Introduction
As of late, the current economic downturn has affected local markets to such an extent that sales of not only our company but of our competitors have been sagging for the past years.
As the U.S. economy is estimated to barely reach a 1% growth rate by the end of 2011 this signifies a concurrent decline in consumer spending making the future of our company uncertain in light of the possibility that consumer spending within the country may continue to be in decline for the next 3 or 4 years.
While several companies, particularly the call center industry and manufacturers, have outsourced their business processing and production centers to locations such as the Philippines and China in order to reduce the cost of labor for their products and services during this economic downturn, the problem our company currently faces is the fact that despite internal strategies of cutting costs in order to make our products cheaper the fact remains that despite the lower prices too few people are buying what we are selling (Murphy, 2004).
One possible method would be to slash prices even more however this would in turn adversely affect our ability to continue operations well into the foreseeable future.
As such, another alternative that our company can pursue would be to undertake an expansion into international markets such as those in Asia (particularly China and the South East Asian region) where the economic downturn affecting the U.S. and Europe has had only a slight impact on the degree of consumer demand.
In fact a subsequent analysis of the markets within China and South East Asia (particularly the Philippines) has shown a steady growth of demand for imported goods as the outsourcing industry in those countries has in effect created more jobs which translate into greater consumer demand for goods and services (Lau Kin, 2011).
There are several difficulties though, which I will outline in this report, regarding entry into foreign markets of which we have little experience in entering however I believe that the consumer markets in such areas represent a ripe opportunity that the company cannot pass up given the rate of consumer demand within the U.S.
Brand Recognition
One of the initial problems the company will experience when attempting to enter into foreign markets is brand recognition. Branding is an important aspect of selling products since it is the manner in which consumers differentiate our product from the rest in terms of what the brand represents such as quality, product longevity and popularity (Kotler & Keller, 2011).
The fact remains that it is likely that there are already well established brands within the targeted markets with similar products lines as our own. This creates a distinct problem when entering into a new market since it is likely that consumers would choose a brand they know and are used to rather than a relatively unknown brand that they have never seen before.
Another factor that the company should take into consideration is that our own competitors here in the U.S. may in fact be well entrenched within the markets we wish to enter into abroad resulting in the possibility of a price war or a certain degree of difficulty entering into the desired retail market.
One way of overcoming this was actually shown by Wal-mart when it entered into the Chinese market, what the company did was bring in its own business model into China yet adjusted its product lineup to include local favorites that would be bought by consumers. What can be done in the case of the company is that its own product lineup can be changed somewhat to match the local culture of our desired markets.
This can come in the form of products that conform to an aspect of cultural tradition, local necessity, or basically an aspect related to local popular culture. By doing so not only will the company be able to gain a new market for its products and services but it will be able to expand its own product line.
Pricing
Another inherent problem with expanding the company’s retail strategy in global markets is the fact that prices are inherently different throughout various international markets. For example, while a quality basketball produced in the U.S. may cost as much as $60 at retail price within the nearest Wal-mart, in countries such as China it would cost as little as $15 or even less.
The reason behind this is connected to both branding and production costs wherein companies (such as our own) do increase prices of products beyond what they would normally be worth due to their inherent popularity as a result of brand association (Kotler & Keller, 2011).
Similarly, the cost of production within the U.S. is far more expensive as compared to China and as such this translates into higher retail pricing (Buehlmann et al., 2006). When entering into foreign markets not only would the company have to contend with other brands with far lower prices but the brand of the company itself may not be sufficient enough to overcome the difference in prices (Buehlmann et al., 2006).
Studies such as those by Marx (2008) which examined consumer buying behavior showed that when presented with the exact same product yet one having a relatively higher price most consumers would pick the lesser priced one (Marx (2008).
As such when entering in new foreign markets where there are cheaper variations of the company’s product it would be necessary to expand brand awareness through a costly advertising campaign in order for people to buy our products despite its higher prices. This represents a rather costly and potentially unprofitable venture since other companies that have attempted such a strategy have not always been successful.
On the other hand it must be noted that other global markets have less restrictive methods of taxation, import and delivery cost as well as possessing a far lower cost of doing business. As such, depending on the country in question, the overall cost of selling products and doing business may in fact be cheaper and as such represents a viable alternative to the struggling U.S. market.
Counterfeit Products
When trying to expand into foreign markets another factor that the company should take into consideration is the current proliferation of varying forms of counterfeit products.
Due to the initial recommendation of this report that expanding into Asian markets would be an advisable course of action given their growing economies the fact remains that countries such as China, the Philippines, Thailand, Malaysia and other Asian countries have an endemic problem of counterfeit goods coming through their borders by the ton on a daily basis.
Unfortunately enforcement of anti-counterfeit and anti-piracy laws in such countries is comparatively lax as compared to that of the U.S. and as such presents a real problem for the company when entering into such markets (Counterfeiting still a top concern for distributors, 2008).
The inherent problem when competing against counterfeit goods is that they are often priced at either 20 to 30 percent of the original retail price and are at times indistinguishable in appearance from original products.
It is estimated that the counterfeit goods industry costs companies around the world up to 300 billion dollars a year or more in lost revenue and it is due to this that entry into foreign markets presents a substantial degree of risk due to the possibility of the company’s own product line being subsequently copied and sold at rock bottom problems (Counterfeiting still a top concern for distributors, 2008).
On the other hand it must be noted that from a product quality perspective most counterfeit goods are made out of inferior materials and processes and as such don’t have the same level of durability as compared to the original products made by brand name companies.
It is due to this that one method that the company can apply when entering into foreign markets is the use of an advertising campaign that emphasizes the durability and quality of our original products as compared to the fakes so as to entice consumers away from buying counterfeit goods.
Conclusion
While this report has outline the numerous problems that may occur should the company expand into global markets it has also expressly indicated the fact that at the present market demand within the U.S. is at an all time low and as such requires that a company pursue new strategies that involve alternative means of selling products.
Sales in international markets appears to be the best option that the company has at the present in order to survive the prolonged economic downturn that has affected consumer demand.
If expansion into new markets is not pursued it is likely that continued internal operation reductions will occur in the foreseeable future which will most likely cause the company to lag behind its own competitors who they themselves have expanded into new markets abroad.
It is based on this that despite the possible problems that may occur it is not only necessary but essential that the company pursue a path of operational expansion into new markets abroad.
Reference List
Buehlmann, U., Bumgardner, M., Lihra, T., & Frye, M. (2006). Attitudes of U.S. Retailers
Toward China, Canada, and the United States as Manufacturing Sources for Furniture: An Assessment of Competitive Priorities. Journal of Global Marketing, 20(1), 61. Retrieved from EBSCOhost.
Counterfeiting still a top concern for distributors. (2008). EDN, 53(9), 63. Retrieved from EBSCOhost.
Kotler, P, & Keller, K(2011). Marketing management. (13 ed.). Pearson.
LAU KIN, C. (2011). Economic Growth and Sustainability: A view from China. Development, 54(2), 240-242.
Marx, P. (2008). THE PRICE IS RIGHT. New Yorker, 84(40), 54-58. Retrieved from EBSCOhost.
Murphy, C. (2004). Let Someone Else Do It. Atlantic Monthly (10727825), 294(4), 173- 174. Retrieved from EBSCOhost.