Market Development Essay ⋆ Business Essay Examples ⋆ EssayEmpire

Market development implies seeking out new buyer groups as potential customers for a firm’s existing products and services. These customers may be currently served by competitors or may not currently consume such offerings. For example, a firm that successfully makes and sells coffee to the retail market in Italy may try to reach into demographic segments (e.g., young or old people) that they currently do not reach; or they may market a similar product to Italian commercial coffee channels (like restaurants, hotel chains, or vending machines); or they may enter the Swiss market. This term excludes significant changes to the product—generally called product development—or efforts aimed at increasing market share among current customer groups—generally called market penetration. Also, strategies to make significant changes to market as well as product are called diversification.

Developing new market segments is a strategy close to the market penetration concept—both aim to increase sales close to the core product-market focus. Developing new market segments (or niches) involves conducting a segmentation analysis, defining those market segments in which the firm currently is not strong, and conducting evaluations of the attractiveness of these unserved markets. The firm may consider demographic, lifestyle, or psychographic variables to define segments. Russell Winer uses the examples of Kodak and Fuji aiming to attract children to the photography market by developing products to help with school projects, and the National Football League trying to attract more women to its TV broadcasts.

Developing new geographic markets is a key option for firms wanting to grow from their traditional markets, whether to new regions of the home country or perhaps to new international markets. The simplest form would be to move into markets that are close geographically and culturally—like a firm moving from one midwestern state of the United States to another, and then to Ontario, Canada; or an Austrian firm expanding to Germany. Entering geographic markets that entail complex supply chains and cultural adaptation is far more complicated—and several issues involved in entering foreign markets will be discussed below; for example, as Henry Mintzberg, Richard Pascale, and colleagues describe Honda’s entrance into the United States, completely misjudging their products’ suitability for local tastes.

A firm with a promising product, service, and/or brand can try to market a similar offering via different channels of distribution. For example, Starbucks, having done well selling coffee in its chain of coffee shops, began to market packaged coffee through retail outlets. Often new channels go along with new segments and/or geographic markets. For example, diapers for babies are generally sold retail, while diapers for adults can be sold via wholesale (or industrial) channels to hospitals and facilities for the aged; similarly, The Home Depot, Inc., uses alternate channels—like internet and specialty outlets—when developing commercial and governmental markets.

International Market Development

The internationalizing firm has several added strategic dimensions to consider when developing foreign markets, such as entry mode, national culture, international legal issues, organizational structural adaptation, and opportunities provided by regional integration. A significant body of research has considered the options and behavior of firms as they commit to foreign markets. Authors like Harry Barkema and Rian Drogendijk, Tamer Cavusgil, and Jan Johanson and Jan-Erik Vahlne have emphasized the gradual and sequential nature of the decision-making process whereby the firm is assumed to build a stable domestic position before starting international activities— beginning with sporadic exports and then building overseas operations incrementally. Over time the exports generally lead to the creation of an export department. The next stage in this evolutionary process is the transfer of certain value-adding activities abroad. These firms then also increase the number of subsidiaries abroad, starting with countries close geographically and culturally to the home country, moving to more distant locations and countries less similar to the home country. The reason for this behavior is postulated to be a result of risk aversion. As explained by Yair Aharoni, risk declines as international experience accumulates. A different and more rationalistic explanation was proposed by John Dunning by which internationalization will occur only if firms with sufficient ownership advantages to compensate for the liability of foreignness in one country can transfer these advantages to exploit location advantage in another country.

More recently, the deterministic nature of these evolutionary processes has been challenged. In a study tracing 100 years of Alfa Laval, Ivo Zander and Udo Zander point out that Alfa Laval’s growth shows an oscillating rather than a linear pattern of development. Another strategic option is championed by firms that do not develop their international activities in incremental stages, but rather start overseas activities right from their birth. Such firms have been labeled international new ventures, high-technology start-ups, and born global. While these are also, technically, forms of market development, these strategies are more suited to highly entrepreneurial firms willing to take the substantial risks associated with making substantial investments in foreign markets before attaining a strong domestic position. For example, the above-mentioned study by Barkema and Drogendijk of Dutch companies entering into eastern and central Europe demonstrated that, in many cases, expansion steps may be too great; and they thus argue that firms have to balance exploitation and exploration in their internationalization decisions.

An allied set of crucial decisions facing internationalizing firms concerns selecting partners—be they for international joint ventures, strategic alliances, or mergers. Some countries have restrictive foreign ownership laws that obligate international firms to enter with a local partner. However, even absent these legal issues, it is often wise to use local partners to help achieve access to distribution channels, local customers, and to supply knowledge of local laws and customs.

Mergers and acquisitions may be used to achieve rapid entry into high-growth markets, acquire expertise, technology, products, brands, market presence, experienced management, reduce exposure to risk, and complement ongoing internal product development. They minimize the costly time lag associated with the internal development of products, markets, and their required supporting structures; and are particularly useful where product life cycles are short or there are other indications of a profitable market window closing.

David Tse, Yigang Pan, and Kevin Au studied two dimensions of firms’ foreign-market entry strategy, namely mode of entry and formation of alliances. They build a model that describes how host country–, home country–, and industry-specific factors affect foreign firms’ decisions on how they enter the market and whether they will enter with a partner firm or not. The model also shows how operation-related factors, such as the location and the level of local government, affect these decisions. In all cases the firm faces a complex set of decisions when embarking on a market development strategy. Apart from choice of market (for example, considering the options given above), issues of timing and mode of business operation need to be considered. The latter issue is especially complex in foreign markets.

Bibliography:

Aharoni, The Foreign Investment Decision Process (Harvard Business School Press, 1966);
G. Barkema and R. Drogendijk, “Internationalising in Small, Incremental or Larger Steps?” Journal of International Business Studies (v.38/7, 2007);
Christopher A. Bartlett and Sumantra Ghoshal, Transnational Management: Text, Cases and Readings in Cross-Border Management (McGraw Hill, 2000);
Julian Birkinshaw, Entrepreneurship in the Global Firm (Sage, 2000);
Dev Kumar Boojihawon, Pavlos Dimitratos, and Stephen Young, “Characteristics and Influences of Multinational Subsidiary Entrepreneurial Culture: The Case of the Advertising Sector,” International Business Review (v.16/5, 2007);
T. Cavusgil, “On the Internationalization Process of Firms,” European Research (v.8/6, 1980);
Michael R. Czinkota et al., Global Marketing: Foreign Entry, Market Development and Strategy Implementation (Nelson Education, 2008);
Mintzberg, R. Pascale, T. Goold, and R. Rumelt, “The ‘Honda Effect’ Revisited,” California Management Review (v.38/4, 1996);
Michael Porter, Competition in Global Industries (Harvard Business School Press, 1986);
David K. Tse, Yigang Pan, and Kevin Y. Au, “How MNCs Choose Entry Modes and Form Alliances: The China Experience,” Journal of International Business Studies (v.28/4, 1997);
Russell S. Winer, Marketing Management, 2nd (Pearson Prentice Hall, 2004);
George Yip, Total Global Strategy II (Prentice Hall, 2003);
Zander and U. B. Zander, “The Oscillating Multinational Firm—Alfa-Laval in the Period 1890–1990,” in The Nature of the International Firm, I. Björkman and M. Forsgren (Copenhagen Business School Press, 1997).

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