The Internet and International Marketing

Is the Internet just another marketing channel like direct mail or home shopping? Or will it revolutionize global marketing? Will large multinationals lose the advantages of size, while small start-ups leverage the technology and be-come big players internationally? The authors discuss the different opportunities and chal-lenges that the Internet offers to large and small companies worldwide. They examine the impact on global markets and new product development, the advantages of an intranet for large corporations, and the need for foreign government support and cooperation.

Reading Time: 46 min 



The Internet promises to revolutionize the dynamics of international commerce and, like the telephone and fax machine, may be a major force in the democratization of capitalism. Small companies will be able to compete more easily in the global marketplace, and consumers in emerging markets, in particular, will benefit from the expanded range of products, services, and information to which the Internet will give them access. As a recent Forrester industry report explains, the Internet removes many barriers to communication with customers and employees by eliminating the obstacles created by geography, time zones, and location, creating a “frictionless” business environment.1 Much of the current expansion in Internet use, accelerated by the emergence of the World Wide Web (WWW), is driven by marketing initiatives —providing products and product information to potential customers. However, in the future, many companies, especially those operating globally, will realize a much broader range of benefits from this medium’s potential as both a communication and a transaction vehicle.

Currently, the Internet is mainly a U.S. phenomenon, due to the later start and historically slower growth of Internet access in other countries. More than half the Internet’s nearly 7 million host computers are located in the United States, with the remainder spread across 100 other countries.2 In 1995, 22 countries came on-line.3 In 1994, there was wide variation in the number of Internet hosts per 1,000 people, ranging from more than 14 in Finland to fewer than 0.5 in South Korea (see Table 1).

With fewer non-U.S. businesses on line, fewer access nodes, higher telecommunications rates, and lower rates of personal computer ownership, consumer use of the Internet internationally is currently much lower than in the United States, where commercial on-line services like CompuServe and America Online (AOL) have also facilitated Internet use. But CompuServe and AOL have only recently begun to aggressively market their services in other countries. CompuServe first began global expansion in 1987 with entry into Japan through collaboration with Japanese partners. The on-line service now boasts 500,000 subscribers outside the United States. AOL’s attempts to establish Europe Online were delayed until late 1995 due to disagreements with its European-based partners. Although these commercial providers are now positioned for aggressive growth abroad, their slower than expected expansion has delayed consumer education about and adoption of the Internet.

Internet access in overseas markets now promises to grow rapidly as the on-line services expand and as regionalandnational governments and telecommunication companies become more interested (see Table 1). For example, China recently launched ChinaWeb, a Web site whose stated purpose is “To help China in her rapid transformation to an information society, and to promote business and commerce with China through the bridge of Internet.”4 As an emerging bellwether market, China’s response to the Internet augurs well for its worldwide expansion. Some predict that the European market will fully open only when the telecommunications industry is deregulated in 1998, reducing phone charges for Internet usage and allowing the number of users to reach the critical mass necessary to spur the growth of European commercial Web sites.5 However, these transitions will not occur overnight. Some national governments will doubtless try to limit their populations’ access to the Internet, fearing the free flow of ideas and the importation of products purchased over the Internet at the expense of local sales taxes and custom duties.

Many international users of the Internet are similar to U.S. users. An on-line survey of more than 13,000 Internet users conducted by Georgia Tech’s Graphics, Visualization, and Usability Center (GVU), from April through May 1995, counted 2,500 responses from other countries, primarily from English-speaking users. A comparison of the demographic profiles of foreign and domestic users uncovered few differences, with both audiences skewed toward college-educated white males in their early thirties, earning higher than average incomes and employed in the computer, education, and other professional fields.6

The long-term international growth of the Internet raises the opportunity for cross-border information flows and transactions. In 1995, transaction volume over the Web was estimated at more than $400 million, up from less than $20 million in 1994 — more than 80 percent of which went to U.S. companies. Of the total sales, exports accounted for approximately 43 percent.7An informal poll of a dozen Web sites reveals that the internationally based audience comprises, on average, 20 percent of total traffic and transaction volume (see Table 2).

Current estimates predict that global transaction volume will reach more than $1 billion in 1996. However, transactions are concentrated in a limited number of product categories, even within the United States, due to: (1) the distinctive demographic profile of current Internet users; (2) the type of product information most easily presented electronically, given limitations in bandwidth; (3) trade regulations; and (4) transaction security concerns.

For example, products with generally low prices sell better. A recent survey of Internet shoppers reported that 64 percent of purchases were for software, books, music, hardware, and magazines.8 The GVU survey revealed that on-line purchasers were much more likely to buy hardware and software priced at under $50 than over $50, with more than 60 percent citing transaction security concerns as the major deterrent. In addition, legal restrictions limit cross-border transactions; many software products cannot be sold internationally for security reasons due to their inclusion of encryption technologies. Likewise, exports of liquor are restricted. But these constraints will likely be overcome as Internet use diffuses and adopter profiles become more heterogeneous, as bandwidth and software capabilities expand, and as data security issues are resolved.

The purpose of this article is to explore how the Internet may change the rules of international marketing. Is the Internet potentially revolutionary or just another marketing channel like home shopping or direct mail? The answer depends on how much added value there is in Internet communications and transactions compared to existing alternatives. The value-added will vary across country markets and according to company type. Because distribution channels tend to be less developed, less direct, or less efficient in emerging markets than in the United States, the Internet may offer special opportunities in these markets. In addition, the differences in speed of, control over, and access to communication and distribution channels between the Internet and traditional media and distribution channels internationally will offer different mixes of opportunities and challenges to large multinational companies (MNCs) and to small businesses.

Types of Web Sites

A company’s choice of evolutionary path depends on whether it is an established MNC or a start-up company created to do business solely on the Internet (see Figure 1). (Any company that establishes a site on the Internet automatically becomes a multinational company.) Existing MNCs tend to adopt the information-to-transaction model, whereas startup companies tend to use the transaction-to-information model.

The MNC starts by offering information to address the needs of its existing customers. Federal Express’s initial site, launched in November 1994, was a relatively small twelve-page site focusing on the package-tracking service previously available only to businesses with corporate accounts. Customer response to the service was much greater than expected, causing the company to expand its server capacity and the site itself to include information on the range of delivery options and downloadable desktop software to prepare packages for shipping and keeping records.9 However, neither FedEx nor its competitor UPS yet offer on-line transactions so customers can arrange for package pick-up, delivery, or billing directly on the Web site.

3M’s Web site gives information on a growing number of its nearly 60,000 products, news of innovations in its product markets, and directories of its worldwide operations, but has only recently begun offering items for sale. Currently, it offers a $15 mouse pad — and only within the United States.

Rockport, the shoe company, plans to launch a Web site in spring 1996, which will initially focus on giving existing and potential customers information on foot care and on its product line. The company plans to expand the site to provide links to its local retail outlets and eventually to collect and analyze individual purchase histories to help customers select future purchases. Only with this detailed amount of customer information and involvement does the company see on-line transactions as worthwhile.

On the other hand, simple economics require Internet start-ups to begin with transactions and then continue to use the medium to build a brand image, provide product support, and win repeat purchases. Companies such as and CD Now have followed this model., an on-line software retailer, allows customers to purchase and download software directly from its Web site. This type of on-line distribution was the first of its kind; the company has since added a database of links to product reviews and software manufacturers and created product discussion bulletin boards to help customers choose software. CD Now is an on-line music store. Recent additions to this transactions-driven business include lengthy album and artist reviews, concert calendars, and new release notification.

Whichever of the two business models a company pursues, the specific functions embodied in a Web site, whether targeted to internal or external users, need to generate revenue or reduce costs (see Figure 2). As an MNC or start-up develops its site to incorporate a broader range of functions, it needs to assess how the functions influence the global business model. For example, transaction capabilities can have both revenue-generation and cost-reduction potential, depending on whether the company is attracting new customers and sales or transferring existing sales to a more profitable medium. Similarly, providing information to internal and external audiences can increase revenues by facilitating incremental sales or increased margins. The dissemination of information via the Internet can also reduce costs by replacing communications through less cost-efficient channels.

Many companies are conducting international commerce on the Internet with this range of business models supporting several different types of Web sites. (For a simple framework categorizing these sites, see Figure 3.)

Quadrant 1

Quadrant 1 (in Figure 3) includes companies using the Web primarily as a communication tool to engage in one-way and two-way communications with a range of outside audiences, such as end users, intermediaries (e.g., dealerships, retail outlets), and suppliers (e.g., software developers). These companies provide customer services to the U.S. market and just happen to attract international traffic as well. The benefit to international consumers is merely the opportunity to access information and support faster, more cheaply, and more directly than existing communication systems like telephone, fax, mail, and direct mail can. For example, the Apple Computer Web site offers up-to-date detailed technical information, software updates, product specifications, and press releases to Macintosh users and developers. International customers can obtain information and product support that is often superior to or more timely than that available from channels in their domestic markets.

Moreover, Apple saves money by providing customer support through this medium. According to a recent Dataquest report, Americans will make an estimated 200 million calls to help-desks in 1996, up from 120 million four years ago, with the average length of a call now 13 minutes instead of 8. At an estimated cost of $1.50 a minute to the company, calls to help-desks cost the personal computer industry $3.9 billion annually.10 International service per capita is higher due to the higher costs of mail and fax services. Because marginal costs to access via the Web are minimal, once the site is built to handle the volume, a company such as Apple can reap savings by providing such software support electronically around the globe. Finally, the availability of such Web site services can differentiate Apple and enhance its image among customers and developers.

Quadrant 2

The companies in Quadrant 2 have a similar domestic focus as those in Quadrant 1 but also offer transactions on-line (or immediately via phone or fax). Internationally, the potential of such transactions enables a company to reach consumers who may be inaccessible via other media, due to the company’s small size or the limitations of local distribution systems. For example, CD Now is able to offer worldwide customers recordings that, even after shipping and handling costs, are priced lower than at foreign retail outlets. LIGHTNING Instrumentation SA, a Swiss networking equipment manufacturer, experienced a 20 percent increase in sales after establishing a Web site, almost all from outside its domestic market.11

A site like Mr. Upgrade, an Arizona computer parts distributor, will secure half its 1995 international sales through orders placed on its Web site, despite the site’s simple design and the buyers’ inability to conduct their transactions directly on-line for security reasons. (Customers must call an 800 number to place an order.) Of its twelve international accounts (with combined orders of $700,000), half came via the Internet.12

Quadrant 3

This quadrant includes those businesses whose primary motivation for the Web site is attracting an international audience. Moreover, international customers explicitly add value; i.e., the service is more valuable to all users because of the international scope of operations. For example, Sun Microsystems provides global product support, software updates, and hardware service to its worldwide network of internal and external hardware users and software developers. An owner of a Sun system with offices worldwide will benefit from Sun’s “one stop” service center where Sun can design solutions for the customer’s problems worldwide and distribute them directly via the Internet. Thus, even without transactions, the capability to provide service worldwide instantaneously makes this a valuable medium.

Federal Express’s tracking service also adds value in this way by enabling customers to track packages and estimate delivery times anywhere in the world. In addition, this service alone will save Federal Express almost $2 million annually, as the Web site takes the place of more expensive human operators.13 The Building Industry Exchange is a new information resource that serves as a global directory for the fragmented construction industry. Consulting Inc.’s corporate site provides links to resources for expatriates, business travelers, and international publications. The site also contains a directory of more than 400 e-mail addresses for users to contact offices and industry groups around the world directly.

Quadrant 4

Quadrant 4 companies expand on the capabilities of those in Quadrant 3 by offering transactions to customers worldwide. However, as opposed to Quadrant 2, because these transactions tend to involve the matching of buyers and sellers, both reap direct benefits from the global scope of the site. For example, DYNABIT U.S.A.’s new TRADE’ex service creates an exchange for commercial buyers and resellers of computer equipment around the globe. CapEx is a German company that matches entrepreneurs and investors for a range of start-up investment opportunities. Both companies serve as “market makers” by enabling communication between small parties who would not have found each other without this medium. These companies make their profits by taking a commission on consummated transactions and charging registration fees to buyers or sellers.

Another example is Underground Music Archive (UMA), for which international sales represent 30 percent of its business. The added value of this music collection is its “inventory” of 800 artists from more than twenty countries who provide downloadable samples of their music unavailable through traditional channels.

Global value-added can occur whether companies are targeting existing customers and providing service (Sun) or are attracting new customers (TRADE’ex or UMA). The business models represented by Quadrants 3 and 4 are built on the advantages of network externalities, through which benefits multiply exponentially as the network expands. In the computer world, this is often referred to as “Metcalf’s Law,” which states, “The value of a network —defined as its utility to a population — is roughly proportional to the number of users squared.”14 The scope and depth of the markets served thus influence the value of the services provided.

The Impact on Markets: Effects on Efficiency

Standard Pricing

Advances in Web browsers and servers will facilitate rapid, frequent price changes and levels of price differentiation to a much finer degree than are currently achieved in alternative media like magazines and direct mail. Prices can be customized, not only by country market, but at the level of the individual user.15 When a user accesses a Web site, the page she receives when she clicks on a link can be made dependent on her IP address, which is embedded in the commands sent from her browser to the server. This means instant customization of information and prices across borders (as in airline computer reservation systems), furthering the potential for more efficient markets.

While pricing may therefore become both less standardized and more volatile, users will quickly become aware of such price discrimination and may not tolerate it. MNCs with overseas distributors charging different prices in different country markets face especially difficult obstacles. Bob MacPherson, the webmaster for Laboratory Equipment Exchange, an information resource for the sale of used scientific equipment, explains:

The companies that advertise through my service … have to recognize that there are international consequences to their promotions. For example, if a company were to offer a 20 percent discount on some products to my readers, readers all over the world would see this deal. But in some countries where you have distributors or don’t need to discount to get business, the special offer is a problem. So my information network is not attracting MNCs but rather small and medium-size businesses. The big MNCs are really sitting on the Internet fence waiting to see what happens.16

In addition, smart agents, software programs that can search the Internet for products meeting prespecified criteria, may further combat attempts at price discrimination by uncovering different prices. Taken together, these factors suggest that the Internet will lead to increased standardization of prices across borders or, at least, narrower price spreads across country markets.

Changing Role of Intermediaries

The Internet can connect end users with producers directly and thereby reduce the importance of (and value extraction by) intermediaries. The ubiquitous availability of the Web enables buyers, particularly in emerging markets, to access a broader range of product choices, bypass local intermediaries, and purchase their goods on the world market at lower prices. A hospital in Saudi Arabia, for example, can put out a request for proposal for equipment over the Internet, secure bids, select a supplier without going through local brokers and distributors, and have the products delivered directly by DHL or Federal Express. Few buffer inventories will be needed in the worldwide distribution system and less working capital will therefore be tied up in inventory.

However, if intermediaries can perform a different mix of services, made necessary by the Internet, they will continue to play critical roles and extract value.17 While the Internet makes direct contact between end users and producers more feasible, this may also be less efficient over the long term and across a broad range of products. The potential for “information overload” is enormous. An intermediary’s value-added may no longer be principally in the physical distribution of goods, but in the collection, collation, interpretation, and dissemination of vast amounts of information. For example, the hospital in Saudi Arabia needs to purchase a broad range of products, probably in differing quantities and at different times. Although it can contact each supplier directly, it would be more efficient to use a single distributor to collect the pricing and product information required, acting much like the robotic software search agents we described above.

The critical resource for such a distributor would then be information, not inventory. In the international context, the value of such timely, accurate information may be even higher. A logistics company like DHL can handle the physical distribution of goods. When the intermediary roles can be separated, we may see a simultaneous growth and fragmentation at this level of the distribution chain. Since economies of scale for the marketer would then be reduced, smaller companies would be able to compete more effectively in international markets using the Internet.

Making Markets

There are new opportunities for businesses to serve primarily as market makers, assisting buyers and sellers in locating one another, in negotiating terms of trade, and in executing secure transactions. The two principal market-making vehicles are auctions and exchanges.

Electronic auctions are usually continuous, and the bidders are physically separated. At a site such as OnSale, which auctions off new, but discontinued or outdated, computer equipment, buyers place their bids electronically and are notified continually of their status. Japan’s experience with electronic car auctions supports the auctions’ potential for expansion to consumer goods on a wide scale. (The average selling price increased in national versus local auctions due to the increased number of bidders.)18

Exchanges prescreen buyers and sellers, introduce them to one another, and assist in the transaction process, but do not help them agree on a price. United Computer Exchange offers market-making services for consumers interested in buying and selling used computer equipment. Although the company was established as a phone service, it moved onto the Web to increase its market scope, since both buyers and sellers can participate without making costly, time-dependent phone calls during the bidding process. Exchanges are examples of businesses in which there is true value-added from the international scope of the operations. While most current Internet exchanges are in the computer field, possible product categories include all forms of specialized equipment and consumer durables on a global scale.

Efficient Capital Flows

The efficiency of international capital flows and foreign direct investment may also increase. American Venture Capital Exchange (AVCE) advertises investment opportunities on the Internet to prospective investors. AVCE accepts only investors who have submitted an application and passed a screening process. The company takes a fee on any deals that are finalized as a result of bringing investors and investment opportunities together. Recently, about 15 of their nearly 200 listings were companies based outside the United States — 11 were in Russia. CapEx offers a similar matching service, in both German and English, for potential entrepreneurs and investors. Many start-up companies benefiting from this increased access to capital and investment opportunities are small and located in emerging markets. Improved access to capital will be another factor in leveling the playing field between large and small businesses competing internationally.

Internal Implications: The Intranet

While the early audiences for most Web sites have been external customers, the potential for serving internal customers may be equally as great. Creating internal networks to facilitate communications and transactions among employees, suppliers, independent contractors, and distributors may be the Internet’s principal value for MNCs. A 1995 Forrester report defined an Intranet as “Internal corporate TCP/IP [transmission control protocol/Internet protocol] networks that carry Internet-developed applications like the Web — and its future cousins.” Based on interviews with fifty large corporations, Forrester reported that 22 percent had internal Web servers, and 40 percent were seriously investigating installation. A recent article on intranets revealed that sales of intranet server software had surpassed sales of Internet servers by the end of 1995, as companies recognized broader uses from intranet applications.19 Internal Web servers have a number of advantages over classic client-server solutions. They are cheaper, faster, and easier to set up than client-server network systems, given the existing use of TCP/IP for outside communications; vendors are quickly developing new products specifically for this market; the architecture is already established and built into PCs; and the platform offers room for growth and flexibility.20 Web-based internal networks can also offer sufficient security based on encryption technologies and allow companies to adjust levels of access based on a user’s status. For example, business partners (e.g., suppliers or developers) can be given more limited access to the internal system than employees, who may themselves be assigned differential access based on their department and position within the company.

We briefly examine the potential value of an intranet as an internal communications vehicle by reviewing the types of communication that it facilitates.21 First, companies can use the traditional “one to many” or broadcast model to communicate corporate policies and product or market news to worldwide divisions. Similarly, companies can provide employees worldwide with immediate and up-to-date access to company databases, phone directories, and reports. Second, in the “many to one” model, MNCs can use the internal system to ask questions or collect information from divisions and individual employees. Third, in the “many to many” model, perhaps the model with the greatest potential impact, MNCs can use the network to enable real-time, synchronous discussion among operating units.

Several intranet applications of these communication models are in use, often aimed at expediting relatively simple but costly and time-consuming tasks like information distribution. Xerox plans to connect its 90,000 employees via its intranet and has begun testing the network with 15,000 employees in 120 offices, primarily to distribute customer support information to salespeople.22 Digital Equipment’s intranet, residing on 400 internal servers, currently connects the company’s 61,000 employees and offers a biweekly corporate newsletter, a proprietary search engine, restricted information to corporate partners, and support for sales and service staff.23

More complicated two-way communications take fuller advantage of the new technologies. Companywide bulletin boards permit multiparty dialogue on specific problems. As expertise on intranet usage spreads from the MIS department to marketing to other functions, companies can bring together functional departments located at sites around the globe to learn, share, and solve problems. They can also use these real-time forums as training vehicles for selected employees worldwide. Sun Microsystems broadcasts its corporate executives’ speeches to its employees and archives them for later access. At Lawrence Liver-more National Laboratory in California, employees take safety orientation classes and exams using an internal Web server equipped with audio and video capabilities.24 Eli Lilly & Co. is using its intranet to manage clinical trials and drug approval processes in more than 120 countries. The network enables employees worldwide to access databases detailing the complex requirements for drug testing and approval in each country, facilitating the process of moving drugs through trials.25

In addition, companies are testing intranets as tools for internal transactions. AT&T recently introduced digital transaction technology across divisions that buy and sell goods from one another, so it can test, in a safe and friendly environment, whether it can facilitate internal money transfers before expanding to external transactions.26

External Implications: Global Product Reach

The global expansion of the Internet will facilitate both finding markets for new products and developing products for new markets.

· New Product Diffusion. New product announcements on the Internet will spawn immediate demand. To respond and to avoid competitive preemption, manufacturers will have to be prepared to distribute and service new products overnight. Slow test-as-you-go rollouts of new products from one country market to another will be less common. At the same time, using sophisticated technologies, companies may find it easier to test multiple new product variations simultaneously if they can control the information flow between test markets. When able to discriminate by a visitor’s Internet address, companies can target variations of new products at different groups and get instant feedback on the value of specific features and appeal of various prices. For example, Digital Equipment allows potential customers to obtain demonstrations of its hardware on line and can offer product variations on the Internet as beta tests for new products.

· Local Adaptation and Customization. Marketers are finding it easier to adapt their products inexpensively to local or national preferences, due to factory and marketing customization. The Internet’s new communication capabilities may speed this trend. However, if the global community is able to communicate more openly, the global mass-market concept will thrive as consumers retain their desire to share in the latest trends around the world. For example, Asia’s imitation of European and American fashion trends will be that much more rapid, due to the instant dissemination of fashion news and widespread availability of direct purchase from U.S. manufacturers via the Internet.

Online BookStore, a U.S.-based book publisher uploads chapters of its forthcoming books in multiple languages for visitors worldwide to “sample.” The samples often include feedback links to authors and links to other relevant materials on the Internet as the company aims to customize publishing. Its unique marketing strategy has spawned both new distribution channels and translation of materials into local languages as site visitors from around the world demand the books after sampling the content. This customization is unique because it is driven by end-consumer demand for titles, not by foreign distributor interest as is customary in this industry.27

· Niche Products. Small companies offering specialized niche products should be able to find the critical mass of customers necessary to succeed through the worldwide reach of the Internet. The Internet’s low-cost communications permits firms with limited capital to become global marketers at the early stages of their development.28 Indeed, the risk that entrepreneurs in other parts of the world will preempt their unique ideas demands that they do so.

Manufacturers of specialized equipment, such as medical and scientific equipment, are beginning to find markets through exchanges such as the Laboratory Equipment Exchange. As Bob MacPherson, the webmaster, explains:

People seeking limited production parts or very specialized hardware can try to locate what they are seeking through my service. An American might not find what he or she is looking for in the United States for two reasons: (1) it is an old piece of hardware and parts are hard to find; or (2) the OEM may have been an offshore company that once thrived in the United States, but has since closed its North American operations.

· Overcoming Import Restrictions. Many Internet retailers (selling, for example, CDs, books, or clothing) are finding that they can offer products to consumers directly via their Web sites for a delivered cost significantly lower than most international consumers find in their local retail outlets. However, with the Internet stimulating cross-border product flows, government import regulations may become stiffer.

Information flows have come under similar scrutiny. For example, CompuServe recently bowed to the German government’s disapproval of a number of Internet news groups’ pornographic content. Due to limitations in its technology, CompuServe was forced to limit all subscriber access worldwide to more than 200 news groups. This, in turn, spawned customers’ opposition in countries where such access is legal; they felt their freedoms had been violated. Although the issue was resolved when CompuServe acquired the technology to enable differential screening, defining the boundaries of international law and the carrier’s level of responsibility for such information is still being debated among commercial service providers, content providers, and governments.

Understanding Global Consumers

The Internet promises to be an efficient new medium for conducting worldwide market research. Marketers can test both new product concepts and advertising copy over the Internet for instant feedback. They can also test varying levels of customer support to help managers define country market priorities and adapt the marketing mix. Marketers can also establish worldwide consumer panels to test proposed marketing programs across national, regional, or cross-cultural samples. Tracking individual customer behavior and preferences will become easier over time. Requesting customers’ consent to monitor such data may prove superior to existing methods of gathering or buying customer information, since the site visitors who voluntarily provide information are likely to be high-potential customers. Moreover, the Internet permits new types of measurement tools that will expand the data available to marketers, including:

  • On-line Surveys. Marketers can post surveys on sites and offer incentives for participation. Internet surveys are more powerful than mail surveys because of the medium’s “branching” capabilities (asking different questions based on previous answers) and are cheaper than either mail or phone surveys.
  • Bulletin Boards. On-line bulletin boards are much like the traditional cork board, except that the software enables “threading” messages, so readers can follow a conversation and easily check responses to each posting. Companies can monitor and participate in such group discussions in many countries simultaneously.
  • Web Visitor Tracking. Servers automatically collect data on the paths that visitors travel while in the site, including time spent at each page. Marketers can assess the value of the information and correlate the observed traffic patterns with purchase behavior.
  • Advertising Measurement. Since servers automatically record the link through which each Web visitor enters a site, marketers can accurately assess the traffic, as well as sales, generated by links placed on other Web sites.
  • Customer Identification Systems. Both business-to-business and consumer marketers are installing registration procedures that enable them to identify individuals and track purchases over time, creating a “virtual panel.”
  • E-mail Marketing Lists. Many sites ask customers to sign up voluntarily on a mailing list for company news. The audience generated appears very different from that garnered through traditional direct marketing. Internationally, information can be disseminated quickly to the audiences on these lists at minimal cost.

Challenges for International Marketers

The growth of the Internet as a facilitator of international commerce presents different challenges and opportunities to small Internet start-up companies and to MNCs. Some of the obstacles are unique to each company, while others confront all marketers striving to succeed globally on the Internet.

MNCs usually already do business internationally but may have to revise their operations, strategies, and business models if they want to exploit the opportunities offered by the Internet. The start-up doing business primarily through the Internet must be prepared to operate globally from the outset, which can strain its resources. The company must have (1) twenty-four-hour order taking and customer service response capability, (2) regulatory and customs-handling expertise to ship internationally, and (3) in-depth understanding of foreign marketing environments to assess the relative advantages of its own products and services. Successful start-ups need sufficient staff with multilingual skills and access to information on local laws and trends.

Global Branding

A major challenge for MNCs is the management of global brands and corporate name or logo identification. Consumers may be confused if a company and its subsidiaries have several Web sites, each communicating a different format, image, message, and content. 3M, which has one site for its entire product line, has a focused corporate identity and firm control over the marketing actions of its divisions and subsidiaries. However, many MNCs with one brand name have allowed local entities to develop sites ad hoc and now have several sites around the globe that require tighter coordination. For example, Coopers & Lybrand offices around the world each have their own Web sites using different servers. The Saab USA home page differs greatly in both tone and content from the Saab home page in Sweden. In addition, both sites offer links to a number of individual dealers’ Web sites and unofficial sites of Saab enthusiasts. Tupperware, Avon, and Mary Kay have no main company sites, but independent sales representatives from around the world offer their wares directly over the Internet in a range of formats.

On the other hand, developing one site for each brand — while costly and limiting to cross-selling — is preferable when the brands have distinct markets and images. Kraft has already applied for 134 domain names, and Procter & Gamble has reserved 110, although they are currently using only a small number of them.29 Guinness PLC has separate sites for its beer and single malt Scotch whiskeys.

New Internet users tend to explore the sites of familiar brands first. Trust is a critical factor in stimulating purchases over the Internet, especially at this early stage of commercial development; as a result, sites with known brand names enhance the credibility of the site sponsor, as well as the medium. Recognizing the importance of brand names, many MNCs are establishing single Web sites for each brand.

New Competition

The Web will reduce the competitive advantage of scale economies in many industries and make it easier for small marketers to compete worldwide. First, advertising as a barrier to entry will be reduced as the Web makes it possible to reach a global audience more cheaply. Paying to place links on pages with audiences that mirror or include a company’s target customers is less expensive than traditional media. In addition, “free” advertising on other sites can often be exchanged for mutual links. Postings on Internet discussion groups on topics relevant for specific products or markets is another way for small marketers to attract visitors to their sites.

Second, increased advertising efficiency will be available to more marketers. While current Internet usage is skewed heavily toward young, relatively affluent, educated males, further growth will result in a user population that more closely mirrors the broad population. C/Net, a Web computer news service, will soon be able to alter the advertisements to its site visitors, depending on the registered user’s reported purchase behavior. Large index and directory sites like Yahoo can selectively show advertisements, depending on visitor characteristics such as hardware platform, domain name, or search topics selected during the visit.

Third, as the role of intermediaries evolves, gaining visibility and distribution will become easier for small companies. In the new Web malls, like the German Electronic Mall Bodensee and the U.S. Internet Shopping Network, small entrepreneurs can reach vast audiences. The traditional networks of international distributors and subsidiaries that MNCs set up are less effective barriers to the entry of smaller competitors than they used to be — except perhaps in the case of products that require significant after-sales service. These existing networks may even impede MNCs’ effective, timely response. MacPherson remarked:

Some small companies will grow at the expense of big companies. And some of my small business sponsors are seeing their business opportunities quadruple … because of the exposure that my site is giving them. These opportunities are at the expense of the MNC.

However, providing on-site after-sales service will be difficult for manufacturers of products sold directly via the Internet. Local distributors currently fulfill this role but will be unlikely to take it on without profiting from the accompanying sale. MNCs must develop policies for providing such service without disrupting the existing channel arrangements.

Competitive Advantage

For companies marketing on the Internet, technology is a more important source of competitive advantage than size. For example, TRADE’ex has proprietary software that enables direct communication and simplified, secure transactions among its member businesses. The company is now considering licensing its software system to companies in other industries. Another example is Agents Inc., a music company that has patented preference-mapping software. Members, who register on entering the site, describe their music preferences to “teach” the system what music they like. As members continue to rate recommended music, the system becomes smarter in predicting preferences and suggesting new music. A small company like this can quickly become a big player internationally by leveraging technology in ways that respond to customer needs. Virtual Vineyards, an Internet-based wine merchant, has developed a proprietary wine-rating system. Visitors to the site can compare ratings of each wine on line and, in the future, to their personal taste profile stored by the system.

What does this mean for large MNCs? The advantages of size will erode. As a result, many will need to proactively invent new ways of using the Internet to address customer needs and also to connect their worldwide operations. The current defensive stance that many large MNCs have adopted, which involves merely establishing “banner” presences on the Internet and hoping that they do not develop into a transactional medium, may well prove unsustainable.

Organizational Challenges

The Internet presents especially serious organizational challenges for MNCs attempting to convert their global businesses to the new medium because its speed and worldwide presence make its audiences intolerant of inconsistencies and slow response. The services that an MNC offers on the Internet should be available to buyers in all countries to prevent confusion and dissatisfaction. For example, although Federal Express’s home page currently offers the ability to track a package worldwide, information on delivery options, pricing, and schedules are available only in the United States. FedEx has long been planning worldwide expansion of its service but is hesitant to act too quickly. Robert Hamilton, FedEx’s Internet/Online services manager, explained:

One thing FedEx is facing is the fact that we have a global brand. A huge percentage of our hits are non-U.S. One of the challenges … is how to establish local relevance, yet at the same time put this out to serve a global medium. Once you get a new service, or set of services, you want to be able to speak to those [local] issues. For example certain [services] that are available to Canadian customers aren’t relevant elsewhere.30

An MNC must set up a worldwide task force of executives to coordinate the presentation of its corporate identity on multiple, interconnected Web sites. It might appoint a particular office or operating unit that has been a leader in using the Internet as the center for home page development. It also must have a system for regular updating of Web site information, especially if prices change or inventories go out of stock. Managers of Internet task forces must keep informed about developments around the globe. In addition, an MNC must establish policies for allocating credit for sales orders placed via the home page to foreign subsidiaries, lest the performance measures of the subsidiaries be disrupted.

A specialized customer service staff may be needed to deal with Internet traffic. Internet users have high expectations for timely, efficient response, due to their knowledge of the company’s expanded capabilities. For example, if the home page offers a visitor a way to give customer feedback or send questions to the company, customer service reps must answer quickly and monitor customers’ e-mail for changes in content, tone, and origin. A company’s Internet center should also analyze the server data that tracks customer site access and transactions.

Some sales may be consummated via the Internet, but the Web will probably not become the primary advertising and distribution vehicle for most products and services — except for financial and information services that can be completely delivered on the Web. Marketers will need to integrate their marketing communications and distribution for Internet customers with their existing strategies.

Disseminating Information

News of product quality problems and cross-border differences in quality, price, and availability will be hard to contain. Critical reviews of Intel’s Pentium chip and Microsoft’s Windows 95 software spread quickly across the Internet. News of bugs in Netscape’s security system reached around the world in hours. There will inevitably be a need for a worldwide approach to crisis management; controversies, especially those surrounding global brands, will be impossible to contain at the national level.

There are other implications of the rapid information flow. Third-party “search agents” can collect pricing information through robots from various sources around the world, so consumers can compare prices and products. This is especially important in emerging markets where such sources of information (like Consumer Reports) are not widely available. For example, Andersen Consulting’s “Smart Store” seeks the lowest prices on any certificate of deposit that a user requests.31 In response, many sites are building software codes into their servers to block the robots so that they can continue to vary prices and product offerings by market.

Maintaining Web Sites

The creation of a Web site is not a one-time effort. A 1995 Forrester report shows that annual costs for site maintenance are two to four times the initial launch cost.32 The current speed of technological innovation in Web site design and the increasing competitiveness of the medium require global marketers to continually assess their Internet sites’ perceived value among target groups across countries. Sites must offer valuable, changing content that will not only attract new customers from many countries but also encourage them to return. Given that individuals around the world will have different product information needs, levels of brand familiarity, and bandwidth capacity, fulfilling such diverse needs on a single site will be challenging.

Currently, most company Web pages are merely online brochures, with added links to related information. Increased sophistication of server software will facilitate more complex content and more customized paths tailored to each visitor through a site. However, many Internet users outside the United States, at least in the short run, will have lower bandwidth and be paying higher prices for access, and therefore will not be able to access complicated graphics quickly and inexpensively. Site sponsors will need to recognize that the users’ capabilities in hardware, software, and computer expertise will vary significantly across borders.

Most sites are organized as hierarchical layers of documents, with the rule of thumb that users should not have to delve more than three layers before they access valued information. However, new technologies will permit sophisticated matching of pages to user needs. For example, delivers Web pages dependent on the user’s platform, identified by the server software. Macintosh users see Macintosh offers, while PC users see Windows software. Rock-port plans to give its Web site visitors the option of classifying themselves as “rugged,” “relaxed,” or “refined.” Based on each visitor’s choice, he or she will see very different sites with specific navigation options. Federal Express recently announced plans to implement new software with different services, advertisements, and interfaces based on the user’s country of origin, business type, and bandwidth.33

However, with new technologies and the proliferation of Web design and management companies, the temptation to customize content will have to be weighed against the value of maintaining a consistent worldwide image. In addition, companies will have to choose how to maintain, grow, and manage their sites. Should they outsource? Or should they strive to create proprietary content and software?

Language and Culture Barriers

The Web promises to reinforce the trend toward English as the lingua franca of commerce. There are significant obstacles in translating Chinese and Japanese to the computer, especially the large number of local dialects. In addition, the importance of vocal intonations in these spoken languages may further impede the transfer of business dialogue from voice to text.

Very few MNCs offer translations of their Web site content into local languages. Several translation services have opened on the Internet. In addition, exposure itself raises opportunities. For example, a Japanese company recently approached CatalogSite, an Internet-based mall of catalogs to translate many of its catalogs into Japanese. One enterprising European on-line service based in Sardinia, Video On Line, is quickly expanding its user base by focusing on local content in local languages. The company overcomes the prohibitive costs of telephone use for Europeans by providing direct access through three high-speed dedicated lines between Sardinia, Stockholm, and the United States. Owner Nicola Grauso plans to expand from Sardinia and Italy to thirty countries in four continents, offering local language content in each, including more than a dozen African dialects.34

However, cultural barriers remain. When setting up a traditional business operation in a foreign country, managers usually have numerous conversations with local partners and visit the country several times. With a virtual business, the need for such contacts is minimized, and cultural differences may not be as apparent. To avoid cultural pitfalls, many small entrepreneurs without broad contacts use Internet discussion groups to become familiar with local customs, trends, and laws.

Government Influence and Involvement

Foreign government support and cooperation will be critical in determining how the international Internet business environment will evolve. Will foreign governments allow the free flow of trade and ideas? Will they be able to agree on issues such as data security, taxation on transactions, and pornography? Who will lead in developing the infrastructure, educating users, and providing access to the Internet for businesses and consumers?

Early initiatives by some governments, trade associations, and telecommunication companies bode well for future expansion. For example:

  • More than 40 organizations in 10 eastern European nations provide Internet services to an estimated 350,000 local consumers and businesses, an increase from only 5,000 in 1992.35
  • In Thailand, the National Electronics and Computer Technology Center, in cooperation with the state-owned telecommunications industry, is investing $10 million to develop the Internet infrastructure.
  • In Russia, where only 500,000 computers were sold last year, the number of subscribers to on-line services is only 10 percent that in the United States, but increasing at 5 percent per month.36
  • Israel has recently established a local search engine where inquirers can search for Israeli-based Internet resources.37
  • Europe Online, the counterpart of America Online, attempts to bring together resources from around Europe, concentrating on entertainment, news, and travel.
  • New Zealand focuses its national site, Gateway to New Zealand, on providing visitors with information on travel, commerce, education, weather, and recreation and on giving links to a range of local businesses that offer information and transactions on-line.
  • In Latin America, there are more than 15,000 Internet connections, half established within the last year. Many Latin American sites are at universities or on servers in the United States.
  • The National Telephone Company in Nicaragua has leased a satellite link to Florida to offer local Internet access to consumers and businesses.
  • The Chilean National University Network gives commercial access to private businesses to fund its own growth and further Internet usage in the country.38

Some governments in Asia have aggressively led in development of the Internet infrastructure in their countries to further economic growth and to retain control over external access and internal usage. ChinaWeb actively promotes cross-border marketing by Chinese companies, highlighting how conducting business on the Internet can reduce costs and help companies reach specialized market segments in diverse geographical locations. ChinaWeb also offers links to the Shanghai Stock Exchange, with daily updated stock quotes; the Pudong Investment Center, with information on Pudong’s special economic zone; Air China, with online booking for its flights; a travel agency that offers additional travel arrangements within China; a career directory; and an e-mail database of exporters. The government of the People’s Republic of China actively solicits corporate sponsorships by luring companies with the possibility of reaching Chinese people in the United States. However, ChinaWeb does not offer similar opportunities to foreign marketers seeking access to Chinese consumers.

The United Nations has established a “Global Trade Point Network” that assists small and medium-size companies eager to expand globally by linking interested entrepreneurs with information resources on trade regulations, trade associations, and local markets. Similarly, the Hong Kong Trade Development Council has established a computerized “Trade Enquiry Service” that matches overseas buyers with Hong Kong manufacturers and traders in a range of industries. The current database includes more than 320,000 importers, 140,000 Chinese businesses, and 70,000 Hong Kong manufacturers, classified by name, country, and product.39

Such government-sponsored “megasites” are more common in Europe and Asia than in the United States and reflect the countries’ emphasis on government-led economic development. In Europe, small businesses are likely to establish an on-line presence through regional cooperatives and state organizations that promote local business. In the United States, individual small businesses have rapidly exploited the new opportunities on their own. While joint development efforts reduce costs and risks, they also limit an individual company’s freedom to innovate and invest in aggressive marketing on the Web.40

Several countries have not yet signed the Bern Convention, which governs copyrights, or enforced the 1994 GATT policies on intellectual property. China and Thailand limit internal use of the Internet to research and academic projects. Quite recently, China has been reevaluating its internal access policies. The government is currently exploring the use of software that will enable it to screen the Internet information flows into, out of, and within the country, creating its own national intranet.41 In addition, many countries in central and eastern Europe resist the Internet because it threatens to open the culture and people to outside influences too broadly and rapidly.42 The Internet Society Summit established an Internet Law Task Force in spring 1995 to explore solutions to problems such as privacy, warning labels, copyright and trademark protection, and taxation and to persuade reluctant governments to open Internet access.43 Nonetheless, numerous issues remain to be resolved:

  • Defining the scope of import tariffs and export controls.
  • Delineating the boundaries of intellectual copyrights.
  • Standardizing regulations on the use and sale of personal information.
  • Defining the roles of national governments in limiting the inflow of ideas.
  • Creating cross-national laws for regulated industries such as gambling, financial services, and liquor.

An equally daunting obstacle is the poor state of the current infrastructure and the regulation of the telecommunications industry abroad. For example, the Czech Republic’s phone company cannot yet provide leased lines with adequate transmission speeds outside Prague. There are currently only 1.7 phones per 100 people in Africa, and little impetus and funds for state-owned monopoly telecommunication companies to invest.44 In Mexico, consumers often have to wait more than a year for phone service installation. Similar situations prevail throughout developing countries in eastern Europe, Asia, Latin America, and Africa and highly regulated countries in western Europe. These countries need to invest in better telecommunications infrastructures and to promote internal competition before they can take full advantage of the opportunities the Internet offers for global commerce.


While the Internet offers many benefits to both existing MNCs and start-up companies — and, perhaps, to their customers — the challenges of an inadequate technological infrastructure, concerned public policymakers, and, especially for MNCs, existing distribution and organization structures all seem formidable. Any company eager to take advantage of the Internet on a global scale must select a business model for its Internet venture and define how information and transactions delivered through this new medium will influence its existing model. The company must also assess who its diverse Web audiences are, what specific customer needs the medium will satisfy, and how its Internet presence will respond to a changing customer base, evolving customer needs, competitor actions, and technological developments. For international marketers, achieving a balance between the new medium’s ability to be customized and the desire to retain coherence, control, and consistency as they go to market worldwide will be a major challenge.



1. G.F. Colony, H.W. Deutsch, and T.B. Rhinelander, “Network Strategy Service: CIO Meets the Internet,” The Forrester Report, volume 12 (Cambridge, Massachusetts: Forrester Consulting, May 1995).

2. As of July 1995, according to an Internet domain survey by Network Wizards, obtained from Host computers are those connected directly to Internet gateways. A host computer can serve anywhere from one to hundreds of users, depending on the network set-up.

3. B. Bournellis, “Internet’s Phenomenal Growth Is Mirrored in Startling Statistics,” Internet World, volume 6, November 1995.

4. See

5. B. Giussani, “Why Europe Lags on the Web,” Inc., 15 November 1995, p. 23.

6. S. Gupta and J. Pitkow, “Consumer Survey of WWW Users: Preliminary Results from 4th Survey,” December 1995, obtained from

7. These figures, for the World Wide Web alone, were calculated from “Trends in the WorldWide Marketplace,” Activmedia, at, 1996. Current estimates of transaction volume, especially predictions of future volume, vary widely based on the source of the data and the types of media included. For example, Forrester Research, in a May 1995 report, estimated 1996 transaction volume from all interactive retail (Internet, WWW, CD-ROMs, and commercial on-line services) at only $500 million.

8. Results reported from a Rochester Institute of Technology survey of 378 Internet shoppers conducted between February and May of 1995, obtained from

9. S. Butterbaugh, “More Than a Pretty Face: FedEx Gears up for a Brand-Intensive 1996,” Interactive Monitor, Media Central, obtained from, December 1995.

10. S. Lohr, “When Pointing and Clicking Fails to Click: More and More Questions, and Employees, at Computer Help Services, New York Times, 1 January 1996, p. 45.

11. T. Seiderman, “Making Net Export Profits,” International Business, August 1995, pp. 47–50.

12. Giussani (1995).

13. A. Cortese, “Here Comes the Intranet,” Business Week, 26 February 1996, p. 76.

14. C. Anderson, “The Accidental Superhighway,” The Economist, 1 July 1995, pp. S1-S26.

15. Currently, there are some intricacies that may complicate this. Due to the international use of both domain (.edu, .com, .gov, .net) and country codes, it is sometimes difficult to identify the visitor’s country if he or she is using a domain code. However, more comprehensive databases of hosts, more sophisticated server matching schemes, and user registration procedures can overcome this.

16. Quoted from personal interview with MacPherson via e-mail, January 1996.

17. See M.B. Sarkar, B. Butler, and C. Steinfeld, “Intermediaries and Cybermediaries: A Continuing Role for Mediating Players in the Electronic Marketplace,” in R.R. Dholakia and D.R. Fortin, eds.,Proceedings from Conference on Telecommunications and Information Markets, October 1995, pp. 82–92.

18. See A. Warbelow, J. Kokuryo, and B. Konsynski, “AUCNET” (Boston: Harvard Business School, Case # 9-190-001, July 1989).

19. For examples of the range of Intranet applications in use, see: Cortese (1996), pp. 76–84.

20. P.D. Callahan, D. Goodtree, A.E. Trenkle, and D.F. Cho, “Network Strategy Service: The Intranet,” The Forrester Report, volume 10 (Cambridge, Massachusetts: Forrester Consulting, December 1995).

21. For a review and application of these models to the new media, see: D. Hoffman and T. Novak, “Marketing in Hypermedia Computer-Mediated Environments: Conceptual Foundations” (Nashville, Tennessee: Vanderbilt University, Owen Graduate School of Management, Working Paper No. 1, July 1995).

22. J.E. Frook, “‘Intranets’ Grab Mind Share,” Communications Week, 20 November 1995, p. 1.

23. J. Carl, “Digital’s Intranet Comes Together,” Web Week, volume 2, January 1996, p. 25.

24. K. Murphy, “Web Proves Useful as Training Platform,” Web Week, volume 2, January 1996.

25. N. Gross, “Here Comes the Intranet,” Business Week, 26 February 1996, p. 82.

26. E. Booker, “AT&T Using Internal Web to Test Digital Payments,” Web Week, volume 1, December 1995.

27. See

28. M.W. Rennie, “Global Competitiveness: Born Global,” McKinsey Quarterly, 22 September 1993, pp. 45–52.

29. The policies of domain registration have created a frenzy to register brand names and trademarks since current trademark laws do not cover the registration of domain names. The company responsible for the allocation of the domain names, InterNIC, allocates names on a first-come, first-served basis with the agreement by domain holders that InterNIC will not be held liable for trademark infringements. For further information, see: “InterNIC Security,” Wired, 4.01, January 1996, p. 74.

30. Butterbaugh (1995).

31. See

32. J. Bernoff and A. Ott, “People and Technology: What Web Sites Cost,” The Forrester Report, volume 2 (Cambridge, Massachusetts: Forrester Consulting, December 1995).

33. Butterbaugh (1995).

34. L. Marshall, “The Berlusconi of the Net,” Wired, 4.01, January 1996, pp. 78–85.

35. D. Rocks, N. Ingelbrecht, R. Castillo, and D. Peachey, “Developing World Seeks Highway On-Ramp,” Communications Week, 2 October 1995, p. 39.

36. J. Zander, “Russia Makes Net Progress,” TechWeb, obtained from

37. See

38. Rocks et al. (1995).

39. See

40. Guissani (1995).

41. J. Kahn, K. Chen, and M.W. Brauchli, “Chinese Firewall,” Wall Street Journal, 31 January 1996, p. A1.

42. C. Grycz, “The International Aspects of Internetting” (Boston: Fall Internet World 1995 on CD-ROM, 1995).

43. C. Mendler, “Stop! Or I’ll Yell Stop Again!,” Communications Week, 2 October 1995, p. 28.

44. Rocks et al. (1995).

Reprint #:


More Like This

Add a comment

You must to post a comment.

First time here? Sign up for a free account: Comment on articles and get access to many more articles.