International Marketing Investment Strategy: A Three-Stage Model Essay Example

been made to develop a comprehensible model for determining international business strategy, despite the limitations of prior studies and models. Various models have been proposed by the marketing literature to assist managers in making strategic investment decisions. Among these are Shell DPM (Robinson, Hichens, and Wade 1978), Arthur D. Little (Patel and Younger 1978), GE/McKinsey (Taylor 1976), and Gladwin's (1985) matrix approaches. While each model has made a unique contribution to the strategy process, they also have specific shortcomings. Figure 1 displays the pros and cons of each approach.

Multinational companies face challenges when it comes to incorporating environmental assessments into their decision-making process in a systematic and objective manner. This is particularly worrisome for firms aiming for the international market as current models do not factor in the international environment. In order to address this issue, companies must determine how to turn their understanding of business circumstances into actionable steps. Previous models are restricted in their ability to apply to various industries and global environments.

The purpose of this article's proposed model is to improve upon existing deficiencies in previous models. It aims to have greater generalizability across multiple industries, provide more thorough treatment of environmental factors, and be applicable in worldwide situations. The International Marketing Investment Strategy Model (IMISM) explicitly considers risk and consumer sentiment as components of environmental determinants for market attractiveness and competitive position. The IMISM serves as a guide for decision-makers to determine the direction and extent of international business marketing investment. It has three stages: screening for market attractiveness and competitive position, classifying businesses based on their interaction, and determining strategic alternatives for each class. During stage 1, all strategic

business units should be screened for market attractiveness and competitive position in each country they operate in.

Screening is important to identify worthwhile strategic business units and avoid wasting resources on poor prospects. The concepts of market attractiveness and competitive position are necessary to achieve this. Market attractiveness involves examining and understanding the potential of a market in a country of operation. Strategic business units require markets that can support them and assessing market potential and country risk can determine the market attractiveness of a country.

Market potential and country risks are two factors that determine the business supportability of a country. The former refers to a country's capacity to provide support, and relies on various resources such as economic, social, financial, and demographic. On the other hand, country risks involve assessing whether a country can provide business support. Determining market attractiveness requires balancing these two factors.

Kennedy (1987) defined country risk as the inherent risks involved in doing business in a country's economic, social, and political environment. Numerous sources of secondary data on market potential and country risk are available, including World Bank, United Nations, Business International, Euro monitor, US Department of Commerce and Industry, Economist Intelligence Unit, Predicast, Frost and Sullivan. To assess market potential and country risk, weights are assigned to each variable based on their perceived importance to the company. Examples of this process include Business Environmental Risk Index (Haner 1975), Mayer (1985), and Kotler (1984). The scores for each country are then calculated by totaling the scores of factors determining market attractiveness. Based on a company's belief about the combination of minimum market potential and maximum risk that is acceptable

for investment, individual countries can be classified as having an acceptable or unacceptable level of market attractiveness.

The screening stage of the ISISM model evaluates the competitive position of a business as a determinant of investment strategy. Competitive position refers to the advantages that businesses must maintain over their competitors to attract consumer patronage. While they don't have to be the best, they should possess certain factors that give them access to customers. Industrial competence and consumer sentiment are the two main factors that determine a business's overall competitive position in a market. Industrial competence refers to a strategic business unit's ability to compete in a specific industry within a particular market.

According to Dunning's research in 1981, ownership-specific advantages, location-specific advantages, and internalization incentives play a role in determining a company's success. Gaski and Etzel's 1986 study shows that consumer sentiment towards a strategic business unit is influenced by their opinion on the quality of the products or services offered, pricing, advertising, and retailing practices. Porter developed a structural framework in 1980 to analyze industries, which identifies five forces – the threat of new competitors, bargaining power of buyers and suppliers, pressure from substitute products, and rivalry among competitors – as factors affecting a company's competitive position.

Both Porter's (1980) and Dunning's (1981) approaches evaluate industrial competence but have different levels of difficulty and objectivity. Porter's approach involves subjective evaluations and questionnaires, while Dunning's approach is easier, more objective, and less time-consuming. Dunning's approach uses ownership-specific advantages, location-specific advantages, and internalization incentives to determine competitive position. Ownership-specific advantages refer to assets or rights exclusive to the enterprise that owns them.

The studies of Porter 1980 and Dunning

1981 have focused on industrial competence as the sole factor of competitive position, leaving out consumer sentiment in international strategy. However, the IMISM considers consumer sentiment crucial for developing and maintaining market share. Location-specific advantages are external factors not transferable across national borders, while internalization incentives refer to gains from replacing external resource allocation mechanisms with internal administrative means of asset allocation (Jacoby and Chestnut 1978).

According to Jacoby and Chestnut (1978), attitudinal measures provide better measurement capability and understanding of the phenomenon than strictly behavioral measures. Copeland (1923) proposed that an extreme attitude towards a brand can influence buyer behavior. Gaski and Etzel (1986) introduced an "index of consumer sentiment towards marketing," which measures sentiments towards product quality, price, advertising, and retailing.

By restricting its scope to the product or service provided by the strategic business unit in a particular country, their survey can easily be tailored to suit individual needs. To make use of the information on industrial expertise and customer perception, weights are allocated to each variable based on their perceived significance to the firm, much like in the case of assessing market appeal. The ultimate rankings are calculated by summing up the scores for the variables that determine competitive standing. Based on the organization's definition of a minimum viable combination of industrial expertise and positive customer sentiment required for investment, each business unit can be classified as either acceptable or unacceptable in terms of competitive position.

During the second stage of the model, the individual businesses are categorized and positioned in the appropriate cells within the International Marketing Investment Strategy Matrix, which is a two-by-two matrix displayed in Figure 3. The vertical axis reflects

market attractiveness, while the horizontal axis indicates competitive position. Based on subjective evaluations of the company's attitude towards risk, i.e., the amount of risk they are willing to take for a certain expected financial payoff, both axes are divided into acceptable and unacceptable ranges.

The position of the strategic business unit on the matrix is determined by the intersection of scores on both axes. A company is deemed acceptable for further investment if their score surpasses the minimum acceptance point on an axis, whereas a score below it indicates they fall short of the acceptable range. Four environmental groups exist from the combination of acceptable and unacceptable ranges on the two axes, with the first being an Expansion Opportunity. Within this group, a business operates in a market with strong potential for growth and a low level of risk. They possess financial strength and have solid control over supply and distribution.

The business has a favorable consumer sentiment, but caution is indicated due to its unacceptable competitive position in a market that has good potential for growth and low risks. The business is unable to take advantage of this position due to issues such as lack of control over supply and distribution, inefficiency, and inadequate finances. As a result, the consumer sentiment toward the business is unfavorable. Additionally, the business maintains its current market position despite its acceptable competitive position, as the market attractiveness is deemed unacceptable.

The business is situated in a market that may not have potential for growth due to high economic, social, or political risks. Nevertheless, the business possesses a favorable financial position and maintains control over supply and distribution.

This leads to positive consumer sentiment. Conversely, if the market is deemed unacceptable with lack of potential growth and unfavorable competitive position, it can result in retraction. In such a scenario, the business lacks access to sufficient finances and technology while also having no control over supply and distribution.

The business is facing negative consumer sentiment. Moving on to Stage 3 of the model, after categorizing the strategic business unit into an environmental group, appropriate strategies can be determined. The following are examples of potential strategies for each of the four environmental groups:

(1) Expansion Opportunity: If the business is in this environment, they should prioritize investing in marketing efforts and pursuing a strategy of expansion. To maintain a competitive edge, they should invest in new products and innovations, increase promotion to enhance awareness and reinforcement, and expand distribution channels to reach more consumers or make their access more convenient.

The company should aim to set prices that are higher than the industry rates while exercising caution in its marketing investment strategy. It is advisable to increase investments in promising areas moderately and reduce investments in questionable areas. Pricing, on the other hand, should be set at the lower end of the industry rates. Drastic changes to investments in this aspect may result in overspending in areas that appear promising but may not be, and underspending in areas that appear less promising but may prove otherwise.

(3) To maintain their current market position, companies should continue investing in marketing at the same level and pursue a maintenance strategy while pricing their products at the industry average rate. The objective is to keep their existing customer base and

retain their market share. The profits obtained from this business can be used to invest in other cells. However, since this cell has limited potential for growth, charging a price higher than the industry average may cause customers to switch to competitors.

(4) Market Retraction: To safeguard finances in such circumstances, companies should halt their marketing investments and instead adopt a strategy of market retraction. This involves pricing their existing inventory at the lower limits of industry standards, ensuring maximum possible salvage value. Staying in such a market for longer durations results in greater financial loss.