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Business-to-business marketing Essay

Abstract

Business-to-business marketing is important for every company that wants to survive in the modern world.  This is important since changes brought about by technology and changes in marketing strategy require companies to be flexible and adapt to such changes.  Business-to-business marketing transactions are common since for every transaction to the customer, there are several underlying transactions between businesses.  This paper aims at focusing on joint ventures and multi-domestic markets which are important in understanding the concept of business-to-business marketing.  Unilever and Mahindra and Mahindra are the companies chosen as case studies since they have a global presence and apply these two concepts in their operations.

Introduction

Business to business describes commercial transactions that take place between one business and another.  It is different from transactions that take place between companies and consumers, and includes business-to-business marketing, e-commerce and sales.  It involves several marketing strategies that align brands of the companies that are involved in it.  Several strategies that are used, focus on branding, pricing, place and promotion.

Business-to-business marketing involves collaboration between the various companies with an aim of increasing the companies’ sales volumes.  According to Egelhoff (2002), business-to-business marketing is growing popular in the world today due to three reasons.  The first is the advancement of technology, which necessitates the need for speed in manufacture of new products and service development.  This can also be attributed to growth in Internet transactions, that is e-commerce.

The second reason is the changes that are required in the modern world regarding the structure of businesses to ensure their survival.  These changes require companies to undertake downsizing, flexibility, adaptability and aggressiveness, in order to ensure that they meet the needs of the markets.  The third reason that necessitates the growth of business-to-business marketing is the changes that occur within the marketing sector.  These changes include formation of partnerships, alliances, joint ventures and relationships that mutually benefit the partners.

Joint ventures.

Joint venture is a strategy that companies use which involves partnership in undertaking economic activities.  The companies involved in joint venture agree to pool resources, contribute capital and share expenses and revenues.  The joint venture is formed to achieve certain objectives and goals, and may be done for specific projects or as continuous relationship.  Joint ventures are popular in many types of businesses and may involve cooperation between foreign and local companies.  They are popular in situations where the company wants to expand the business, move into a new market or to develop a new product.

Reasons for joint ventures.

There are several reasons that make companies undertake joint ventures.  One of the reasons for joint ventures is to exploit the strengths of the company through undertaking activities that enhance the strength of the business.  Another reason is the spread of risks and control of cost.  Joint ventures spread risks through sharing the same, between the partners in it.  These ventures also control cost through sharing the resources and expenses which makes their impact on the individual partners lesser.

According to Birkinshaw and Morisson (1999), joint ventures are also a means of gaining access to capital since it is easier for partners to raise the desired capital, than it is for an individual business.  Joint ventures also provide the businesses with an opportunity to enjoy economies of scale.  These are the benefits that businesses enjoy due to  doing business activities on a large scale basis.  These benefits include discounts, access to technology, loans among others.

Other reasons for joint ventures may include the desire for advancement for the industry, controlling competition and increasing competitiveness of the products.  Finally, the company may engage in joint ventures in order to satisfy the legal requirements that foreign companies are required to fulfill when penetrating the market.  In countries such as India and China, the government requires a foreign company which want to operate in those countries, to enter into a joint venture with a domestic firm.

Joint ventures however possess the risk of collapse if there is a negative relationship between the individual partners.  This may occur due to the perception that one partner is unduly gaining at the expense of the other partner.  Disputes may also arise if the partners do not streamline their organizational culture and style of leadership, which may lead to poor cooperation and integration by partners.

Finally, another reason that may lead to the collapse of the joint ventures is the lack of balance between assets, investments and expertise that partners bring to the business.  This also occurs if partner companies have significant differences in revenue earnings and profits.  The end result is the perception that one partner is benefiting at the expense of the other, and hence the collapse of the venture.

Mahindra and Mahindra (M&M) company.

Mahindra and Mahindra  undertook a joint venture with Yueda Yancheng, a company in China regarding the manufacture of tractors.  Mahindra and Mahindra is ranked as the third largest manufacturer of tractors in the world.  This company was formed in 1994 through organizational restructuring and specializes in manufacture of sports utility vehicles, tractors and light vehicles.  The success of the company can be attributed to the jeep that was used in the second world war, which is linked to this company. This company has a strong international presence since 1969, operating in Africa, Latin America, Europe and Asia.

A recent joint venture with Yueda Yancheng is estimated to cost $26 billion for Mahindra and Mahindra, which will acquire the majority stake.  Mahindra and Mahindra will also acquire liabilities and assets of Yueda Yancheng company which are worth about $50 million.  This venture is reported by the managing director and vice chairman of Mahindra, Anand Mahindra, to bring together Chinese efficiency and competitiveness, and Indian managerial and entrepreneurial skills.  According to Schellhase (2002), this is aimed at improving the efficiency and effectiveness of Mahindra and Mahindra, which in turn enables this company to move towards achieving its dream of being the leading manufacturer of tractors in the world.

The joint venture is expected to help both companies improve their operations, distribution network, capability of research and development and international sales.  The joint venture is also expected to improve the products and manufacture products ranging to 125 horsepower.  The two companies expect to build a large base which will be used for manufacturing products, not only for the local market but also for export.  This is seen by the management in both companies as an important step towards the development of business operations for tractors, overseas.

It is also expected that the range of products will increase since Yueda Yancheng manufactures all capabilities, between 16 and 125 HP.  Yueda Yancheng is expected to benefit from the distribution network that Mahindra and Mahindra uses since it exports products to Europe and the United States.  This is a benefit to both partners, since Mahindra and Mahindra is also expected to benefit from Yueda Yancheng’s established channel of distribution.  The venture is also expected to save costs to both companies due to the sharing of resources available.

These resources include personnel, spare parts, capital and other resources.  This is expected to reduce the cost of production which may be passed on to the final consumer.   The consumers are also expected to benefit from possible lower costs attributed to the presence of a wider vendor base where components can be sourced from.  This is expected to lower the cost of production which may result in cheaper prices for products from the two companies.

The merger of Yueda Yancheng and Mahindra and Mahindra is also expected to make the companies benefit from economies of scale.  In this case, the companies will benefit from economies of large scale since they will have more access to loans, will receive discounts, and generally acquire other benefits of large scale production.  The tractor industry in China has grown by 40% each year for the last eight years.  This is attributed to the government’s improved policies in agriculture and the increase in funds allocated to the rural economy.  The effects of these two factors has led to increase in the level of income for Chinese farmers.

Multi-domestic strategy.

This strategy involves tailoring the products that are offered by a company to the different preferences and tastes of the local market.  A firm that uses this strategy has subsidiaries in various parts of the world and caters for the diverse needs of those markets.  This strategy involves giving power to the subsidiaries to make decisions based on the market needs of individual markets, thus encouraging decentralization of operations of firms that use this strategy.  The parent company only deals with major issues like branding and financial control, while unique market functions like marketing and sales are handled by the subsidiaries.

The parent company sets product transfer prices while subsidiaries handle expansion, penetration and maintenance operations.  The multi-domestic strategy relies on research and development for developing products which meet the client needs.

One benefit of using this strategy is that it increases product value through tailoring the products to customer needs.  The strategy is however only used for markets that are clearly differentiated.  An example of using the multi-domestic strategy is through use of price discrimination, where the same product is sold at different prices in various markets.  A weakness of using the multi-domestic strategy is that tasks may be duplicated, which leads to a slight increase in cost of the products, in the short run.

Unilever company.

Unilever is a multinational that uses the multi-domestic strategy in sale of its products. It deals with foodstuffs and other household commodities and operates in the majority of countries in the world.  According to Peng (2001), the company mostly focuses on emerging markets and was created after Lever brother and margarine Unie merged.  The former company dealt in soaps and was British-owned, while the latter dealt in margarine and was Dutch owned.  The managers of the two companies wanted to merge so that they could reduce the costs incurred by the two companies.

This company uses a multi-domestic strategy where its subsidiaries produce products that are easily manufactured based on the resources of that country.   Unilever has the advantage of operating in fragmented markets.  For instance, in its major subsidiary in India, Hindustan Unilever, the subsidiary decides on its marketing strategy, and in this case uses product differentiation.  This is where the subsidiaries manufacture products that satisfy the needs of the various classes in society.  When producing detergents, there are detergents manufactured for the lower classes in society, called ‘Wheel’, those for the middle class, called ‘Rin” and those for the upper class, called ‘Surf excel’.

The shampoos made for the lower classes are manufactured in the form of sachets and that are cheap and can only be used once.  The marketing strategy in India has ensured the success of Unilever’s products in this subsidiary.  This is attributed to research and development through careful study of the market trends.  Unilever researched and found out that women in India preferred to oil their hair before washing it.  This made Unilever manufacture shampoos which could remove oil.  Western countries produced shampoos that are unable to remove oil from hair, which was their downfall since most people went for Unilever shampoos.

According to Casson (1999), another strategy used by Unilever in its multi-domestic marketing is a ‘micro-marketing’ strategy.  This is where the company manufactures a product that fits the whole market.  In its subsidiary in Indonesia, ‘Makafar’, a hair conditioner is aggressively marketed since the presence of sea water makes its demand rise.  On the other hand, this product is not aggressively marketed in Jakarta, where demand is low.

Unilever also makes use of the trans-national strategy which involves empowering the business structures of its overseas markets so that they may be innovative.  The management tries to link the operations of different subsidiaries together so that local demands are balanced with the Unilever headquarters demands.  This also ensures that technology or knowledge is transferred from the home country to the subsidiaries and vice verse.

One weakness faced by Unilever and multi-nationals in general which use the multi-domestic approach is the possibility of tampering of products of these companies.  This weakness is brought about by the long supply chain and also exposes these companies to influx of imitations or counterfeits.  The CEO, Mr Cescau also faces a weakness of duplicating efforts and complexity due to bureaucracy. He reduces the effects of this weakness by ensuring that marketing and branding of products is done in a similar manner and by a central authority.  The problem of bureaucracy is reduced through a centralized decision making process where the CEO makes crucial decisions.  This reduces the delay in making decisions and ensures that decisions made are not conflicting.

Conclusion and Recommendation.

Joint venture has enabled Mahindra and Mahindra, and Yueda Yancheng decrease their costs through sharing of resources.  It has also helped the two companies share their strengths, such as channels of distribution and product range, which enables them to produce goods at lower cost.   Yueda Yancheng and Mahindra and Mahindra are companies that are similar in terms of the nature of operations and size.  This ensures that each company appreciates the other and neither partner is deemed to have benefited from the others misfortunes.

The multi-national strategy has been seen to be popular with multinationals.  This is because the markets where it operates are mostly fragmented, and have unique needs.  As observed in Unilever, it is very important to research and develop products which satisfy the market needs.  After developing these products, the companies may decide on the marketing strategy to use, but this is determined by the subsidiaries.  These strategies may involve product and price discrimination, as seen in Unilever.

According to Evans and King (2000), multinationals that use the multi-domestic strategy should ensure that the transfer prices set by the parent company are not unreasonably high.  This is to avoid negative effects on subsidiaries that operate in competitive markets since competitors may take advantage of the high prices to attract customers.  The multinationals should also avoid setting the transfer prices at unreasonably low prices, since the tax authorities may perceive it as tax evasion.  Finally, the CEO should ensure that decision making on major issues is centralized so that there is no delay in making of crucial decisions.

References:

  • Birkinshaw, J. M., Morisson, A. J. (1999). Configuration of structure and strategy of multinationals. Journal of International Business Journal of International Business studies. JSTOR.
  • Casson, M. (1999). Cooperative forms of transnational corporation activity. Journal of international studies. London: Routledge.
  • Egelhoff, W. G. (2002). Structure and strategy of multinationals. Journal of International Business. Retrieved on November 10, 2008 from <books.google.com>.
  • Evans, J. R., King, V. E. (2000). Business-to-business marketing. Journal of Industrial Marketing Management. New York: Elsevier.
  • Peng, M. W. (2001). A theory of cooperation in international business. Journal of management. Retrieved on November 10, 2008, 2008 from <jom.sagepub.com>
  • Schellhase, R. (2002). Satisfying customers in Business-to-business marketing. Journal of Business and Industrial Marketing. Retrieved on November 10, 2008, 2008 from <emeraldinsight.com>.

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