Because of the competing advantages and risks, companies often do not act un-
til some event thrusts them into the international arena. Someone—a domestic ex-
porter, a foreign importer, a foreign government—solicits the company to sell abroad.
Or the company is saddled with overcapacity and must find additional markets for
its goods.
ECIDING WHICH MARKETS TO ENTER
In deciding to go abroad, the company needs to define its international marketing
objectives and policies. What proportion of foreign to total sales will it seek? Most
companies start small when they venture abroad. Some plan to stay small. Others
have bigger plans, believing that their foreign business will eventually be equal to, or
even more important than, their domestic business. “Going abroad” on the Internet
poses special challenges; see the Marketing for the Millennium box, “WWW.The-
WorldIsYourOyster.com: The Ins and Outs of Global E-Commerce.”
The company must decide whether to market in a few countries or many coun-
tries and determine how fast to expand. Consider Tyco:
■ Tyco Toys Inc. When Tyco Toys Inc. began expanding into Europe in 1990,
a slew of acquisitions and best-sellers at home had propelled the company to
fourth place among U.S. toy makers, from twenty-second place only four years
before. Yet non-U.S. sales still accounted for only 13 percent of total sales,
and the company’s rivals had significant overseas sales. Tyco wanted to close
the gap quickly and better serve global-minded retailers such as Toys “R” Us.
The initial plan was to open one European subsidiary a year, with each ex-
pected to turn a profit 12 months later. But the company then speeded up
the pace by starting subsidiaries in Italy, Spain, Germany, and Belgium all in
one year. Tyco also bought Universal Matchbox Group Ltd., a major Hong
Kong producer of die-cast toy vehicles. Tyco’s unusually rapid push abroad,
coupled with a domestic sales slump, soon strained the ranks of its senior ex-
ecutives, who knew little about running a far-flung empire. In its 1995 an-
nual report, the company reported its third consecutive year of net losses,
mainly from Europe. To cut its losses, Tyco ended up liquidating the Italian
subsidiary, merging operations in three other countries, and dismissing one-
third of its European staff.^5
In contrast, consider Amway’s experience:
■ Amway Known for its neighbor-to-neighbor direct-selling networks, consumer-
product company Amway expanded into Australia in 1971, a country far away
from but similar to the U.S. market. In the 1980s, Amway expanded into 10
more countries, and the pace increased rapidly from then on. By 1997, Amway
had evolved into a multinational juggernaut with a sales force of 2.5 million
hauling in $6.8 billion on doorsteps from Hungary to Malaysia to Brazil. To-
day, Amway sells products in 43 countries. Its goal: to have overseas markets
account for 80 percent of its sales during the next decade. This is not an un-
realistic or overly ambitious goal considering that Amway already gains 70
percent of its $6.8 billion from foreign markets.^6
Generally speaking, it makes sense to operate in fewer countries with a deeper
commitment and penetration in each. Ayal and Zif have argued that a company should
enter fewer countries when
■ Market entry and market control costs are high.
■ Product and communication adaptation costs are high.
■ Population and income size and growth are high in the initial countries chosen.
■ Dominant foreign firms can establish high barriers to entry.^7
chapter 12
Designing
Global Market
Offerings^369D