, and potential
barriers to entry.
· assess internal capabilities—Which of the company’s core
competencies can be leveraged? Are the sales channels,
infrastructure, and relationships in place? What are the time-to-
market considerations?
· prioritize and select markets—What are the gaps in the
marketplace that the company can fill better than its
competitors?
· develop market entry options
The selected entry mode could be one or more of the options in
the table below.
Entry Modes

18. Offshore
Contractual
Investment
· Indirect
· Direct agent/distributor
· Direct branch/subsidiary
· Licensing
· Franchising
· Technical agreements
· Service contracts
· Management contracts
· Turnkey contracts
· Sole venture, new establishment
· Sole venture, acquisition
· Joint venture, new establishment or acquisition
As the company develops its international strategy, it is useful
to visualize the long-term evolution of the company in world
markets. As seen in the table below, in Stage 1 the company is
constrained to one or two entry modes. At Stage 4, the company
is able to evaluate all possible entry modes to select the most
appropriate one. Stage 4 denotes that the company has become
multinational, meaning its foreign market entry strategies is
designed from a global perspective rather than a single-country
perspective.
Entry Mode Stages
· Stage 1: Ad hoc exports
· Stage 2: Active exporting and licensing
· Stage 3: Active exporting, licensing, and equity investment in
foreign countries
· Stage 4: Full-scale multinational marketing and servicing
Servicing of occasional, unsolicited export orders. Also
includes response to unsolicited licensing arrangements.
Marginal commitment to foreign markets.
back to tab
The choice of entry mode also depends on the degree of control,
financial outlay, and risk in each mode over a period of time, as

19. shown in the figure below.
Decision on Entry Modes
The actions in the international marketing plan include the
following:
· service—a combination of tangible and intangible attributes
that confer benefits on users
· price—pricing discretion to achieve differentiation in the
market. Together with sales volume, price determines sales
revenue
· channel—wwn none, some, or all channel agencies
· logistics—physical movement of samples, including
transportation, handling, and storage, as well as the choice of
location of collection centers and labs
· promotion—includes personal selling, advertising, sales
promotion, and publicity
The following evaluation matrix can be used for each of the
countries to decide on an entry strategy.
Entry Strategy Evaluation Matrix
Modes Criteria
Investment
Sales
Costs
Profit contribution
Market share
Reversibility
Control
Risk
Other
Local sales office

20. Licensing
Franchising
Agent/distributor
Investment:
New venture

21. Investment:
Acquisition
Joint venture
Mixed

22. Resources
Target Market Selection
Few companies can afford to enter all markets open to them.
Even the world's largest companies, such as General Electric or
Nestlé, must exercise strategic discipline in choosing the
markets they serve. They must also decide when to enter them
and weigh the relative advantages of a direct or indirect
presence in different regions of the world. Small and midsized
companies are often constrained to an indirect presence. For
them, the key to gaining a global competitive advantage is often
creating a worldwide resource network through alliances with
suppliers, customers, and sometimes competitors. A good
strategy for one company, however, might have little chance of
succeeding for another.
History shows that picking the most attractive foreign markets,
determining the best time to enter them, and selecting the right
partners and level of investment has proven difficult for many
companies, especially when it involves large emerging markets,
such as China. For example, it is now generally recognized that
Western carmakers entered China far too early and
overinvested, believing a first-mover advantage would produce
superior returns. The reality was very different. Most companies
lost large amounts of money, had trouble working with local
partners, and saw their technological advantage erode due to
leakage. None achieved the sales volume needed to justify their
investment.
Even highly successful global companies often first sustain
substantial losses on their overseas ventures, and occasionally
have to trim back their foreign operations or even abandon
entire countries or regions in the face of ill-timed strategic
moves or fast-changing competitive circumstances. For

23. example, not all of Wal-Mart's global moves have been
successful—a continuing source of frustration to investors. In
1999, the company spent $10.8 billion to buy the British
grocery chain Asda. Not only was Asda healthy and profitable,
it was already positioned as "Wal-Mart lite." Today, Asda is
lagging well behind its number-one rival, Tesco. Even though
Wal-Mart's UK operations are profitable, sales growth has been
down in recent years, and Asda has missed profit targets for
several quarters running and is in danger of slipping further in
the UK market.
This result comes on top of Wal-Mart's costly exit from the
German market. In 2005, it sold its 85 stores there to rival
Metro at a loss of $1 billion. Eight years after buying into the
highly competitive German market, Wal-Mart executives,
accustomed to using Wal-Mart's massive market muscle to
squeeze suppliers, admitted they had been unable to attain the
economies of scale it needed in Germany to beat rivals' prices,
prompting an early and expensive exit.
What makes global market selection and entry so difficult?
Research shows there is a pervasive the-grass-is-always-greener
effect that infects global strategic decision making in many
companies—especially those without global experience—and
causes them to overestimate the attractiveness of foreign
markets (Ghemawat, 2001). Distance, unless well-understood
and compensated for, can be a major impediment to global
success. Cultural differences can lead companies to
overestimate the appeal of their products or the strength of their
brands; administrative differences can slow expansion plans,
reduce the ability to attract the right talent, and increase the
cost of doing business; geographic distance impacts the
effectiveness of communication and coordination; and economic
distance directly influences revenues and costs.
A related issue is that developing a global presence takes time
and requires substantial resources. Ideally, the pace of
international expansion is dictated by customer demand.
Sometimes it is necessary, however, to expand ahead of direct

24. opportunity in order to secure a long-term competitive
advantage. But as many companies that entered China in
anticipation of its membership in the World Trade Organization
have learned, early commitment to even the most promising
long-term market makes earning a satisfactory return on
invested capital difficult. As a result, an increasing number of
firms, particularly smaller and midsized ones, favor global
expansion strategies that minimize direct investment. Strategic
alliances have made vertical or horizontal integration less
important to profitability and shareholder value in many
industries. Alliances boost contributions to fixed costs while
expanding a company's global reach. At the same time, they can
be powerful resources on technological advancement and can
greatly expand opportunities to create the core competencies
needed to effectively compete on a worldwide basis.
Finally, a complicating factor is that a global evaluation of
market opportunities requires a multidimensional perspective.
In many industries, we can distinguish
between "must" markets—markets in which a company must
compete in order to realize its global ambitions—and "nice-to-
be-in" markets—markets in which participation is desirable but
not critical. "Must" markets include those that are critical from
a volume perspective, markets that define technological
leadership, and markets in which key competitive battles are
played out. In the cell phone industry, for example, Motorola
looks to Europe as a primary competitive battleground, but it
derives much of its technology from Japan and sales volume
from the United States.
Measuring Market Attractiveness
Four key factors in selecting global markets are (1) a market's
size and growth rate, (2) a particular country or region's
institutional contexts, (3) a region's competitive environment,
and (4) a market's cultural, administrative, geographic, and
economic distance from other markets the company serves.
Market Size and Growth Rate
There is no shortage of country information for making market

25. portfolio decisions. A wealth of country-level economic and
demographic data are available from a variety of sources,
including governments, multinational organizations such as the
United Nations or the World Bank, and consulting firms
specializing in economic intelligence or risk assessment.
However, while valuable from an overall investment
perspective, such data often reveal little about the prospects for
selling products or services in foreign markets to local partners
and end users or about the challenges associated with
overcoming other elements of distance. Yet many companies
still use this information as their primary guide to market
assessment simply because country market statistics are readily
available, whereas real product market information is often
difficult and costly to obtain.
Furthermore, a country or regional approach to market selection
may not always be best. Even though Theodore Levitt's vision
of a global market for uniform products and services has not
come to pass, and global strategies exclusively focused on the
"economics of simplicity" and the selling of standardized
products all over the world rarely pay off, research increasingly
supports an alternative "global segmentation" approach to the
issue of market selection, especially for branded products. In
particular, surveys show that a growing number of consumers,
especially in emerging markets, base their consumption
decisions on attributes beyond direct product benefits, such as
their perception of the global brands behind the offerings.
Specifically, research by John Quelch (2003) and others
suggests that consumers increasingly evaluate global brands in
cultural terms and factor three global brand attributes into their
purchase decisions: (1) what a global brand signals about
quality, (2) what a brand symbolizes in terms of cultural ideals,
and (3) what a brand signals about a company's commitment to
corporate social responsibility. This creates opportunities for
global companies with the right values and the savvy to exploit
them to define and develop target markets across geographical
boundaries and create strategies for global segments of

26. consumers. Specifically, consumers who perceive global brands
in the same way appear to fall into one of four groups:
· Global citizens rely on the global success of a company as a
signal of quality and innovation. At the same time, they worry
whether a company behaves responsibly on issues like consumer
health, the environment, and worker rights.
· Global dreamers are less discerning about, but more ardent in
their admiration of, transnational companies. They view global
brands as quality products and readily buy into the myths they
portray. They also are less concerned with companies' social
responsibilities than global citizens.
· Antiglobals are skeptical that global companies deliver higher-
quality goods. They particularly dislike brands that preach
American values and often do not trust global companies to
behave responsibly. Given a choice, they prefer to avoid doing
business with global firms.
· Global agnostics do not base purchase decisions on a brand's
global attributes. Instead, they judge a global product by the
same criteria they use for local brands (Quelch, 2003; Holt,
Quelch, & Taylor, 2004).
Companies that use a global segment approach to market
selection, such as Coca-Cola, Sony, or Microsoft, therefore
must manage two dimensions for their brands. They must strive
for superiority on basics like the brand's price, performance,
features, and imagery, and, at the same time, they must learn to
manage the brand's global characteristics, which often separate
winners from losers. In the late 1990s, Samsung launched a
global advertising campaign that showed the South Korean giant
excelling, time after time, in engineering, design, and
aesthetics. By doing so, Samsung convinced consumers that it
successfully competed directly with technology leaders across
the world, such as Nokia and Sony. As a result, Samsung was
able to change the perception that it was a down-market brand,
and it became known as a global provider of leading-edge
technologies. This brand strategy, in turn, allowed Samsung to
use a global segmentation approach to making market selection

27. and entry decisions.
Institutional Contexts
Khanna, Palepu, and Sinha (2005) developed a five-dimensional
framework to map a particular country or region's institutional
contexts. Specifically, they suggest careful analysis of a
country's political and social systems, openness, product
markets, labor markets, and capital markets.
A country's political system affects its product, labor, and
capital markets. In socialist societies like China, for instance,
workers cannot form independent trade unions in the labor
market, which affects wage levels. A country's social
environment is also important. In South Africa, for example, the
government's support for the transfer of assets to the
historically disenfranchised native African community has
affected the development of the capital market.
The more open a country's economy, the more likely it is that
global intermediaries can freely operate there, which helps
multinationals function more effectively. From a strategic
perspective, however, openness can be a double-edged sword. A
government that allows local companies to access the global
capital market neutralizes one of the key advantages of foreign
companies.
Even though developing countries have opened up their markets
and grown rapidly during the past decade, multinational
companies struggle to get reliable information about consumers.
Market research and advertising are often less sophisticated
and, because there are no well-developed consumer courts and
advocacy groups in these countries, people can feel they are at
the mercy of big companies.
Recruiting local managers and other skilled workers in
developing countries can be difficult. The quality of local
credentials can be hard to verify, there are relatively few search
firms and recruiting agencies, and the high-quality firms that do
exist focus on top-level searches, so companies scramble to
identify middle-level managers, engineers, and floor
supervisors.

28. Capital and financial markets in developing countries often lack
sophistication. Reliable intermediaries like credit-rating
agencies, investment analysts, merchant bankers, or venture
capital firms may not exist, and multinationals cannot count on
raising debt or equity capital locally to finance their operations.
Emerging economies present unique challenges. Capital markets
are often relatively inefficient. Dependable sources of
information are scarce, while the cost of capital is high and
venture capital is virtually nonexistent. Because of a lack of
high-quality educational institutions, labor markets may lack
well-trained people, requiring companies to fill the void.
Because of an underdeveloped communications infrastructure,
building a brand name can be difficult just when good brands
are highly valued because of the lower product quality of the
alternatives. Finally, nurturing strong relationships with
government officials often is necessary to succeed. Even then,
contracts may not be well enforced by the legal system.
Competitive Environment
The number, size, and quality of competitive firms in a
particular target market compose a second set of factors that
affect a company's ability to successfully enter and compete
profitably. While country-level economic and demographic data
are widely available for most regions of the world, competitive
data are much harder to come by, especially when the principal
players are subsidiaries of multinational corporations. As a
consequence, competitive analysis in foreign countries,
especially in emerging markets, is difficult and costly to
perform and its findings do not always provide the level of
insight needed to make good decisions. Nevertheless, a
comprehensive competitive analysis provides a useful
framework for developing strategies for growth and for
analyzing current and future primary competitors and their
strengths and weaknesses.
BRIC Countries: A Key Challenge for Carmakers
Today, automobile manufacturers face a critical challenge—
deciding which BRIC countries (Brazil, Russia, India, and

29. China) to bet on. In each, as per capita income rises, so will per
capita car ownership—not in a straight line but in classic S-
curve. Rates of vehicle ownership stay low during the first
phases of economic growth, but as the GDP or purchasing
power of a country reaches a level of sustained broad
prosperity, and as urbanization reshapes the work patterns of a
country, vehicle sales take off. But that is where the similarities
end. Each of the four BRIC nations has a completely different
set of market and industry dynamics that make choices about
which countries to target, including making difficult decisions
about which markets to avoid, extremely difficult.
For one thing, vehicle manufacturing is a high-profile industry
that generates enormous revenue, employs millions of people,
and is often a proxy for a nation's manufacturing prowess and
economic influence. Governments are extensively involved in
regulating or influencing virtually every aspect of the product
and the way the industry operates—including setting emissions
and safety standards, licensing distributors, and setting tariffs
and rules about how much manufacturing must take place
locally. This reality makes the job of understanding each market
and appreciating the differences more vital. For example, a
summary overview of the BRIC nations reveals the differences
among these markets and the operating complexities in all of
them.
Brazil, with Russia, is one of the smaller BRIC countries, with
188 million people (by comparison, China and India each have
more than 1 billion, and Russia has 142 million). Yet car usage
is already relatively high—104 cars in use per 1,000 people,
which is nearly 10 times the rate of usage in India, according to
the Economist Intelligence Unit. Because of this high usage
rate, growth projections for Brazil are relatively low—more in
line with developed nations than with the other BRIC countries.
On the plus side, Brazil is socioeconomically stable, with
increasing wealth and a maturing finance system that is helping
to propel growth among rural, first-time buyers who prefer
compact cars. Few domestic brands exist, as the market is

30. dominated by GM, Ford, Fiat, and Volkswagen. Prompted by
generous government incentives, high import taxes, and
exchange rate risks, foreign automakers have invested
significantly in Brazil, which has thus become an unrivaled
production hub for the rest of South America. Brazilian
consumers live in a country with large rural areas and very
rough terrain. They demand fairly large, SUV-like cars, made
with small, economical engines and flex-fuel power trains
friendly to the country's biofuel industry. When a Latin
American family buys its first automobile, chances are it was
made in Brazil.
Even though Russia is the smallest of the BRIC countries in
population, it has the highest auto adoption of the four—213
cars in use per 1,000 people. (Western Europe, by comparison,
has 518, according to the Economist Intelligence Unit.) Yet
Global Insight expects future sales growth to average 6.5
percent from 2008 to 2013, far outpacing Brazil (2 percent),
Western Europe (1.2 percent), and Japan and Korea (0.2
percent).
Given Russia's proximity to Europe, consumer preferences there
are more akin to those of the developed markets than to those of
China or India, and expensive, status-enhancing European
models remain popular, although European safety features,
interior components, and electronics are often stripped out to
reduce costs. For vehicle manufacturers, the attractions of the
Russian market include an absence of both local partnership
requirements and significant local competitors. But there is high
political risk. So far, the Russian government has permitted
foreign carmakers to operate relatively freely, but the Kremlin's
history of meddling in private enterprise and undercutting
private ownership worries some executives. These concerns
were heightened in November 2008, when Russia implemented
tariffs against car imports in hopes of avoiding layoffs that
might spark labor unrest among the country's 1.5 million car
industry workers.
India has 1.1 billion people, but its level of car adoption is still

31. low, with only 11 cars in use per 1,000 people. The upside is
higher potential growth. Among the BRIC countries, India is
expected to have the fastest-growing auto sales. Sales of
subcompact cars have been strong, even during the global
recession. The popularity of these small cars combines with
India's energy shortages and the country's chronic pollution to
provide foreign carmakers with an ideal opportunity to further
develop electric powertrain technologies there.
Until the early 1990s, foreign automobile manufacturers were
mostly shut out of India. That has changed radically. Today,
foreign automakers are welcomed and the government promotes
foreign ownership and local manufacturing with tax breaks and
strong intellectual property protection. And because foreign
companies were shut out for a long period of time, India has
capable manufacturers and suppliers for foreign vehicle
manufacturers to partner with. Local competition is strong but
is thus far concentrated among three players: Maruti Suzuki
India, Ltd., Tata, and the Hyundai Corporation, which is well
established in India.
China is almost as large as the other three countries combined
in total auto sales and production. Its overall auto usage is just
18 cars per 1,000 households, but annual sales growth is
expected to be almost 10 percent. Its size and growth potential
make China a dominant force in the industry going forward.
New models and technologies developed there will almost
certainly become available elsewhere.
The Chinese government plays a central role in shaping the auto
industry. Current ownership policies mandate that foreign
vehicle manufacturers enter into 50-50 joint ventures with local
automakers, and poor intellectual property rights enforcement
puts the design and engineering innovations of foreign car
companies at constant risk. At the same time, to cope with
energy shortages and rampant pollution, the Chinese
government is strongly encouraging research and development
on alternative power trains, including electric cars and gasoline-
electric hybrids. As a result, Chinese car companies may

32. develop significant power-train capabilities ahead of their
competitors.
Like their Indian counterparts, Chinese car companies have
outpaced global automakers in developing cars specifically for
emerging markets. A few Western companies are competitive,
like Volkswagen AG, which has sold its Santana models in
China through a joint venture (Shanghai Volkswagen
Automotive Company) since 1985. Some Chinese carmakers,
like BYD Company, aspire to become global leaders in the
industry, but many suffer from a talent shortage and
inexperience in managing across borders. This situation may
prompt them to acquire all or part of distressed Western
automobile companies in the near future or to hire skilled auto
executives from established companies and their suppliers.
In short, each of the four BRIC nations has a completely
different set of market and industry dynamics, and the same is
true for many other developing nations. Meanwhile, the number
of autos in use in the developing world is projected to expand
almost six-fold by 2018.
Cultural, Administrative, Geographic, and Economic Distance
Explicitly considering the four dimensions of distance can
dramatically change a company's assessment of the relative
attractiveness of foreign markets. In his book The Mirage of
Global Markets, David Arnold (2004) describes the experience
of Mary Kay Cosmetics (MKC) in entering Asian markets. MKC
is a direct marketing company that distributes its products
through independent beauty consultants who buy and resell
cosmetics and toiletries to contacts either individually or at
social gatherings. When considering market expansion in Asia,
the company had to choose between entering Japan or China
first. Country-level data showed Japan to be the most attractive
option by far. It had the highest per capita level of spending on
cosmetics and toiletries of any country in the world, disposable
income was high, it already had a thriving direct marketing
industry, and it had a high proportion of women who did not
participate in the workforce. MKC learned, however, after

33. participating in both markets, that the market opportunity in
China was far greater, mainly because of economic and cultural
distance. Chinese women were far more motivated than their
Japanese counterparts to boost their income by becoming beauty
consultants. Thus, the entrepreneurial opportunity represented
by what MKC describes as "the career" (i.e., becoming a beauty
consultant) was a far better predictor of the true sales potential
than high-level data on incomes and expenditures. As a result of
this experience, MKC now employs an additional business-
specific indicator of market potential within its market
assessment framework—the average wage for a female secretary
in a country (Arnold, 2004, p. 34).
MKC's experience underscores the importance of analyzing
distance. It also highlights the fact that different product
markets have different success factors. Some are brand
sensitive, while pricing or intensive distribution are key to
success in others. Country-level economic or demographic data
do not provide much help in analyzing such issues. Only locally
gathered marketing intelligence can provide true indications of
a market's potential size and growth rate and its key success
factors.
Tata Making Inroads into China
Not content with just India, Mumbai-based Tata Group, the
maker of the $2,500 Nano small car, is developing a small car
for China. The platform is being designed and developed by a
joint Indian and Chinese team based in China. The alliance won
a new project for the complete design and development of a
vehicle platform for a leading original equipment manufacturer
for a small car for the China's domestic market. The team is
integrating components in automotive modules to radically
improve manufacturability and bring down total cost.
Meanwhile, in 2009, Nanjing Tata AutoComp Systems began
supplying automotive interior products to Shanghai General
Motors and Changan Ford Automobile Company Products,
including plastic vents, outlet parts, and cabin air-ventilation
grilles. In the same year, Nanjing Tata began supplying General

34. Motors Corporation in Europe. Eventually, the plant will supply
global automakers in North America and Europe as well as in
emerging markets, such as China.
Nanjing Auto is a wholly owned subsidiary of Tata AutoComp
Systems, which is the automotive part manufacturing arm of
India's Tata Motors. The company has 30 manufacturing
facilities, mainly in India, and production capabilities in
automotive plastics and engineering. It also has 15 joint
ventures with Tier 1 supplier companies, mainly in India.
The company has almost completed construction of the 280,000-
square-foot Nanjing plant at a cost of approximately $15
million. The first phase included capacity to make parts for air
vents, handles, cupholders, ashtrays, glove boxes, and floor
consoles. When completed, the plant will have double the
current capacity and will also produce instrument panels, door
panels, and larger parts. The plant is operated by local Chinese
employees. Only a few managers are Indian.
In its bid to become a $1 billion global automotive supplier by
2008, Tata AutoComp had to expand into China. Total
passenger car sales in India in 2007 were slightly more than 1.4
million units. In China, the number was more than 5.2 million
units, according to data from Automotive Resources Asia, a
division of J. D. Power and Associates. Tata Motors sold
221,256 passenger cars in India in 2007. In the same year,
Shanghai General Motors sold 495,405 cars. "We see huge
potential in China. To us, China is not just a manufacturing
base, but a window to the global market. Our investments are
keeping this promising future in mind,'" says the Tata
AutoComp's chief executive officer (Chow, 2006).
Glossary
global segments
Comprised of consumers who evaluate global brands in cultural
terms and factor global brand attributes into their purchase
decisions
institutional contexts
Comprised of a country or region's political and social systems,

35. openness, product markets, labor markets, and capital markets
"must" markets
Those markets in which a firm must compete in order to realize
its global ambitions
"nice-to-be-in" markets
Markets in which participation is desirable but not critical
International Expansion and Global Market Opportunity
Assessment
Companies may decide to expand internationally for a variety of
reasons. Before deciding on an international strategy, however,
it is important to clearly understand the rationale and
motivations for international expansion. These motivations
typically include one or more of the following:
· seeking new markets—Company growth objectives that cannot
be met with domestic demand drive the search for new revenue
sources. The company may also want to establish a strong
foreign presence to gain a first-mover advantage.
· geographic advantage—Some countries provide resources and
strengths that are not available in the company’s home country.
Access to skills and knowledge is a common motive for
international expansion. The establishment of effective global
hubs can also increase distribution efficiency.
· risk diversification—Economic downturns in one location can
be mitigated by a company’s presence in another location.
· keeping up with the competition—If the company has a
competitive rivalry in its home country, it may follow its
competitor into a new territory.
Namely, international expansion allows companies to take
advantage of global business opportunities including the
following:
· marketing and distribution of products and services
· establishing production facilities to produce more competently
or cost effectively
· procuring raw materials or components, or services of lower

36. cost or superior quality
· entering into collaborative arrangements with foreign partners
Global market opportunities manifest as a combination of
circumstances, locations, or timing that offer prospects for
exporting, investing, sourcing, or partnering in foreign markets.
Before the company decides to expand internationally, it should
carry out international due diligence and analyze the impact of
regional differences, consumer preferences, and industry
dynamics on its markets. A presence in a new market will have
to follow the company’s specific strategies, which can be
influenced by the local culture, regulatory mechanisms, and the
structure of the industry.
International expansion may be attractive, but competition in
these markets can be intense. Risks and costs can be
underestimated in markets that are new to managers, and
systematic global marketing opportunity assessment is therefore
essential. Some of the well-known failures in global markets
include the following:
· Best Buy failed to notice that Europeans prefer smaller shops
to big-box stores. The company also closed its branches in
China and Turkey.
· eBay initially failed to expand into China, where customers
prefer to develop trust through their own interactions with
sellers rather than act on other users’ ratings, and into Japan,
where buyers had to input their credit card information in order
to make a purchase, a practice that was not popular there at the
time.
· Starbucks closed its six stores in Israel, failing to appreciate
the nation’s coffee culture and misinterpreting the local
consumer base’s tastes.
· Wendy’s closed its 71 locations in Japan. Japan already had
McDonald’s and Burger King, but the company did not place
appropriate focus on the Japanese palate.
The main steps of the global marketing opportunity assessment
are shown in the figure below.

37. Global Marketing Opportunity Assessment
As we saw in the above examples, a weak opportunity
assessment of global markets can expose companies to failure.
Analyzing and evaluating markets for international expansion is
critical for companies planning to access global markets.
GOING INTERNATIONAL: A PRACTICAL,
COMPREHENSIVE TEMPLATE FOR ESTABLISHING A
FOOTPRINT IN FOREIGN MARKETS
Contents
1. What makes it different?
2. How it works
3. Stage One (three steps): Conceptualize international business
4. Stage Two (two steps): Embrace new markets
5. Stage Three (two steps): Construct the plan
6. Stage Four (three steps): Commercialize the international
opportunity
Full Text
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Global Business | May / June 2010
Executives, entrepreneurs and managers who want to expand to
international markets, but are hesitant, should be able to move
forward and abroad after reading this article. It contains a
detailed, dynamic blueprint that informs, educates and
convinces leaders that they can expand to and succeed in
international markets.
The success abroad of companies like Research In Motion,
Magna International and McCain Foods is a convincing
argument that Canadian companies can indeed go global.
Widely recognized brands such as Roots and Lululemon have
also established footprints in foreign markets. Yet, there are
still too many Canadian companies content to stay at home, or
at best, to do nothing further than eye expansion to the United
States.
The implications are significant. In its study, Profile of Growth

38. Firms, Industry Canada found that while exporters accounted
for just 5.5 percent of the total firms surveyed, they created 47
percent of jobs. The report also found that, in addition to being
extraordinary job creators, exporters were more likely to be
hyper or strong growth firms.
It's hardly a secret that going global tops the list of great
business opportunities today. The most dramatic exhibition that
I have witnessed of globalization's sweeping effect on an
economy is the city of Dubai, in the United Arab Emirates. A
micro-city much smaller than Toronto and, by comparison,
which just a couple of decades ago was a village, is today the
world's third-largest re-export center, after Singapore and Hong
Kong.
The next several decades will see one billion people in Brazil,
Russia, India and China (the BRIC countries) become part of
the middle class. These one billion consumers will have
tremendous spending power and a deep hunger for western
labels, tastes and concepts. Canada must capitalize on this
opportunity. For businesses, it provides the solution to one of
their most pressing needs. It delivers growth. For government, it
addresses what lies at the heart of our economic recovery. It
creates jobs.
However, given the small number of Canadian firms that
compete and are known around the world, it's reasonable to ask
what is holding Canadian business back. As a long-time
practitioner in international markets, and one who regularly
counsels Canadian executives, I have found that there is a fear
of failure that makes management think twice about expanding
abroad. This is understandable. Having spent much of their lives
in North America, many Canadian leaders can find that doing
business in foreign countries is out of their comfort zone.
Countries like India and China, for example, offer a unique set
of challenges that they are not equipped to handle. The reality is
that an enormous knowledge gap exists that paralyzes
management, builds resistance to change and promotes inertia.
Nevertheless, I sense that Canadian leaders believe that they are

39. missing out on a once-in-a-lifetime opportunity. There exists a
pent up demand in management suites to tap new markets. I am
convinced that these same executives would seize the
opportunity, if only they knew how.
This article will describe a practical, comprehensive framework
that I believe will equip Canadian leaders with the know-how
they need to establish a footprint in foreign markets. Equally
crucial, it will equip leaders with the discipline that will enable
them to produce a measured, yet expedient response to the
international opportunity. I call the framework iSMARTE™, or
Informed and Structured Market Acquisition Route to
Transcontinental Expansion. Five years in making, the
framework was conceived after retracing my own experience in
international markets, which has taken me to thirty-plus
countries, across three continents.
The iSMARTE™ Framework for going international
Venturing abroad offers a compelling growth proposition, but
only if it's done right. And the key to getting it right is know-
how, not knowledge. The distinction is appreciable. Knowledge
is a higher order of awareness that tells you why. Know-how is
a higher order of knowledge that tells you how…how the
international opportunity applies to you, and how you can
capitalize on it.
iSMARTE™ creates this know-how. It provides lessons that are
simplified, customized and real world, so that they can be
applied, and it ensures that the decision to expand
internationally is an educated and informed one.
» View Chart 1: The iSMARTE Framework
What makes it different?
iSMARTE™ was conceived to enable experiential learning and
produce real, tangible results. The structured framework wires
businesses with four categories of cognizance that help them
bridge the knowledge divide comprehensively, in four stages
and ten systematic steps. If followed carefully, success in a
foreign market can be achieved in 12-20 months.
How it works

40. Businesses are paired with a veteran international coach who
administers the four-stage framework on company premises,
working shoulder to shoulder with the CEO and his senior team.
A full-time team member, the coach tackles international
complexities by providing a turnkey, customized solution; he or
she establishes the approach, crafts a vision, maps out strategy
and navigates the execution speed bumps. As well, the coach
provides a deep reservoir of investor and professional contacts.
The four stages of expansion are Conceptualize, Embrace,
Construct, and Commercialize.
Stage One (three steps): Conceptualize international business
The first stage, arguably, is the most consequential. It shows
how the international opportunity applies to you and helps
conceptualize international business development by providing
fundamental knowledge in an uncomplicated way. This is
crucial, as it establishes a positive mindset. And mindset shapes
approach, which in turn determines results. Simply stated, if
transcontinental expansion is undertaken with a conservative
predisposition, it will most likely yield a modest outcome.
Conversely, if international plans are pursued with drive, it is
likely to produce meaningful, extraordinary results, as we have
seen with the likes of Research in Motion, McCain Foods and
others.
Steps 1 to 3 help develop the right approach:
1. Business size-up: Venturing abroad starts at home.
Companies must first determine their core competence, as all
successful international initiatives are built on exporting
expertise, not products. The majority stumbles on this first step
by developing international strategies that are divorced from
their core business. Besides competence, all other aspects of
business, such as goals, products, positioning and others need to
be adapted to local market needs. Gillette's core competence
was delivering a quality shave, which it ably exported to
markets like China, India and Mexico. But it also tailored its
product line to income levels and shaving requirements of those
markets by marketing double-edge and disposable razors at a

41. lower price point.
.
2. Define international business: Albert Einstein said that the
most incomprehensible thing about the world is that it is
comprehensible. The same applies to international business.
Below are ten facts that define international business in a
comprehensible way.
a. Globalization is reality. McKinsey and Company estimates
that global trade could account for 80 percent of all trading
activity in the next two decades, up from just 20 percent in the
1970's. The late economist, Paul Erdman, paraphrased it best
when he asserted that, "What we are experiencing today is a
process of globalization that is as irreversible as it is inevitable.
That we now live in an age when goods, capital, technology,
people are free, and able to move from continent to continent on
a scale and at a speed unimaginable just a couple of decades
ago. It is those who take advantage of these realities who will
be the prime producers of wealth in the 21st century."
b. Globalization is an entree to growing markets. Emerging
markets are expanding at impressive levels, but many still don't
realize the magnitude and speed at which growth is occurring.
Kishore Mahbubani, a prominent writer and thinker, helps
provide perspective. "Today, Asia is experiencing what the
West did in its Industrial Revolution. Back then, Western
societies enjoyed an impressive improvement in living standards
of 50 percent in a lifetime. Larry Summers has calculated that
the comparable figure for Asia today is 10,000 percent. This
one statistic illustrates how dramatic Asia's growth is."
c. Globalization is access to eager consumers. Good times have
created wealth in emerging economies, unlike in developed
nations, where it has created debt. This has sparked an
apparently insatiable desire for and consumption of foreign
merchandise, from Pepsi cans to Porsche cars. China is set to
become Porsche's second-biggest car market in the world by
2012, surpassing Germany.
d. Globalization makes strategic sense. The test of any good

42. strategy is its ability to deliver growth. Globalization achieves
this in magnitude and in speed, especially when combined with
innovation. Apple has skillfully demonstrated how companies
can pursue this balanced approach. It continues to crank up
sales by introducing new products (iPhone), entering new
segments (servers, digital music sales) and venturing into new
markets (international sales comprise nearly 60 percent of
revenues). It's a question worth pondering: If it had been sold
just in the United States, would the iPhone have enjoyed such
success? Without new markets, the success of new product
innovations is severely limited.
e. Globalization makes financial sense. Substantial anecdotal
evidence suggests this to be true. Gillette doubled razor
shipments to 2 million units in only 4 years upon undertaking
international expansion. Coca-Cola more than quadrupled
servings to 6 million per day in just 6 years, and Research in
Motion tripled revenues in three years, helped by its push into
new countries. Of the 25 worlds' largest companies listed by
Forbes, all have crossed borders.
f. Globalization makes operational sense. Trade and investment
barriers are coming down, making globalization more
achievable today than ever before. In 1950 there were 50
regional trade agreements. By 2005 there were 250. In its Top
Trends To Watch report, McKinsey noted that, "Perhaps for the
first time in history, geography is not the primary constraint on
the limits of social and economic organization."
g. Globalization is getting local. To get global, one needs to get
local. Winning international strategies transcend the barriers of
distance, culture and language. In China, Kentucky Fried
Chicken has transformed its menu to suit local tastes. People
visit the American chain, famous for its fried chicken, to eat
fish, porridge and egg tarts, three or four times a week.
h. Globalization is big (visionary) thinking. CEO's need to
provide the energy and vision to get global. Globalization is an
executive decision, not a managerial one. No one illustrated this
better than JFK, who in 1961, famously declared, "I believe that

43. this nation should commit itself to achieving the goal, before
this decade is out, of landing a man on the moon and returning
him safely to earth." His vision inspired a generation and
opened new avenues for an entire nation.
i. Globalization is smart planning. Nothing significant was ever
achieved without it. I have been fortunate to witness smart
planning at its best. In 1997, Gillette unveiled its MACH3 razor
to thirty-plus countries around the globe, simultaneously, in one
year. Within 18 months, sales of the razor topped one billion
dollars. I realized then that smart planning in international
business doesn't require genius. It requires discipline. The
iSMARTE™ framework is modeled on this discipline.
j. Globalization is effective implementation. Colin Powell has
said that planning without execution is hallucination. Though
this is a universally accepted fact, it is astonishing to see how
so many companies fail to build a capacity to execute. The most
common mistake companies make, time and again, is to under-
estimate the importance of putting a local, on-the-ground team -
- the most crucial link that delivers the intended strategy -- in
place.
I have found that the ten facts above, when customized to
company needs, create a new level of reckoning of the
international opportunity. However, I have also found that
misunderstandings run very deep. One needs to take this newly
found appreciation one notch higher. This is the raison d'être
for step 3.
3. De-mystify international business: Einstein believed that
education is what remains after one has forgotten everything he
learned in school. If international education is to happen,
executives will need to rid themselves of the mental barriers
and stereotypes developed over time, and that just aren't true.
Let's examine a few.
a. Myth 1: International markets are risky. This is the biggest
myth of all. If we can get to see international markets the way
they actually are, and not the way we think they are, we will
realize that new markets actually offer a favorable risk-reward

44. ratio to new products, a popular management calling for
delivering growth. It seems that misconceptions are coloring the
decision-making process.Consider that it costs on average of
(U.S.) $50 million to introduce a new product (or in MACH3's
case, one billion dollars). By comparison, new-market
investments, which often are shared in a joint venture or
partnership, can run substantially lower, at around 10 percent of
that amount. Matter of fact, it is possible to achieve foreign
expansion for under one million dollars. Recently, we helped a
large Canadian food client establish a Middle East beachhead in
Dubai for a total investment of (U.S.) $750,000. For this, our
client, through its JV partner, got a dedicated sales-and-
management team, technical service staff, office and warehouse
space, and a nationwide distribution-and-logistics setup.
Furthermore, its first two orders totaled more than (U.S.)
$500,000, producing quick results on the investment
outlay.Expanding by investing in new markets compared to
introducing new products requires not just a considerably
smaller investment but a considerably less financial leap of
faith, as investments can be staggered and tied to revenues. This
makes it easier to assess and react to unforeseen market
developments. Companies can cut losses and save part of the
investment if a new-market experiment fails. New products,
however, require the entire commitment upfront, forcing
businesses to take on significantly more risk, even before the
first dollar in sales has been generated.New-market investments,
unlike new products, can be self-financing as well. As already
seen, it is not uncommon to recover part of an investment in the
initial orders. And often, one can turn a bigger profit on
overseas orders than on local ones. To its surprise, one client
found that it could market its product for double the price than
it could at home, in Canada. There are many reasons why this
can happen. One reason is that emerging markets, though
developing fast, can still have fewer quality players as
compared to developed ones, thus making the former a
suppliers' market.Perhaps the most potent argument in favor of

45. expanding to new markets is that they provide companies with a
unique opportunity to build a customer base incrementally. New
products, on the other hand, can cannibalize existing sales. As a
result, new market return-on-investment projections are not
burdened by the need to compensate for cannibalization with
higher product margins and/or competitive user migration.In
addition to providing an accretive impact on a business, new
markets can also provide access to a sizable customer base,
especially in Asia, with its large population. This is an
important factor, as it helps build size and creates economies of
scale -- the Holy Grail of business that enables cost
effectiveness and improves margins. This is a competitive edge
China always seems to have.Finally, new-market investment
models produce a lifelong revenue stream that compounds
exponentially. In stark contrast, new products produce a cash-
flow stream that is limited to the lifecycle of the product,
usually five to seven years.I hasten to add that the underlying
assumption in all the arguments above is that new-market
expansion needs to be done right, as is, of course, the case with
new products. All things being equal, a careful analysis reveals
that new markets indeed can offer companies a better risk-
reward ratio than new products. This does not mean companies
should not focus on new product development, just to say they
need to follow a more balanced approach.
b. Myth 2: International expansion requires size. Though size
helps, it certainly is not a pre-requisite for going overseas. In
fact, in some cases it can hinder progress, as large companies
can be less agile and more set in their ways, making it harder to
react and adapt. McCain Foods, based in Florenceville, New
Brunswick, expanded to the U.K., France, Australia,
Netherlands and the U.S. in 1965, while its sales were still
modest. Today it's the number one French Fry manufacturer in
the world, with sales of over (U.S.) $8 billion and operations in
over 110 countries. The food giant ventured abroad early, while
it was still young. Today, it processes over one million pounds
of French Fries and other potato products per hour!

46. c. Myth 3: You become international one market at a time.
Nothing could be further from the truth. Just as innovative
companies have several products in the pipeline in any given
year, successful international businesses make it a point to
expand to multiple geographies simultaneously. McDonalds
ventured into 11 countries in five years in the 1970's. Research
in Motion introduced its Blackberry in more than 20 markets in
just four years, Second Cup has built a foreign presence in 11
markets in five years, and Tim Hortons has just announced that
it is considering expanding to 3-5 foreign markets.
Stage Two (two steps): Embrace new markets
By this time, companies usually have acquired a firm
understanding of how the international opportunity applies to
them. They are now ready to learn how that understanding
applies to the international opportunity. Or put another way,
how they can make a meaningful difference if they can
successfully export their core competence to new international
markets. This serves as a defining moment that helps them
embrace new markets.
In this stage, market intelligence is provided in a manner that
brings countries and consumers from afar, up-close, ably
figured out, according to the domain of company. This creates
an international awakening of sorts. In the 1930s, Robert
Woodruff, Coca Cola's Business Hall of Fame leader, and the
architect of its geographic expansion, realized how his syrup
could "provide that simple moment of pleasure" to billions in
every corner of the globe. This realization sparked a vision, or
big thinking, that was essential in building Coke as a global
brand, and Woodruff into a Coke legend.
Steps 4 and 5 are designed to generate visionary thinking:
· 4. Assess the international opportunity. This step involves
ranking a hierarchy of needs against a set of market offerings to
determine if there are any needs currently going un-served.
Hence, a marketplace gap. However, this is not enough, as not
every gap is an opportunity. The mark of a savvy international
operator is to assess if the gap identified is synergistic with the

47. firm's core competence. If it is, then the gap represents a viable
opportunity. This is a fine assessment many fail to make. It
ensures that the company is not chasing after opportunities in
which it doesn't have expertise. Ratan Tata envisioned the
opportunity for the Nano, the world's cheapest car, once he
discerned that there was an unmet need of millions of Indian
motorcycle owners who yearned to own a car and wanted to take
part in the boom of urban prosperity. This market gap fit nicely
with the company's core competence, as it already was the low-
cost vehicle manufacturer in India. Launched in India, the Nano
will be available in the U.K. in 2011 and in the U.S. in three
years.
· 5. Outline the international opportunity: Once an opportunity
has been identified and further qualified, it is then articulated in
a vision statement and communicated throughout the
organization. It is worth noting that this is not just a feel-good
statement, but a clear, purposeful expression of, 'What could
be.' For the Nano, the vision was, "To be the world's first
peoples' car." Microsoft had a similar vision in the 1980s, "To
have a computer in every home, running Microsoft software."
More than ambitious statements, these visions helped create
organizational readiness, fuelled a relentless pursuit to seize the
opportunity and achieve a lofty goal. As well, the visions
provided management with a framework for strategic planning,
decision-making and resource allocation.
Stage Three (two steps): Construct the plan
By now companies are several months into the process and have
overcome their biggest barrier in going international, a
paralyzing uneasiness. At this stage, management is in an eager,
go-get-'em state of readiness. They have an informed opinion of
how the international opportunity applies to them and how they
relate to it. The task now becomes one of constructing a plan.
At this point, the international coach delivers analytical
expertise that is visible and tangible, as well as insights and
experiences that are deep-rooted and harder to pin down. The
task at hand is to construct a 5-year International Strategic

48. Business Plan (ISBP) that delivers on a key measure -- achieve
market penetration, not just market presence. The plan is built
with a purpose -- to dominate and make a meaningful
contribution to corporate performance.
Steps 6 and 7 enable smart planning:
6. Lay out strategic principles. Einstein said, "I want to know
God's thoughts; the rest are just details." Well, within the
confines of international business, the principles shared
herewith can certainly be taken as gospel. These are the
absolute must-haves of planning.
a. Focus and prioritize: The world is a big place. Which markets
does one enter first? This is an important question that needs to
be addressed upfront. Many factors are taken into consideration
here; industry trends, competitive landscape, management
preferences and the likes. An equally important factor is
economic growth. Emerging markets are in the midst of an
economic expansion, the likes of which have never been seen
before. But which emerging markets should one focus on first?
Brazil? China?
.
Adopting a bird's eye view helps here. Scanning the six major
regions of the globe -- North and South America, Europe,
Australia, Africa and Asia (which comprises the Middle East,
China and Far East, Indian subcontinent and Russia) -- Asia's
growth immediately stands out. As does the fact it has size (60
percent of the world's population), wealth (50 million people
entering middle class every day -- yes every day!) and
productivity (40 percent of the world economy, humming at 5.6
percent annually). Every business must have an Asia plan. The
region is the growth engine of the world economy.
b. Classify markets: Size, wealth and productivity are useful
benchmarks that can be used to understand countries, as well to
classify them into three groups; opportunistic, emerging and
mature. As can be seen in the chart below, opportunistic
countries are the ones on the left that currently are lacking
wealth and productivity, but may have size. Pakistan or

49. Bangladesh, for instance. At the opposite end of the spectrum,
situated on the right, are mature markets that have wealth and/or
size, but are wanting in productivity. United States and many
European countries fall into this category. Emerging markets,
sitting in the middle, which once were opportunistic, are the
ones that usually have all three; size, wealth and productivity.
India and China are the most notable examples.
.
c. Define the strategic approach: Where a country sits on the
classification grid dictates its strategic approach. For
opportunistic markets, where consumer needs tend to be basic,
the recommended strategy is one of germination. The objective
is to seed market presence and reap the rewards as the country
develops. KFC first moved into China in 1987, when it was still
an opportunistic market. Since then, Yum (the parent company)
has become the biggest restaurant chain there, with $2-plus
billion in annual sales and over 2,500 KFC and Pizza Hut
stores.
.
In mature markets, the strategic exercise revolves around
creating differentiation, as most customer needs are already
being met, and not by one but by multiple competitors. These
are what I like to refer as "fortress markets," for their high
entry barriers. To compete effectively, companies must make
use of sophisticated segmentation analysis that identifies
profitable market niches that are not being addressed. The
objective is to break through competitive clutter and gain share
of mind. IKEA has done this artfully by entering a crowded
Canadian retail space and emphasizing its Swedish origin and
design. Tim Hortons is refining its U.S. consumer proposition to
achieve competitive separation as a café and bake shop.When it
comes to emerging markets, business stratagems must focus on
gaining share as fast as possible. This is because,
comparatively, these markets are not as densely populated by
competitors and are still accessible. Nigel Travis, Chief
Executive of Dunkin' Brands is expanding into Russia, deeming

50. that, "The market has a relative lack of competition."
Invariably, consumer choices in developing economies remain
limited as customer needs continue to evolve. For example, in
China, Diet Coke is still not widely available.The company that
is the first to garner a lion's share of emerging markets will
enjoy a huge competitive advantage for years to come. In the
1940's, as Unilever entered India, it moved aggressively to
establish a grass roots level reach. Today, it has 40 factories,
2,000 suppliers, a distribution network of 4,000 agents, covers
6.3 million retail outlets, reaches the entire urban population
and about 250 million rural consumers. The company moved
swiftly to establish an enviable leadership position, one which
even a formidable competitor like Procter & Gamble is finding
hard to contest.
d. Anchor your strategy: So how does one attain deep market
penetration? Anchor your strategy with three essential
components; reach, affordability and conversion. As we have
seen in Unilever's case in India, establishing reach is crucially
important. Birla Sun Life, Canada's largest company in India,
has 130,000 agents spread across the nation. Coca Cola in China
is available to more than 80 percent of the population. Tim
Hortons' accessibility has helped it become an icon in
Canada.The second important element of strategy is
affordability. For consumer goods, this can be defined as
providing customers a chance to enjoy your offering over and
over, not just once. In emerging markets, a good rule of thumb
to keep in mind is to divide price points by at least half or a
third. This is because customer visits can often happen in
groups, such as a family, where one person pays for four or
five. As such, smaller portions that make group purchasing
possible and keep the cash ring manageable are advisable. For
instance, in India, Brazil and Mexico, Unilever serves products
in affordable sachets, better suited for consumers in developing
economies, as opposed to bulky goods designed for consumers
in North America, Western Europe or Japan. The aspect of
affordability is equally applicable to non-durables and even

51. luxury items. Marketers of high-end merchandise can often
discover a significant hidden demand, even with a slight
downward maneuver in price. Perhaps Porsche has conducted
this demand sensitivity as it heavily advertises its price
reduction and Canadian currency credits.If you have reach and
affordability, chances are you have trial, but not necessarily
conversion. Conversion, which can be defined as capturing
customers, only happens if your product is satisfying an unmet
marketplace need. For instance, in developing markets, there
continues to be a need to associate with the West. This is an
area where foreign companies enjoy a natural, competitive
advantage, especially Canadian firms, which have a strong
image abroad compared to our U.S. and European counterparts.
This is important as it translates directly into dollars and cents
and makes it easier to charge a premium, while not
compromising consumer conversion. In Russia, there is a long
waiting list for higher-priced General Motors cars, while the
locally produced Lada sits on dealers' lots. In China, shoppers
are shelling out money for higher-priced Levis jeans compared
to less expensive local options.A text book example of a
company that has achieved reach, affordability and conversion
is Tim Hortons in Canada. Its restaurants are accessible from
anywhere, its reasonable pricing enables repeat purchases and
its promise of consistent service and quality, flawlessly served
in every cup captures customers and builds loyalty.
e. Differentiate markets vs. beachheads: The final principle to
keep in mind when constructing an international plan is to
distinguish between markets and beachheads. The former is a
geographic location, while the latter is the geographic
headquarters that serves as the company's command post in that
region. Many factors go into the selection of a beachhead, such
as political stability, safety for staff, living standards, schooling
for children, and the likes. For instance, before the opening up
of China, Singapore and Hong Kong often served as beachheads
for regional expansion to neighboring Pacific-Rim countries.
7. Design the architecture. Everything should be made as simple

52. as possible, but not simpler, said Einstein. It seems that many
international players today have not heeded this advice. It's
amazing how many plans I come across that are built on "me-
too" strategies. 'Me-too' strategies in fact are not strategies at
all. It's a situation where the planning process has not only been
overly simplified, but I reckon, completely ignored. I will
refrain from providing specific examples, but there are many.
The world is not short of McDonalds and Starbucks wannabes,
who derive a fraction of their revenues from abroad. As
explained earlier, these are the companies that have achieved
market presence, not penetration.To be effective, international
plans need not be complex or over-engineered, just well
thought-out. With the principles above as guidelines, there are
six areas of the plan that need careful consideration; business
goals, product and/or segment focus, core activities and
markets, competitive positioning, target market and core
competence. The first five, as alluded to earlier in this article,
must be tailored to local market requirements. Core competence
on the other hand, needs to be exported, as it's the one attribute
that provides the company its unique competitive edge.
Stage Four (three steps): Commercialize the international
opportunity
This is the final stage, and personally speaking, the most
exciting, as the moment of reckoning has arrived. Having
installed the right approach, specified a guiding vision and
crafted a smart plan, businesses are now poised to reap the real,
tangible benefits of their planning. Here, companies learn how
they can commercialize the international opportunity. The aim
is to nail down effective implementation, providing management
with operative nuts-and-bolts know-how to avoid costly
mistakes and cut time to market that otherwise would not be
possible.
Steps 8 through 10 enable effective implementation:
· 8. Get local: To execute on an international scale companies
will need to invest in getting local. This means addressing three
core organizational areas; people, process and structure. Of the

53. three, "people" is the most important. After all, it's the people
who get things done and translate strategies into operational
realities. I have always struggled to understand why so many
companies have a problem with this. On countless occasions I
have witnessed companies hesitate to make the required
investment for an effective grounding of operations abroad.
Hence, this step can become quite decisive in determining
success. Without proper international bench strength, companies
can never fulfill their vision of getting global. It is vital to
develop and deploy top-level talent on international
assignments. Today, this remains a key source of competitive
advantage for companies such as Coca Cola, Nestle and Procter
& GambHaving the right processes in place is also critical.
Processes such as long-range plans, annual budgets and
quarterly forecasts must be developed and aligned in order to
achieve the desired strategy across multiple markets. The
Market Entry Plan, covered below, is a key aspect in this
process.Organizational structure is the third aspect. As
businesses begin to add more and more markets to their
operational mix, a new structure to coordinate and communicate
becomes essential. There are many ways this can be done. A
matrix structure, where product line and geographic
responsibilities are shared across a cross-section of staff, is one
method that has gained popularity.At its core, successful
localization hinges on the three core factors mentioned above.
It's fair to say that companies often have struggled with all
three.
· 9. Lower the microscope: Here, the panoramic view, presented
in the 5-year ISBP is translated to a close-up, in the form of a
local Market Entry Plan (MEP). This is to make sure country-
specific realities are taken into account, such as pricing
strategies, product selection and design, financial projections
and conformance with local legislation. This is an important
process that requires not only skill and savvy, but also local
market contacts. The role of the international coach comes in
handy here, as he or she can supply quality contacts in business

54. and government. The coach can also help provide references in
other areas, for instance to fill staff needs, identify reliable
market suppliers, and of course potential joint venture partners.
· 10. Gain a local foothold: Armed with an all-encompassing
MEP and an experienced, on-the-ground management team, the
company is now ready to launch in the marketplace. If the MEP
calls for a joint venture, this is the step where a suitable partner
is selected and secured. Waiting until the final step to sign a
partnership deal is strongly advisable as it ensures companies
can choose partners that best suit their plan. This also creates a
positive impression on the local partner, as it shows that the
international company has come to the table with a thoroughly
vetted blueprint for success. In return, this creates a positive
willingness by the partner to do its share, such as providing
investment, sharing resources, and streamlining government
approvals and permits.
I hope that the lessons in this article will inspire policy makers
who are looking for ways to create jobs, build exports and shape
a strong economy, as well as business executives who are
seeking alternative approaches to growth, especially in these
difficult times.
International markets are closer than we think. Twelve hours
away, Asia is rising. One country, China, has 1.4 billion people;
a population five times the size of the United States and 44
times larger than Canada. This is an opportunity that cannot be
missed, and should not be missed. The iSMARTE™ framework,
steeped in a strong practical bias, offers leaders a steady hand
and comprehensive response to the opportunities in
international markets. In all my experience on any scale, what
has become abundantly clear is that globalization, if done right,
is a surefire strategy that delivers growth.
Qamar Rizvi is the founder and president of aQmen Inc., a
company that provides clients with a turnkey solution for
international expansion. He previously held senior management
positions with The Gillette Company, where he was Regional
Director for 13 Asia-Mid East markets, oversaw 3 company

55. divisions and led the global launch of the MACH3 razor in
Latin America, Africa, Asia and Eastern Europe. Mr. Rizvi also
conducts workshops and speaks on strategies for international
expansion. [email protected]
~~~~~~~~
By Qamar Rizvi, Founder and president of aQmen Inc.,
[email protected]
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Entry Modes for International Expansion
The Five Common International-Expansion Entry Modes
In this section, we will explore the traditional international-
expansion entry modes. Beyond importing, international
expansion is achieved through exporting, licensing
arrangements, partnering and strategic alliances, acquisitions,
and establishing new, wholly owned subsidiaries, also known
as greenfield ventures(Zahra, Ireland, & Hitt, 2000). Each mode
of market entry has advantages and disadvantages. Firms need
to evaluate their options to choose the entry mode that best suits
their strategy and goals.
Exporting
Exporting is typically the easiest way to enter an international
market, and therefore most firms begin their international
expansion using this model of entry. Exporting is the sale of
products and services in foreign countries that are sourced from
the home country. The advantage of this mode of entry is that
firms avoid the expense of establishing operations in the new
country. Firms must, however, have a way to distribute and
market their products in the new country, which they typically

56. do through contractual agreements with a local company or
distributor. When exporting, the firm must give thought to
labeling, packaging, and pricing the offering appropriately for
the market. In terms of marketing and promotion, the firm will
need to let potential buyers know of its offerings, be it through
advertising, trade shows, or a local sales force.
Lost in Translation
One common factor in exporting is the need to translate
something about a product or service into the language of the
target country. This requirement may be driven by local
regulations or by the company's wish to market the product or
service in a locally friendly fashion. While this may seem to be
a simple task, it's often a source of embarrassment for the
company and humor for competitors. David Ricks's book on
international business blunders relates the following anecdote
for US companies doing business in the neighboring French-
speaking Canadian province of Quebec. A company boasted
of lait frais usage, which translates to "used fresh milk," when it
meant to brag of lait frais employé, or "fresh milk used." The
"terrific" pens sold by another company were instead promoted
as terrifiantes, or terrifying. In another example, a company
intending to say that its appliance could use "any kind of
electrical current," actually stated that the appliance "wore out
any kind of liquid." And imagine how one company felt when
its product to "reduce heartburn" was advertised as one that
reduced "the warmth of heart" (Ricks, 1999).
Among the disadvantages of exporting are the costs of
transporting goods to the country, which can be high and can
have a negative impact on the environment. In addition, some
countries impose tariffs on incoming goods, which will impact
the firm's profits. In addition, firms that market and distribute
products through a contractual agreement have less control over
those operations and, naturally, must pay their distribution
partner a fee for those services.
Ethics in Action
Companies are starting to consider the environmental impact of

57. where they locate their manufacturing facilities. For example,
Olam International, a cashew producer, originally shipped nuts
grown in Africa to Asia for processing. Now, however, Olam
has opened processing plants in Tanzania, Mozambique, and
Nigeria. These locations are close to where the nuts are grown.
The result? Olam has lowered its processing and shipping costs
by 25 percent while greatly reducing carbon emissions (Porter
& Kramer, 2011).
Likewise, when Walmart enters a new market, it seeks to source
produce for its food sections from local farms that are near its
warehouses. Walmart has learned that the savings it gets from
lower transportation costs and the benefit of being able to
restock in smaller quantities more than offset the lower prices it
was getting from industrial farms located farther away. This
practice is also a win-win for locals, who have the opportunity
to sell to Walmart, which can increase their profits and let them
grow and hire more people and pay better wages. This, in turn,
helps all the businesses in the local community (Porter &
Kramer, 2011).
Firms export mostly to countries that are close to their facilities
because of the lower transportation costs and the often greater
similarity between geographic neighbors. For example, Mexico
accounts for 40 percent of the goods exported from Texas
(Cassey, 2010). The Internet has also made exporting easier.
Even small firms can access critical information about foreign
markets, examine a target market, research the competition, and
create lists of potential customers. Even applying for export and
import licenses is becoming easier as more governments use the
Internet to facilitate these processes.
Because the cost of exporting is lower than that of the other
entry modes, entrepreneurs and small businesses are most likely
to use exporting as a way to get their products into markets
around the globe. Even with exporting, firms still face the
challenges of currency exchange rates. While larger firms have
specialists that manage the exchange rates, small businesses
rarely have this expertise. One factor that has helped reduce the

58. number of currencies that firms must deal with was the
formation of the European Union (EU) and the move to a single
currency, the euro, for the first time. As of 2011, seventeen of
the twenty-seven EU members use the euro, giving businesses
access to 331 million people with that single currency.
Licensing and Franchising
Licensing and franchising are two specialized modes of entry.
Partnerships and Strategie Alliances
Another way to enter a new market is through a strategic
alliance with a local partner. A strategic alliance involves a
contractual agreement between two or more enterprises
stipulating that the involved parties will cooperate in a certain
way for a certain time to achieve a common purpose. To
determine if the alliance approach is suitable for the firm, the
firm must decide what value the partner could bring to the
venture in terms of both tangible and intangible aspects. The
advantages of partnering with a local firm are that the local firm
likely understands the local culture, market, and ways of doing
business better than an outside firm. Partners are especially
valuable if they have a recognized, reputable brand name in the
country or have existing relationships with customers that the
firm might want to access. For example, Cisco formed a
strategic alliance with Fujitsu to develop routers for Japan. In
the alliance, Cisco decided to co-brand with the Fujitsu name so
that it could leverage Fujitsu's reputation in Japan for IT
equipment and solutions while still retaining the Cisco name to
benefit from Cisco's global reputation for switches and routers
(Steinhilber, 2008). Similarly, Xerox launched signed strategic
alliances to grow sales in emerging markets such as Central and
Eastern Europe, India, and Brazil.
Strategic alliances are also advantageous for small
entrepreneurial firms that may be too small to make the needed
investments to enter the new market themselves. In addition,
some countries require foreign-owned companies to partner with
a local firm if they want to enter the market. For example, in
Saudi Arabia, non-Saudi companies looking to do business in