312MKT International Marketing Lecture Thirteen

Learning objectives Understand challenges for SMEs in global environment Identify motives and barriers of internationalization Discuss approaches to international niche marketing

SME Sector Are those firms employing less than 250 staff. These characteristics, however, include 99% of all firms in Europe and account for roughly 50% of employment and it includes sole operators as well as quite sophisticated business Firms that have the mindset to think and act like small and medium-sized enterprises. It is a sector that has been increasingly recognized as a creator of wealth and employment (Doole & Lowe, 2012)

SME Sector Less than 5% of SMEs grow significantly and even a smaller percentage have the ambition to become international traders. However, they still help put money in people's pockets, increase domestic demand, generate tax revenues and produce dependency on international aid. SMEs are seen as route to economic growth and future prosperity particularly for emerging markets. (Doole & Lowe, 2012)

SME contribution to global economy In virtually every country SMEs make up more than 90% of the businesses Significant and growing Emerging in both manufacturing but more so in the service industries Create new jobs Creative business ideas New marketing solutions Flexibility & adaptability to changes in the market and to customer requirements (Doole & Lowe, 2012)

Challenges for SMEs Aggressive multinational retailers who ruthlessly use the global competition among small organizations Infrastructure weaknesses (e.g. poor qualities of supplies of utilities, energy, water and power) The informal economy is huge in less developed countries (LDCs) and, in addition bribery and corruption are rife at all levels (Doole & Lowe, 2012)

Alternative strategies for SMEs Exporting is primarily concerned with selling abroad domestically developed and produced goods and services Internationall niche marketing is concerned with marketing a differentiated product or service overseas, usually to a single customer segment using the full range of market entry and marketing mix options Domestically delivered or developed niche services (Doole & Lowe, 2012)

Alternative strategies for SMEs Domestically delivered or developed niche services (e.g. network of dependent providers of accommodation, catering, leisure activities and experiences). Direct marketing including electronic commerce allows firms to market products and services globally from a domestic location. Participation in the international supply chain of an MNE can lead to SMEs Piggypacking on the MNEs international development (Doole & Lowe, 2012)

Examples EasyJet's Success in European Business Travel: A Case Study in Partnership with Amadeus Weblink: https://www.youtube.com/watch?v=-idAD0gAMxc

The Single Biggest Reason Why Startups Succeed By: Bill Gross Weblink: https://www.youtube.com/watch?v=bNpx7gpSqbY

Key motivators for internationalization Reactive stimuli: adverse domestic market conditions opportunity to reduce inventories availability of production capacity favourable currency movements opportunity to increase the number of country markets and reduce market related risk unsolicited orders from overseas customers Proactive stimuli: attractive profit/growth opportunities ability to easily modify products for export markets public policy programmes for export promotion foreign country regulations possession of unique products economies from additional orders Managerial elements: presence of export minded manager opportunity to better utilise management talent and skills management belief in value of exporting Source: Katsikeas (1996)

Barriers to SME internationalisation Other factors: Payment defaults Language barriers Unfavourable conditions overseas Slow payments by buyers Lack of competitive products Too much ‘red tape’: Trade barriers Transportation difficulties Lack of trained personnel Lack of export incentives Lack of coordinated assistance

International Niche Marketing International Niche marketing occurs when firms become strong force in a narrow specialized market of one two segments across a number of country market. For international niche to be successful the product or service must be distinctive (highly differentiated), to be recognized by consumers and other participants in the international supply chain and have a clear positioning. Doole & Lowe, 2012

International Niche Marketing Nich marketing of domestically delivered services Have a clear understanding of the important segmentation criteria Understand the value of the product niche to the targeted segment(s) Provide high level of service carry out small scale innovations Doole & Lowe, 2012

Alternative Strategies for SME Internationalisation Segmentation Targeting and Positioning Competitive Strategies Growth strategies Doole & Lowe, 2012

Factors which Affect the Choice of an SME’s International Marketing Strategy Market Factors Company Factors Country Selection Organization Structure Doole & Lowe, 2012

Factors affecting SME internationalisation SME generic strategy Segmentation, targeting and positioning Competitive advantage Growth options SME internationalisation strategy SME generic Customer base Industry structure and competition Supply chain Market factors Company Stage of internationalisation Ambition, capabilities and attitudes to risk Motivations and barriers Country and market entry selection

Stages of SME Internationalisation Passive exporter Reactive exporter Experimental exporter Proactive exporter Well-established exporter Learning organisation, effective relationships and clear competitive focus

Stages of SME internationalisation

Reasons for failure Lack of market intelligence: Failure to effectively scan the international environment – lack of market intelligence Failure to respond to worldwide changes in customer needs Lack of effective planning: Over dependence on one product – lack of effective R&D Failure to plan financial resources and not planning for fluctuation in currency values Lack of protection: Ease with which larger, more powerful competitors or a number of smaller local competitors can copy the idea Prohibitive cost of enforcing patents and trademarks in foreign courts which may favour local firms Lack of resources: Failure to manage and resource both market and operations expansion

The Future of SME internationalization Future of SMEs: Europe’s economic powerhouses - Real Economy https://www.youtube.com/watch?v=BS7_pfYMAfk

Readings: Doole & Lowe: Chapter 5