Comparison of promotional management in exporting to the Soviet Union and OECD countries

Comparison of Promotional Management in Exporting to the Soviet Union and OECD Countries

Kristian Maller, Helsinki School of Economics

This study compares the promotional management problems Finnish firms have

experienced in exporting to the Soviet Union and OECD countries. Within the context of

a representative sample of 76 industrial companies, the study focuses on the perceived

importance and use of promotional activities as well as on the major planning and

implementation problems related to these activities. The results indicate that companies

exporting to the OECD area should modify considerably their strategies when trying to

enter the Soviet market. Promotional planning should be based on comprehensive

knowledge of the characteristics of Soviet government bodies and communication

patterns.

During the 1970s the focus of interest in international marketing has been on multinational companies and the internationalization process of the firm [2, 3, 4, 10, 1 1, 131 at the expense of the more straightforward export marketing. In exports, however, problems still exist, especially in the promotion of LDC exports to the industrialized countries [7] and in trade between the OECD and COMECON countries [20].

The purpose of this study is to assess the promotional management problems Finnish firms are facing in their exports to the Soviet Union vs OECD countries. This kind of research is important because the firms trying to enter the Soviet market need to know how to adapt their normal export strategies- suitable for OECD operations-to the Soviet environment.

The comparison approach was chosen as it offers scope for analyzing the essential differences between the marketing practices. The data were collected in firms having sizable exports both to the OECD area and to the Soviet Union. The Soviet market was preferred to the markets of other COMECON countries because of its trade potential and because it is one of the most difficult markets to enter [ 12, 191.

Finland offers a base for this kind of comparative study. Its exports amount to 25 percent of its gross national product (the 1978 GNP was

Address correspondence to Kristian Miiller, Helsinki School of’ Economics, Rune-

berginkatu 22-24, 00100 Helsinki 10, Finland.

JOURNAL OFBUSINESSRESEARCH 10, 199-215 (1982)

0 Elsevier Science Publishing Co., Inc. 1982 199 52 Vanderbilt Ave., New York, NY 10017 0148-2963/82/020199-l 7S2.75

200 Kristian Mtiller

$38 billion at current prices). The proportion of exports going to OECD countries was 70.3 percent (EFTA accounted for 22 percent and EEC, countries for 38 percent) and to the Soviet Union 17.8 percent [ 161. The EEC, EFTA, and the Soviet Union clearly dominate the Finnish export market. Trade between Finland and the Soviet Union is bilateral and based on five-year agreements. The actual export negotiations between Finnish companies and officials of the Soviet foreign trade organizations (FTOs) are, however, handled on a free competition basis.

Owing to the complex nature of OECD/USSR trade, the scope of the study had to be limited. First, only the planning and execution problems of promotional activities are treated. Second, both in the theoretical and empirical sections the emphasis is on the problems of Soviet exports. Only brief general comments on the Soviet foreign trade environment can be made. For more comprehensive studies on the Soviet trading system and the development of OECD/USSR trade, see van Brabant [I], Dahlstedt [5], Diet1 [6], Hanson [9], Kanerva and Kivikari [ 121, Marsh [ 141, Szawlowski [ 181, and Wills and Hayhurst [ 191. Furthermore, only problems faced by active exporters arc investigated (i.e., indirect export through agents or other intermediaries is excluded).

Promotional Planning for OECD vs USSR Environment

Significance of Export Promotion The promotional mix investigated in this study includes the following activities [ 171:

advertising company and factory visits for customers exhibitions, trade fairs, symposiums PR activities, gifts, and so on sales calls, product demonstrations technical service and training.

A closely related factor is company image, which is a function of both communication activities and past and present company performance.

The importance of promotional activities is enhanced in the following cases:

1. The company tries to enter the export market. This usually is the more difficult the smaller and less known the company is.

2. The export activities are extended to cover new markets. 3. The product line marketed is modified. 4. There are temporary difficulties in maintaining the competitive

product quality or deliveries. This can be due to strikes and other

Exporting to the Soviet Union and OECD Countries 201

force majeure reasons or to the low pricing policy of new competitors or their product improvements.

5. The company is operating in a product field where there are no significant differences in products or prices.

Cases 1, 2, and 4 are typical, especially for small and medium-sized firms trying to penetrate the COMECON market. Case 3 concerns the already established exporters, and Case 5 is more relevant for consumer than industrial products, which dominate Soviet imports. However, with the growing emphasis on the consumer sector in COMECON countries and with the gradual leveling off of technical differences in mature industries, the relevance of Case 5 is also bound to increase in Soviet exports.

Promotion Planning for Soviet Exports To communicate effectively about the product offer and to bridge the possible information and confidence gap, the exporting company must develop and execute a promotion plan. The basic questions are classical:

WHO are to be convinced or what are the target groups of the activities? WHAT is to be argumented? HOW are the target groups to be reached? By WHAT means are they te be convinced? WHEN are they to be convinced?

Before discussing the planning problems related to these basic promotional decisions, we give a brief description of Soviet export procedures.

The flow chart in Figure 1 describes the basic Soviet export channels and government bodies. The manufacturer usually starts export negotiations by making an offer to the state foreign trade organization (FTO) in question [5]. This can be done either directly by mail or sales call and by a representative or sales office in the Soviet Union, or indirectly through a specialized export agency or other Western intermediaries. The last channel represents an inactive export solution and is not considered here.

The state foreign trade organization handle practically all Soviet foreign trade under the Ministry of Foreign Trade (MET), where the actual import decisions are made [5]. Final buyers are branch or industrial ministries, committees of state, producing enterprises, and state retail organizations. A manufacturer needing foreign machines, for example, submits an application to the branch ministry, which forwards it to the MET. If the import plan including this purchase is accepted, the MET orders the FTO in question to import the machines [5].

202 Kristian MGller

AGENT OR OTHER REPRESENTATIVE INTERMEDIARY OR SALES OFFICE

BUREAUS OF FTO

BRANCH ASSOCIATIONS I I

SCIENTIFIC-TECHNICALe STATE COYMITTEE

I COUNCIL OF MINISTRIES

FIGURE 1. Marketing Channels and Principal Government Bodies for Soviet Exports (--, direct and indirect sales efforts; ----------, internal Soviet influence).

Owing to the central role of the foreign trade organization, new exporters should regularly inform the FTO of their export intentions. Convincing Soviet officials of the serious, long-term nature of these efforts is essential. This push-type selling activity should be supported, however, by trying to influence the various intermediaries (industrial ministries, branch associations) and final buyers. The buyers and technical experts fix quality requirements of imported products. In this pull-strategy the company can utilize product demonstrations, direct and trade press advertising and active participation in exhibitions and symposiums. Yet the effective implementation of both the “push and


pull” activities can be aggravated by unforeseen difficulties imbedded in the Soviet trading environment. The exporter facing the WHO, HOW, by WHAT means, and WHEN questions of Soviet promotional planning must foresee and cope with the following basic problems:

l The specification of target groups and individuals can prove very difficult because of lack of available information and the possibility of carrying out ordinary market research effectively. This applies especially to finding the right persons to contact in the final buying enterprises and intermediary organizations, but can also be valid in dealing with the strategic FTOs. On the other hand, the number of decision makers and influential individuals is rather limited making it possible to reach the majority of them. An indiscriminate approach, however, increases costs and reduces effectiveness.

l Once the target groups are defined, reaching them may present problems. The arrangement of both product presentations or sales calls to the Soviet Union and visits of Soviet users and officials to domestic plants requires time-consuming official routines. This applies also to direct and trade press advertising [8, 151. There are relatively few possibilities of participating in exhibitions and the costs are considerable .

l Specifying sales arguments may imply difficulties owing to lack of knowledge concerning the problems and demands of final buyers and users. This is a considerable handicap in product development and adaptation. Moreover, the centralized administration for promotional activities and the exhaustive negotiation style of the authorities can lengthen export operations considerably. This hampers planning and increases costs.

l Because of the conditions mentioned above establishing measurable goals for promotional activities is difficult. Even more difficult is measuring the achievement of the goals because market research cannot be carried out. However, only the monitoring of promotional results would provide the feedback information needed in assessing the effectiveness of the various measures (sales calls, factory visits, different types of advertising, and so forth) and in planning the next period.

The promotional planning difficulties faced in the Soviet trade environment are due to the lack of relevant market information and lack of means of acquiring it. This basic problem is aggravated by the cumbersome administration and negotiation practices to which exporters must adapt themselves.

204 Kristian Mijller

To balance the discussion, the primary difficulties of export promotion planning for the OECD markets are presented in brief. The viewpoint of a small company planning to start exporting is applied.

l Ample information exists for defining the target groups-the WHO question. On the other hand, the number of potential trading partners can be very large, and competition for their attention is stiff indeed.

l Once the target groups are defined, reaching them should be relatively easy, and in the persuasion process all the promotional methods discussed can be utilized. Moreover, there are many specialized service firms ready to assist marketers in solving their target group definition, reaching, and persuasion problems. But intense competition and a high cost level make promotional activities, especially personal selling, very expensive.

All the difficulties involved in planning promotion for OECD exports can be overcome if the marketer has sufficient resources. The scarcity of resources makes the planning problem an ordinary optimization task.

The market descriptions given cover very summarily the differences in circumstances faced by OECD vs Soviet exporters. To find out how these circumstances affect promotional planning and activities, we derived the following operational research questions:

1. What is the perceived importance of the main promotional parameters (personal selling, advertising sales promotion, and PR) in OECD vs Soviet exports in relation to the basic marketing parameters (product, price, and distribution solutions)?

2. How important are the promotional activities (sales calls, customer visits, exhibitions, PR activities, technical service and training) in OECD vs Soviet exports?

3. How effective are promotional activities in OECD vs Soviet exports? 4. What are the planning and execution problems faced in OECD vs

Soviet export promotion’?

The Data

The basic target population of the study comprised all Finnish firms exporting directly both to the USSR and some OECD country during 1976. A random sample of 100 firms out of a total 248 was drawn. The number of acceptable final interviews was 76. This shrinkage was due mainly to some firms’ negligible exports either to OECD countries or the USSR and to denials. The number of participant firms (76) is 3 1 percent

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Table 2: Size (Turnover) Classification of the Sample

Turnover Number of Firms Percent of Sample

Over 500 mFIM p.a.” 50-500 mFIM p.a.

Under 50 mFIM p.a.

Total

12 16 33 43

31 41 - 16 100

a 500 million finnish marks (FIM) per annum approximates 135 million dollars.

of the basic population, and the sample is well balanced according to main industries and firm sizes as described in Tables 1 and 2.

The data were collected with structured personal interviews. Well- trained interviewers, graduates, and other students of marketing and a thoroughly pretested questionnaire were used [ 171. The educational background of interviewers made it possible to supplement the structured questions with oral checkups and to probe for such ex- planations and opinions that could not be fully covered by the questionnaire. Compared with the mailing approach, the data are very reliable.

Analyses and Results

The relative significance of export promotion in general in OECD vs Soviet exports was measured by comparing its perceived importance with that of product, price, and distribution. Five-point scales were utilized. As the results in Figure 2 indicate, promotion was fairly significant in both cases, and in OECD exports it ranked second after the product itself. The differences in its importance, as well as in that of product and distribution, were statistically significant (r-tests for the differences between mean ratings were used).

Concerning promotion, managers’ opinions imply that they do not consider competition in the soviet market as keen as in OECD countries. However, industry-specific results revealed that the chemical firms and “others” (a diverse group of rather small producers of light industrial goods and/or consumer durables) considered promotion far more significant than on average. As these firms are newcomers to Soviet exports, the results indicate that in the entry situation and in these particular fields special weight should be given to promotion policy.

Expprting to the Soviet Union and OECD Countries 207

Less Significant Highly Significant

1 2 3 4 5

Product, quality **

Price, payment terms

Distribution ***

Promotion (selling, advertising, SP, PR)***

FIGURE 2. Importance of the Principal Marketing Parameters for OECD vs Soviet Ex- ports. (Key: -, USSR exports; -----, OECD exports; N = 76, *** = significant dif- ference at 1% risk level; ** = 5% risk level; * = 10% risk level.)

To specify the general picture the significance of actual promotional activities was measured in relation to the other marketing variables. Figure 3 gives the importance profiles for OECD vs Soviet exports.

Three promotional results are outstanding. First, sales calls, including product demonstrations, are considered more significant in OECD exports. They even exceed the significance of credit terms, product design, and technical service. Second, trade exhibitions and symposiums together with customer visits have a prominent role in Soviet exports. With company reputation, product, and price they are the most important marketing activities. Third, advertising is clearly regarded as an unimportant means of persuasion in exporting to the Soviet market.

Perceived differences in promotional activities indicate that the best way of introducing a firm and its products to Soviet buyers, various officials in branch ministries, and final users is participation in trade exhibitions, and even arrangement of one’s own symposiums. Con- sidering the argumentation, the questions related to price and discounts are of great significance, whereas credit and payment terms are not regarded as important. This is noteworthy because credit and payment terms are usually very important when selling to the COMECON area. A possible explanation could be the rather small size of a typical order form Finland. Moreover, the Soviets seem to be paying surprisingly little attention to technical service, maintenance, and training questions. The importance of developing personal relationships with relevant Soviet officials cannot be overestimated, especially with FTO personnel, as they usually consider only exporters with whom they are familiar [ 121.

208

Reputation*

Product quality

Product design, package***

Technical service and training**

Price and discounts**

Credit and payment terms***

Delivery ***

Distribution solution ***

Sales calls***

Advertising***

Trade exhibitions, symposiums***

Customers' plant visits

PR-activities, gifts ***

Kristian Mtiller

Less significant Highly significant

1 2 3 4 ,

FIGURE 3. Importance of the Marketing Activities for OECD vs Soviet Exports. (Key: See Fig. 2.)

The interviews also confirmed the belief that Soviet officials prefer older negotiators with senior status in the exporting company.

The general importance results were broken down by conducting industrywise crosstabulations per promotional activity. The “activity profiles” were fairly similar across the industries both for Soviet and OECD exports but differed between the blocks [ 171. The principal differences emerged in the same activities, naturally, as in the general results: greater importance of exhibitions in Soviet trade vs sales calls and advertising in OECD exports. Also the role of PR activities is somewhat enhanced for Soviet exports. These are still average tendencies; the situation in a single firm can diverge considerably from the industry’s general practice.


Technical service and training

Sales calls

Advertising***

Trade exhibitions and symoosiums**

Customer visits *

PR-activities, gifts

FIGURE 4. Use of Promotional Activities for OECD vs Soviet Exports. (Key: See Fig. 2.)

The utilization of promotional activities in OCED vs Soviet exports was expected to correlate with the pattern of their perceived significance: Figure 4 gives the percentages of firms using each activity.

The expectations were confirmed in the case of advertising and trade exhibitions: the former is used by significantly more companies for OECD exports and the latter for Soviet exports. On the other hand, the relative frequency of customer visits was the opposite of what was expected. Based on the perceived importance given to customer visits for Soviet exports, this activity could be even enhanced. The number of firms making sales calls and product presentations in the two markets was practically the same, although much more importance was at- tributed to this activity in the case of OECD exports (see Figure 3).

Promotional activity usage results were broken down by industry. The outcomes converged closely with the general results [ 171. On the other hand, when companies were classified according to their proportion of exports to OECD members vs the USSR, it was found that for OECD exports the use of advertising and participation in trade exhibitions rose noticeably when the proportion of a company’s OECD exports exceeded


a rather high threshold level (around 70 percent). Companies with small proportion of Soviet trade (around 10 percent) both used advertising and participated in trade exhibitions-when exporting to the USSR-more frequently than the exporters on average. This “paradox” can be due to the fact that the high cost level of the OECD market makes managers think that a certain threshold export volume should be achieved before investing in advertising and trade exhibitions, whereas the new Soviet marketers want to establish their company profile within the many different groups of Soviet officials which would be very difficult with direct personal activities only; that is, the seemingly paradoxical findings are due to different market environments. The effect of environment was intensified when the problems faced in export promotion were considered.

Promotional difficulties were studied in two ways. First, with structured questions concentrating on the basic planning issues defined in the theoretical section and on the time requirements of cat-ring out the activities. Second, with open questions probing for the more covered issues related to the use of each activity.

As indicated by the results in Figure 5, identifying customers, obtaining information on their needs and requirements, contacting them,

very easy very difficult

1 2 3 4 I -

Identifying customers *** ,

\ Information on customer requirements *** i

i

/' Contacting customers *** i

:\.~

\ \ \

\ Information on competitors' offers *** >

I / /

Defining effective sales ,' arguments

FIGURE 5. Difficulties in Promotional Planning for OECD vs Soviet Exports. (Key: See Fig. 2.)


and securing more information on competitors’ offers is considered significantly more difficult when exporting to the Soviet Union. Each of these key issues is related to the acquisition of relevant information.

When the general results were broken down by industry, interesting differences emerged within Soviet exports (see Table 3). Food, textiles and leather, and “other” industries were experiencing considerably fewer difficulties in planning Soviet export promotion than wood and paper, chemical, and metal and machine industries. This observation can be clarified by the fact that it is more difficult to obtain detailed information on complicated industrial products than on consumer goods. The Soviet “customer structure” in industrial products is much more complex and stratified than in the consumer goods sector, where the basic and often the only contact is the FIO. Whereas industrial marketers should try to communicate with end users, branch ministries, and various experts in addition to FIO officials, which makes their task evidently more problematic.

A specific factor affecting planning is time. Figure 6 gives the average time estimates for both planning and executing the basic promotional activities for OECD vs Soviet exports.

As expected, the activities in the Soviet market definitely demand more time. Average differences are significant: for sales calls and product demonstrations, 6.7 weeks; participation in trade exhibitions, 7.8 weeks; arranging customer visits, 7.6 weeks; and advertising campaigns, 3.8 weeks. The time span should be carefully taken into account when planning different activities. Even when known, however, the greater requirements of Soviet exports tend both to increase costs and to make marketing efforts more inflexible.

Of the 76 interviewees, 24 specified problems related to technical service and education in Soviet exports compared with a mere 4 in corresponding OECD practices. In the former the principal theme was the difficulty of determining the correct personnel and contacting them frequently enough within a reasonable period of time. Other remarks concerned language problems and differences in technology. The ‘ ‘western problems’ ’ were inadequate use of this activity owing to the extent of the market area and the scarcity of resources.

Sales calls and product demonstrations received 28 vs 5 problem specifications for Soviet vs OECD marketing. The former concentrated again on the difficulties in finding the right persons and contacting them. Problems in reaching end users were underlined. OECD reactions dealt again with costs and inadequate resources.

The remarks concerning trade exhibition participation in OECD VS Soviet markets show the familiar pattern of 25 vs 4. The main Soviet

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FIGURE 6. Average Time Spans for Planning and Executing Promotional Activities for OECD vs Soviet Exports. (Key: See Fig. 2.)

problems were high costs and complex administration plus language difficulties. In the OECD market, costs were again emphasized.

The same pattern emerged also in answers concerning customers’ plant and other visits: 20 for Soviet and 2 for OECD exports. The primary difficulties were finding the right persons to visit and technical problems in arranging enough visits. The two Western comments were reactions to their own passivity.

Conclusions

The relative importance attached to promotional activities varied clearly between OECD and Soviet exports. Differences concerning sales calls and products demonstrations, advertising, trade exhibitions, and PR activities were especially significant; the first two were more salient for OECD exports and the rest for Soviet exports. The actual use of promotional activities converged with the estimated importance in the case of advertising, trade exhibitions, and customer visits. When considering difficulties faced in basic promotional management questions (e.g., identifying customers, finding information on customer needs and requirements, contacting customers, obtaining information on competitors’ offers, defining effective sales arguments), managers considered the Soviet market significantly more enigmatic than the OECD. Carrying out promotional activities was considered to take definitely more time for Soviet exports.

214 Kristian Mbller

The causes of both the different promotional importance structures and the difficulties that must be faced lie in the characteristics of the Soviet trading environment. Two principal features are the difficulty of acquiring necessary planning information and the problems in trying to define and contact the most appropriate customers or officials. The conservatism of the Soviets should be emphasized here. They prefer lengthy negotiations, personal and authoritative contacts, and a sincere interest in Soviet trade. On the other hand, many a manager exaggerates the difficulties. These should be offset somewhat by some positive arguments about the Soviet market:

there are only a few clearly defined buying organizations, competition is not yet so keen as in OECD markets, although this claim has not been proved, after the entry period, marketing costs can be relatively low, after successful penetration, the volume of exports often remains relatively stable for a few years.

To enter the Soviet market successfully an exporting company should acquire sound knowledge of trading institutions and the nature of Soviet communication and negotiation patterns, then profoundly adapt its activities to the new environment. The necessary information can be obtained by the firm itself through cumbersome data collection, by using a consultant, or by hiring personnel with competent experience in this field. This area seems to call for more detailed academic research. A noteworthy possibility would be to carry out intensive longitudinal clinical studies in companies trying to enter the Soviet market. This would give us more information about the behavioral process of building trade relations with Soviet officials and more detailed knowledge about the factors contributing to either succes or failure.

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Documents

Comparison of promotional management in exporting to the Soviet Union and OECD countries