DFS is passionate about sofas and designs its products with vital elements in mind. The company’s products include chairs, beds, tables, sofas, mirrors, leather, cabinets, desks, coffee tables etc. This paper discusses the need for DFS to start manufacturing its products in India rather than exporting to the same destination.
International marketing refers to companies doing their product marketing overseas across national borders by applying the marketing principles to more than one country (also known as global marketing). It results in business internationalization (Doole and Lowe, 2001).
Product exportation is a low-risk venture in which minimal investments are made in the foreign country because the firm makes few marketing investments in the destination country hence the company’s market share is below potential. The firm would also learn less about the foreign market in terms of consumer requirements, distribution methods, advertising campaigns among others by not operating actively in the new market hence it would be difficult for DFS to make the desired larger profits from the foreign market.
The other pitfalls of exporting are that the venture is very expensive, time-consuming and requires resources that management doesn’t have access to. It’s also difficult to obtain special export licenses from the government. The company also faces challenges in identifying good product distributors in the overseas market. The firm would have to undertake product modification and packaging to suit the new market. Receiving payments also takes longer and the company would have to obtain personnel for travel hence the administrative costs increases. The company also requires new promotional materials in the new market like competent translators of user manuals. In addition, there are government rules and regulations that restrict exports activities by increasing tariffs and quotas (Johansson, 2000).
DFS need to consider manufacturing their products in the foreign market directly by acquiring a firm or building operations from the ‘scratch’ though it involves higher risk exposures but also the opportunities for profits are greater. DFS would gain more knowledge about the Indian local market and maintain higher control of their investment. This is known as foreign direct investment (FDI) and it entails a company making physical investment into buildings, factories, equipment, machinery and other lasting management interests in the foreign country and it takes many forms including direct acquisition of a foreign firm, construction of a facility, investment in joint ventures, the strategic alliance with the local firm with attendant input of technology and the licensing of the intellectual property. This results in business internationalization which provides a company with new markets and marketing channels. The company would be able to access new technology, cheaper production facilities, skills and financing (Cateora and Ghauri, 1999).
This is made attractive following the liberalization of the national regulatory systems that govern investment in FDI. The technological advancements have also resulted in reduction in communication costs making management of global businesses easier. Changes in the Indian capital markets have led to increased FDI. The favorable changes in the trade & investment policies and also global regulatory environment including trade policies and tariffs encourage DFS to invest directly in the Indian market.
The liberalization and easing of the restrictions on FDI and acquisition in India and the deregulation/ privatization of many industries have catalyzed FDI expansion hence DFS should take the opportunity and diversify to Indian market.
This would enable the company to engage in international business activities and would be able to:
- circumvent the expressed and hidden trade barriers
- avoid the foreign government pressures for local production
- move from domestic export sales to a locally-based international sales office
- Increase total production capacity
- Provide opportunities for joint ventures and co-production with local partners, joint marketing arrangements, licensing etc (Muhlbacher, et al, 2006).
DFS should therefore invest in manufacturing its products in the Indian market and avoid exportation.
References and bibliographies
Cateora, P. (1999), et al International Marketing, McGraw-Hill Publishing Company, European Edition
Doole, I. (2001), et al International Marketing Strategy – Analysis, Development and Implementation, 3rd Ed. London.
Johansson, J. (2000), et al Global Marketing – Foreign Entry, Local Marketing, and Global Management, Johansson, International Edition
Muhlbacher, H. et al., (2006). International Marketing – A Global Perspective, Thomson, 3rd Ed.