Marketing Abroad

For decades, firms were able to focus their marketing strategies within their home territory or region. Compared to the intricacies of conducting business abroad, it was relatively easy to devise and implement comprehensive business strategies within a company's core market. The business culture and standard operating procedures were predictable and reliable.

As foreign markets opened, American firms sought to take advantage of these rapidly expanding and potentially profitable markets. Simultaneously, cheaper transportation costs and improved communications made the concept of expanding across North America more palatable to smaller domestic businesses.

Marketing executives facing the daunting challenge associated with entering new markets were and continue to be forced to begin by answering three initial questions: Which markets should be approached? When should they be accessed? Precisely how will the marketing mission be accomplished?

The most important question of the three is how the firm should enter a new market. Five major factors exist when addressing the strategic challenge associated with this question. These are: ^[1]

^[1] Marketing Management by Winer, Russell S. (pp. 449 454), Prentice Hall, 2000. © Adapted by permission of Pearson Education, Inc., Upper Saddle River, NJ.

• Regional or country characteristics

• Barriers and regulation

• Product characteristics

• Management objectives

• Market selection strategy

The first three of these are external to the company and the last two are internal decisions facing the firm.

Regional or Country Characteristics

Regional and country characteristics consist of three attributes that a marketing manager should be aware of. The first is market size and growth. Depending on whether a market is mature or growing exponentially, a marketing manager would undertake different strategies.

If a company is intent on expanding to a different region, state, or country it must make sure there is adequate room for expansion. Alternatively, if the requisite room is not available it must devise a strategy for expanding the market by building a better mousetrap.

Unlike the cases of McDonald's, Nike, Reebok, and Umbro, a failure to expand beyond your core market might have little to do with cultural differences. It could simply be a case of brand hubris you thought that because the Internet market was expanding you could easily go into "Yahoo! territory" and carve out market share.

Challenging a market leader isn't necessarily the problem. The problem comes if a firm moves in but doesn't properly analyze what it will take to compete alongside that local leader. In Hermosa Beach, California, for example, many residents were vocal about the need to protect local businesses from larger chain stores. These residents went as far as to suggest that national and regional chains, particularly restaurants and retailers, should not open for business along the beach as they would face a backlash if they chose to compete with long-standing local establishments in the small, closely knit beach community.

The expansion of professional sports into Tampa Bay is a compelling example of a regional mistake. Neither MLB's Devil Rays nor the NHL's Lightning have succeeded in Tampa because not only wasn't the market demand sufficiently demonstrated in advance of entering the market, but the competition for the entertainment dollar throughout the region threatened long-term viability. This, combined with other unfavorable factors, has resulted in each franchise losing millions of dollars per season.

The next aspect is the political and environmental risk. Is a firm willing to invest its resources in a potentially volatile country or region? Expanding into new markets frequently requires great human and financial resources, and expanding into less developed markets often requires even more of both.

The overseas shoe industry began in Japan and Korea, then extended to Taiwan and China and, eventually, to Indonesia. In October 2001, more than 100 Nike and Adidas employees and their families fled Indonesia where about 30 percent of Nike shoes were manufactured after the U.S. Department of State warned of attacks on U.S. citizens and facilities by radical Indonesian groups. A year later, Nike began to shift more of its business to Vietnam and Thailand.

The company still reported that major military or terrorist events in Asia could affect shoe and apparel distribution. To combat this, Nike has basic contingency plans so that the chain of supply is never fully compromised should events like these occur.

This is not unlike a local business that needs to prepare for a celebratory riot in the championship team's hometown. A local convenience store might benefit from the success of the Denver Broncos, but it might also be hurt by the team's success. In Denver, after the Broncos won their first championship in 1998, police had to use tear gas to calm the 30,000 fans in the downtown area that celebrated the victory by overturning cars, setting fires, and looting local stores.

Although it is understandable why many of these local businesses were unprepared to deal with the rowdy fans, what is unfortunate is that many of these same businesses did not adequately prepare for future disturbances by conducting contingency planning. When the Broncos won the Super Bowl the next season, every business on the affected Larimar Street should have had a plan in place. A riot did ensue for a second straight year, tear gas was again used, and $120,000 in damages was incurred.

When sports apparel and equipment companies want to sell overseas, they typically have to forge relationships with dealers and manufacturers. The companies can't just send product from their headquarters and hope that the merits of the product in America will help sell the product abroad. The company has to have personnel who personally meet with major stores in different countries and constantly check on how the product is being marketed, displayed, and positioned in general.

Some businesses succeed because of good customer service, but others prosper because they learn how best to sell their products in the context of the local business environment. Just because the targeted market is thousands of miles away doesn't mean that there shouldn't be the same concern for product placement. Thanks to solid communication and the right resources, Nike successfully sells its products worldwide. One of the keys to its success has been Nike's ability to ensure that its suppliers have similar backgrounds to those consumers targeted.

Nike has successfully built its brand image by networking with suppliers that are of the same cultural and ethnic background as the consumers it ultimately targets in these markets. Nike has also found that many consumers, including minorities, buy a particular brand of shoe based on how the company is perceived as treating them as valued customers.

When small companies migrate from niche to broader markets, such as when Powerbar moved from having a presence in nutritional stores to also having shelf space in supermarkets, they must ensure that they remain in close communication with their supplier base. If the supplier doesn't know how to position the product in new markets, it could be detrimental to the brand's growth.

In sports, the "supplier" can be a team like the NBA's Houston Rockets, and the "product" can be a newly drafted player, such as 7'6" Chinese center Yao Ming, the first pick in the 2002 NBA draft. The Rockets, which had been interested in marketing its product to Chinese-Americans in the greater Houston area for years, had been largely unsuccessful in reaching this target market. The team's on-court performance was not helping, as the Rockets compiled the second-worst attendance in the NBA for the 2001 2002 season.

As soon as Yao Ming entered the team's picture, a Chinese business purchased 100 season tickets and promised to purchase thousands more for big games. However, the team knew it had to take this (and other emerging business opportunities) a step further. The team had to educate its employees about the Chinese culture: How do the Chinese expect to be treated at the arena? Is this different than the expectations of other basketball fans? What elements of the game-day experience are most important to them? In short, any failure to recognize the wants and needs of this expanding target market will be detrimental to the brand's (Rockets') growth. After identifying a dozen potential Chinese sponsors, the Rockets signed a six-year, $6 million deal with the Chinese beer company Yanjing before the season.

The Rockets could easily have talked to the sports marketers at Nike, which not only sponsored Yao Ming and his team in China the Shanghai Sharks but continue to have him serve as a company endorser.

Finally, the economic and market infrastructure of a country might help a firm decide if it wants to alter its operating procedures to adapt to a certain country's methods of operation.

Building a presence in a new market also requires forging a credible connection between the company's product and the company's targeted consumers in those markets.

Nike has always used sports and sports personalities to frame the company's personality and commitment to sports fans and enthusiasts. From individual track and field legends Alberto Salazar, Joan Benoit, and Carl Lewis in the early 1980s to its current licensing agreements with sports teams and universities including the Dallas Cowboys, as well as the University of Michigan and Duke University, Nike has integrated sports into every aspect of its operations. When it set out to increase its rapidly expanding global market share, Nike undertook the same fundamental approach, this time concentrating its efforts in soccer and golf.

Although soccer and golf are only responsible for about 10 percent of Nike's revenue, their importance to Nike cannot be overstated. Over the last few years each of these sports has outpaced all others in terms of growth.

Because the revenue growth in its established categories of running, basketball, football, and baseball has slowed as they became mature business segments, Nike turned much of its attention to a sport and an athlete that possess significant global appeal.

Local businesses moving into neighboring markets best establish credibility through word of mouth. The smaller the distance between the new market and the home base, the faster the word good or bad tends to spread. Word of mouth by customers is actually much more credible than getting the lowdown from paid athlete endorsers.

Barriers and Regulations

Trade barriers and government regulations are the second set of factors that must be considered when entering new markets. Many countries limit the ability of foreign companies to operate freely. On the other hand, import tariffs can be very costly for companies trying to sell goods in a particular country. It becomes a double-edged sword for companies that seek to take advantage of a growing foreign market. They can enter a country and risk incurring the costs associated with different business and political climates and cultures, or they can simply export to those countries, paying hefty tariffs in the process.

For the 2002 Salt Lake City Olympics, 10 primary sponsors, including Eastman Kodak, John Hancock, and Visa, paid at least $50 million for their "official sponsor" status.

Although allocating even more resources for the 2008 Olympics in Beijing might indeed prove worthwhile to these and other sponsors, most agree involvement in the Beijing Games to be far more risky. Many companies view the 2008 Games as a tremendous platform for communicating their marketing messages to largely untapped markets. Yet many of these same sponsors remain concerned about China's ability to host the Olympics, especially given that nation's poor record on human rights and the negative impact this could have on those companies that have attached themselves to the Games via sponsorship.

Analyzing the costs and benefits of the aforementioned options in an effort to find an optimal balance is typically quite difficult. This analysis has become increasingly more challenging now that many transnationals, literally and figuratively, have people looking over their shoulders.

When Jim Keady, a St. John's University assistant soccer coach who was writing a master's research paper on Nike's labor practices, left the school because he refused to wear Nike shoes, as required by the school's athletic contract, he decided to work for a month in a Nike shoe factory in Indonesia.

Armed with a cameraman, an interpreter, and a Web site (www.nikewages.org), Keady set out to tell the world about his and Nike's exploits. Keady did so by documenting the life of Indonesian workers by putting himself "in their shoes," living as they did, in August 2001.

In one of his interviews, one worker told Keady that in one area of the factory there were 350 people forced to use three toilets, two of which were broken. In this factory, a bad mistake could mean hours of public embarrassment in front of fellow workers.

Keady's crusade was just beginning. He went on a speaking tour and talked about sweatshops to students at colleges and universities including the University of Notre Dame and the University of Connecticut. His personal involvement, going beyond principle and into action, made Nike factory-bashing a compelling story for news networks like ABC, CBS, and NBC. Real Sports on HBO and ESPN's Outside the Lines showed footage taped by Keady.

Keady's $11 million lawsuit against Nike and St. John's was dismissed by a U.S. Court of Appeals, but his story is important to tell to merely demonstrate how easy it is to chip away at a brand that stretches around the world. The bigger a company becomes and the more it expands, the more vulnerable the brand becomes. A mom-and-pop company executive knows everything that transpires and can micromanage the brand. Nike can never have enough executives to make sure that every factory is running smoothly at all times or enough security so that people like Keady don't film conditions even if they are possibly violating human rights.

Small businesses are not immune from such controversies. Whether it is the local throw-away newspaper that makes mention of a dry cleaner's employment of illegal immigrants or publishes a short story chronicling a restaurant's lapses in cleanliness, small businesses must be attuned to issues that could diminish their good name.

Global companies like Nestle, which bought Powerbar, have gone through the same international scrutiny regarding their trade practices. Visit any Internet search engine and type in "Nestle and baby milk" and you'll notice a similar abundance of protest sites. Critics say Nestle has a blatant disregard for both a World Health Organization study, which estimates that that 1.5 million infants die around the world every year because they are not breastfed, and a 20-year-old code, which restricts how breast milk substitutes can be marketed.

Critics claim to target Nestle because it went out of its way to advertise infant formula to mothers by giving out free samples and sending direct mail. Nestle has also given free milk to maternity hospitals in Third World countries to persuade new parents to use their brand after leaving the hospital.

One critic went so far as to say that not until Nestle's deceptive public relations machinery was rendered ineffectual would the company address its entrenched disregard for the way it markets its products.

Nestle's Jim Keady was Syed Aamar Raza, a former Nestle sales employee who, after hearing of the death of a four-month-old bottle-fed baby, made it his crusade to denounce Nestle's marketing tactics, including the bribing of doctors.

Although Nike and Nestle might firmly believe that their marketing strategies and corporate policies are sound, a vocal minority will always seek to keep the public pressure on those companies they perceive as recklessly pursuing profits at the expense of human lives.

Human rights and marketing mistakes allegedly committed by Nike and Nestle vividly demonstrate how distance from headquarters doesn't release the company from its responsibilities. It also demonstrates that it is more prudent to spend time and resources preventing potential damage to the brand than it is to repair the damaged brand after the fact.

Over the years, Nike has responded to human rights activists complaining about its sweatshops. In 1998, it set forward its code of conduct and in October 2001 it issued its first corporate responsibility report, which detailed the company's efforts to monitor health, safety, wages, benefits, and management requirements.

In 1996, The New York Times published a few op-ed pieces accusing Nike of exploiting cheap Asian labor. Phil Knight responded by writing a rebuttal commentary stating that Nike paid double the minimum wage in countries where its products were being produced. In 1998, Mark Kasky, an activist in California, sued Nike contending that Knight's commentary, as well as a host of other Nike releases to the media, violated the state's laws against false advertising. In 2002, the California Supreme Court ruled that Knight's comments counted as commercial speech and if any of his statements were wrong, Nike could lose the profits it made in California based on these statements. Companies and their high-profile leaders and spokespeople must remain vigilant when hoping to publicly "right" what many perceive to be a "wrong." Any perceived reaction or, worse yet, overreaction, may merely compound the problem.

During this same period, Nike demonstrated that it fully appreciated the importance of giving back to the community.

In 1999, it sponsored a Playzone project that refurbished playgrounds in Southeast Asia and also launched a series of shoes in the region. A pair of shoes in what Nike termed its "play" series could be bought for as low as $3. Knight also said that by the end of 2001, Nike would not utilize any footwear factory that did not provide for after-hours education. Although this is an encouraging development, Nike will have to demonstrate this commitment over time to fully recover from the controversy and resuscitate its image.

Businesses that enter new markets should view corporate philanthropy as an ongoing responsibility it has to the community. Business people should be aware, however, that there is a fine line between "giving back" to a community in an effort to be well regarded and being perceived as attempting to "buy" their way into a new market by trying to curry favor with potential customers.

Companies must decide for themselves what the acceptable trade-offs are between profitability and brand management. Occasionally, as was the case with Nike, the tangible bottom line can be enhanced while the brand's name an extraordinarily important intangible can be weakened.

Product Characteristics

The final external factor regarding how to enter a new market concerns product characteristics. Depending on the product, it might be beneficial to have a local business either license the rights or manufacture the product. Products that could benefit from this situation are the less expensive products and those that are not as technically involved, such as soft drinks, clothes, and athletic shoes and apparel. More expensive goods, such as automobiles and computers, are usually exported.

It is also important to appreciate how people in different regions or of different ethnicities expect the product to be packaged or sold to them. For example, the San Francisco Giants gift shop at Pac Bell Park has to make sure it has plenty of plastic gift bags bearing the Giants logo. That's because people coming from Japan to see Japanese outfielder Tsuyoshi Shinjo are expected to bring back Giants gifts in the store's "official" bag. Not having the bag to bring the gift back in is inadequate because part of the gift-giving process is demonstrating that you went to the official store to make the purchase. If there are five Shinjo jerseys bought, the customer must have five bags to authenticate the purchase.

Nike understands the value of such customer experiences and relationships and utilizes soccer, the most popular sport in the world, as its "packaging" to help it authenticate its presence and penetrate certain global markets.

In vintage Nike fashion, it entered into the largest soccer sponsorship of all time: a marketing deal with England's Manchester United one of sport's leading global brands valued at nearly $430 million over 13 years. The Manchester United deal was not Nike's initial foray into international soccer. Nike signed its first major deal with InterMilan in 1994; this was followed a few years later when it agreed to a 10-year deal with the Brazilian National Soccer Team valued at $200 million.

Simply throwing hundreds of millions of dollars at a decidedly non-American sport would not guarantee success. Lacking an established and historical standing in the sport, many soccer fans and industry leaders viewed Nike's entry into the $2.5 billion soccer business as anything but delicate. Rather, Nike was thought to be attempting to buy into the sport's most coveted circles.

This frequently happens to businesses that venture into new areas in a heavy-handed fashion. However, as long as the company is genuine and its high-profile entrance into, and commitment to, a market is demonstrated over time, consumers will be inclined to give the company the benefit of the doubt.

Although some fans were undoubtedly dismayed to see the Nike swoosh on their team's jerseys at least the company sought to establish a long-term relationship with soccer fans. Conversely, local businesses that appear to only be interested in the customer's dollar and not a long-term relationship are undoubtedly harmed by their heavy-handed approach.

How do many consumers respond to that new neighborhood business when it sticks that "we're open for business" flyer on your car windshield? A common reaction is annoyance, especially when you only realize the flyer is on your windshield after you've closed the door and buckled your seatbelt. Not only is the announcement viewed as an inconvenience, but the flyers often litter the parking lot as well. This is hardly the way to make a great first impression.

By attaching itself to the soccer's leading global brands, as well as dedicating millions of dollars to product development and marketing, Nike increased its soccer revenue more than tenfold to $450 million in the seven years following the InterMilan deal, and hopes to double that revenue within a five-year span. This revenue increase is particularly impressive given the fact that the costs associated with playing soccer are minuscule relative to golf.

This rapid market penetration contributed to Adidas' decision to pay $70 million for a 10 percent stake in Germany's top soccer team, Bayern Munich.

In addition to its landmark deals with several of soccer's leading brand names, Nike has also attached itself albeit indirectly to the most popular sporting event in the world, soccer's World Cup.

The Fédération Internationale de Football Association (FIFA) has been soccer's governing body for almost 100 years and oversees the World Cup. FIFA had 15 corporate partners for the 2002 World Cup played in Japan and Korea, including MasterCard and adidas.

These corporate partners invest heavily in their relationship with the World Cup as an estimated 60 billion people watch at least some of the tournament. Because the World Cup is the world's most popular sporting event, it provides corporations an extraordinary opportunity to enhance their global profiles and increase brand awareness.

Adidas leveraged its official partner status by targeting those attending the games as well as those watching the worldwide TV broadcasts. Nike, which was not among the official corporate partners, was relegated to engaging in other marketing activities. Nike reportedly spent $155 million to promote the World Cup in 42 countries after spending only $5 million in 1994. By comparison, Adidas reportedly spent about $40 million. The World Cup final, which pitted the victorious Brazil (outfitted by Nike) against Germany (outfitted by Adidas), provided Nike yet another great and global marketing platform.

Nike has also recognized that an important part of its continued revenue growth will be a function of how it contributes to and underwrites the sport domestically. Nike is helping U.S. Soccer, the governing body that oversees amateur soccer, by funding teen development squads. Further, as part of its Manchester United sponsorship, Nike is paying about $1.4 million per year to help start a grassroots soccer program in England.

Nike believes that helping prepare American and British stars for global soccer markets will help reinforce its commitment and sense of belonging to the worldwide soccer community.

The amount of money pouring into soccer and golf (see the next section) forced Nike to curtail much of its domestic sponsorship spending at the professional sports league level.

Management Objectives and Market Selection Strategy

The last two factors involved in penetrating new markets, management's objectives and market selection strategy, are both internal to the firm. Management's objectives rely heavily on the commitment of the firm to expand. If a firm does not want to take on the financial burden or risk, it might consider a joint venture with a company in the desired new market. If a firm is willing to take on the risk of entering a foreign market on its own and invest the necessary capital to establish itself, it can reap all of the rewards from its investment.

The final issue of market entry is that of market selection. With different types of risk associated with each market, a firm must determine the amount of risk it is willing to take. Firms that want to enter countries that have significant business risk might consider partnerships to minimize the downside. Although the risks might be different on the local level, for instance when a business considers expanding from Winston-Salem, North Carolina, to Chapel Hill, the same considerations must be made. Furthermore, if a firm wants to enter multiple new markets simultaneously, it might have to consider lower cost and lower risk markets so it will have the resources to implement a wider range of marketing programs.

Either way, a firm must decide how risk averse it is, analyze the risk of each potential company, and then allocate the resources needed for each foreign investment.

For Nike, this meant "joint venturing" with Tiger Woods. Hiring Woods as a global spokesman for the company enabled Nike to more easily penetrate foreign markets with the help of one of the most recognizable and decidedly international athletes in the world. Having each region of the world covered by a representative to whom local customers and suppliers can relate is very important. Woods delivers this "connection" through his ethnicity, global media exposure, and travel to tournaments on all corners of the globe. In essence, he is that believable, local salesman sought after by all companies.

In 2000, Nike renewed Woods' endorsement deal for another five years at an estimated $100 million. Even though golf doesn't garner the same global attention and fervor as soccer, Woods himself a global brand helps propel the brand into other foreign markets by virtue of his ability to authenticate all things Nike. Prior to Woods, Nike was seen as an athletic brand that offered golf-related products. However, their golf shoes were never taken seriously. With Woods, the company quickly became one of the sport's standard bearers; essentially a golf company all its own, supported by a world-class brand called Nike. To the extent Woods can extend his higher end consumer appeal to the global masses, Nike will thrive and continue to build global market share.

Not coincidentally, Tiger Woods switched from playing Titleist balls to the newly designed and manufactured Nike ball. Shortly after Woods made the change, and following his absolutely brilliant 2000 season in which he seemed to win every PGA event, Nike's share of the $1 billion golf market increased from 1 to 4 percent. This led total revenue for Nike Golf to increase 50 percent to $300 million. To Nike's delight, this revenue increase occurred while the percentage of Woods' golf product sold fell from 60 to about 15 percent. ^[2] He was indeed successful in branding the company's entire product line. The broad appeal of Nike Golf products allowed the company to nearly triple the number of retail stores stocking it.

^[2] Dworkin, Andy, "Nike Mulls Over Tiger's Draw." Portland Oregonian, July 25, 2000, p. C1. The Oregonian ©, 2001 Oregonian Publishing Co. All rights reserved. Reprinted with permission.

How quickly will Nike carve out its fair share of this $2.5 billion annual market, particularly now that Woods has begun playing Nike's irons? Who said there could never be another Michael Jordan?

Although Nike golf also has David Duval as an endorser, the brand truly rests with Woods, which makes it tough on Nike, given that Woods hasn't immediately switched to their irons. Companies finding themselves in similar situations often must make sure that their brand messenger or conduit never becomes bigger than the product. Should the organization's "go-between," such as Woods, leave or lose credibility, the company would have a tough time maintaining the customers who bought in because of the relationship forged between the customers and the messenger.

Every year the local high school baseball team might have a bake sale. Besides the players' parents, the neighbors of some of the players on the team are usually the best customers because they have a communal relationship with the seller. If the baked goods being sold are mediocre, it's more likely that once the player-next-door is no longer a member of the team, the neighbor will be less likely to buy from team members with whom they are not familiar. These neighbors might instead prefer to wait for another community-driven event brought to them by familiar messengers: Girl Scout cookie season.

Familiarity is among the advantages athletes like Woods provide to global companies. He travels worldwide with great exposure and notoriety, making us feel as if we know him as if he is our neighbor, not unlike those scruffy high school ballplayers or pigtailed little girls. Companies like Nike are able to take this phenomenon one step further: Unlike the neighborhood kids who grow up and head off to college, Woods' long-term contract with Nike ensures that he'll be hanging around the neighborhood for a very, very long time.

The local business can find its Tiger Woods by establishing relationships with noncompeting businesses in the area. This can take the form of a cross-promotion with another local business that has broad local appeal. Whatever the specific approach, a company must also realize that it can work to have numerous Tiger Woods in many regions; that is, people that have instant credibility in the business in that particular region. After all, rumor has it that there are more than a few Girl Scout troops.