Internationalize AA Ireland Marketing Environment - Coursework Example

1. Introduction International Marketing creates new challenges and provides new opportunities in every sector. The market is affected by macro changes like government regulations and policies and demographics. Other complexities and uncertainties include the consumer behavior. There can be shifts within the industry itself like globalization and technological advances which alter the marketing strategies. In the last decade, service industry has taken a big jump. Marketing of a tangible product differs from marketing of services. Marketing mix for services is more difficult to ascertain than for products. This report will consider the marketing issues arising in the management of AA Ireland’s international operations applying the 12C framework for analyzing and screening international markets. 1.1 Overview of AA Ireland Automobile Association, Ireland (AA), operating in Ireland since 1910, is a leading motor organization with 395,000 members. AA has over 80 AA Patrols in Ireland and the service is supported by nearly 200 garage agents (AAIreland.ie). It is a leading provider of personal lines insurance intermediary and a major provider of travel, technical and information services. While the calls are handled by the Rescue Center in Dublin, the services are handled over the entire UK. AA offers various types of membership depending upon the services required and separate schemes for the individuals and companies. It has a market share of 85% in the market for those motorists who choose and purchase rescue cover (Wikepedia). It provides breakdown services to fifty percent of new cars in association with ARCTransistance. It offers a range of services which include grading of hotel accommodation, car and home insurance brokerage, vehicle breakdown service, provision of temporary directional signage to events, evaluation of second-hand vehicles, and the provision of information to members regarding new cars and travel insurance. AA Ireland also has an interactive website through which it communicates the services and benefits of the company to the internet users. It maximizes the potential of the web as an additional sales channel (MediaOne, 2004). The website can even track and process online applications submitted. The website gives out detailed information on AA membership, car, home and travel insurance, and other useful generic content. It also offers the opportunity to purchase a variety of AA products and services online. Apart from managing queries and processing purchases, the website can also facilitate comprehensive report generation. AA Roadwatch is the major supplier of traffic and travel information in Ireland. It is a one-stop-shop for all traffic and travel information. It facilitates the updating of the internal AA database which is then replicated online. It gives real time traffic reports due to which the through the website people can get to know the events and the traffic position at various points. Other useful information such as car parking details, petrol process, traffic cameras and event updates can be accessed via the site. 2. International marketing environment – India One of the most globalised economies of the developed world, Ireland is keen to invest in India for which the country has put in place the ‘Asia Strategy’. Ireland has been keen on joining hands with India in sectors as diversified as tourism, civil aviation and education (Chandrasekharan, 2005). Fuelled by its economic success, Ireland now strives for a greater share in the global economic pie. Ireland is the third richest in terms of GDP in the EU. 2.1 Economic forces The economy of India is the third largest in the world with a GDP of US 3.666 trillion (Wikipedia). Based on a growth rate of 5.3 to 6.1% in various periods, Goldman sachs predicted that Indias GDP in current prices will overtake France and Italy by 2020, Germany, UK and Russia by 2025, Japan by 2035. By 2035 it is expected to reach as 3rd largest economy of the world behind US and China (Wikipedia). Being the third largest economy, it is the preferred destination for foreign direct investment. The Gross Domestic Savings are expected to touch 30 percent or more on a sustained basis (Mohan, 2006). India’s FDI policy allows up to a 100% FDI stake in ventures. Industrial policy reforms have substantially reduced industrial licensing requirements, removed restrictions on expansion and facilitated easy access to foreign technology and foreign direct investment FDI (Wikipedia). 2.2 Political forces India has a stable democratic government since independence. The growing middle-class favors liberalization and tightening fiscal deficits. As such economic reforms have taken place at a fast pace. According to Mohan (2006) the role of the central government as the intermediary of the state governments is effectively ending, which marks the beginning of the emergence of the sub-national debt market but provides autonomy to the states. As the fiscal deficit falls, private savings can further be channelized into the private sector. 2.3 Corporate Governance – domestic firms India has a complex blend of ownership forms which in turn has an impact on corporate governance. The corporate governance of family businesses in India is oriented towards eco-centric values with the thrust on stability, thrust and conservatism. As per the report of the Ministry of Labor (2000) the public sector employs twice the number employed in the private sector. State owned enterprises are significant players in the Indian economy but the financial performance of these units is not good (Gollakota and Gupta, 2006). The government is guided by social altruism which may not be in line with the motive of profit. There is no accountability because they are the agents of the real owners – the citizens. 2.3.1 Corporate Governance – foreign firms Foreign firms in India have been able to govern their subsidiaries better than domestic firms (Gollakota & Gupta). This could be attributed to global technology, marketing strength, global brand names and access to foreign capital. Foreign-owned forms spent more on advertising. As values and institutions evolve so do corporate ownership and control opportunities. At the same time different organizations find different ways to adapt to the same environmental challenges. Thus depending on the organizational competencies and differences in their strategic positioning and market niches, more than one form of corporate governance could be equally viable in India. Market forces also have an influence on governance. 2.4 Demographic forces India, with a population of 1.095 billion people (Wikipedia), has a positive factor that it has a large working-age population because of the decreasing depending ratio. Better literacy rates, health care and sufficiency in food have ensured that the large population has not caused any serious problems in recent times. India’s middle class population of 300 million people represents a powerful consumer market. 2.4.1 Cultural and customer forces Gollakota and Gupta (2006) are of the opinion that India’s cultural values are different from other countries. India is undergoing transition and contemporary globalization, which is evident in modern cities like Mumbai, Delhi and Calcutta. Widespread availability of western goods, rapidly rising real estate prices and the transport infrastructure development challenge the traditional Indian religious and cultural practices (Pick & Dayaram, 2006). India reflects simultaneous globalization with compounded advantages along with reinforcing the vulnerabilities and disadvantages of being poor. This situation poses a number of challenges to the nation in its social, political and economic development. The key economic, political, technological, and cultural flows and networks are often outside the abilities of its political systems to regulate and control. There is a disembedding of culture and society as the defined structures are being dismantled and replaced by heterodoxical contingencies. There is an attempt in the Indian society to graft the western-style structures and technologies onto the traditional ways of life thereby creating risks. There is a materialistic, individualistic, and consumerist orientation in the society. The rapid technological development has created a deeper divide between the elite and the masses. Globalization is inevitable and India is already reeling under its influence. The challenge to the social, political and economic fronts depends on how the risks generated are confronted. 2.5 Competition forces Several automobile associations do exist currently in India but they lag far behind the western associations in delivery of services and costs. The Federation of Indian Automobile Associations (FIAA) is comprised of Automobile Association of Eastern India, Automobile Association of Southern India, Automobile Association of Upper India, Uttar Pradesh Automobile Association, and Western India Automobile Association. Each of these associations have branches in several cities in their region and offer services ranging from emergency road service, road maps, insurance, general touring information and assistance. Due to differences in service concepts and operating philosophies between AAA clubs and motor clubs elsewhere, the level of services from AAA may not match those offered by other motor clubs around the world (AAA, 2007). 2.5.1 Technological forces AA Ireland uses WAP technologies to provide up to date traffic and travel information form the AA to the public via their mobile phone. Users can also receive a text message for any unusual traffic situation along their route. It intends to bring this to India but The Global Positioning System (GPS) has already been introduced in India although it is in the nascent stage and thus expensive. Ireland is mature in this technology and bringing this to India as a part of its membership services would be a value-added service. Global Positioning System (GPS) are powered by small dashboard devices, which are connected to roof-mounted satellite antenna. This helps the driver to get directions while traveling. 3. International Market screening, analysis, identification and segmentation using the 12C framework Country – the political and economic forces have already been discussed above and the country attracts FDI. Its liberalization policy has opened the doors for ventures. Currency – India’s rupee is fairly stable. Rupee is the only legal tender accepted in India. The exchange rate as of July 2006 was 46.53 to a US dollar and 59.316 to a Euro (Wikipedia). The rupee is fully convertible on trade and current account since liberalization. Indians can now convert their earnings abroad into rupee at market rates. All restrictions on foreign exchange for current business transactions as well as travel, education, medical expenses have been removed. However, some restrictions on capital accounts exist, in order to encourage two-way flow of capital and investment. Culture - National culture has a significant role to play in determining the practices and operations that should be applied. Culture according to Hofstede (1997, p4) is “the collective programming of the mind which distinguishes the members of one group or category of people from another” (cited by Hope & Mühlemann, 2001). Societies have developed common set of beliefs and developed a set pattern of behavior which are handed from one generation to another. Hofstede further believes that the culture in which an individual is immersed since birth is likely to have a much stronger effect on him than the organizational culture. Thus, national cultures would have no impact upon the way organization operate across boundaries. India has a strong culture but gradually the western influence has infiltrated. English is widely spoken in India and Ireland sees this as a natural ally in its quest for expanding economic cooperation. According to Hofstede (1984), different cultures imply different mental programming, which governs activities, motivation and values (cited by Gilbert & Tsao). Crossvergence results in convergence of two parent cultures in terms of macro-level variables. Culture has a significant impact on perception, problem-solving and cognition and often leads to differences in satisfaction levels on the same product between global customers. Expectations differ. Levels of literacy differ and so do performance evaluation standards (Pizam & Eliss, 1999). Research demonstrates that no organization can escape adapting the local culture for sustained success. As such AA Ireland would have to adopt its working system to Indian culture and values. Hofstede’s study of 53 national subsidiaries of an international company revealed four characteristics – individualism versus collectivism, large versus small power distance, strong versus weak uncertainty avoidance, and masculinity versus femininity. The cultural aspect has to be considered in every aspect of the management – leadership, marketing, customer relationship management, recruitment and retention. Control and coordination Khanna and Palepu (2000) state that emerging markets like India have poorly functioning institutions leading to severe agency and information problems. The private sector dominates the business groups and hence group affiliation is better in an emerging market context. The financial markets are characterized by inadequate disclosure and weak corporate governance and control. Large diversified business groups can justify the fixed costs needed to replicate the function of the financial institutions there by adding value services. The small and medium business groups lack the management skills, political connections and internal processes needed for diversification. Based on this AA Ireland should go in for joint venture with a large business group whose support would be essential for success in internationalization. Concentration of markets – India is a vast country and it will not be easy to effectively sell to different groups in isolated areas. It would need to have proper channels of distribution to service the people. Commitment – AA has the necessary resources in terms of technology, manpower and funds to make a long-term commitment to internationalize. It also has the capacity to absorb risks even though investment will be taken after risk analysis. Communication – literacy rate being high, ad English being a major language spoken all over the country, communication will not a problem. India uses advanced technology, and is well ahead in different forms of communication, which includes, mobile phones, broadband usage. Hence advertising and promotion can be of international standards although regional language may have to be used at times. Choices of consumers – consumers in India have become selective and are not price-conscious. It has been seen in major Indian markets, owners are increasingly choosing local service channels over authorized centers. They rely on the authorized service centers during the warranty period but ultimately prefer the prompt service, proximity, and lower prices of local service stations (R&M, 2001). It has also been observed that the luxury vehicle owners stick to the authorized service centers. With greater disposable incomes, they prefer service quality and are willing to pay a price for it. According to these high-end car owners, the local stations as insufficiently qualified to handle their cars. Warranty expiry period is the crucial time to catch car owners to sign up for membership for automobile associations. Thus, since the local automobile associations are not very active, AA Ireland would not have to face tough competition. Channels of distribution – this being a service industry, it has to reach the end consumers in a personalized way. Initially AA Ireland would need to tie up with an existing Automobile Association or start a joint venture with a big business house to export its services from Ireland. Contractual obligations – India is now very conscious of its contractual obligations. As such AA Ireland would have to be conscious to fulfill the services as per its commitment. They must ensure only to commit what they can deliver because consumer forums in India are active. Capacity to pay – the living standards in India has gone up and the disposable incomes are high. The banking policies are refined and remitting funds to Ireland will not be a problem because of the economic reforms. Caveats – imports are liberalized in India and the middle-class welcomes technology in every field. Enhanced services would be received well. 3.1 Market segmentation and analysis Improvement in the living standards and increase in the disposable incomes has led to a growth in the Indian automotive industry. Added to these are the liberalization steps like relaxation of foreign exchange and equity regulations, reduction of tariffs on imports, and refining the banking policies, initiated by the Government of India. The sale of cars has reached a figure of one million users and is expected to increase further (R&M, 2005). There has also been an increased demand for luxurious cars along with mini-cars for families. The Opel Astra, which is produced by GM India, is Opels best selling model world-wide and the third best selling car on the planet. This car sold more than 200 units within three weeks of its launch, thereby exceeding its sales target (Indiacar, 2006). Multinational auto companies are already working in collaboration with Indian firms. Institutionalization of automobile finance has also caused a growth in this industry. Jackson & Sehgal (2006) report that automakers, the financial markets and supply chains that support them, know their world is going to change as the number of car owners is expected to double in a decade. In emerging markets, if the building of roads and fuel infrastructure continues, then individual mobility and job opportunities will increase. Residents of remote villages in India are expected to use car for their daily mobility as cars would become more affordable. India is not fully equipped to handle world-class services to match the requirements of the car owners. Besides, higher disposable income has led to desire for standards to be maintained in services. Membership with AA Ireland will come with a host of other services of world class standard. Thus, the target market for AA Ireland should be the higher income group who would be willing to pay the price for the services. In any case, they are reluctant to allow the local service centers to handle their cars. 3.2 Strategies for SMEs and global players. Each marketing entry strategy has its own risks, advantages and disadvantages. While exports is the simplest form of entering an international market, other strategies that companies can consider are licensing, joint ventures and off-shore operations. Joint ventures have to be applied in countries where foreign ownership is restricted. In India this is not a restriction and hence AA Ireland should initially tie up with a big business group or pair with an existing automobile association which is not functioning well. Joint ventures may perhaps be time-consuming and initially difficult, but yields optimum results both for the foreign firm and the local company offering partnership (Gross, 1995). In the service sector brand extension strategy is frequently followed by companies (Aaker & Keller, 1990 cited by Pina et al., 2006). This helps to keep the marketing costs low while the chances of success are high. The frequent use of a monolithic branding strategy helps build goodwill behind the widely employed corporate brand (Free, 1996 cited by Pina et al.,). As such AA Ireland should use the same brand as it uses for all its operations. Huge investments are required to enter an overseas market before the utilization of investment comes and therefore, brand extension to some extent helps control expenses. As per Gao et al., (2006), brands that enter the market earlier have larger market shares. Entry into an overseas market can be either direct or through an agent. The disadvantage of marketing through an overseas agent is that you are at the mercy of that agent. The exporter can have no control over the market, the marketing efforts and the expenses. In the services sector, service is the most important criteria of success. Leaving this in the hands of overseas agents can jeopardize the entire process. 3.3 Market entry strategy for AA Ireland An understanding of the social, political and economic situation in India gives an insight into the direction for market entry strategy and the international marketing strategy for AA Ireland. The market for such services in India is incipient. It is still growing and people are gradually becoming conscious of the value of the services. As can be seen, the state owned companies do not perform well. Market for AA Ireland has high potential as the economy is growing and purchasing power is increasing, besides, car owners are increasing even in the remote areas. As such, AA Ireland should internationalize initially by collaborating or going in for joint venture with one of the existing associations, specially the one which is not performing well. Automobile Association of Eastern India lacks in many services which are offered by other associations in the country. The products that it should immediately start with are offering various services online through an interactive website – like real time traffic situations, assistance in highway positions, emergency breakdown services through patrols. International tie ups for its services would be beneficial. It should offer car-parking details, evaluation of second hand vehicles and car, home and personal insurance services. It should bring in advanced technology which attracts the common Indian. The prices should be high for the services so as to target the high end users. If the prices are low, it may attract too many consumers and may not be able to cope with the demand for services as India being a vast country, the population and the number of car owners is high. After proper segmentation, it can concentrate on advertising and promotion based on attracting the high end users. It should use its strong brand to position itself in the market and initially start with one region in the country. It can expand its reach after attaining success. Local culture and language to some extent would have to be adopted and pricing should not be too low. At the same time, people should get the value for money, which is what the Indian society clamors for. 4. Conclusion The service industry has to keep up with the regional culture and requirements to be successful. Merely having a global partner is not enough; it is equally important to have at least an equal if not a majority stake. Opportunities and risks are equal in entering a foreign market and both have to be weighed cautiously before venturing into a partnership. Competition in a growing economy is healthy but strategies have to be formulated accordingly. Investment decisions and control are equally important - whether it should be a joint venture with a local partner, whether they should acquire an existing company in that country. The prospects of investment in India are good but risks cannot be overlooked. AA Ireland can internationalize after taking precautions as discussed. References: AAA (2007), AAA Exchange, 11 Jan 2007 Chandrasekharan, V. S., (2005), India natural ally in economic ties: Ireland, 11 Jan 2007 Gao G Y et al., (2006), Market Share Performance of Foreign and Domestic Brands in China, 11 Jan 2007 Gilbert, D. & Tsao, J. 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